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Proposed Regulations Relating to Type I and Type III Supporting Organizations

The IRS and the Department of the Treasury have released proposed regulations that address rules relating to Type I and Type III “supporting organizations” under the Internal Revenue Code (the “Code”) and applicable Treasury Regulations (the “Regulations”).  The proposed regulations, which add to the already extensive (and somewhat convoluted) regulations issued by the Department of the Treasury since enactment of the Pension Protection Act of 2006, address certain requirements applicable to Type III supporting organizations and provide clarity around the definition of “control” under Code Section 509(f)(2).

Definition of Control

Code Section 509(f)(2) prohibits Type I and Type III organizations from accepting gifts or contributions from certain persons, including those who, either alone or together with family members or entities that they control, directly or indirectly “control” the governing body of its supported organization.

Under the proposed regulations, the governing body of a supported organization is considered controlled by a person if that person, alone or by aggregating his or her votes or positions of authority with certain related persons, may require the governing body of the supported organization to perform, or prevent it from performing, any act that “significantly affects” the operations of the supported organization.  This definition clarifies prior uncertainty around whose contributions a Type I or Type III organization could accept (and is consistent with the definition of “control” for purposes of the disqualified person control test in Section 1.509(a)-4(j) of the Regulations, which is applicable to all Types of supporting organizations).

Type III Requirements

In addition, the proposed regulations address certain requirements relating to Type III organizations (for example, notification and responsiveness requirements, the integral part test for functionally integrated Type III organizations, and the distribution requirements applicable to non-functionally integrated Type III organizations).

Request for Comments

The IRS and the Department of the Treasury request comments from the public on all aspects of the proposed regulations.

Effective Date

The proposed regulations will be effective on the date the Treasury decision adopting them as either final or temporary regulations is published in the Federal Register, but in the meantime taxpayers may rely on the proposed regulations.

The full text of the proposed regulations is available here.

Stay tuned for updates and developments.