Effective December 28, 2012, the IRS published final regulations on the qualification requirements for “Type III” supporting organizations (SOs), and issued temporary regulations that establish a payout requirement for “non-functionally integrated” Type III SOs. The new regulations are relevant not only for SOs and their supported charities, but also for private foundations and donor-advised funds that make grants to Type III SOs.
SOs are public charities, as opposed to private foundations, because they are organized and operated exclusively to support one or more other public charities. Type III SOs are subject to less control by their supported charities than the Type I and II varieties, and, after the enactment of the Pension Protection Act of 2006, became subject to particularly strict regulation (for a summary of proposed regulations on Type III SOs released in 2009, see our prior Alert). The Pension Protection Act created two categories of Type III SOs: functionally integrated and non-functionally integrated. Functionally integrated SOs generally perform a specific function or carry on a particular activity for their supported charities (e.g., serving as a coordinating parent entity for a health care system) while non-functionally integrated SOs tend to focus on grant-making activities.
This alert highlights several key aspects of these detailed and complex regulations.
Please see full alert below for more information.
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