On February 19, 2016, the IRS and Treasury Department issued proposed regulations regarding (i) prohibitions on certain contributions to Type I and Type III supporting organizations and (ii) requirements for Type III supporting organizations. These proposed regulations reflect changes to the law made by the Pension Protection Act of 2006, which changed the requirements an organization must satisfy to qualify as a Type III supporting organization.
Pension Protection Act
IRS Issues Interim Guidance for Type III Supporting Organizations
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.
IRS Issues Final and Temporary Regulations on Supporting Organizations
Many practitioners have been anxious to leaf through regulations to confidently determine whether an organization is a “functionally integrated” or “non-functionally integrated” Type III supporting organization, and the implications of either classification.
On December 28, 2012, the Internal Revenue Service released the long-awaited final regulations for Type III supporting organizations, as well as temporary regulations addressing annual distribution requirements. The text of the temporary regulations also serves as the text of the proposed regulations. The final regulations describe all of the other requirements (outside of the annual distribution requirement explained below) of a Type III supporting organization’s relationship with its supported organization.
Treasury Releases Long-Overdue Report on Supporting Organizations and Donor Advised Funds
Along with making significant changes to the rules for supporting organizations (“SOs”) and donor advised funds (“DAFs”) in the Pension Protection Act of 2006 (the “PPA”), Congress directed that Treasury conduct a study on the organization and operation of SOs and DAFs. Congress gave Treasury one year after the enactment of the PPA to submit a report on the study. On December 5th, more than four years past the prescribed deadline, Treasury finally released its long-awaited report to Congress.
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IRS Releases its Priority Guidance Plan for 2009-2010
On November 24, 2009, the IRS issued its Priority Guidance Plan for 2009-2010. The Plan contains 315 projects to be completed over a twelve-month period, from July, 2009 through June, 2010.
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