Are Your Charitable Trusts Supporting Organizations? Should They Be? A Trust Officer's Road Map to Type III Supporting Organizations


What has changed? Why should bank trust departments be concerned?

It has been more than three years since the Pension Protection Act of 2006 ("PPA") changed the requirements for Type III supporting organization ("Type III SO") status—the primary means by which tax-exempt charitable trusts qualify as public charities. As of August 17, 2007, charitable trusts that failed to satisfy the new requirements for Type III SO status automatically became private foundations. The Internal Revenue Service (the "Service") recently issued proposed regulations clarifying the requirements for Type III SOs, which should be adopted shortly. The Service has also recently issued procedures for charitable trusts seeking classification as Type III SOs under the new rules.

These tax law developments are taking place at a time that many bank trust officers and wealth managers find themselves undertaking responsibility for large numbers of charitable trusts formerly administered by another institutional fiduciary as a result of the recent flurry of bank mergers and consolidations. Trust officers may therefore be uncertain as to whether many of the charitable trusts they administer do or can qualify as supporting organizations under the new rules, or whether they should comply with the private foundation rules.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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