The IRS recently issued Notice 2014-4 (the “Notice”), which provides interim guidance for Type III supporting organizations seeking to qualify as functionally integrated by supporting governmental organizations. In December 2012, the IRS issued final and temporary regulations that, among other things, set forth the requirements for an organization to qualify as a functionally integrated Type III supporting organization. However, these regulations reserved Section 1.509(a)-4(i)(4)(iv) to provide additional guidance on the requirements for qualifying as a functionally integrated by supporting a governmental supported organization.
A supporting organization, described in Section 509(a)(3) of the Code, is an organization that supports one or more public charities (the “supported organizations”). A Type III supporting organization is “operated in connection with” one or more supported organizations. Under the Pension Protection Act of 2006, a Type III supporting organization that is “non-functionally integrated” must pay a certain amount to its supported organization, while a Type III “functionally integrated” supporting organization does not have any payout requirement.