Council on Foundations Vice President and General Counsel Janne Gallagher provided an update on supporting organizations after the Pension Protection Act of 2006 (the "PPA").
As a result of the PPA, private foundations and sponsoring organizations of donor-advised funds must determine: (1) whether a charity to which they are making a grant is a "supporting organization" described by Section 509(a)(3) of the Internal Revenue Code; and (2) if it is a supporting organization, whether it is a Type I, Type II, Type III that is functionally integrated, or Type III that is not functionally integrated. Grantmakers may determine whether a charity is a supporting organization either by: (1) examining the charity’s IRS determination letter, or (2) by reviewing the IRS Business Master File ("BMF"). Notice 2006-109. It is permissible to use a third party (e.g., Guidestar) to access information from the BMF if the third party information meets certain requirements. These determinations are necessary for grantmakers to comply with the following requirements under the PPA:
Private foundations must exercise expenditure responsibility for grants to: (1) a Type III supporting organization that is not functionally integrated; and (2) any type of supporting organization for which a disqualified person with respect to the private foundation (e.g., director, officer) controls the supporting organization or its supported organization. Moreover, such grants are not counted toward the minimum distribution requirement of a private nonoperating foundation.
Sponsoring organizations of donor-advised funds must exercise expenditure responsibility for grants to: (1) a Type III supporting organization that is not functionally integrated; and (2) any type of supporting organization for which a donor advisor (including related parties) of a donor-advised fund controls an organization that the supporting organization supports.
Determination of Supporting Organization Status, Council on Foundations (4/10/07)