Supporting Organization (509)(a)(3) Policy and Requirements
On August 17, 2006, President Bush signed into law the Pension Protection Act of 2006. Although the new law is directed primarily at reforms to the nation’s pension system, several amendments to the statutes governing charitable contributions and charitable organizations were included at the end of the legislation. Pursuant to these amendments, a private foundation, such as The Clowes Fund is restricted from making grants to a certain subclass of charitable organizations described in Internal Revenue Code sections 501(c)(3) and 509(a)(3) (known as supporting organizations).
The Pension Act amended two provisions that govern private foundations. These provisions effectively prohibit grants by private foundations to:
- one subclass of supporting organizations (called Type III supporting organizations)
- any other supporting organizations (called Type I and Type II supporting organizations) that are controlled directly or indirectly by the foundation’s officers, directors, or other disqualified persons.
Type I and Type II supporting organizations are characterized by a significant degree of overlap in their governance structures with the public charities that they support (for example, by having a majority of the supporting organization’s directors appointed by supported schools, governmental entities, or other institutions that are treated as free-standing public charities). Type III supporting organizations are connected more loosely with their supported public charities (sometimes with no board overlap), and thus may not have the same close supervision by their charities as Type I or Type II supporting organizations.
In issuing exemption letters to supporting organizations, the Internal Revenue Service historically has not included the subclass determination (Type I, II, or III) in its letters to organizations exempt from federal income taxes under Code sections 501(c)(3) and 509(a)(3). However, the IRS recently issued temporary guidance in this area.
Based on this IRS guidance and the provisions of the Pension Act, The Clowes Fund will collect information to verify that its grants to qualified supporting organizations remain appropriate under the new law.
Accordingly, if you are a supporting organization, The Clowes Fund will ask you to send:
- Your organization's most recent IRS determination letter, and any updates or changes to that letter
- Your organization's current Articles of Incorporation and Bylaws (or other governing documents)
- A completed Supporting Organization Information Request Form