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(f) Technical data (see § 120.10) and
defense services (see § 120.9) directly
related to the defense articles
enumerated in paragraphs (a) through
(e) of this category and classified
technical data directly related to items
controlled in ECCNs 7A611, 7B611, and
7D611. (See § 125.4 for exemptions.)
(MT for technical data and defense
services related to articles designated as
such.) Technical data directly related to
manufacture or production of any
defense articles enumerated elsewhere
in this category that are designated as
Significant Military Equipment (SME)
shall itself be designated as SME.
(g)–(w) [Reserved]
(x) Commodities, software, and
technology subject to the EAR (see
§ 120.42 of this subchapter) used in or
with defense articles controlled in this
category.
Note to paragraph (x): Use of this
paragraph is limited to license applications
for defense articles controlled in this category
where the purchase documentation includes
commodities, software, or technology subject
to the EAR (see § 123.1(b) of this subchapter).
Note to Category XII: For purposes of
determining whether an item (i.e., system,
end item, part, component, accessory,
attachment, or software) is specially designed
for a military end user, a ‘‘military end user’’
means the national armed services (army,
navy, marine, air force, or coast guard),
national guard, national police, government
intelligence or reconnaissance organizations,
or any person or entity whose actions or
functions are intended to support military
end uses. A system or end item is not
specially designed for a military end user if
the item was developed with knowledge that
it is or would be for use by both military end
users and non-military end users, or if the
item was or is being developed with no
knowledge for use by a particular end user.
In such instances, documents
contemporaneous with the development
must establish such knowledge.

*

*

*

*

*

Rose E. Gottemoeller,
Under Secretary, Arms Control and
International Security, Department of State.

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[FR Doc. 2016–03197 Filed 2–18–16; 8:45 am]
BILLING CODE 4710–25–P

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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–118867–10]
RIN 1545–BJ53

Requirements for Type I and Type III
Supporting Organizations
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:

This document contains
proposed regulations regarding the
prohibition on certain contributions to
Type I and Type III supporting
organizations and the requirements for
Type III supporting organizations. The
regulations reflect changes to the law
made by the Pension Protection Act of
2006. The regulations will affect Type I
and Type III supporting organizations
and their supported organizations.
DATES: Written or electronic comments
and requests for a public hearing must
be received by May 19, 2016.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–118867–10), Room
5203, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand-delivered Monday through
Friday between the hours of 8:00 a.m.
and 4 p.m. to CC:PA:LPD:PR (REG–
118867–10), Courier’s Desk, Internal
Revenue Service, 1111 Constitution
Avenue NW., Washington, DC, 20224 or
sent electronically via the Federal
eRulemaking Portal at http://
www.regulations.gov/ (IRS REG–
118867–10).
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
Jonathan Carter at (202) 317–5800 or
Mike Repass at (202) 317–4086;
concerning submissions of comments
and requests for a public hearing,
Regina Johnson at (202) 317–6901 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
SUMMARY:

Paperwork Reduction Act
The collection of information
contained in this notice of proposed
rulemaking has been submitted to the
Office of Management and Budget for
review and approval in accordance with
the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)). Comments on the
collection of information should be sent
to the Office of Management and
Budget, Attn: Desk Officer for the
Department of the Treasury, Office of
Information and Regulatory Affairs,
Washington, DC 20503, with copies to

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the Internal Revenue Service, Attn: IRS
Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the collection of
information should be received by April
19, 2016.
Comments are specifically requested
concerning:
• Whether the proposed collection of
information is necessary for the proper
performance of the functions of the IRS,
including whether the information will
have practical utility;
• The accuracy of the estimated
burden associated with the proposed
collection of information;
• How the quality, utility, and clarity
of the information to be collected may
be enhanced;
• How the burden of complying with
the proposed collection of information
may be minimized, including through
forms of information technology; and
• Estimates of capital or start-up costs
and costs of operation, maintenance,
and purchase of services to provide
information.
The collection of information in these
proposed regulations is in § 1.509(a)–
4(i)(4)(iv)(D) (written record of close
cooperation and coordination by the
governmental supported organizations)
and § 1.509(a)–4(i)(6)(iii)(B) (written
record of contributions received by the
supported organization). Requiring the
supporting organization to collect
written records of its governmental
supported organizations’ close
cooperation and coordination with each
other and written records of the
contributions its supported
organizations directly received in
response to solicitations by the
supporting organization permits the IRS
to determine whether the supporting
organization satisfies the requirements
to be a functionally integrated or nonfunctionally integrated Type III
supporting organization. The record
keepers are Type III supporting
organizations.
Estimated number of recordkeepers:
7,872.
Estimated average annual burden
hours per recordkeeper: 2 hours.
Estimated total annual recordkeeping
burden: 15,744.
Estimated frequency of collection of
such information: Annual.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
Books or records relating to a
collection of information must be
retained as long as their contents may
become material in the administration

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of any internal revenue law. Generally,
tax returns and return information are
confidential, as required by 26 U.S.C.
6103.

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Background
1. Overview
This document contains proposed
amendments to the Income Tax
Regulations (26 CFR part 1) regarding
organizations described in section
509(a)(3) of the Internal Revenue Code
(Code). An organization described in
section 501(c)(3) is classified as either a
private foundation or a public charity.
To be classified as a public charity, an
organization must be described in
section 509(a)(1), (2), or (3).
Organizations described in section
509(a)(3) are known as ‘‘supporting
organizations.’’ Supporting
organizations achieve their public
charity status by providing support to
one or more organizations described in
section 509(a)(1) or (2), which in this
context are referred to as ‘‘supported
organizations.’’
To be described in section 509(a)(3),
an organization must satisfy (1) an
organizational test, (2) an operational
test, (3) a relationship test, and (4) a
disqualified person control test. The
organizational and operational tests
require that a supporting organization
be organized and at all times thereafter
operated exclusively for the benefit of,
to perform the functions of, or to carry
out the purposes of one or more
supported organizations. The
relationship test requires a supporting
organization to establish one of three
types of relationships with one or more
supported organizations. A supporting
organization that is operated, supervised
or controlled by one or more supported
organizations is known as a ‘‘Type I’’
supporting organization. The
relationship of a Type I supporting
organization with its supported
organization(s) is comparable to that of
a corporate parent-subsidiary
relationship. A supporting organization
that is supervised or controlled in
connection with one or more supported
organizations is known as a ‘‘Type II’’
supporting organization. The
relationship of a Type II supporting
organization with its supported
organization(s) involves common
supervision or control by the persons
supervising or controlling both the
supporting organization and the
supported organization(s). A supporting
organization that is operated in
connection with one or more supported
organizations is known as a ‘‘Type III’’
supporting organization and is
discussed further in the remainder of

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this preamble. Finally, the disqualified
person control test requires that a
supporting organization not be
controlled directly or indirectly by
certain disqualified persons.
These proposed regulations focus
primarily on the relationship test for
Type III supporting organizations.
Specifically, the proposed regulations
reflect statutory changes enacted by
sections 1241 through 1243 of the
Pension Protection Act of 2006, Public
Law 109–280 (120 Stat. 780) (2006)
(PPA)), which made the following five
changes to the requirements an
organization must satisfy to qualify as a
Type III supporting organization:
(1) Removed the ability of a charitable
trust to rely on the special rule under
§ 1.509(a)–4(i)(2)(iii) of the regulations
then in effect;
(2) Directed the Secretary of the
Treasury to promulgate regulations
under section 509 that establish a new
distribution requirement for Type III
supporting organizations that are not
‘‘functionally integrated’’ (a nonfunctionally integrated (NFI) Type III
supporting organization) to ensure that
a ‘‘significant amount’’ is paid to
supported organizations (for this
purpose the term ‘‘functionally
integrated’’ means a Type III supporting
organization that is not required under
Treasury regulations to make payments
to supported organizations, because the
supporting organization engages in
activities that relate to performing the
functions of, or carrying out the
purposes of, its supported
organization(s));
(3) Required a Type III supporting
organization to provide annually to each
of its supported organizations the
information required by the Treasury
Department and the IRS to ensure that
the supporting organization is
responsive to the needs or demands of
its supported organization(s);
(4) Prohibited a Type III supporting
organization from supporting any
supported organization not organized in
the United States; and
(5) Prohibited a Type I or Type III
supporting organization from accepting
a gift or contribution from a person who,
alone or together with certain related
persons, directly or indirectly controls
the governing body of a supported
organization of the Type I or Type III
supporting organization.
These proposed regulations set forth
additional rules on the requirements for
Type III supporting organizations,
including additional requirements to
meet the responsiveness test for all Type
III supporting organizations; additional
rules regarding the qualification of an
organization as a functionally integrated

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Type III supporting organization under
§ 1.509(a)–4(i)(4), including provisions
for supporting organizations that
support governmental entities; and
additional rules regarding the required
annual distributions under § 1.509(a)–
4(i)(5) by a NFI Type III supporting
organization. The proposed regulations
also define the term ‘‘control’’ for
purposes of section 509(f)(2), which
prohibits a Type I supporting
organization or a Type III supporting
organization from accepting
contributions from persons who control
the governing body of its supported
organization(s).
2. Prior Rulemaking
On August 2, 2007, the Treasury
Department and the IRS published in
the Federal Register (72 FR 42335) an
advanced notice of proposed
rulemaking (ANPRM) (REG–155929–06)
in response to the PPA. The ANPRM
described proposed rules to implement
the changes made by the PPA to the
Type III supporting organization
requirements and solicited comments
regarding those proposed rules.
On September 24, 2009, the Treasury
Department and the IRS published in
the Federal Register (74 FR 48672) a
notice of proposed rulemaking (the 2009
NPRM) (REG–155929–06). The 2009
NPRM contained proposed regulations
(the 2009 proposed regulations) setting
forth the requirements to qualify as a
Type III supporting organization under
the PPA.
On December 28, 2012, the Treasury
Department and the IRS published in
the Federal Register (77 FR 76382) a
Treasury decision (TD 9605) containing
final and temporary regulations (the
2012 TD) regarding the requirements to
qualify as a Type III supporting
organization. Based on the comments
received, the 2012 TD made certain
changes to the rules proposed in the
2009 NPRM, included in the temporary
regulations significant changes to the
distribution requirement, and reserved
certain topics for further consideration.
Also on December 28, 2012, the
Treasury Department and the IRS
published in the Federal Register (77
FR 76426) a notice of proposed
rulemaking (the 2012 NPRM) (REG–
155929–06) that incorporated the text of
the temporary regulations in the 2012
TD by cross-reference. The 2012 TD
provided transition relief for Type III
supporting organizations in existence on
December 28, 2012, that met and
continued to meet the test under former
§ 1.509(a)–4(i)(3)(ii), as in effect prior to
December 28, 2012, treating them as
functionally integrated until the first
day of their second taxable years

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beginning after December 28, 2012. The
preamble to the 2012 TD also identified
issues for possible future rulemaking
and requested comments. The IRS
received three comments on these
issues. The comments were considered
in developing these proposed
regulations and are available for public
inspection at www.regulations.gov or
upon request. No public hearing was
requested.
The Treasury Department and the IRS
published Notice 2014–4, 2014–2 I.R.B.
274, to provide additional transition
relief for any Type III supporting
organization that (1) supports at least
one governmental supported
organization to which the supporting
organization is responsive within the
meaning of § 1.509(a)–4(i)(3) and (2)
engages in activities for or on behalf of
the governmental supported
organization that perform the functions
of, or carry out the purposes of, the
governmental supported organization
and that, but for the involvement of the
supporting organization, would
normally be engaged in by the
governmental supported organization
itself. Notice 2014–4 provides that such
an organization will be treated as a
functionally integrated Type III
supporting organization until the earlier
of the date final regulations are
published under § 1.509(a)–4(i)(4)(iv) in
the Federal Register or the first day of
the organization’s third taxable year
beginning after December 31, 2013.
On December 23, 2015, the Treasury
Department and the IRS published in
the Federal Register (80 FR 79684) a
Treasury Decision (TD 9746) containing
final regulations (the 2015 TD) regarding
the distribution requirement for NFI
Type III supporting organizations. The
preamble of those regulations provided
that supporting organizations
supporting a governmental supported
organization could continue to rely on
Notice 2014–4 until the date of
publication of the notice of proposed
rulemaking prescribing the new
proposed regulations under § 1.509(a)–
(i)(4)(iv). The IRS received three
comments in response to Notice 2014–
4, which the Treasury Department and
the IRS considered in developing these
proposed regulations.
Explanation of Provisions and
Summary of Comments
This section describes the proposed
provisions and addresses comments that
the Treasury Department and the IRS
received in response to the 2012 TD and
Notice 2014–4.

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1. Gifts From Controlling Donor—
Meaning of Control
Type I and Type III supporting
organizations are prohibited from
accepting a gift or contribution from a
person who, alone or together with
certain related persons, directly or
indirectly controls the governing body
of a supported organization of the Type
I or Type III supporting organization, or
from persons related to a person
possessing such control. Section
509(f)(2) and § 1.509(a)–4(f)(5). For this
purpose, related persons include family
members and 35-percent controlled
entities within the meaning of section
4958(f). Although the 2012 TD reserved
§ 1.509(a)–4(f)(5)(ii), ‘‘Meaning of
control,’’ the preamble to the 2012 TD
indicated that the Treasury Department
and the IRS intended to issue proposed
regulations that would provide such a
definition.
These proposed regulations define
‘‘control’’ for this purpose consistently
with § 1.509(a)–4(j), which relates to
control by disqualified persons for
purposes of the disqualified person
control test. In general, 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, as
described in section 509(f)(2)(B)(ii) and
(iii), may require the governing body of
the supported organization to perform
any act that significantly affects its
operations or may prevent the governing
body of the supported organization from
performing any such act.
2. Type III Supporting Organization
Relationship Test
Section 1.509(a)–4(i)(1) provides that
for each taxable year, a Type III
supporting organization must satisfy (i)
a notification requirement, (ii) a
responsiveness test, and (iii) an integral
part test provided in the regulations.
These proposed regulations provide
additional rules regarding each of these
requirements.
A. Notification Requirement
Section 509(f)(1)(A) provides that an
organization shall not be considered a
Type III supporting organization unless
the organization provides to each
supported organization, for each taxable
year, such information as the Secretary
may require to ensure that the
organization is responsive to the needs
or demands of the supported
organizations.
To satisfy this notification
requirement, § 1.509(a)–4(i)(2) requires a

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Type III supporting organization to
provide to each of its supported
organizations for each taxable year: (1)
A written notice addressed to a
principal officer of the supported
organization describing the type and
amount of all of the support it provided
to the supported organization during the
supporting organization’s preceding
taxable year; (2) a copy of the
supporting organization’s most recently
filed Form 990, ‘‘Return of Organization
Exempt from Income Tax,’’ or other
annual information return required to be
filed under section 6033; and (3) a copy
of the supporting organization’s
governing documents, including any
amendments (unless previously
provided and not subsequently
amended). For NFI Type III supporting
organizations, the description of support
in the written notice includes all of the
distributions described in § 1.509(a)–
4(i)(6) to the supported organization.
The proposed regulations amend
§ 1.509(a)–4(i)(2) to clarify that a
supporting organization must deliver
the required documents to each of its
supported organizations by the last day
of the fifth month of the taxable year
after the taxable year in which the
supporting organization provided the
support it is reporting. This proposed
change is intended to reduce confusion,
but does not substantively change the
due date or the content of the required
notification. Date of delivery is
determined applying the general
principles of section 7502.
B. Responsiveness Test
Section 1.509(a)–4(i)(3)(i) provides
that a supporting organization meets the
responsiveness test if it is ‘‘responsive
to the needs or demands of a supported
organization.’’ To meet this
responsiveness test, an organization
must satisfy: (1) A relationship test
described in § 1.509(a)–4(i)(3)(ii) under
which the officers, directors, or trustees
of the organization have a specified
relationship with the officers, directors,
or trustees (and in some cases the
members) of the supported organization;
and (2) a significant voice test described
in § 1.509(a)–4(i)(3)(iii) under which the
officers, directors, or trustees of the
supported organization, by reason of
this relationship, have a significant
voice in the investment policies of the
supporting organization, the timing of
grants, the manner of making grants,
and the selection of grant recipients by
the supporting organization, and in
otherwise directing the use of the
income or assets of the supporting
organization. The preamble to the 2012
TD stated that, in determining the
appropriate distribution amount for NFI

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Type III supporting organizations, the
Treasury Department and the IRS
considered the required relationship
between a supporting organization and
its supported organizations, and that the
Treasury Department and the IRS
intended to issue proposed regulations
in the future that would amend the
responsiveness test by requiring a Type
III supporting organization to be
responsive to all of its supported
organizations.
In response to this proposal in the
preamble to the 2012 TD, one
commenter stated that a supporting
organization should not be required to
be responsive to all of its supported
organizations because the resulting
administrative burden would effectively
limit the total number of organizations
a supporting organization could
support. The commenter suggested
alternatives under which a supporting
organization would be responsive to
only a subset of its supported
organizations that would vary from year
to year.
The Treasury Department and the IRS
note that the distinguishing
characteristic of Type III supporting
organizations, and the basis for their
public charity classification, is that they
are responsive to and significantly
involved in the operations of their
publicly supported organizations. See
§ 1.509(a)–4(f)(4). The Treasury
Department and the IRS believe that,
unless a Type III supporting
organization is responsive to each of its
supported organizations, the supported
organizations cannot exercise the
requisite level of oversight of and
engagement with the supporting
organization. Limiting the
responsiveness requirement to fewer
than all of the supported organizations
may result in the necessary oversight
and accountability being present for less
than all of a supporting organization’s
operations. Therefore, the proposed
regulations revise § 1.509(a)–4(i)(3)(i) to
require a supporting organization to be
responsive to the needs and demands of
each of its supported organizations in
order to meet the responsiveness test.
To illustrate how concerns about
potential administrative burdens may be
addressed consistent with the
responsiveness test, the proposed
regulations include a new example. The
proposed example is intended to
demonstrate one way in which a Type
III supporting organization that supports
multiple organizations may satisfy the
responsiveness test in a manner that can
be cost-effective. The example shows
that a supporting organization can, with
respect to each of its supported
organizations, meet a different subset of

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the required relationships with the
supporting organization’s officers,
directors, or trustees listed in § 1.509(a)–
4(i)(3)(ii). It also shows how a
supporting organization can organize
and hold regular meetings, provide
information, and encourage
communication to help ensure that the
supported organizations have a
significant voice in the operations of the
supporting organization.
Another commenter requested
additional guidance regarding the
ability of trusts to satisfy the significant
voice requirement of the responsiveness
test. The new Example 3 provides
further illustration of how Type III
supporting organizations, including
charitable trusts, might satisfy the
significant voice requirement of the
responsiveness test. The Treasury
Department and the IRS note that
although the examples in the
regulations relating to the
responsiveness test may involve a Type
III supporting organization that is
organized as either a corporation or a
trust, the applicable law and relevant
regulatory provisions, as modified by
the proposed regulations, are applicable
to all Type III supporting organizations
in the same manner, whether organized
as a corporation or a trust. The Treasury
Department and the IRS anticipate that
Type III supporting organizations may
be able to demonstrate they satisfy the
responsiveness test in a variety of ways,
and that the determination will be based
on all the facts and circumstances.
As a result of the proposed changes to
the responsiveness test, the proposed
regulations also include conforming
changes to examples and other
regulatory provisions.
C. Integral Part Test—Functionally
Integrated Type III Supporting
Organizations
Section 1.509(a)–4(i)(1) provides that,
for each taxable year, a Type III
supporting organization must satisfy the
integral part test. The integral part test
is satisfied under § 1.509(a)–4(i)(1)(iii)
by maintaining significant involvement
in the operations of one or more
supported organizations and providing
support on which the supported
organizations are dependent. To satisfy
this test, a Type III supporting
organization must meet the
requirements either for a functionally
integrated Type III supporting
organization or for an NFI Type III
supporting organization, as set forth in
§ 1.509(a)–4(i)(4) or (5), respectively.
A Type III organization is functionally
integrated under § 1.509(a)–4(i)(4) if (1)
it engages in activities substantially all
of which directly further the exempt

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purposes of one or more supported
organizations and otherwise meets the
requirements described in paragraph
(i)(4)(ii) of that section, (2) it is the
parent of each of its supported
organizations as described in paragraph
(i)(4)(iii) of that section, or (3) it
supports a governmental supported
organization and otherwise meets the
requirements of paragraph (i)(4)(iv) of
that section. The direct furtherance test
is not addressed by these regulations.
i. Parent of Each Supported
Organization
Under the current regulations, a
supporting organization is the parent of
a supported organization if the
supporting organization exercises a
substantial degree of direction over the
policies, programs, and activities of the
supported organization and a majority
of the officers, directors, or trustees of
the supported organization is appointed
or elected, directly or indirectly, by the
governing body, members of the
governing body, or officers (acting in
their official capacities) of the
supporting organization. See § 1.509(a)–
4(i)(4)(iii). This definition was adopted
by the 2012 TD; however, the preamble
to the 2012 TD stated that the Treasury
Department and the IRS had determined
that the definition of parent was
insufficiently specific. It further stated
that the Treasury Department and the
IRS intended to issue proposed
regulations that would provide a new
definition of parent.
As noted in the preamble to the 2009
NPRM, the classification of a parent
organization as functionally integrated
was intended to ‘‘apply to supporting
organizations that oversee or facilitate
the operation of an integrated system,
such as hospital systems.’’ To more fully
accomplish this purpose, the proposed
regulations amend § 1.509(a)–4(i)(4)(iii)
to clarify that in order for a supporting
organization to qualify as the parent of
each of its supported organizations, the
supporting organization and its
supported organizations must be part of
an integrated system (such as a hospital
system), and the supporting
organization must engage in activities
typical of the parent of an integrated
system. Examples of these activities
include (but are not limited to)
coordinating the activities of the
supported organizations and engaging in
overall planning, policy development,
budgeting, and resource allocation for
the supported organizations. The
Treasury Department and the IRS
request comments on what activities are
typical of the parent of an integrated
system, and whether additional

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activities should be explicitly listed as
examples.
The proposed regulations retain the
requirement that the governing body,
members of the governing body, or
officers of the supporting organization
must appoint or elect a majority of the
officers, directors, or trustees of the
supported organization. The Treasury
Department and the IRS intend, as
stated in the 2009 NPRM, the use of the
phrase ‘‘appointed or elected, directly or
indirectly’’ to mean the supporting
organization could qualify as a parent of
a second-tier (or lower) subsidiary.
Thus, for example, if the directors of
supporting organization A appoint a
majority of the directors of supported
organization B, which in turn appoints
a majority of the directors of supported
organization C, the directors of
supporting organization A will be
treated as appointing the majority of the
directors of both supported organization
B and supported organization C.
The preamble to the 2012 TD stated
that the Treasury Department and the
IRS intended that the new definition of
parent would specifically address the
power to remove and replace officers,
directors, or trustees of the supported
organization. The Treasury Department
and the IRS interpret the existing
requirement under § 1.509(a)–4(i)(4)(iii)
that the parent organization have the
power to appoint or elect a majority of
the officers, directors, or trustees of each
supported organization to include the
requirement that the parent organization
also have the power to remove and
replace such officers, directors, or
trustees, or otherwise have an ongoing
power to appoint or elect with
reasonable frequency. The Treasury
Department and the IRS request
comments on whether § 1.509(a)–
4(i)(4)(iii) should be amended to
provide further clarification on this
issue.
ii. Supporting a Governmental
Supported Organization
The 2009 NPRM proposed an
exception to the general rules for
qualifying as a functionally integrated
Type III supporting organization if the
supporting organization supported only
one governmental entity, which was
defined as an entity the assets of which
are subject to the appropriations process
of a federal, state, local, or Indian tribal
government. The 2009 NPRM also
provided that in order to be considered
functionally integrated, a substantial
part of the supporting organization’s
total activities had to directly further the
exempt purpose(s) of its supported
organization, and that exempt purposes
are not directly furthered by

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fundraising, grantmaking, or investing
and managing non-exempt-use assets.
The Treasury Department and IRS
received multiple comments regarding
this proposal. The 2012 TD stated the
Treasury Department and the IRS were
continuing to consider the public
comments on the 2009 NPRM regarding
this governmental entity exception and
reserved § 1.509(a)–4(i)(4)(iv) for future
guidance on how a Type III supporting
organization can qualify as functionally
integrated by supporting a governmental
entity.
These proposed regulations take the
prior comments into consideration and
provide rules to qualify as functionally
integrated both for new and existing
Type III supporting organizations that
support governmental supported
organizations. These proposed rules also
define the term ‘‘governmental
supported organization.’’
One commenter stated that the
definition of a governmental supported
organization in the 2009 NPRM was too
complicated and difficult to understand
and administer. This commenter
proposed using the existing definition of
a governmental unit in section
170(b)(1)(A)(v) and (c)(1).
The Treasury Department and the IRS
agree with the commenter that for
simplicity and administrability the term
‘‘governmental supported organization’’
should be defined by using an existing
Code definition of a governmental unit.
The proposed regulations define a
governmental supported organization as
a governmental unit described in
section 170(c)(1), or an organization
described in section 170(c)(2) and
(b)(1)(A) (other than in clauses (vii) and
(viii)) that is an instrumentality of one
or more governmental units described in
section 170(c)(1). The Treasury
Department and the IRS further note
that a governmental unit described in
section 170(c)(1) includes all of the
agencies, departments, and divisions of
the governmental unit, and all such
agencies, departments, and divisions
will be treated as one governmental
supported organization for purposes of
§ 1.509(a)–4(i)(4)(iv). The Treasury
Department and the IRS specifically
request comments on the proposed
definition of governmental supported
organization.
Two commenters said that the 2009
NPRM’s limit of only one governmental
supported organization was too strict
and instead recommended allowing a
supporting organization to qualify for
this exception if it supports at least one
governmental supported organization,
as Notice 2014–4 provides. One
commenter noted that the 2009 NPRM’s
limit of only one governmental

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supported organization would adversely
affect existing supporting organizations
that support an additional supported
organization that is not itself a
governmental entity, but that has a
substantial operational connection with
the governmental supported
organization. Another commenter said
that the test in Notice 2014–4 was not
sufficient because it did not cover
activities, such as fundraising and grant
making, that the governmental
supported organization could not
otherwise perform.
In response to these comments, the
Treasury Department and the IRS
propose a new test for Type III
supporting organizations that support
only governmental supported
organizations to qualify as functionally
integrated. The Treasury Department
and the IRS agree it would be
appropriate to treat a Type III
supporting organization that supports
two or more governmental supported
organizations as functionally integrated,
provided that the governmental
supported organizations are themselves
connected geographically or
operationally, which will help ensure
that the supported organizations
provide sufficient input to and oversight
of the supporting organization. Thus,
the proposed regulations provide that a
supporting organization that supports
more than one governmental supported
organization may be considered
functionally integrated if all of its
governmental supported organizations
either: (1) Operate within the same
geographic region (defined as a city,
county, or metropolitan area); or (2)
work in close coordination or
collaboration with one another to
conduct a service, program, or activity
that the supporting organization
supports. To satisfy the close
cooperation or coordination
requirement, the proposed regulations
require a supporting organization to
maintain on file a letter from each of the
governmental supported organizations
(or a joint letter from all of them)
describing their collaborative or
cooperative efforts with respect to the
particular service, program, or activity.
In addition, the proposed regulations
incorporate the 2009 NPRM proposed
requirement that a substantial part of
the supporting organization’s total
activities must directly further the
exempt purposes of its governmental
supported organization(s). The Treasury
Department and the IRS believe that
using a substantial part requirement,
instead of the substantially all
requirement in § 1.509(a)–4(i)(4)(iv)(A),
is appropriate when supporting

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organizations support only
governmental supported organizations
operating in the same geographic region
or working in close collaboration
because the input from and oversight by
the governmental supported
organizations minimize the potential for
abuse.
Two commenters stated that activities
such as fundraising, grant-making, and
managing non-exempt-use assets should
be considered activities that directly
further the exempt purposes of a
governmental supported organization.
The Treasury Department and the IRS
note that the integral part test’s
definition of ‘‘directly further’’ in
§ 1.509(a)–4(i)(4)(ii)(C) generally
excludes fundraising, making grants,
and investing and managing nonexempt-use assets. The Treasury
Department and the IRS excluded these
items because they determined that a
Type III supporting organization should
qualify as functionally integrated only if
the supporting organization itself
conducts activities that perform the
functions of or carry out the purposes of
the supported organization (as
distinguished from providing financial
support for the activities carried out by
the supported organization). The
Treasury Department and the IRS do not
believe a different definition of ‘‘directly
further’’ should apply to supporting
organizations that support governmental
supported organizations. Accordingly,
the proposed regulations do not adopt
this comment. However, under the
proposed rules, these types of
organizations would be considered
functionally integrated if a substantial
part, but not substantially all, of their
total activities directly further the
exempt purposes of their governmental
supported organization(s). Accordingly,
these proposed regulations allow these
organizations to conduct more
fundraising and other financial
activities, if certain requirements are
met, than is permitted under the
substantially all test of § 1.509(a)–
4(i)(4)(ii).
In response to comments, the
proposed regulations also provide a
special rule for existing Type III
supporting organizations, provided that
they support no more than one
additional supported organization that
is not a governmental supported
organization. A Type III supporting
organization in existence on or before
February 19, 2016 is treated as
functionally integrated if: (1) It supports
one or more governmental supported
organizations and no more than one
supported organization that is not a
governmental supported organization;
(2) it designated each of its supported

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organizations as provided in § 1.509(a)–
4(d)(4) on or before February 19, 2016;
and (3) a substantial part of its total
activities directly furthers the exempt
purposes of its governmental supported
organization(s).
The proposed regulations also further
extend the transition relief provided in
Notice 2014–4 and extended by the
2015 TD. Under the proposed
regulations, a Type III supporting
organization in existence on or before
February 19, 2016 that continues to
meet the requirements of Notice 2014–
4 is treated as functionally integrated
until the earlier of the first day of the
organization’s first taxable year
beginning after the date final regulations
under § 1.509(a)–4(i)(4)(iv) are
published or the first day of the
organization’s second taxable year
beginning after February 19, 2016.
D. Integral Part Test—Non-Functionally
Integrated Type III Supporting
Organizations
Section 1.509(a)–4(i)(5) generally
provides that an NFI Type III supporting
organization meets the integral part test
if it satisfies the distribution
requirement of paragraph (i)(5)(ii) of
that section and the attentiveness
requirement of paragraph (i)(5)(iii) of
that section. Section 1.509(a)–4(i)(5)(ii)
provides that, with respect to each
taxable year, a supporting organization
must distribute to or for the use of one
or more supported organizations an
amount equaling or exceeding its
‘‘distributable amount’’. Section
1.509(a)–4(i)(6) provides the amount of
a distribution made to a supported
organization is the amount of cash or
the fair market value of the property
distributed.
For clarity and consistency, the
proposed regulations revise § 1.509(a)–
4(i)(5)(ii) to state that a supporting
organization must make distributions as
described in § 1.509(a)–4(i)(6) to satisfy
the distribution requirement, and revise
section 1.509(a)–4(i)(6) to describe in
detail what distributions count towards
the distribution requirement.
i. Reduction of Distributable Amount for
Taxes Subtitle A Imposes
Section 1.509(a)–4(i)(5)(ii)(B) provides
that the distributable amount is equal to
the greater of 85 percent of an
organization’s adjusted net income for
the immediately preceding taxable year
(as determined by applying the
principles of section 4942(f) and
§ 53.4942(a)–2(d)) or its minimum asset
amount for the immediately preceding
taxable year, reduced by the amount of
taxes imposed on the supporting
organization under subtitle A of the

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8451

Code during the immediately preceding
taxable year. See § 1.509(a)–4(i)(5)(ii)(B).
The Treasury Department and the IRS
believe that, because the taxes under
subtitle A of the Code are imposed on
a supporting organization’s unrelated
business taxable income (pursuant to
section 511) and the activity that
produces the unrelated business taxable
income does not further the supported
organization’s exempt purposes, these
taxes should not be treated as an
amount distributed to a supported
organization. Therefore, the proposed
regulations remove the provision in
§ 1.509(a)–4(i)(5)(ii)(B) that reduces the
distributable amount by the amount of
taxes subtitle A of the Code imposed on
a supporting organization during the
immediately preceding taxable year.
ii. Distributions That Count Toward
Distribution Requirement
As noted above, § 1.509(a)–4(i)(6)
provides details on the distributions by
a supporting organization that count
toward satisfying the distribution
requirement imposed in § 1.509(a)–
4(i)(5)(ii). The current regulations
provide that distributions include but
are not limited to: (1) Any amount paid
to a supported organization to
accomplish the supported organization’s
exempt purposes; (2) any amount paid
by the supporting organization to
perform an activity that directly furthers
the exempt purposes of the supported
organization within the meaning of
§ 1.509(a)–4(i)(4)(ii), but only to the
extent such amount exceeds any income
derived by the supporting organization
from the activity; (3) any reasonable and
necessary administrative expenses paid
to accomplish the exempt purposes of
the supported organization(s), which do
not include expenses incurred in the
production of investment income; (4)
any amount paid to acquire an exemptuse asset described in § 1.509(a)–
4(i)(8)(ii); and (5) any amount set aside
for a specific project that accomplishes
the exempt purposes of a supported
organization to which the supporting
organization is responsive.
The preamble to the 2012 TD stated
that the list in § 1.509(a)–4(i)(6) is not
exhaustive and other distributions may
count toward the distribution
requirement. The preamble further
stated the Treasury Department and the
IRS intended to propose regulations that
more fully describe the expenditures
(including expenditures for
administrative and additional charitable
activities) that do and do not count
toward the distribution requirement.
The Treasury Department and the IRS
believe that the non-exclusive list in the
current regulations creates uncertainty

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for supporting organizations and the IRS
about what counts toward the
distribution requirement. Therefore, the
proposed regulations revise and clarify
the list in § 1.509(a)–4(i)(6) of what
counts toward the distribution
requirement and make it an exclusive
list.
The 2012 TD clarified that reasonable
and necessary administrative expenses
paid to accomplish the exempt purposes
of supported organizations, and not
expenses incurred in the production of
investment income, count toward the
distribution requirement. For example,
if a supporting organization conducts
exempt activities that are for the benefit
of, perform the functions of, or carry out
the purposes of its supported
organization(s) and also conducts
nonexempt activities (such as
investment activities or unrelated
business activities), then the supporting
organization’s administrative expenses
(such as salaries, rent, utilities and other
overhead expenses) must be allocated
between the exempt and nonexempt
activities on a reasonable and
consistently-applied basis. The
administrative expenses attributable to
the exempt activities are treated as
distributions to its supported
organization(s) if such expenses are
reasonable and necessary. The
administrative expenses and operating
costs attributable to the nonexempt
activities are not treated as distributions
to the supported organization(s). The
proposed regulations retain this
provision, but also provide additional
guidance on fundraising expenses.
The 2012 TD did not specifically
address whether fundraising expenses
count toward the distribution
requirement. The proposed regulations
specify that reasonable and necessary
administrative expenses paid to
accomplish the exempt purposes of a
supported organization generally do not
include fundraising expenses the
supporting organization incurs.
However, under the proposed
regulations, reasonable and necessary
expenses incurred by the supporting
organization to solicit contributions that
a supported organization receives
directly from donors count toward the
distribution requirement, but only to the
extent that the amount of such expenses
does not exceed the amount of
contributions actually received by the
supported organization as a result of the
solicitation activities of the supporting
organization. The Treasury Department
and the IRS believe this rule would
provide greater consistency with the
treatment of contributions that
supporting organizations receive
directly and then distribute to their

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supported organizations (net of the
supporting organizations’ solicitation
expenses). To ensure that a supporting
organization has the information it
needs to calculate the allowable
expenses, the proposed regulations
require the supporting organization to
obtain written substantiation from the
supported organization of the amount of
contributions the supported
organization actually received as a
result of the supporting organization’s
solicitations.
One commenter requested that
program related investments (PRIs)
count toward the distribution
requirement. The preamble to the 2012
TD stated the 2012 final and temporary
regulations did not specifically address
whether or not PRIs may count toward
the distribution requirement or are
excluded in calculating a supporting
organization’s distributable amount for a
taxable year. The Treasury Department
and the IRS recognize that private
foundations may use PRIs in a variety of
ways to accomplish their exempt
purposes and that PRIs thus are treated
as qualifying distributions under section
4942. However, because supporting
organizations must be operated
exclusively for the benefit of, to perform
the functions of, or to carry out the
purposes of their supported
organizations, they differ from private
foundations. For purposes of meeting
the integral part test, the Treasury
Department and the IRS do not believe
that PRIs should be treated as
distributions to supported
organizations. The Treasury Department
and the IRS believe that other
provisions relating to the distribution
requirement, such as the availability of
set asides and the potential for carryforwards of excess distributions,
provide significant flexibility for
supporting organizations to meet the
current and future needs of their
supported organizations. For these
reasons, the proposed regulations do not
adopt this comment.
Effective Date and Reliance
These regulations are proposed to be
effective on the date the Treasury
decision adopting these rules as final or
temporary regulations is published in
the Federal Register. However,
taxpayers may rely on the provisions of
the proposed regulations until final or
temporary regulations are issued.
Statement of Availability of IRS
Documents
The IRS Notice 2014–4 cited in this
preamble is published in the Internal
Revenue Bulletin and is available from
the Superintendent of Documents, U.S.

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Government Printing Office,
Washington, DC 20402, or by visiting
the IRS Web site at http://www.irs.gov.
Special Analyses
Certain IRS regulations, including this
one, are exempt from the requirements
of Executive Order 12866, as
supplemented and reaffirmed by
Executive Order 13563. Therefore, a
regulatory impact assessment is not
required. It has also been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations.
In connection with the requirements
of the Regulatory Flexibility Act (5
U.S.C. chapter 6), it is hereby certified
that the collection of information
contained in the proposed regulations
will not have a significant economic
impact on a substantial number of small
entities. This certification is based on
the fact that the proposed regulations
will not impact a substantial number of
small entities.
Based on IRS Statistics of Income data
for 2013, there are 1,052,495 active
nonprofit charitable organizations
recognized by the IRS under section
501(c)(3), of which only 7,872
organizations self-identified as Type III
supporting organizations. The universe
of organizations that would be affected
by the collection of information under
proposed § 1.509(a)–4(i)(4)(iii) and
§ 1.509(a)–4(i)(6)(iii) is a subset of all
Type III supporting organizations. Thus,
the number of organizations that would
be affected by the collection of
information under proposed § 1.509(a)–
4(i)(4)(iii) and (i)(6)(iii), which is
expected to be significantly less than
7,872, would not be substantial.
Moreover, the time to complete the
recordkeeping requirements is expected
to be no more than 2 hours for each
organization, which would not have a
significant economic impact. Therefore,
the collection of information under
proposed § 1.509(a)–4(i)(4)(iii) and
(i)(6)(iii) would not have a significant
economic impact.
Pursuant to section 7805(f) of the
Code, this regulation has been
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on its
impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
electronic comments or written
comments (a signed original and eight
(8) copies) that are submitted timely to
the IRS. The Treasury Department and

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the IRS request comments on all aspects
of the proposed rules. All comments
that are submitted by the public will be
available for public inspection and
copying at www.regulations.gov or upon
request. A public hearing may be
scheduled if requested in writing by any
person that timely submits written
comments. If a public hearing is
scheduled, notice of the date, time, and
place for the public hearing will be
published in the Federal Register.
Drafting Information
The principal authors of these
regulations are Jonathan Carter and
Mike Repass, Office of Associate Chief
Counsel (Tax-Exempt and Government
Entities). However, other personnel
from the Treasury Department and the
IRS participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.509(a)–4 is amended
by:
■ 1. Revising paragraphs (f)(5)(ii),
(i)(2)(i) introductory text, (i)(2)(i)(A),
(i)(2)(iii), and (i)(3)(i);
■ 2. Adding Example 3 to paragraph
(i)(3)(iv);
■ 3. Revising paragraphs (i)(4)(ii)(A)(1),
(i)(4)(ii)(B), (i)(4)(iii) and (iv),
(i)(5)(ii)(A) and (B), (i)(5)(iii)(A),
Example 4 of paragraph (i)(5)(iii)(D), the
third sentence of paragraph (i)(6)
introductory text, and paragraphs
(i)(6)(iii) and (v) introductory text and
(l).
The revisions and additions read as
follows:
■

§ 1.509(a)–4

Supporting organizations.

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*

*
*
*
*
(f) * * *
(5) * * *
(ii) Meaning of control. For purposes
of paragraph (f)(5)(i) of this section, the
governing body of a supported
organization will be considered
controlled by a person described in
paragraph (f)(5)(i)(A) of this section if
that person, alone or by aggregating the
person’s votes or positions of authority
with persons described in paragraph
(f)(5)(i)(B) or (C) of this section, may

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require the governing body of the
supported organization to perform any
act that significantly affects its
operations or may prevent the governing
body of the supported organization from
performing any such act. The governing
body of a supported organization will
generally be considered to be controlled
directly or indirectly by one or more
persons described in paragraph
(f)(5)(i)(A), (B), or (C) of this section if
the voting power of such persons is 50
percent or more of the total voting
power of such governing body or if one
or more of such persons have the right
to exercise veto power over the actions
of the governing body of the supported
organization. However, all pertinent
facts and circumstances will be taken
into consideration in determining
whether one or more persons do in fact
directly or indirectly control the
governing body of a supported
organization.
*
*
*
*
*
(i) * * *
(2) * * * (i) Annual notification. For
each taxable year (the Reporting Year),
a Type III supporting organization must
provide the following documents to
each of its supported organizations:
(A) A written notice addressed to a
principal officer of the supported
organization describing the type and
amount of all of the support (including
all of the distributions described in
paragraph (i)(6) of this section if
applicable) the supporting organization
provided to the supported organization
during the supporting organization’s
taxable year immediately preceding the
Reporting Year (and during any other
taxable year of the supporting
organization ending after December 28,
2012, for which such support
information has not previously been
provided);
*
*
*
*
*
(iii) Due date. The notification
documents required by this paragraph
(i)(2) shall be delivered or electronically
transmitted by the last day of the fifth
calendar month of the Reporting Year.
*
*
*
*
*
(3) * * * (i) General rule. A
supporting organization meets the
responsiveness test only if it is
responsive to the needs or demands of
each of its supported organizations.
Except as provided in paragraph (i)(3)(v)
of this section, in order to meet this test,
a supporting organization must satisfy
the requirements of paragraphs (i)(3)(ii)
and (iii) of this section with respect to
each of its supported organizations.
*
*
*
*
*
(iv) * * *

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Example 3. Z is described in section
501(c)(3). Z’s organizational documents
provide that it supports ten different
organizations, each of which is described in
section 509(a)(1). One of the directors of S
(one of the supported organizations) is a
voting member of Z’s board of directors and
participates in Z’s regular board meetings.
Officers of Z hold regular face-to-face or
telephonic meetings during the year to which
officers of all the supported organizations are
invited. Z’s meetings with the supported
organizations may be held jointly or
separately. Prior to the meetings, Z makes
available to the supported organizations
(including by email) up-to-date information
about its activities including its assets and
liabilities, receipts and distributions, and
investment policies and returns. In the
meetings, officers of each of the supported
organizations have an opportunity to ask
questions and discuss with officers of Z the
projected needs of their organizations, as
well as Z’s investment and grant making
policies and practices. In addition to holding
these meetings with the supported
organizations, Z provides the contact
information of one of its officers to each of
the supported organizations and encourages
them to contact that officer if they have
questions, or if they wish to schedule
additional meetings to discuss the projected
needs of their organization and how Z should
distribute its income and invest its assets. Z
provides the information required under
paragraph (i)(2) of this section and a copy of
its annual audited financial statements to the
principal officers of the supported
organizations. Z meets the relationship test of
paragraph (i)(3)(ii)(B) or (C) of this section
with respect to each of its supported
organizations. Based on these facts, Z also
satisfies the significant voice requirement of
paragraph (i)(3)(iii) of this section, and
therefore meets the responsiveness test of
this paragraph (i)(3) with respect to each of
its ten supported organizations.

*

*
*
*
*
(4) * * *
(ii) * * *
(A) * * *
(1) Directly further the exempt
purposes of one or more supported
organizations by performing the
functions of, or carrying out the
purposes of, such supported
organization(s); and
*
*
*
*
*
(B) Meaning of substantially all. For
purposes of paragraph (i)(4)(ii)(A) of this
section, in determining whether
substantially all of a supporting
organization’s activities directly further
the exempt purposes of one or more
supported organization(s), all pertinent
facts and circumstances will be taken
into consideration.
*
*
*
*
*
(iii) Parent of supported
organization(s). For purposes of
paragraph (i)(4)(i)(B) of this section, in
order for a supporting organization to
qualify as the parent of each of its

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supported organizations, the supporting
organization and its supported
organizations must be part of an
integrated system (such as a hospital
system), the supporting organization
must engage in activities typical of the
parent of an integrated system, and a
majority of the officers, directors, or
trustees of each supported organization
must be appointed or elected, directly or
indirectly, by the governing body,
members of the governing body, or
officers (acting in their official
capacities) of the supporting
organization. For purposes of this
paragraph (i)(4)(iii), examples of
activities typical of the parent of an
integrated system of supported
organizations include (but are not
limited to) coordinating the activities of
the supported organizations and
engaging in overall planning, policy
development, budgeting, and resource
allocation for the supported
organizations.
(iv) Supporting a governmental
supported organization—(A) In general.
A supporting organization satisfies the
requirements of this paragraph (i)(4)(iv)
if—
(1) The supporting organization
supports only governmental supported
organizations, and, if the supporting
organization supports more than one
governmental supported organization,
all of the governmental supported
organizations either—
(i) Operate within the same
geographic region; or
(ii) Work in close coordination or
collaboration with one another to
conduct a service, program, or activity
that the supporting organization
supports; and
(2) A substantial part of the
supporting organization’s total activities
are activities that directly further, as
defined by paragraph (i)(4)(ii)(C) of this
section, the exempt purposes of its
governmental supported organization(s).
(B) Governmental supported
organization defined. For purposes of
paragraph (i)(4)(iv)(A) of this section,
the term governmental supported
organization means a supported
organization that is—
(1) A governmental unit described in
section 170(c)(1); or
(2) An organization described in
section 170(c)(2) and (b)(1)(A) (other
than in clauses (vii) and (viii)) that is an
instrumentality of one or more
governmental units described in section
170(c)(1).
(C) Geographic region defined. For
purposes of paragraph (i)(4)(iv)(A)(1) of
this section, the term geographic region
means a city, county, or metropolitan
area.

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(D) Close cooperation or coordination.
To satisfy the close cooperation or
coordination requirement of paragraph
(i)(4)(iv)(A)(1) of this section, the
supporting organization shall maintain
on file a letter from each of the
governmental supported organizations
(or a joint letter from all of them)
describing their collaborative or
cooperative efforts with respect to the
particular service, program, or activity.
(E) Exception for organizations
supporting a governmental supported
organization on or before February 19,
2016. A Type III supporting
organization in existence on or before
February 19, 2016 will be treated as
meeting the requirements of this
paragraph (i)(4)(iv) if it met and
continues to meet the following
requirements—
(1) It supports one or more
governmental supported organizations
described in paragraph (i)(4)(iv)(B) of
this section and does not support more
than one supported organization that is
not a governmental supported
organization;
(2) Each of the supported
organizations is designated by the
supporting organization as provided in
paragraph (d)(4) of this section on or
before February 19, 2016; and
(3) A substantial part of the
supporting organization’s total activities
are activities that directly further, as
defined by paragraph (i)(4)(ii)(C) of this
section, the exempt purposes of its
governmental supported organization(s).
(F) Transition rule for supporting
organizations in existence on or before
February 19, 2016. Until the earlier of
the first day of the organization’s first
taxable year beginning after the date
final regulations are published in the
Federal Register under this paragraph
(i)(4)(iv) or the first day of the
organization’s second taxable year
beginning after February 19, 2016, a
Type III supporting organization in
existence on or before February 19, 2016
will be treated as meeting the
requirements of this paragraph (i)(4)(iv)
if it met and continues to meet the
following requirements—
(1) It supports at least one supported
organization that is a governmental
entity to which the supporting
organization is responsive within the
meaning of paragraph (i)(3) of this
section; and
(2) It engages in activities for or on
behalf of the governmental supported
organization described in paragraph
(i)(4)(iv)(F)(1) of this section that
perform the functions of, or carry out
the purposes of, that governmental
supported organization and that, but for
the involvement of the supporting

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organization, would normally be
engaged in by the governmental
supported organization itself.
*
*
*
*
*
(5) * * *
(ii) * * * (A) Annual distribution.
With respect to each taxable year, a
supporting organization must make
distributions described in paragraph
(i)(6) of this section in a total amount
equaling or exceeding the supporting
organization’s distributable amount for
the taxable year, as defined in paragraph
(i)(5)(ii)(B) of this section, on or before
the last day of the taxable year.
(B) Distributable amount. Except as
provided in paragraphs (i)(5)(ii)(D) and
(E) of this section, the distributable
amount for a taxable year is an amount
equal to the greater of 85 percent of the
supporting organization’s adjusted net
income (as determined by applying the
principles of section 4942(f) and
§ 53.4942(a)–2(d) of this chapter) for the
taxable year immediately preceding the
taxable year of the required distribution
(immediately preceding taxable year) or
its minimum asset amount (as defined
in paragraph (i)(5)(ii)(C) of this section)
for the immediately preceding taxable
year.
*
*
*
*
*
(iii) * * * (A) General rule. With
respect to each taxable year, a nonfunctionally integrated Type III
supporting organization must distribute
one-third or more of its distributable
amount to one or more supported
organizations that are attentive to the
operations of the supporting
organization (within the meaning of
paragraph (i)(5)(iii)(B) of this section).
*
*
*
*
*
(D) * * *
Example 4. O is an organization
described in section 501(c)(3). O is
organized to support five private
universities, V, W, X, Y, and Z, each of
which is described in section 509(a)(1).
O meets the responsiveness test
described in paragraph (i)(3) of this
section with respect to each of its
supported organizations. Each year, O
distributes an aggregate amount that
equals its distributable amount
described in paragraph (i)(5)(ii)(B) of
this section and distributes an equal
amount to each of the five universities.
O distributes annually to each of V and
W an amount that equals more than 10
percent of each university’s total annual
support received in its most recently
completed taxable year. Based on these
facts, O meets the requirements of
paragraph (i)(5)(iii) of this section
because it distributes two-fifths (more
than the required one-third) of its

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asabaliauskas on DSK5VPTVN1PROD with PROPOSALS

Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Proposed Rules
distributable amount to supported
organizations that are attentive to O.
(6) Distributions that count toward
distribution requirement. * * *
Distributions by the supporting
organization that count toward the
distribution requirement imposed in
paragraph (i)(5)(ii) of this section are
limited to the following—
*
*
*
*
*
(iii) Any reasonable and necessary—
(A) Administrative expenses paid to
accomplish the exempt purposes of the
supported organization, which do not
include expenses incurred in the
production of investment income or the
conduct of fundraising activities, except
as provided in paragraph (i)(6)(iii)(B) of
this section; and
(B) Expenses incurred to solicit
contributions that are received directly
by a supported organization, but only to
the extent the amount of such expenses
does not exceed the amount of
contributions actually received by the
supported organization as a result of the
solicitation, as substantiated in writing
by the supported organization;
*
*
*
*
*
(v) Any amount set aside for a specific
project that accomplishes the exempt
purposes of a supported organization,
with such set-aside counting toward the
distribution requirement for the taxable
year in which the amount is set aside
but not in the year in which it is
actually paid, if at the time of the setaside, the supporting organization—
*
*
*
*
*
(l) Effective/applicability dates. (1)
Paragraphs (a)(6), (f)(5), and (i) of this
section are effective on December 28,
2012, except—
(i) Paragraphs (i)(4)(ii)(C), (i)(5)(ii)(C)
and (D), (i)(6)(iv), (i)(7)(ii), and (i)(8) of
this section are applicable on December
21, 2015; and
(ii) Paragraphs (f)(5)(ii), (i)(2)(i) and
(iii), (i)(3)(i), (i)(4)(ii)(A)(1), (i)(4)(ii)(B),
(i)(4)(iii) and (iv), (i)(5)(ii)(A) and (B),
(i)(5)(iii)(A), (i)(6)(i), (iii) and (v) of this
section, Example 3 of paragraph
(i)(3)(iv) of this section, and Example 4
of paragraph (i)(5)(iii)(D) of this section
are effective on the date the Treasury
decision adopting these rules as final or
temporary regulations is published in
the Federal Register.
(2) See paragraphs (i)(5)(ii)(B) and (C)
and (i)(8) of § 1.509(a)–4T contained in
26 CFR part 1, revised as of April 1,
2015, for certain rules regarding nonfunctionally integrated Type III
supporting organizations effective
before December 21, 2015. See
paragraphs (i)(5)(ii)(A) and (B) and
(i)(5)(iii)(D) of § 1.509(a)–4 (as effective
December 21, 2015), for certain rules

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regarding non-functionally integrated
Type III supporting organizations
effective before the date the Treasury
decision adopting these rules as final or
temporary regulations is published in
the Federal Register.
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2016–02858 Filed 2–18–16; 8:45 am]
BILLING CODE 4830–01–P

ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
[EPA–R02–OAR–2016–0060, FRL–9942–52–
Region 2]

Approval of Air Quality Implementation
Plans; Puerto Rico; Infrastructure
Requirements for the 1997 and 2008
Ozone, 1997 and 2006 Fine Particulate
Matter and 2008 Lead NAAQS
Environmental Protection
Agency (EPA).
ACTION: Proposed rule.
AGENCY:

The Environmental Protection
Agency (EPA) is proposing to approve
most elements of the five State
Implementation Plan (SIP) revision
submittals from the Commonwealth of
Puerto Rico to demonstrate that the
State meets the requirements of section
110(a)(1) and (2) of the Clean Air Act
(CAA) for the 1997 and 2008 ozone,
1997 and 2006 fine particulate matter
(PM2.5) and 2008 lead National Ambient
Air Quality Standards (NAAQS). The
plan is required to address basic
program elements, including, but not
limited to, regulatory structure,
monitoring, modeling, legal authority,
and adequate resources necessary to
assure attainment and maintenance of
the standards. These elements are
referred to as infrastructure
requirements. In this rulemaking action,
EPA is proposing to approve, in
accordance with the requirements of the
CAA, the infrastructure SIP submissions
with the exception of some portions of
the submittals addressing Prevention of
Significant Deterioration (PSD).
DATES: Written comments must be
received on or before March 21, 2016.
ADDRESSES: Submit your comments,
identified by Docket ID Number EPA–
R02–OAR–2016–0060 at http://
www.regulations.gov. Follow the online
instructions for submitting comments.
Once submitted, comments cannot be
edited or removed from Regulations.gov.
The EPA may publish any comment
received to its public docket. Do not
SUMMARY:

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8455

submit electronically any information
you consider to be Confidential
Business Information (CBI) or other
information whose disclosure is
restricted by statute. Multimedia
submissions (audio, video, etc.) must be
accompanied by a written comment.
The written comment is considered the
official comment and should include
discussion of all points you wish to
make. The EPA will generally not
consider comments or comment
contents located outside of the primary
submission (i.e., on the web, cloud, or
other file sharing system). For
additional submission methods, the full
EPA public comment policy,
information about CBI or multimedia
submissions, and general guidance on
making effective comments, please visit
http://www2.epa.gov/dockets/
commenting-epa-dockets.
FOR FURTHER INFORMATION CONTACT:
Raymond K. Forde, Air Programs
Branch, Environmental Protection
Agency, 290 Broadway, 25th Floor, New
York, New York 10007–1866, (212) 637–
3716, or by email at forde.raymond@
epa.gov.
SUPPLEMENTARY INFORMATION:
The SUPPLEMENTARY INFORMATION
section is arranged as follows:
Table of Contents
I. Background
II. Summary of State Submittals
III. EPA’s Approach To Review Infrastructure
SIPs
IV. Summary of EPA’s Rationale for
Proposing Approval and Disapproval
V. Proposed Action
VI. Incorporation by Reference
VII. Statutory and Executive Order Reviews

I. Background
On July 18, 1997, the Environmental
Protection Agency (EPA) promulgated a
revised national ambient air quality
standard (NAAQS or standards) for
ozone (62 FR 38856) and a new NAAQS
for fine particle matter (PM2.5) (62 FR
38652). The revised ozone NAAQS was
based on 8-hour average concentrations.
The 8-hour averaging period replaced
the previous 1-hour averaging period,
and the level of the NAAQS was
changed from 0.12 parts per million
(ppm) to 0.08 ppm. The new PM2.5
NAAQS established a health-based
annual standard of 15.0 micrograms per
cubic meter (mg/m3) based on a 3-year
average of annual mean PM2.5
concentrations, and a 24-hour standard
of 65 mg/m3 based on a 3-year average
of the 98th percentile of 24-hour
concentrations.
On October 17, 2006 (71 FR 61144),
effective December 18, 2006, EPA
revised the 24-hour average PM2.5

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