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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, and because the
regulation does not impose a collection
of information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to
section 7805(f) of the Code, these
regulations have been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business, and no
comments were received.
Drafting Information
The principal author of these final
regulations is Michala Irons, Office of
the Associate Chief Counsel
(Passthroughs and Special Industries).
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.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
amended as follows:

(b)(2)(iii)(d)(6) of this section for the
definition of indirect ownership.
(2) Nonapplicability of de minimis
rule. (i) Allocations that become part of
the partnership agreement on or after
December 28, 2012. Paragraph
(b)(2)(iii)(e)(1) of this section does not
apply to allocations that become part of
the partnership agreement on or after
December 28, 2012.
(ii) Retest for allocations that become
part of the partnership agreement prior
to December 28, 2012. If the de minimis
partner rule of paragraph (b)(2)(iii)(e)(1)
of this section was relied upon in testing
the substantiality of allocations that
became part of the partnership
agreement before December 28, 2012,
such allocations must be retested on the
first day of the first partnership taxable
year beginning on or after December 28,
2012, without regard to paragraph
(b)(2)(iii)(e)(1) of this section.
Steven T. Miller
Deputy Commissioner for Services and
Enforcement.
Approved: December 19, 2012.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2012–31155 Filed 12–21–12; 4:15 pm]
BILLING CODE 4830–01–P

PART 1—INCOME TAXES
DEPARTMENT OF THE TREASURY

Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:

■

Internal Revenue Service
26 CFR Parts 1, 53, and 602

Authority: 26 U.S.C. 7805 * * *
■ Par. 2. Section 1.704–1(b)(2)(iii)(e) is
revised to read as follows:

§ 1.704–1

RIN 1545–BG31; 1545–BL38

Partner’s distributive share.

*

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[TD 9605]

*
*
*
*
(b) * * *
(2) * * *
(iii) * * *
(e) De minimis rule—(1) Partnership
taxable years beginning after May 19,
2008 and beginning before December 28,
2012. Except as provided in paragraph
(b)(2)(iii)(e)(2) of this section, for
purposes of applying this paragraph
(b)(2)(iii), for partnership taxable years
beginning after May 19, 2008 and
beginning before December 28, 2012, the
tax attributes of de minimis partners
need not be taken into account. For
purposes of this paragraph
(b)(2)(iii)(e)(1), a de minimis partner is
any partner, including a look-through
entity that owns, directly or indirectly,
less than 10 percent of the capital and
profits of a partnership, and who is
allocated less than 10 percent of each
partnership item of income, gain, loss,
deduction, and credit. See paragraph

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Payout Requirements for Type III
Supporting Organizations That Are Not
Functionally Integrated
Internal Revenue Service (IRS),
Treasury.
ACTION: Final and temporary
regulations.
AGENCY:

SUMMARY: This document contains both
final regulations and temporary
regulations regarding the requirements
to qualify as a Type III supporting
organization that is operated in
connection with one or more supported
organizations. The regulations reflect
changes to the law made by the Pension
Protection Act of 2006. The regulations
will affect Type III supporting
organizations and their supported
organizations. The text of the temporary
regulations also serves as the text of the
proposed regulations set forth in the
Proposed Rules section in this issue of
the Federal Register.

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Effective Date: These regulations
are effective on December 28, 2012.
FOR FURTHER INFORMATION CONTACT:
Preston J. Quesenberry at (202) 622–
6070 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
DATES:

Paperwork Reduction Act
The collection of information
contained in the final regulations has
been reviewed and approved by the
Office of Management and Budget in
accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C.
3507(d)) under control number 1545–
2157. The collection of information in
the final regulations is in § 1.509(a)–
4(i)(2) and § 1.509(a)–4(i)(6)(v). The
collection of information under
§ 1.509(a)–4(i)(2) flows from section
509(f)(1)(A) of the Internal Revenue
Code (Code), which requires a Type III
supporting organization to provide to
each of its supported organizations such
information as the Secretary may
require to ensure that the Type III
supporting organization is responsive to
the needs or demands of its supported
organization(s). The collection of
information under § 1.509(a)–4(i)(6)(v)
is required only if a Type III supporting
organization that is not functionally
integrated wishes for certain amounts
set aside for a specific project to count
toward the distribution requirement
imposed by § 1.509(a)–4(i)(5)(ii). The
likely recordkeepers are Type III
supporting organizations and certain of
their supported organizations.
Estimated total annual reporting
burden: 15,122 hours.
Estimated average annual burden
hours per recordkeeper: 2 hours.
Estimated number of recordkeepers:
7,556.
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
of any internal revenue law. Generally,
tax returns and return information are
confidential, as required by 26 U.S.C.
6103.
Background
This document contains amendments
to the Income Tax Regulations (26 CFR
part 1) and Foundation Excise Tax
Regulations (26 CFR part 53) regarding
organizations described in section

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509(a)(3) of the Code. An organization
described in section 501(c)(3) of the
Code is classified as either a private
foundation or a public charity. To be
classified as a public charity, an
organization must meet the
requirements of section 509(a)(1), (2),
(3), or (4). 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 meet the requirements of section
509(a)(3), an organization must satisfy
an organizational test, an operational
test, a relationship test, and a
disqualified person control test. The
organizational and operational tests
require that the 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 the supporting
organization to establish one of three
types of relationships with one or more
supported organizations. Finally, the
disqualified person control test requires
that the supporting organization not be
controlled directly or indirectly by
certain disqualified persons. Although
each of these tests is a necessary
requirement for an organization to
establish that it qualifies as a supporting
organization, these final regulations and
temporary regulations focus primarily
on one of the relationship tests: the test
for supporting organizations that are
‘‘operated in connection with’’ their
supported organization(s), otherwise
known as ‘‘Type III’’ supporting
organizations. Specifically, the
temporary regulations address the
amount that Type III supporting
organizations that are not ‘‘functionally
integrated’’ must annually distribute
and explain how assets are valued for
purposes of this distribution
requirement. The final regulations
describe all of the other requirements of
the relationship test for Type III
supporting organizations.
1. Three Types of Supporting
Organizations
To meet the requirements of section
509(a)(3), a supporting organization
must satisfy one of three relationship
tests with respect to its supported
organization(s). A supporting
organization that is operated, supervised
or controlled by one or more supported
organizations is commonly known as a
Type I supporting organization. The

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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 commonly 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 organizations. A supporting
organization that is operated in
connection with one or more supported
organizations is commonly known as a
Type III supporting organization.
2. Qualification Requirements for Type
III Supporting Organizations Prior to
Enactment of the Pension Protection Act
of 2006
Prior to the enactment of the Pension
Protection Act of 2006, Public Law 109–
280 (120 Stat. 780 (2006)) (PPA), the
regulations under section 509(a)(3)
(hereinafter referred to as the ‘‘existing’’
regulations) generally provided that an
organization is ‘‘operated in connection
with’’ one or more supported
organizations if it meets a
‘‘responsiveness test’’ and an ‘‘integral
part test.’’
a. Responsiveness Test
Existing § 1.509(a)–4(i)(2)(i) provides
that an organization meets the
responsiveness test if the organization is
responsive to the needs or demands of
its supported organizations. Existing
§ 1.509(a)–4(i)(2)(ii) (hereinafter referred
to as the ‘‘significant voice
responsiveness test’’) provides that a
supporting organization can
demonstrate responsiveness to a
supported organization if the
relationship between the supporting and
supported organization meets one of the
following three criteria: (1) The
supported organization appoints or
elects one or more of the officers,
directors, or trustees of the supporting
organization; (2) one or more members
of the governing body of the supported
organization serve as officers, directors,
or trustees of, or hold other important
offices in, the supporting organization;
or (3) the officers, directors, or trustees
of the supporting organization maintain
a close continuous working relationship
with the officers, directors, or trustees of
the supported organization. In addition,
as a result of one of these three criteria
being satisfied, the supported
organization has to have a ‘‘significant
voice’’ in the investment policies of the

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supporting organization, the timing and
the manner of making grants, the
selection of the grant recipients of the
supporting organization, and in
otherwise directing the use of the
income or assets of the supporting
organization.
The existing regulations also provide
an alternative means for charitable
trusts to satisfy the responsiveness test.
Under existing § 1.509(a)–4(i)(2)(iii), a
supporting organization is responsive if:
(1) It is a charitable trust under State
law; (2) each specified supported
organization is a named beneficiary
under the charitable trust’s governing
instrument; and (3) each beneficiary
organization has the power to enforce
the trust and compel an accounting
under State law.
In the case of an organization that is
supporting one or more supported
organizations before November 20,
1970, existing § 1.509(a)–4(i)(1)(ii)
provides that additional facts and
circumstances, such as a historic and
continuing relationship between the
supporting organization and its
supported organization(s), also can be
taken into account to establish
compliance with the responsiveness
test.
b. Integral Part Test
The integral part test under existing
§ 1.509(a)–4(i)(3)(i) requires a
supporting organization to maintain a
significant involvement in the
operations of one or more supported
organizations that are dependent upon
the supporting organization for the type
of support that it provides. Under the
existing regulations, there are two
alternative ways to meet the integral
part test: (1) the ‘‘but for’’ test under
existing § 1.509(a)–4(i)(3)(ii); or (2) the
payout test under existing § 1.509(a)–
4(i)(3)(iii).
Under existing § 1.509(a)–4(i)(3)(ii),
the ‘‘but for’’ test is satisfied if the
activities engaged in by the supporting
organization for or on behalf of the
supported organizations are activities to
perform the functions of, or to carry out
the purposes of, such organizations,
and, but for the involvement of the
supporting organization, would
normally be engaged in by the
supported organizations themselves.
The payout test under existing
§ 1.509(a)–4(i)(3)(iii) requires a
supporting organization to: (1) Make
payments of substantially all of its
income to or for the use of one or more
supported organizations; (2) provide
enough support to one or more
supported organizations to ensure the
attentiveness of such organization(s) to
the operations of the supporting

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organization; and (3) pay a substantial
amount of the total support of the
supporting organization to those
supported organizations that meet the
attentiveness requirement. The phrase
‘‘substantially all of its income’’ in
existing § 1.509(a)–4(i)(3)(iii) has been
interpreted to mean at least 85 percent
of adjusted net income. See Rev. Rul.
76–208, 1976–1 CB 161.

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3. PPA Changes to Qualification
Requirements for Type III Supporting
Organizations
The PPA made five changes to the
requirements an organization must meet
to qualify as a Type III supporting
organization:
(1) It removed the ability to rely solely
on the alternative test for charitable
trusts as a means of meeting the
responsiveness test;
(2) To ensure that a ‘‘significant
amount’’ is paid to supported
organizations, it directed the Secretary
of the Treasury to establish a new
payout requirement for Type III
supporting organizations that are not
‘‘functionally integrated’’ (with the term
‘‘functionally integrated’’ referring to
Type III supporting organizations that
are not required to meet a payout
requirement due to their activities
related to performing the functions of,
or carrying out the purposes of, their
supported organization(s));
(3) It required a Type III supporting
organization to annually provide to each
of its supported organizations such
information as the Secretary may
require to ensure that the supporting
organization is responsive to the needs
or demands of its supported
organization(s);
(4) It prohibited a Type III supporting
organization from supporting any
supported organization not organized in
the United States; and
(5) It 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.
4. Advanced Notice of Proposed
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). The ANPRM described proposed
rules to implement the PPA changes to
the Type III supporting organization
requirements and solicited comments
regarding those proposed rules. Forty

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comments were received in response to
the ANPRM and were considered in
drafting the notice of proposed
rulemaking and these final and
temporary regulations. No public
hearing was requested or held.
5. Notice of Proposed Rulemaking
On September 24, 2009, the Treasury
Department and the IRS published in
the Federal Register (74 FR 48672) a
notice of proposed rulemaking (NPRM)
(REG–155929–06). The NPRM contained
proposed regulations (the ‘‘2009
proposed regulations’’) setting forth the
requirements to qualify as a Type III
supporting organization under the PPA.
The IRS received more than 30
comments in response to the NPRM.
These comments were considered in
drafting these final and temporary
regulations and are available for public
inspection at www.regulations.gov or
upon request. No public hearing was
requested or held.
After reviewing all comments
received, the Treasury Department and
the IRS believe that certain topics
require further consideration. The
Treasury Department and the IRS will
continue to study these topics and will
request comments on these topics in a
separate notice of proposed rulemaking.
Nonetheless, the Treasury Department
and the IRS believe that immediate
effective guidance is needed for Type III
supporting organizations. Accordingly,
the Treasury Department and the IRS
are issuing both final regulations and
temporary regulations. The provisions
in the 2009 proposed regulations
regarding the amount that nonfunctionally integrated Type III
supporting organizations must annually
distribute have been significantly
revised in response to comments. As a
result, these provisions (as well as
provisions related to how assets are
valued for purposes of this distribution
requirement) are being issued as
temporary and proposed regulations, to
permit additional opportunity for
comment. The other provisions of the
2009 proposed regulations are being
issued as final regulations, which are
substantially similar to the 2009
proposed regulations but reflect certain
revisions that were made based on
comments received. The comments and
revisions are discussed in the following
section.
Explanation of Provisions and
Summary of Comments
Based largely on comments received
from commenters, the final and
temporary regulations make revisions to
various provisions in the 2009 proposed
regulations, including (1) the definition

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of ‘‘supported organization’’ in
§ 1.509(a)–4(a)(6); (2) the prohibition on
receiving gifts or contributions from
persons that control the governing body
of a supported organization set forth in
§ 1.509(a)–4(f)(5); (3) the notification
requirement set forth in § 1.509(a)–
4(i)(2); (4) the responsiveness test set
forth in § 1.509(a)–4(i)(3); (5) the
requirements to qualify as a functionally
integrated Type III supporting
organization set forth in § 1.509(a)–
4(i)(4); (6) the requirements to qualify as
a non-functionally integrated (NFI) Type
III supporting organization set forth in
§ 1.509(a)–4(i)(5); and (7) the transition
rules provided in § 1.509(a)–4(i)(11).
1. Definition of Supported Organization
Section 1.509(a)–4(a)(5) defines a
‘‘publicly supported organization’’ as
‘‘an organization described in section
509(a)(1) or (2).’’ This defined term is
used throughout § 1.509(a)–4. The 2009
proposed regulations proposed
removing the term ‘‘publicly supported
organization’’ wherever it appears in
§ 1.509(a)–4 and replacing it with a new
defined term, ‘‘supported organization.’’
The new defined term ‘‘supported
organization’’ was narrower than the
term ‘‘publicly supported organization’’
because it was limited to those
organizations described in section
509(a)(1) or (2) that the supporting
organization was organized and
operated to support. As a result, the new
defined term does not necessarily work
in every instance in § 1.509(a)–4 in
which the term ‘‘publicly supported
organization’’ is used. Accordingly, the
final regulations maintain the term
‘‘publicly supported organization’’ and
continue to use it in every paragraph of
§ 1.509(a)–4 other than § 1.509(a)–4(i).
The final regulations also revise the
definition of ‘‘supported organization’’
in the 2009 proposed regulations and
apply the term only in newly amended
§ 1.509(a)–4(i). While the definition of
supported organization provided in the
2009 proposed regulations tracked the
language of section 509(f)(3), the final
regulations clarify the definition of
supported organization by crossreferencing the previously-existing
§ 1.509(a)–4(d)(4) and § 1.509(a)–
4(d)(2)(iv). Thus, for purposes of
§ 1.509(a)–4(i), a supported organization
of a Type III supporting organization is
defined as any publicly supported
organization designated by name in the
supporting organization’s articles of
organization. In addition, a supported
organization of a Type III supporting
organization can include a publicly
supported organization that is not
designated by name in the supporting
organization’s articles if there has been

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a historic and continuing relationship
between the supporting organization
and the publicly supported organization
and, by reason of such relationship,
there has developed a substantial
identity of interests between such
organizations.

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2. Gifts From Controlling Donors
Like the 2009 proposed regulations,
the final regulations prohibit 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, or
from persons related to a person
possessing such control. For these
purposes, related persons include
family members and 35-percent
controlled entities within the meaning
of section 4958(f).
One commenter requested a definition
of ‘‘control’’ for purposes of this
provision. The Treasury Department
and the IRS agree that a definition of
‘‘control’’ for these purposes would be
beneficial and intend to issue proposed
regulations in the near future that will
provide such a definition.
3. Requirement To Notify Supported
Organizations
Like the 2009 proposed regulations,
these final regulations require that, for
each taxable year, a Type III supporting
organization must provide to each of its
supported organizations: (1) A written
notice addressed to a principal officer of
the supported organization describing
the amount and type of support
provided to the supported organization;
(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.
The required notification documents
must be postmarked or electronically
transmitted by the last day of the fifth
calendar month following the close of
the supporting organization’s taxable
year.
Several commenters suggested that
the due date for the required
notification be amended to correspond
to the Form 990 due date, with
extensions. Alternatively, some
commenters requested clarification that
the ‘‘most recently filed Form 990’’ can
be a Form 990 filed in a prior year.
The Form 990 is due by the 15th day
of the fifth calendar month following
the close of the filing organization’s

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taxable year. However, an organization
required to file a Form 990 can request
two three-month extensions (the first of
which is granted automatically) by filing
a Form 8868, ‘‘Application for
Extension of Time to File an Exempt
Organization Return.’’ As a result, if the
due date for the required notification
were the same as the Form 990 due date,
with extensions, a supported
organization might not receive its
notification from a supporting
organization until almost a year after the
close of the supporting organization’s
preceding taxable year. In such cases, a
supported organization would have
little or no opportunity to use the
information in the notification to make
recommendations regarding the amount
and type of support it wishes to receive
from the supporting organization during
the taxable year it receives the
notification. In addition, if the due date
for the notification were the same as the
due date for the Form 990, with
extensions, a supported organization
would not know when to expect or
request a notification from a supporting
organization unless it knew whether or
not a supporting organization requested
extensions in any given year. For these
reasons, the final regulations retain the
due date of the last day of the fifth
calendar month following the close of
the supporting organization’s taxable
year.
However, the Treasury Department
and the IRS agree with commenters that
if an organization has not filed a Form
990 for a taxable year by the last day of
the fifth calendar month following the
close of the taxable year (because, for
example, it has received an extension),
the organization’s ‘‘most recently filed’’
Form 990 as of that last day of the fifth
calendar month is the Form 990 for the
supporting organization’s immediately
preceding taxable year. As a result, the
final regulations clarify the relationship
between the filing date of the Form 990
and the date notification is provided by
referring to the Form 990 ‘‘that was most
recently filed as of the date the
notification is provided’’ rather than
simply the ‘‘most recently filed Form
990.’’ Thus, for example, if a Type III
supporting organization reporting on a
calendar year basis has not filed its 2013
Form 990 by May 31, 2014, because it
requested an extension, it can satisfy the
Form 990 portion of its notification
requirement for 2013 (which it needs to
meet by May 31, 2014) by providing a
copy of the 2012 Form 990 that it filed
in 2013.
In addition, the Treasury Department
and the IRS recognize that some Type III
supporting organizations that request
extensions to file their Forms 990 may

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76385

need additional time to prepare their
first notification. As a result, as
described further in section 8.a. of this
preamble, the final regulations provide
transition relief for supporting
organizations in existence on the
effective date of these final and
temporary regulations under which the
due date for a Type III supporting
organization’s first required notification
is the later of the last day of the fifth
calendar month following the close of
the supporting organization’s taxable
year or the due date for the Form 990
for that taxable year, including
extensions.
One commenter requested
clarification that the required written
notice must describe the amount and
type of support the supporting
organization provided to the supported
organization in the supporting
organization’s ‘‘immediately preceding
taxable year,’’ rather than ‘‘in the past
year,’’ as provided in the 2009 proposed
regulations. The final regulations clarify
that the written notice must describe the
support provided in the supporting
organization’s taxable year ending
immediately before the taxable year in
which the written notice is provided.
Thus, for example, if a Type III
supporting organization operating on a
calendar year provided the required
notification for 2013 on May 31, 2014,
the written notice would describe the
support the supporting organization
provided in 2013.
Another commenter stated that the
term ‘‘principal officer’’ as used in the
2009 proposed regulations is ambiguous
and requested that the regulations
expressly designate the treasurer or
chief financial officer (CFO) as the
principal officer to whom notification
should be given. The final regulations
make clear that a person who, regardless
of title, has ultimate responsibility for
managing the finances of a supported
organization (which could include a
CFO or treasurer) can be a principal
officer of that organization for purposes
of the notification requirement. In
addition, the final regulations provide
that a principal officer can include a
person who, regardless of title, has
ultimate responsibility for
implementing the decisions of the
supported organization’s governing
body or for supervising the
management, administration, or
operation of the supported organization.
One commenter recommended that a
supporting organization be permitted to
send the required written notice to the
supported organization’s general
address rather than to its principal
officer. The Treasury Department and
the IRS have concluded that the

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notification should be sent to a
principal officer of the supported
organization to ensure receipt by a
person with sufficient responsibility
over the organization. Accordingly, the
final and temporary regulations do not
adopt this comment.
The same commenter asked that
supporting organizations be allowed to
satisfy the notification requirement by
sending supported organizations an
internet link to the Form 990. Like the
2009 proposed regulations, the final
regulations provide that the notification
requirement may be satisfied by
electronic media, which can include a
working internet link. However, because
all components of the notification
requirement must be satisfied, providing
only an internet link to the Form 990
would not be sufficient.
One commenter recommended that a
Type III supporting organization that is
included in a group exemption and
supports not only the central
organization in the group exemption but
also the other subordinate organizations
that are part of the group exemption
should only be required to provide
notice to the central organization, not to
all of the other subordinate
organizations. Another commenter
stated that notification is unnecessary if
the principal officer of the supported
organization is also the principal officer
of the supporting organization. Because
section 509(f)(1)(A) of the Code provides
that Type III supporting organizations
must provide the required notification
‘‘to each supported organization,’’ the
Treasury Department and the IRS have
concluded that a Type III supporting
organization must provide notice to all
of the organizations it is organized to
support. Accordingly, the final and
temporary regulations do not adopt
these comments.
Finally, because section 6104(d)(3)(A)
of the Code and § 301.6104(d)–1(b)(4)(ii)
except the name and address of
contributors from the general
requirement that tax-exempt
organizations disclose their annual
information returns, the final
regulations clarify that a supporting
organization may redact the name and
address of any contributor to the
organization from the Form 990 (or
other annual information return) it is
required to provide to the supported
organization(s) as part of the notification
requirement.
4. Responsiveness Test
Like the 2009 proposed regulations, in
implementing section 1241(c) of the
PPA, the final regulations remove the
alternative responsiveness test for
charitable trusts contained in existing

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§ 1.509(a)–4(i)(2)(iii). Accordingly, the
final regulations provide that all Type
III supporting organizations must satisfy
the ‘‘significant voice’’ responsiveness
test by (1) demonstrating one of three
necessary relationships between their
officers, directors, or trustees and those
of their supported organization(s), and
(2) showing that this relationship results
in the officers, directors, or trustees of
the supported organization having a
significant voice in directing the use of
the income and assets of the supporting
organization.
Numerous commenters suggested that
Example 1 of § 1.509(a)–4(i)(3)(iv) of the
2009 proposed regulations, which
illustrates how a charitable trust may
satisfy the significant voice
responsiveness test, imposes too
onerous of a requirement for meeting
the responsiveness test by describing
‘‘quarterly face-to face-meetings’’
between a bank trustee’s representative
and an officer of the supported
organization. However, Example 1 does
not impose specific requirements on
charitable trusts seeking to satisfy the
responsiveness test; rather, the example
merely illustrates one way the officers,
directors, or trustees of a supported
organization could maintain a close and
continuous relationship with the
officers, directors, or trustees of a
supporting organization organized as a
trust and thereby have a significant
voice in directing the use of the income
or assets of that supporting organization.
In order to better illustrate options for
satisfying the significant voice
responsiveness test, Example 1 has been
amended in the final regulations to refer
to ‘‘quarterly face-to-face or telephonic
meetings’’ rather than only face-to-face
meetings. As a general matter, the
Treasury Department and the IRS
anticipate that charitable trusts will be
able to demonstrate that they satisfy the
responsiveness test in a variety of ways,
and whether a supported organization
has a close and continuous relationship
with, or a significant voice in directing
the use of the income or assets of, a
supporting organization will be
determined based on all the relevant
facts and circumstances.
A few commenters requested
additional examples of how Type III
supporting organizations can satisfy the
responsiveness test. The final and
temporary regulations do not provide
any such additional examples, but these
comments will continue to be
considered. The Treasury Department
and the IRS intend to issue proposed
regulations in the near future that
amend the responsiveness test by
clarifying that Type III supporting
organizations must be responsive to all

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of their supported organizations. In the
preamble to those proposed regulations,
the Treasury Department and the IRS
intend to request additional comments
regarding examples of how to satisfy the
responsiveness test.
Several commenters requested
clarification that the responsiveness test
does not require a supporting
organization to follow all of the
directions or recommendations of a
supported organization’s officers,
directors, or trustees and that the latter’s
role can be only advisory. The Treasury
Department and the IRS have concluded
that the term ‘‘significant voice’’ makes
clear that the responsiveness test
requires only that the officers, directors,
or trustees of a supported organization
have the ability to influence the
supporting organization’s decisions
regarding the supporting organization’s
use of its income or assets—not that the
officers, directors, or trustees of the
supported organization have control
over such decisions.
One commenter noted that some trust
instruments specify the recipients,
timing, manner, and amount of grants
and requested that the regulations
provide that a supported organization
can still be deemed to have a significant
voice over these matters if its supporting
organization has such a governing
instrument. The Treasury Department
and the IRS are continuing to consider
the best approach for supporting
organizations with such trust
instruments and intend to issue
proposed regulations in the near future
that will provide further clarification on
this issue.
Finally, the 2009 proposed
regulations stated that a supporting
organization is responsive to the needs
or demands of a supported organization
if it satisfies the requirements of
§ 1.509(a)–4(i)(3)(ii) and (iii). In order to
conform more closely to existing
§ 1.509(a)–4(i)(2)(i), the final regulations
amend this language to state that a
supporting organization must satisfy the
requirements of § 1.509(a)–4(i)(3)(ii) and
(iii) in order to satisfy the
responsiveness test.
5. Integral Part Test—Functionally
Integrated Type III Supporting
Organizations
Like the 2009 proposed regulations,
the final regulations provide that a Type
III supporting organization is
functionally integrated, and thus not
subject to a distribution requirement, if
it either: (1) Engages in activities
substantially all of which directly
further the exempt purposes of the
supported organization(s) to which it is
responsive by performing the functions

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of, or carrying out the purposes of, such
supported organization(s) and which,
but for the involvement of the
supporting organization, would
normally be engaged in by the
supported organization(s); or (2) is the
parent of each of its supported
organizations. In addition, the final
regulations reserve a provision for a
special rule for supporting organizations
that support a governmental supported
organization.
a. Substantially All Activities Directly
Further the Exempt Purposes of
Supported Organizations
With respect to the test to qualify as
functionally integrated by engaging in
activities substantially all of which
directly further the exempt purposes of
the supported organization(s), one
commenter recommended that the term
‘‘directly further the exempt purposes’’
be defined with reference to the phrase
‘‘directly for the active conduct of
activities constituting’’ the exempt
purposes, as used in the definition of a
private operating foundation under
section 4942(j)(3) and the accompanying
regulations at § 53.4942(b)–1(b)(1). The
same commenter noted that
§ 53.4942(b)–1(b)(2) treats certain grants,
scholarships, or other payments made or
awarded by a private operating
foundation to individual beneficiaries as
qualifying distributions made directly
for the active conduct of exempt
activities as long as those payments are
to support active programs in which the
operating foundation maintains
significant involvement. This
commenter recommended that similar
grants, scholarships, or other payments
made or awarded by Type III supporting
organizations should be treated as
activities that directly further the
exempt purposes of a supported
organization (‘‘direct furtherance
activities’’).
The Treasury Department and the IRS
agree that the meaning of the phrase
‘‘directly further the exempt purposes,’’
as used in the functionally integrated
test, is similar to the meaning of the
phrase ‘‘directly for the active conduct
of activities constituting’’ the exempt
purposes, as used in the definition of a
private operating foundation and as
described in detail in § 53.4942(b)–
1(b)(1). Consequently, in defining direct
furtherance activities, the final
regulations use language similar to that
used in § 53.4942(b)–1(b)(1) by
clarifying that direct furtherance
activities are activities conducted by the
supporting organization itself, rather
than by a supported organization.
However, most of the remaining
language in § 53.4942(b)–1(b)(1) used to

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define ‘‘directly for the active conduct
of activities’’ is not used in the
definition of direct furtherance activities
in the final regulations because the
former definition is based only on
expenditures while the latter concept is
based more broadly on the activities of
a Type III supporting organization. As a
result, the definition of direct
furtherance activities in the final
regulations is otherwise the same as the
definition contained in the 2009
proposed regulations.
The final regulations also provide that
certain payments to individual
beneficiaries similar to those that would
qualify as ‘‘directly for the active
conduct of activities constituting’’ a
private operating foundation’s exempt
purposes under § 53.4942(b)–1(b)(2) will
be treated as direct furtherance activities
under the Type III supporting
organization functionally integrated test.
Similar to the payments to individual
beneficiaries described in § 53.4942(b)–
1(b)(2), the final regulations provide that
making or awarding grants,
scholarships, or other payments to
individual beneficiaries will be treated
as an activity that directly furthers the
exempt purposes of a supported
organization only if the making or
awarding of such payments is part of an
active program of the supporting
organization that directly furthers the
exempt purposes of the supported
organization(s) and in which the
supporting organization maintains
significant involvement (as defined in
§ 53.4942(b)–1(b)(2)(ii)). However,
unlike distributions directly for the
active conduct of activities constituting
a private operating foundation’s exempt
purposes, the direct furtherance
activities of a functionally integrated
Type III supporting organization must
directly further the exempt purposes of
one or more supported organizations. As
a result, the final regulations impose
three additional requirements that a
supporting organization’s grants,
scholarships, or other payments to
individual beneficiaries must satisfy in
order to be considered direct
furtherance activities. First, the
individual beneficiaries must be
members of the charitable class
benefitted by a supported organization.
Second, the officers, directors, or
trustees of that supported organization
must have a significant voice in the
timing of the payments, the manner of
making them, and the selection of
recipients. Third, the individual
beneficiaries must be selected on an
objective and nondiscriminatory basis
(as described in § 53.4945–4(b)).
A number of commenters suggested
that fundraising, making grants, and

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investing and managing non-exempt-use
assets should be considered direct
furtherance activities in certain
situations, including those in which the
supported organization (1) is a
community foundation or other
publicly-supported grantmaker, (2) is a
religiously-affiliated entity, (3) has a
close historic and continuing
relationship with the supporting
organization, or (4) created the
supporting organization specifically to
house fundraising, grantmaking, and/or
investment activities. One commenter
further suggested that a Type III
supporting organization’s fundraising,
grantmaking, and/or investment and
management of non-exempt-use assets
should be treated as direct furtherance
activities as long as a ‘‘preponderance’’
of the supporting organization’s other
activities otherwise directly further the
supported organization’s exempt
purposes. Another commenter
recommended that the regulations
include an exception that would treat a
supporting organization as functionally
integrated (or otherwise not subject to a
distribution requirement) even if it
engaged in grantmaking and the
production of investment income as
more than an insubstantial part of its
activities as long as it (1) has not
received any contribution from its
founder or family members since 1970,
(2) has no substantial contributor (or
family member thereof) who is alive,
and (3) has already distributed to its
supported organization(s), in the
aggregate, an amount equal to the
amount of its donor contributions.
The Treasury Department and the IRS
have determined that a Type III
supporting organization should qualify
as functionally integrated, and therefore
not be subject to the payout
requirement, if substantially all of its
support for its supported organization(s)
consists of charitable activities that the
supporting organization itself directly
carries out (as distinguished from
charitable activities carried out by the
supported organization(s) that the
supporting organization helps finance
by producing and distributing income).
This is because a supporting
organization that operates substantial,
direct charitable programs itself may
need more flexibility in structuring its
annual operational budget than the
annual payout requirement for NFI Type
III supporting organizations would
allow. The examples of activities that
commenters want to be treated as direct
furtherance activities or to otherwise
qualify them for an exception from the
distribution requirement—all of which
involve producing income and

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distributing a portion of it to the
supported organization—are not
consistent with this rationale and hence
the Treasury Department and the IRS do
not adopt these comments.
Commenters also requested additional
guidance on how direct furtherance
activities will be measured for purposes
of determining whether they constitute
‘‘substantially all’’ of a supporting
organization’s activities. A number of
commenters suggested that all facts and
circumstances should be considered in
making this determination, including
not only the supporting organization’s
expenditures but also, for example, the
time and effort spent by the
organization’s employees and
volunteers. The final regulations clarify
that all pertinent facts and
circumstances are considered in
measuring activities for purposes of
determining whether substantially all of
an organization’s activities are direct
furtherance activities.
One commenter stated that the
example in the 2009 proposed
regulations of a supporting organization
that qualifies as a functionally
integrated Type III supporting
organization by performing publishing
and printing functions for churches was
not ‘‘realistic’’ because several churches
would be unlikely to jointly establish
such a publishing operation. Instead of
a publishing operation, this commenter
suggested that churches would be more
likely to jointly establish a charitable
organization that performs a social
welfare function. As a result, the final
regulations replace the example of a
nonprofit publishing organization with
an example of a nonprofit food pantry.
b. Being the Parent of Each Supported
Organization
Like the 2009 proposed regulations,
the final regulations provide that a Type
III supporting organization can qualify
as functionally integrated by being the
parent of each supported organization.
In defining ‘‘parent’’ for these purposes,
the final regulations repeat the
definition set forth in the 2009 proposed
regulations and state that a supporting
organization is the parent of a
supporting 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 of the
supporting organization acting in their
official capacity. However, the Treasury
Department and the IRS have

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determined that this definition of
‘‘parent’’ is insufficiently specific.
Consequently, the Treasury Department
and the IRS intend to issue proposed
regulations in the near future that will
provide a new definition of parent that
specifically addresses the power to
remove and replace officers, directors,
or trustees of the supporting
organization.
c. Supporting a Governmental
Supported Organization
The 2009 proposed regulations
provided a ‘‘governmental entity
exception’’ under which a Type III
supporting organization that supports
one supported organization whose
assets are subject to the appropriations
process of a federal, state, local, or
Indian tribal government may treat
grantmaking to the supported
organization and investing and
managing non-exempt-use assets on
behalf of the supported organization as
direct furtherance activities, as long as
a substantial part of the supporting
organization’s total activities are
otherwise direct furtherance activities.
Several commenters requested that
this governmental entity exception be
expanded to allow supporting
organizations to support more than one
supported organization. For example,
commenters recommended that a
supporting organization be allowed to
qualify for this exception if it supports
(1) up to five governmental supported
organizations; (2) not only a
governmental entity but also other
supported organizations that are
responsive to, and have a substantial
operational connection with, that
governmental entity; or (3) a
governmental system, such as a parent
and subsidiary units.
The Treasury Department and the IRS
are continuing to consider these
comments regarding the governmental
entity exception and intend to issue
proposed regulations in the near future
that will provide guidance on how
supporting organizations can qualify as
functionally integrated by supporting a
governmental entity. These proposed
regulations will also provide one or
more examples of how a Type III
supporting organization can qualify as
functionally integrated by supporting a
governmental entity (similar to the
examples contained in the 2009
proposed regulations but omitted from
these final and temporary regulations).
In the meantime, as discussed further
in section 8.b. of this preamble, Type III
supporting organizations can qualify as
functionally integrated by meeting the
requirements of the ‘‘but for’’ test under
existing § 1.509(a)–4(i)(3)(ii) until the

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first day of their second taxable year
beginning after December 28, 2012. The
Treasury Department and the IRS intend
to release the proposed regulations on
the governmental entity rule sufficiently
in advance of the beginning of this
second taxable year to enable Type III
SOs to determine their eligibility. The
Treasury Department and the IRS also
anticipate that, for taxable years
beginning prior to the date of issuance
of the future final regulations on the
governmental entity rule, Type III SOs
would be permitted to rely on the
governmental entity rule as stated in
either the future proposed or final
regulations.
6. Integral Part Test—Non-Functionally
Integrated Type III Supporting
Organizations
a. Distribution Requirement
The 2009 proposed regulations
provided that a NFI Type III supporting
organization would have to annually
distribute a ‘‘distributable amount’’
equal to 5 percent of the fair market
value of its non-exempt-use assets. The
Treasury Department and the IRS
decided to base this distribution
requirement on non-exempt-use assets,
rather than on income, due to concerns
that the income-based payout test under
existing § 1.509(a)–4(i)(3)(iii) could
result in little or nothing being paid to
charity if the supporting organization’s
assets produced little to no income.
Several commenters stated that the 5percent payout rate in the 2009
proposed regulations would be too high
and would erode a supporting
organization’s assets over time on a real
(inflation-adjusted) basis. A few
commenters noted that private nonoperating foundations must annually
pay out 5 percent of their non-exemptuse assets under section 4942 of the
Code but stated that NFI Type III
supporting organizations should not be
subject to the same payout rate as
private non-operating foundations
because they are distinguishable from
these foundations. For example, some
commenters noted that private nonoperating foundations can fund any
number of charitable organizations in a
given year, while Type III supporting
organizations are obligated to benefit
designated supported organizations and
also must satisfy the responsiveness and
attentiveness tests with respect to these
supported organizations. Commenters
also noted that substantial contributors
to a supporting organization (as well as
certain related persons) cannot control
the supporting organization, while
private foundations face no such
restriction. Some of these commenters

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Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Rules and Regulations
noted that lower effective payout
requirements are imposed on private
operating foundations and medical
research organizations and
recommended that similar payout
requirements should apply to NFI Type
III supporting organizations. Other
commenters asked that the final
regulations maintain the payout test
under existing § 1.509(a)–4(i)(3)(iii),
which requires payments of
substantially all of the supporting
organization’s income.
The Treasury Department and the IRS
recognize that NFI Type III supporting
organizations face a number of
requirements and restrictions that do
not apply to private foundations,
including the organizational,
operational, and disqualified person
control tests under section 509(a)(3) and
the responsiveness and attentiveness
test under the regulations regarding
Type III supporting organizations. These
requirements and restrictions should
significantly reduce the likelihood that
substantial contributors to a NFI Type
III supporting organization will be able
to use the supporting organization’s
assets to further their own interests.
These requirements also result in a
relationship between the supporting
organization and the supported
organizations that does not necessarily
exist between private foundations and
their grantees.
As a result, the Treasury Department
and the IRS have determined that an
asset-based payout percentage lower
than the payout percentage for private
non-operating foundations is justified
for NFI Type III supporting
organizations. At the same time, the
payout test under existing § 1.509(a)–
4(i)(3)(iii), which requires payments of
substantially all of the supporting
organization’s income (with
‘‘substantially all’’ considered to mean
85 percent or more), has helped prevent
unreasonable accumulations of income
by NFI Type III supporting
organizations that generate significant
amounts of current income in a
particular taxable year. Accordingly, the
temporary regulations require NFI Type
III supporting organizations to annually
distribute a ‘‘distributable amount’’
equal to the greater of 85 percent of
adjusted net income or 3.5 percent of
the fair market value of the supporting
organization’s non-exempt-use assets.
For these purposes, ‘‘adjusted net
income’’ is determined by applying the
principles of section 4942(f) and
§ 53.4942(a)–2(d). Because this
distributable amount is significantly
different than the distributable amount
described in the 2009 proposed
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and the IRS have issued the provisions
describing the distributable amount as
temporary and proposed regulations to
provide an opportunity for comment.
In recommending an asset-based
payout percentage of less than 5
percent, a number of commenters
emphasized that supporting
organizations have a relationship with
their supported organizations that
private foundations do not have with
their grantees and that this relationship
helps ensure responsiveness to the
needs and demands of the supported
organization. The Treasury Department
and the IRS considered this relationship
in determining the appropriate payout
rate for NFI Type III supporting
organizations. Accordingly, the
Treasury Department and the IRS intend
to ensure that this relationship exists
between a supporting organization and
each of its supported organizations by
proposing regulations requiring that NFI
Type III supporting organizations meet
the responsiveness test with respect to
each of their supported organizations.
Many commenters recommended that
the distributable amount be based on
the average fair market value of nonexempt-use assets over the three years
(as opposed to just one year) preceding
the year of the required distribution, in
order to reduce fluctuations in
payments to the supported
organization(s) from year to year and
avoid significant cuts to supported
organizations’ budgets during
downward market fluctuations. The
Treasury Department and the IRS expect
that the new notification requirement
and the application of the ‘‘significant
voice’’ responsiveness test to all Type III
supporting organizations, including
those organized as trusts, will give
supported organizations the opportunity
to influence the timing of payments. In
addition, the Treasury Department and
the IRS expect that the significantly
lower payout percentage set forth in the
temporary regulations should provide
NFI Type III supporting organizations
with additional flexibility to respond to
requests from supported organizations
to adjust the timing of payments to
anticipate and respond to market
fluctuations. Flexibility to respond to
such requests from supported
organizations is also made possible by
the carryover rule that the final
regulations adopt without change from
the 2009 proposed regulations. This rule
allows a Type III supporting
organization that distributes more than
its annual distributable amount during a
taxable year to carry over that excess
amount for five subsequent taxable
years. Accordingly, the final and
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three-year valuation period suggested by
commenters and, like the 2009 proposed
regulations, provide that the
distributable amount is based on the fair
market value of the organization’s nonexempt-use assets in the immediately
preceding taxable year.
One commenter asked that the
reasonable cause exception to the
distribution requirement be expanded to
expressly include times of great
financial distress. Like the 2009
proposed regulations, the final
regulations allow the Secretary to
provide for a temporary reduction in the
annual distributable amount in the case
of a disaster or emergency, which the
Treasury Department and the IRS intend
to include a time of great financial
distress. Thus, the final and temporary
regulations do not make any changes to
the reasonable cause exception.
b. Distributions That Count Toward the
Distribution Requirement
A number of commenters
recommended that a NFI Type III
supporting organization should, like a
private foundation, be able to count
toward its distribution requirement
amounts set aside for specific charitable
projects that accomplish the exempt
purposes of one or more supported
organization(s). In response to this
recommendation, the final regulations
provide that a supporting organization
may count a set-aside toward its
distribution requirement if it establishes
to the satisfaction of the IRS, in a
manner similar to that required of
private foundations making set-asides
under section 4942(g)(2)(B)(i) and the
accompanying regulations, that the
project is one that can be better
accomplished by the set-aside than by
the immediate payment of funds. In
particular, the supporting organization
must apply for IRS approval of the setaside before the end of the taxable year
in which the amount is set aside,
establish to the satisfaction of the IRS
that the amount set aside will be paid
for the specific project within 60
months after it is set aside and that the
project is one that can better be
accomplished by the set-aside than by
the immediate payment of funds, and
meet the other approval and information
requirements set forth in § 53.4942(a)–
3(b)(7)(i). The supporting organization
must also obtain a written statement
from the supported organization, signed
by one of the supported organization’s
principal officers under penalty of
perjury. This written statement must
confirm that the specific project
accomplishes the exempt purposes of
the supported organization and that the
supported organization approves the

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supporting organization’s determination
that the project is one that can be better
accomplished by the set-aside than by
the immediate payment of funds or
distribution of assets. The final and
temporary regulations do not
incorporate a test similar to the ‘‘cash
distribution test’’ for set-asides
described in section 4942(g)(2)(B)(ii)
and the accompanying regulations
because such a test would not provide
sufficient assurance that the project is
one better accomplished by means of a
set aside than by an immediate
distribution to the supported
organization.
A few commenters requested that the
regulations clarify that a supporting
organization will be able to count
toward the distribution requirement
expenditures on activities that directly
further the exempt purposes of its
supported organization(s). Accordingly,
the final regulations provide that a NFI
Type III supporting organization can
count toward the distribution
requirement amounts expended on
activities that directly further the
exempt purposes of the supported
organization(s) to which the supporting
organization is responsive and that, but
for the involvement of the supporting
organization, would normally be
engaged in by the supported
organization(s) (that is, that meet the
requirements of § 1.509(a)–4(i)(4)(i)(A)).
However, in the case of such a direct
furtherance activity that generates
revenue for the supporting organization,
the supporting organization can only
count expenditures on that activity
toward its distribution requirement to
the extent the expenditures exceed the
revenue derived. Thus, for example, if a
NFI Type III supporting organization
spent $1 million in a taxable year
operating a museum that generated
$800,000 in receipts for the supporting
organization during that same year, the
supporting organization could only
count $200,000 of the $1 million spent
toward the distribution requirement
(assuming the operation of the museum
was an activity described in § 1.509(a)–
4(i)(4)(i)(A)).
Like the 2009 proposed regulations,
the final regulations provide that
reasonable and necessary administrative
expenses also count toward the
distribution requirement. The final
regulations clarify, however, that such
expenses must be paid to accomplish
the exempt purposes of the supported
organization(s) and thus do not include
expenses incurred in the production of
investment income. The list of
distributions that count toward the
distribution requirement contained in
§ 1.509(a)–4(i)(6) is not an exhaustive

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list and other distributions may count
toward the distribution requirement.
The Treasury Department and the IRS
intend to propose regulations in the
near future that will more fully describe
the expenditures (including
expenditures for administrative and
additional charitable activities) that do
and do not count toward the
distribution requirement.
One commenter recommended that
§ 1.509(a)–4(i)(6)(i) of the 2009 proposed
regulations be revised to conform to
§ 1.509(a)–4(i)(5)(ii) of the 2009
proposed regulations by providing that
distributions made ‘‘for the use of’’ one
or more supported organizations, as
well as ‘‘to’’ one or more supported
organizations, can count toward
satisfying the distribution requirement.
The commenter stated that such a
conforming provision would clarify that
supporting organizations have the
flexibility to make payments to third
parties directly ‘‘on behalf of’’
supported organizations. The Treasury
Department and the IRS do not agree
that the term ‘‘for the use of’’ is
synonymous with ‘‘on behalf of’’ or that
it permits grants to organizations other
than the supported organizations to
count toward the distribution
requirement. Accordingly, the final and
temporary regulations do not adopt this
comment.
Several commenters recommended
that program-related investments (PRIs),
which count toward satisfying a private
foundation’s distribution requirement
under section 4942, should count
toward the distribution requirement of
NFI Type III supporting organizations.
One commenter further recommended
that the value of a PRI be excluded in
calculating a supporting organization’s
distributable amount for a taxable year.
These final and temporary regulations
do not specifically address whether or
not PRIs may count toward the
distribution requirement for NFI Type
III supporting organizations or be
excluded in calculating a supporting
organization’s distributable amount for a
taxable year. The Treasury Department
and IRS are continuing to consider these
comments and intend to provide further
clarification in future proposed
regulations.
c. Attentiveness Requirement
Like the 2009 proposed regulations,
the final regulations modify the
attentiveness requirement in existing
§ 1.509(a)–4(i)(3)(iii) to provide that an
organization must distribute one-third
or more of its required, annual
distributable amount to one or more
supported organizations that are
attentive to the supporting organization

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and with respect to which the
supporting organization meets the
responsiveness test. Also like the 2009
proposed regulations, the final
regulations provide that, to demonstrate
that a supported organization is
attentive, a supporting organization
must: (1) Provide 10 percent or more of
the supported organization’s total
support; (2) provide support that is
necessary to avoid the interruption of
the carrying on of a particular function
or activity of the supported
organization; or (3) provide an amount
of support that, based on ‘‘all pertinent
factors,’’ is a sufficient part of a
supported organization’s total support.
For purposes of the second test listed
above, support is considered necessary
if the supporting organization or the
supported organization earmarks the
support for a particular program or
activity of the supported organization,
even if such program or activity is not
the supported organization’s primary
activity, as long as the program or
activity is a substantial one.
One commenter suggested that the
regulations clarify that, for purposes of
determining whether a supporting
organization provides 10 percent of a
supported organization’s total support,
the supported organization’s total
support is its total support received in
the immediately preceding taxable year.
The final regulations adopt this
comment.
Other commenters recommended
changes to portions of the attentiveness
test in the 2009 proposed regulations
that are substantially identical to those
in the existing regulations. The final and
temporary regulations do not amend or
supplement any of these portions of the
attentiveness test, none of which were
directly changed or affected by the PPA.
One commenter requested that the
regulations include a safe harbor under
which the attentiveness test would be
automatically satisfied if a certain stated
dollar amount of support (possibly
indexed for inflation) were distributed
to a supported organization. The final
and temporary regulations do not adopt
this suggestion because of the difficulty
in identifying a specific dollar threshold
that would be sufficient in all cases to
ensure the supported organization’s
attentiveness.
Finally, one commenter requested
guidance on how a supporting
organization to a community foundation
could satisfy the attentiveness test if it
makes distributions to third-party
organizations that fulfill the mission of
the supported organization(s). Grants to
organizations other than the supported
organization will not ensure the
attentiveness of a supported

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organization. Moreover, Type III
supporting organizations generally are
not permitted to make grants to
organizations other than their supported
organizations. See § 1.509(a)–4(e)(1).
Thus, the final and temporary
regulations do not permit supporting
organizations to satisfy the attentiveness
test by making distributions to thirdparty organizations.

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d. Valuation of Assets
In describing how a NFI Type III
supporting organization determines the
fair market value of its non-exempt-use
assets for purposes of determining its
distributable amount, the 2009 proposed
regulations incorporated language used
in § 53.4942(a)–2(c), which describes
how a private foundation values its
assets for purposes of determining its
distributable amount. The 2009
proposed regulations also incorporated
language used in § 53.4942(a)–2(c) in
describing the assets (including exemptuse assets) that are excluded in
determining the distributable amount.
Rather than duplicate all of the
language in § 53.4942(a)–2(c), the
temporary regulations accomplish the
same result as the 2009 proposed
regulations by cross-referencing
§ 53.4942(a)–2(c). More specifically, the
temporary regulations state that the
determination of the aggregate fair
market value of a NFI Type III
supporting organization’s non-exemptuse assets will be made using the
valuation methods described in
§ 53.4942(a)–2(c). The temporary
regulations also state that, for these
purposes, the ‘‘non-exempt-use’’ assets
of the supporting organization do not
include assets described in
§ 53.4942(a)–2(c)(2) or assets used (or
held for use) to carry out the exempt
purposes of the supported
organization(s) (as defined by applying
the principles described in § 53.4942(a)–
2(c)(3)).
The Treasury Department and the IRS
do not intend for cross-referencing
(rather than duplicating the language of)
§ 53.4942(a)–2(c) to result in any
substantive changes from the 2009
proposed regulations in how NFI Type
III supporting organizations value their
assets or in what assets are excluded in
determining the distributable amount.
However, to the extent that crossreferencing § 53.4942(a)–2(c) could
result in any unintended uncertainty on
this point, the Treasury Department and
the IRS have issued this change in
temporary and proposed regulations to
provide an opportunity for comment.

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7. Consequences of Failure To Meet
Requirements
A Type III supporting organization
that fails to meet the requirements of
these final and temporary regulations—
and that also fails to meet the
requirements of a Type I or II supporting
organization and otherwise fails to
qualify as a public charity under section
509(a)(1), (2), or (4)—will be classified
as a private foundation. Once classified
as a private foundation, the section 507
rules regarding termination of private
foundation status apply.
One commenter requested that the
regulations reclassify a Type III
supporting organization that fails to
meet the requirements of the regulations
as a private foundation as of the
beginning of the taxable year in which
the failure occurred only for purposes of
section 507 and section 4940 (regarding
excise taxes on net investment income)
and as of the first day of the next taxable
year for all other provisions of Chapter
42 (which contains other excise taxes
applicable to private foundations). This
commenter also recommended that, for
purposes of Chapter 42, the identity of
substantial contributors to a supporting
organization within the meaning of
section 507(d)(2) be determined by
taking into account only contributions
received after the date the organization
is reclassified as a private foundation.
In addition, this same commenter
made two recommendations related to
termination of private foundation status
under section 507. First, the commenter
recommended that a Type III supporting
organization that is reclassified as a
private foundation for certain ‘‘nonstructural’’ reasons (such as accepting
gifts from persons that control the
supported organization(s), failing to
provide an annual notice, not making
the required payout, or not satisfying
the attentiveness test) be treated as
having received an advance ruling that
it can be expected to satisfy the
requirements of a supporting
organization during the 60-month
termination period under § 1.507–2(d) if
the supporting organization includes
certain explanatory information in its
notice of termination of private
foundation status. Second, the
commenter recommended allowing a
supporting organization to provide a
notice of termination after the
commencement of the 60-month
termination period in appropriate
cases—for example, during the one or
two years after the regulations become
effective.
The PPA changes did not impact the
timing of when a Type III supporting
organization is reclassified as a private

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foundation or when the various
provisions of Chapter 42 apply after the
Type III supporting organization fails to
meet one or more of the requirements
necessary to maintain its classification
as a Type III supporting organization (or
other type of public charity). The PPA
changes also did not impact the
contributions that are taken into account
when determining whether donors are
substantial contributors. With respect to
termination of private foundation status
under section 507, section
507(b)(1)(B)(ii) states that organizations
terminating their private foundation
status to operate as a supporting
organization or other public charity
must notify the Secretary before, not
after, the commencement of the 60month termination period. Accordingly,
the final and temporary regulations do
not adopt this commenter’s
recommendations.
8. Transition and Other Relief
Provisions
a. Notification Requirement
The final regulations provide that a
Type III supporting organization in
existence on December 28, 2012, the
effective date of the final regulations,
must meet its notification requirement
for its taxable year that includes
December 28, 2012, by the later of the
last day of the fifth calendar month
following the close of that taxable year
or the due date, including extensions, of
its Form 990 (or other annual
information return described in section
6033) for that taxable year. Thus, for
example, a Type III supporting
organization reporting on a calendar
year basis that does not have to file its
2012 Form 990 until November 15,
2013, because it was granted two threemonth extensions of time to file will
have until November 15, 2013, to satisfy
its notification requirement for 2012.
b. Responsiveness Test
The final regulations, like the 2009
proposed regulations, provide that
additional facts and circumstances, such
as a historic and continuing relationship
with supported organization(s), may be
taken into account in establishing
compliance with the responsiveness test
for organizations that were supporting
such supported organization(s) prior to
November 20, 1970.
One commenter asked that the final
regulations clarify whether this
alternative responsiveness test for preNovember 20, 1970 organizations
requires a Type III supporting
organization to also satisfy the
significant voice prong of the
responsiveness test under § 1.509(a)–

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4(i)(3)(iii). Consistent with the existing
regulations, the final regulations clarify
that the significant voice prong is
simply one factor along with other facts
and circumstances that will be taken
into account in determining compliance
with the responsiveness test for preNovember 20, 1970 organizations.
c. Integral Part Test
The final regulations provide
transition rules with respect to the
integral part test for Type III supporting
organizations in existence on December
28, 2012, the effective date of the final
regulations. The 2009 proposed
regulations included a transition rule
under which an organization that met
and continued to meet the requirements
of existing § 1.509(a)–4(i)(3)(ii) (that is,
an organization meeting the integral part
test by satisfying the ‘‘but for’’ test)
would be treated as meeting the
requirements of a functionally
integrated Type III supporting
organization set forth in § 1.509(a)–
4(i)(4) until the first day of the
organization’s first taxable year
beginning after the publication of the
final or temporary regulations. However,
the Treasury Department and the IRS
realize that because the final regulations
are being published on December 28,
2012, Type III supporting organizations
reporting on a calendar year basis that
wish to qualify as functionally
integrated may need additional time to
comply with § 1.509(a)–4(i)(4). As a
result, the final regulations amend this
transition rule to provide that a Type III
supporting organization that met and
continues to meet the ‘‘but for’’ test
under existing § 1.509(a)–4(i)(3)(ii) will
be treated as meeting the requirements
of a functionally integrated Type III
supporting organization set forth in
§ 1.509(a)–4(i)(4) until the first day of
the organization’s second taxable year
beginning after December 28, 2012.
Like the 2009 proposed regulations,
the final regulations provide that a Type
III supporting organization in existence
on December 28, 2012, that met and
continues to meet the requirements of
existing § 1.509(a)–4(i)(3)(iii) (that is, an
organization meeting the integral part
test by satisfying the existing ‘‘payout’’
test) will be treated as meeting the
requirements of a NFI Type III
supporting organization set forth in
§ 1.509(a)–4(i)(5) until the first day of
the organization’s second taxable year
beginning after December 28, 2012.
However, for purposes of determining
whether a Type III supporting
organization treated as NFI under this
transition relief creates an ‘‘excess
amount’’ that can be carried over for five
years, the distributable amount for the

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supporting organization’s first taxable
year beginning after December 28, 2012,
is the greater of 85 percent of net
adjusted income or 3.5 percent of the
value of assets in the immediately
preceding taxable year (that is, the
distributable amount as ordinarily
determined under the temporary
regulations).
Section 1.509(a)–4(i)(11)(iii) of the
2009 proposed regulations provided that
the distributable amount for NFI Type
III supporting organizations is zero for
the first taxable year beginning after the
effective date of the final or temporary
regulations. The Treasury Department
and the IRS did not intend for this
provision to apply to a NFI Type III
supporting organization that had been
meeting the payout test under existing
§ 1.509(a)–4(i)(3)(iii), as is clear from the
example provided in the preamble to
the 2009 proposed regulations
illustrating the application of the
transition rules for a NFI Type III
supporting organization. Rather,
§ 1.509(a)–4(i)(11)(iii) of the 2009
proposed regulations more
appropriately applies only to Type III
supporting organizations that had been
meeting the ‘‘but for’’ test under existing
§ 1.509(a)–4(i)(3)(ii) in the taxable year
of the final regulations’ publication but
seek to qualify as NFI (rather than
functionally integrated) Type III
supporting organizations in succeeding
taxable years. Indeed, one commenter
specifically asked for clarification
regarding the transition relief applicable
to Type III supporting organizations that
had been satisfying the existing ‘‘but
for’’ test but intend to convert to NFI
status because they cannot or do not
wish to qualify as functionally
integrated under the final regulations.
The final regulations provide
clarification regarding these transition
rules. In particular, the final regulations
provide that a Type III supporting
organization in existence on December
28, 2012, that meets the requirements of
the ‘‘but for’’ test under existing
§ 1.509(a)–4(i)(3)(ii) in its taxable year
including December 28, 2012, but not in
its first taxable year beginning after
December 28, 2012, is a NFI Type III
supporting organization during that first
taxable year and will be treated as
having a distributable amount of zero
for purposes of meeting the distribution
and attentiveness requirements under
§ 1.509(a)–4(i)(5)(ii)–(iii).
Notwithstanding this transition relief,
for purposes of determining whether
such a NFI Type III supporting
organization creates an ‘‘excess amount’’
that can be carried over for five years,
the distributable amount for the first
taxable year beginning after December

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28, 2012, is the greater of 85 percent of
net adjusted income or 3.5 percent of
the value of assets in the immediately
preceding taxable year (that is, the
distributable amount as ordinarily
determined under the temporary
regulations). The same rule applies for
purposes of determining the excess
amount of an organization that has a
distributable amount of zero in its first
taxable year as a NFI Type III supporting
organization under § 1.509(a)–
4(i)(5)(ii)(D).
Beginning in the second taxable year
beginning after December 28, 2012, and
in all succeeding taxable years, all Type
III supporting organizations must meet
either the requirements of § 1.509(a)–
4(i)(4) or § 1.509(a)–4(i)(5). A Type III
supporting organization intending to
meet the requirements of a NFI Type III
supporting organization under
§ 1.509(a)–4(i)(5) in its second taxable
year beginning after December 28, 2012,
should value its assets in accordance
with the valuation methods described in
the final regulations beginning in its
first taxable year beginning after
December 28, 2012.
In addition, a Type III supporting
organization treated as a functionally
integrated Type III supporting
organization during its first taxable year
beginning after December 28, 2012, by
virtue of satisfying the ‘‘but for’’ test
under existing § 1.509(a)–4(i)(3)(ii) but
intending to meet the requirements of a
NFI Type III supporting organization
under § 1.509(a)–4(i)(5) during its
second taxable year beginning after
December 28, 2012, will have a
distributable amount for that second
taxable year based on its income or the
value of its assets in the immediately
preceding taxable year. Such a Type III
supporting organization will not have a
distributable amount of zero in its
second taxable year beginning after
December 28, 2012, notwithstanding the
general rule under § 1.509(a)–
4(i)(5)(ii)(D) that the distributable
amount for the first taxable year an
organization is treated as a NFI Type III
supporting organization is zero.
Two commenters requested that the
regulations provide transition relief to
NFI Type III supporting organizations
whose governing instrument or other
instrument prohibits distributions from
capital or corpus, similar to the
transition rules provided to certain
private foundations organized before
May 27, 1969, under § 53.4942(a)–2(e).
The final regulations provide transition
relief to each NFI Type III supporting
organization organized before
September 24, 2009, that commences
judicial proceedings before June 26,
2013, that are necessary to reform its

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Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Rules and Regulations
governing or other instrument to allow
it to meet the distribution requirement.
During any taxable year in which such
a judicial proceeding is pending, a NFI
Type III supporting organization is
excepted from the distribution
requirement to the extent it is prevented
from meeting the requirement by one or
more mandatory provisions in its
governing instrument or other
instrument that prohibits distributions
from capital or corpus. The transition
relief applies only if the governing or
other instrument at issue was executed
(and the mandatory provisions were in
effect) before September 24, 2009, the
date the 2009 proposed regulations were
published in the Federal Register, and
if the judicial proceeding is not subject
to any unreasonable delay for which the
supporting organization is responsible.
Beginning with the first taxable year
following the termination of a judicial
proceeding, a NFI Type III supporting
organization must satisfy the
distribution requirement regardless of
the outcome of the judicial
proceeding—a requirement materially
identical to the requirements imposed
by § 53.4942(a)–2(e)(3) on pre-May 27,
1969 private foundations whose
governing instruments prohibited
distributions out of capital or corpus.
Numerous commenters responded to
the request in the 2009 proposed
regulations for comments regarding the
need for a transition rule for NFI Type
III supporting organizations whose
assets consist predominantly of assets
that are not readily marketable.
Commenters suggested a longer
transition period, varying from four to
ten years, for supporting organizations
with such assets. Some commenters
suggested providing the longer
transition period to all supporting
organizations with a sufficiently high
proportion (for example, a ‘‘material’’
threshold of 20 percent or more) of notreadily-marketable assets. Other
commenters recommended allowing a
NFI Type III supporting organization to
exclude the value of its not-readilymarketable assets from the assets used
to calculate the distributable amount
during the longer transition period
(while possibly also requiring the
organization to pay out substantially all
of the income generated by its notreadily-marketable assets). A few
commenters recommended a phase-in of
the required distribution rate during a
transition period (either for all NFI Type
III supporting organizations or those
holding substantial not-readilymarketable assets). As an alternative to
transition relief, one commenter
recommended a reasonable cause

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exception for NFI Type III supporting
organizations that are unable to
reasonably liquidate their assets that are
not readily marketable.
The final and temporary regulations
do not include a transition rule, or a
reasonable cause exception, for NFI
Type III supporting organizations with
assets that are not readily marketable.
After consideration of the comments
received, the Treasury Department and
the IRS have concluded that any such
transition rule would unfairly impose a
higher distribution requirement on
those NFI Type III supporting
organizations that invested primarily in
liquid assets, as compared to those
organizations that stayed heavily
invested in not-readily-marketable
assets. Moreover, all NFI Type III
supporting organizations have at least
two years after December 28, 2012, to
satisfy the distribution requirement, and
the Treasury Department and the IRS
have concluded that this transition
relief will give supporting organizations
sufficient time to make any sales of notreadily-marketable assets that may be
necessary to meet the distribution
requirement.
Finally, like the 2009 proposed
regulations, the final regulations
continue to provide that a trust that on
November 20, 1970, met and continues
to meet the requirements under existing
§ 1.509(a)–4(i)(4) and § 1.509(a)–4(i)(9)
of the final regulations will satisfy the
integral part test as a NFI Type III
supporting organization under
§ 1.509(a)–4(i)(5). One organization
questioned why a pre-November 20,
1970 trust that meets all of the
requirements set forth in § 1.509(a)–
4(i)(9) should have to petition the IRS
for a ruling. In lieu of a ruling, the
commenter requested a form on which
the trust’s trustee could certify that the
trust meets all of the requirements of
§ 1.509(a)–4(i)(9) or, if a ruling were
required, some assurance that the trust
could operate on the assumption that it
met the requirements of § 1.509(a)–
4(i)(9) until a ruling was issued. Like
existing § 1.509(a)–4(i)(4), § 1.509(a)–
4(i)(9) of the final regulations states that
applicable trusts may (not ‘‘must’’)
obtain a ruling that they meet the
requirements set forth in the provision.
Accordingly, a trust that meets the
requirements of § 1.509(a)–4(i)(9) is not
required to obtain a ruling. The final
and temporary regulations do not alter
this long-standing, optional ruling
procedure.
c. Regulations Under Section 4943
This Treasury decision also includes
final regulations under section 4943 that
provide two transition rules to address

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excess business holdings for Type III
supporting organizations affected by the
PPA. The Treasury Department and the
IRS did not receive any comments on
these transition rules. The final
regulations adopt the 2009 proposed
regulations without change.
9. Miscellaneous
Several other incidental changes were
made throughout the final regulations in
order to increase clarity and
consistency, none of which are intended
to modify the substance of the 2009
proposed regulations.
10. Effective/Applicability Date
Both the final and temporary
regulations are effective and applicable
on December 28, 2012. However,
supporting organizations should note
that section 509(f), which was added by
the PPA, is effective on and after August
17, 2006. In the case of section
509(f)(1)(B), which prohibits Type III
supporting organizations from
supporting foreign organizations, a
transition rule applies under which
Type III supporting organizations that
were supporting a foreign organization
on August 17, 2006, could continue
supporting the foreign organization
until the first day of its third taxable
year beginning after August 17, 2006. In
addition, pursuant to section 1241(c) of
the PPA, the responsiveness test for
charitable trusts in existing § 1.509(a)–
4(i)(2)(iii) cannot support classification
as a Type III supporting organization,
effective August 17, 2007, in the case of
trusts operated in connection with a
supported organization on August 17,
2006. See PPA section 1241(e)(2)(A).
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866, as
supplemented by Executive Order
13563. Therefore, a regulatory
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 the
temporary or the final regulations. For
the applicability of the Regulatory
Flexibility Act (5 U.S.C. chapter 6) to
the temporary regulations, refer to the
Special Analyses section of the
preamble to the cross-reference notice of
proposed rulemaking published in the
Proposed Rules section in this issue of
the Federal Register.
It is hereby certified that the
collection of information contained in
the final regulations will not have a
significant economic impact on a
substantial number of small entities.

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This certification is based on the fact
that the final regulations will not impact
a substantial number of small entities.
Based on IRS Statistics of Income data
for 2009, there are 1,238,201 active
nonprofit charitable organizations
recognized by the IRS under section
501(c)(3), of which only 7,556
organizations self-identified as Type III
supporting organizations. Thus, the
number of organizations affected by the
collection of information under
§ 1.509(a)–4(i)(2) will not be substantial.
In addition, the collection of
information under § 1.509(a)–4(i)(2) will
impose a minimal burden on the
affected organizations because all of the
information that must be provided is
information that the organizations are
already required to maintain. Therefore,
the collection of information under
§ 1.509(a)–4(i)(2) will not have a
significant economic impact.
The collection of information under
§ 1.509(a)–4(i)(6)(v) is required only if a
NFI Type III supporting organization
wishes to obtain the benefit of having
certain amounts set aside for a specific
project count toward the distribution
requirement imposed by these proposed
regulations. Based on IRS Statistics of
Income data for 2009, only 4,438
organizations self-identified as Type III
supporting organizations that are not
functionally integrated. Because only a
very small proportion of private
foundations (less than 0.02 percent)
submit ruling requests for set-asides
each year, the Treasury Department and
the IRS similarly expect that this
elective provision will apply to only a
very small subset of NFI Type III
supporting organizations in any given
year. Therefore, the number of
organizations affected by the collection
of information under § 1.509(a)–
4(i)(6)(v) will not be substantial.
Accordingly, a regulatory flexibility
analysis is not required for the final
regulations.
Pursuant to section 7805(f) of the
Code, the 2009 proposed regulations
preceding the final regulations were
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on their
impact on small business and no
comments were received. The
temporary regulations (and the crossreference notice of proposed rulemaking
published in the Proposed Rules section
in this issue of the Federal Register)
will be submitted to the Chief Counsel
for Advocacy of the Small Business
Administration for comment on their
impact on small business.

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Drafting Information
The principal authors of these
regulations are Preston J. Quesenberry,
and Stephanie N. Robbins, 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
26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 53
Excise taxes, Foundations,
Investments, Lobbying, Reporting and
recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping
requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 53, and
602 are 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. Adding paragraphs (a)(6), (f)(5), and
(l).
2. Revising paragraph (i).
The revision and additions read as
follows:
■

§ 1.509(a)–4

Supporting organizations.

(a) * * *
(6) For purposes of paragraph (i) of
this section, the term ‘‘supported
organization’’ means a specified
publicly supported organization
described in paragraphs (d)(2)(iv) or
(d)(4) of this section.
*
*
*
*
*
(f) * * *
(5) Contributions from controlling
donors—(i) In general. For any taxable
year, a supporting organization shall not
be considered to be operated,
supervised, or controlled by, or operated
in connection with, one or more
publicly supported organizations, if the
supporting organization accepts any gift
or contribution from any person who
is—
(A) A person (other than an
organization described in section
509(a)(1), (2), or (4)) who directly or
indirectly controls, either alone or
together with persons described in

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paragraphs (f)(5)(i)(B) or (f)(5)(i)(C) of
this section, the governing body of a
specified publicly supported
organization supported by such
supporting organization;
(B) A member of the family
(determined under section 4958(f)(4)) of
an individual described in paragraph
(f)(5)(i)(A) of this section; or
(C) A 35-percent controlled entity (as
defined in section 4958(f)(3) by
substituting ‘‘clause (i) or (ii) of section
509(f)(2)(B)’’ for ‘‘subparagraph (A) or
(B) of paragraph (1)’’ in paragraph
(f)(3)(A)(i) thereof).
(ii) Meaning of control. [Reserved]
*
*
*
*
*
(i) Meaning of operated in connection
with—(1) General rule. For each taxable
year, a supporting organization is
operated in connection with one or
more supported organizations (that is, is
a ‘‘Type III supporting organization’’)
only if it is not disqualified by reason
of paragraph (f)(5) (relating to
acceptance of contributions from
controlling donors) or paragraph (i)(10)
(relating to foreign supported
organizations) of this section, and it
satisfies—
(i) The notification requirement,
which is set forth in paragraph (i)(2) of
this section;
(ii) The responsiveness test, which is
set forth in paragraph (i)(3) of this
section; and
(iii) The integral part test, which is
satisfied by maintaining significant
involvement in the operations of one or
more supported organizations and
providing support on which the
supported organization(s) are
dependent; in order to satisfy this test,
the supporting organization must meet
the requirements either for—
(A) Functionally integrated Type III
supporting organizations set forth in
paragraph (i)(4) of this section; or
(B) Non-functionally integrated Type
III supporting organizations set forth in
paragraph (i)(5) of this section.
(2) Notification requirement—(i)
Annual notification. For each taxable
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 the
supporting organization provided to the
supported organization during the
supporting organization’s taxable year
immediately preceding the taxable year
in which the written notice is provided
(and during any other taxable year of the
supporting organization ending after
December 28, 2012, for which such

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support information has not previously
been provided);
(B) A copy of the supporting
organization’s Form 990, ‘‘Return of
Organization Exempt from Income Tax,’’
or other annual information return
required to be filed under section 6033
(although the supporting organization
may redact from the return the name
and address of any contributor to the
organization) that was most recently
filed as of the date the notification is
provided (and any such return for any
other taxable year of the supporting
organization ending after December 28,
2012, that has not previously been
provided to the supported organization);
and
(C) A copy of the supporting
organization’s governing documents as
in effect on the date the notification is
provided, including its articles of
organization and bylaws (if any) and
any amendments to such documents,
unless such documents have been
previously provided and not
subsequently amended.
(ii) Electronic media. The notification
documents required by this paragraph
(i)(2) may be provided by electronic
media.
(iii) Due date. The notification
documents required by this paragraph
(i)(2) for any taxable year shall be
postmarked or electronically
transmitted by the last day of the fifth
calendar month following the close of
that taxable year.
(iv) Principal officer. For purposes of
paragraph (i)(2)(i)(A) of this section, a
principal officer includes, but is not
limited to, a person who, regardless of
title, has ultimate responsibility for—
(A) Implementing the decisions of the
governing body of a supported
organization;
(B) Supervising the management,
administration, or operation of the
supported organization; or
(C) Managing the finances of the
supported organization.
(3) Responsiveness test—(i) General
rule. A supporting organization meets
the responsiveness test if it is
responsive to the needs or demands of
a supported organization. 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
(i)(3)(iii) of this section.
(ii) Relationship of officers, directors,
or trustees. A supporting organization
satisfies the requirements of this
paragraph (i)(3)(ii) with respect to a
supported organization only if—
(A) One or more officers, directors, or
trustees of the supporting organization
are elected or appointed by the officers,

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directors, trustees, or membership of the
supported organization;
(B) One or more members of the
governing body of the supported
organization are also officers, directors,
or trustees of, or hold other important
offices in, the supporting organization;
or
(C) The officers, directors, or trustees
of the supporting organization maintain
a close and continuous working
relationship with the officers, directors,
or trustees of the supported
organization.
(iii) Significant voice. A supporting
organization satisfies the requirements
of this paragraph (i)(3)(iii) only if, by
reason of paragraphs (i)(3)(ii)(A),
(i)(3)(ii)(B), or (i)(3)(ii)(C) of this section,
the officers, directors, or trustees of the
supported organization 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 such supporting
organization, and in otherwise directing
the use of the income or assets of the
supporting organization.
(iv) Examples. The provisions of this
paragraph (i)(3) may be illustrated by
the following examples:
Example 1. X, an organization described
in section 501(c)(3), is a trust created under
the last will and testament of Decedent. The
trustee of X (Trustee) is a bank. Under the
trust instrument, X supports M, a private
university described in section 509(a)(1). The
trust instrument provides that Trustee has
discretion regarding the timing and amount
of distributions consistent with the Trustee’s
fiduciary duties. Representatives of Trustee
and an officer of M have quarterly face-toface or telephonic meetings during which
they discuss M’s projected needs and ways
in which M would like X to use its income
and invest its assets. Additionally, Trustee
communicates regularly with that officer of
M regarding X’s investments and plans for
distributions from X. Trustee provides the
officer of M with quarterly investment
statements, the information required under
paragraph (i)(2) of this section, and an annual
accounting statement. Based on these facts, X
meets the responsiveness test of this
paragraph (i)(3) with respect to M.
Example 2. Y is an organization described
in section 501(c)(3) and is a trust under State
law. The trustee of Y (Trustee) is a bank. Y
supports charities P, Q, and R, each an
organization described in section 509(a)(1). Y
makes annual cash payments to P, Q, and R.
Once a year, Trustee sends to P, Q, and R the
cash payment, the information required
under paragraph (i)(2) of this section, and an
accounting statement. Trustee has no other
communication with P, Q, or R. Y does not
meet the responsiveness test of this
paragraph (i)(3).

(v) Exception for pre-November 20,
1970 organizations. In the case of a
supporting organization that was

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76395

supporting or benefiting a supported
organization before November 20, 1970,
additional facts and circumstances, such
as a historic and continuing relationship
between the organizations, may be taken
into account, in addition to the factors
described in paragraphs (i)(3)(ii) and
(i)(3)(iii) of this section, to establish
compliance with the responsiveness
test.
(4) Integral part test—functionally
integrated Type III supporting
organization—(i) General rule. A
supporting organization meets the
integral part test and will be considered
functionally integrated within the
meaning of section 4943(f)(5)(B), if it—
(A) Engages in activities substantially
all of which directly further the exempt
purposes of one or more supported
organizations and otherwise meets the
requirements described in paragraph
(i)(4)(ii) of this section;
(B) Is the parent of each of its
supported organizations, as described in
paragraph (i)(4)(iii) of this section; or
(C) Supports a governmental
supported organization and otherwise
meets the requirements of paragraph
(i)(4)(iv) of this section.
(ii) Substantially all activities directly
further exempt purposes—(A) In
general. A supporting organization
meets the requirements of this
paragraph (i)(4)(ii) if it engages in
activities substantially all of which—
(1) Directly further the exempt
purposes of one or more supported
organizations to which the supporting
organization is responsive by
performing the functions of, or carrying
out the purposes of, such supported
organization(s); and
(2) But for the involvement of the
supporting organization, would
normally be engaged in by such
supported organization(s).
(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) to which the
supporting organization is responsive,
all pertinent facts and circumstances
will be taken into consideration.
(C) Meaning of directly further.
Activities ‘‘directly further’’ the exempt
purposes of one or more supported
organizations for purposes of this
paragraph (i)(4) only if they are
conducted by the supporting
organization itself, rather than by a
supported organization. Holding title to
and managing exempt-use assets
described in § 1.509(a)–4T(i)(8)(ii) are
activities that directly further the
exempt purposes of the supported

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organization within the meaning of this
paragraph (i)(4). Conversely, except as
provided in paragraph (i)(4)(ii)(D) of this
section, fundraising, making grants
(whether to the supported organization
or to third parties), and investing and
managing non-exempt-use assets are not
activities that directly further the
exempt purposes of the supported
organization within the meaning of this
paragraph (i)(4).
(D) Payments to individual
beneficiaries. The making or awarding
of grants, scholarships, or other
payments to individual beneficiaries
who are members of the charitable class
benefited by a supported organization
will be treated as an activity that
directly furthers the exempt purposes of
that supported organization for
purposes of this paragraph (i)(4) only
if—
(1) The individual beneficiaries are
selected on an objective and
nondiscriminatory basis (as described in
§ 53.4945–4(b));
(2) The officers, directors, or trustees
of the supported organization have a
significant voice in the timing of the
payments, the manner of making them,
and the selection of recipients; and
(3) The making or awarding of such
payments is part of an active program of
the supporting organization that directly
furthers the exempt purposes of the
supported organization and in which
the supporting organization maintains
significant involvement, as defined in
§ 53.4942(b)–1(b)(2)(ii) (except that
‘‘supporting organization’’ shall be
substituted for ‘‘foundation’’).
(iii) Parent of supported
organization(s). For purposes of
paragraph (i)(4)(i)(B) of this section, 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 capacity) of the supporting
organization.
(iv) Supporting a governmental entity.
[Reserved]
(v) Examples. The provisions of this
paragraph (i)(4) may be illustrated by
the following examples:
Example 1. N, an organization described in
section 501(c)(3), is the parent organization
of a healthcare system consisting of two
hospitals (Q and R) and an outpatient clinic
(S), each of which is described in section
509(a)(1), and a taxable subsidiary (T). N is
the sole member of each of Q, R, and S.

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Under the charter and bylaws of each of Q,
R, and S, N appoints all members of the
board of directors of each corporation. N
engages in the overall coordination and
supervision of the healthcare system’s
exempt subsidiary corporations Q, R, and S
in approval of their budgets, strategic
planning, marketing, resource allocation,
securing tax-exempt bond financing, and
community education. N also manages and
invests assets that serve as endowments of Q,
R, and S. Based on these facts, N qualifies as
a functionally integrated Type III supporting
organization under paragraph (i)(4)(i)(B) of
this section.
Example 2. V, an organization described
in section 501(c)(3), is organized and
operated as a supporting organization to L, a
church described in section 509(a)(1). V
meets the responsiveness test described in
paragraph (i)(3) of this section with respect
to L. L transferred to V title to the buildings
in which L conducts religious services, Bible
study, and community enrichment programs.
Substantially all of V’s activities consist of
holding and maintaining these buildings,
which L continues to use, free of charge, to
further its exempt purposes. But for the
activities of V, L would hold and maintain
the buildings. Based on these facts, V
satisfies the requirements of paragraph
(i)(4)(ii) of this section.
Example 3. O is a local nonprofit food
pantry described in section 501(c)(3). O
collects donated food from local growers,
grocery stores, and individuals and
distributes this food free of charge to poor
and needy people in O’s community. O is
organized and operated as a supporting
organization to eight churches of a particular
denomination located in O’s community,
each of which is described in section
509(a)(1). Control of O is vested in a fivemember Board of Directors, which includes
an official from one of the churches as well
as four lay members of the churches’
congregations. The officers of O maintain a
close and continuing working relationship
with each of the eight churches and as a
result of such relationship, each of the eight
churches has a significant voice in directing
the use of the income and assets of O. As a
result, O is responsive to its supported
organizations. All of O’s activities directly
further the exempt purposes of the eight
supported organizations to which it is
responsive. Additionally, but for the
activities of O, the churches would normally
operate food pantries themselves. Based on
these facts, O satisfies the requirements of
paragraph (i)(4)(ii) of this section.
Example 4. M, an organization described in
section 501(c)(3), was created by B, an
individual, to provide scholarships for
students of U, a private secondary school and
an organization described in section
509(a)(1). U establishes the scholarship
criteria, publicizes the scholarship program,
solicits and reviews applications, and selects
the scholarship recipients. M invests its
assets and disburses the funds for
scholarships to the recipients selected by U.
M does not provide the scholarships as part
of an active program in which it maintains
significant involvement, as defined in
§ 53.4942(b)–1(b)(2)(ii). Based on these facts,

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M does not satisfy the requirements of
paragraph (i)(4)(ii) of this section.
Example 5. J, an organization described in
section 501(c)(3), is organized as a supporting
organization to community foundation G, an
organization described in section 509(a)(1). J
meets the responsiveness test described in
paragraph (i)(3) of this section with respect
to G. In addition to maintaining field-ofinterest funds, sponsoring donor advised
funds, and conducting general grantmaking
activities, G also engages in activities to
beautify and maintain local parks.
Substantially all of J’s activities consist of
maintaining all of the local parks in the area
of community foundation G by performing
activities such as establishing and
maintaining trails, planting trees, and
removing trash. But for the activities of J, G
would normally engage in these efforts to
beautify and maintain the local parks. Based
on these facts, J satisfies the requirements of
paragraph (i)(4)(ii) of this section.

(5) Integral part test—nonfunctionally integrated Type III
supporting organization—(i) General
rule. A supporting organization meets
the integral part test and will be
considered non-functionally integrated
if it satisfies either—
(A) The distribution requirement of
paragraph (i)(5)(ii) of this section and
the attentiveness requirement of
paragraph (i)(5)(iii) of this section; or
(B) The pre-November 20, 1970 trust
requirements of paragraph (i)(9) of this
section.
(ii) Distribution requirement—(A)
Annual distribution. 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 the supporting organization’s
distributable amount for the taxable
year, as defined in § 1.509(a)–
4T(i)(5)(ii)(B), on or before the last day
of the taxable year.
(B) Distributable amount. [Reserved].
For further guidance, see § 1.509(a)–
4T(i)(5)(ii)(B).
(C) Minimum asset amount.
[Reserved]. For further guidance, see
§ 1.509(a)–4T(i)(5)(ii)(C).
(D) First taxable year. The
distributable amount for the first taxable
year an organization is treated as a nonfunctionally integrated Type III
supporting organization is zero.
Notwithstanding the foregoing, for
purposes of determining whether an
excess amount is created under
paragraph (i)(7)(ii) of this section, the
distributable amount for the first taxable
year an organization is treated as a nonfunctionally integrated Type III
supporting organization is the
distributable amount that would apply
under § 1.509(a)–4T(i)(5)(ii)(B) in the
absence of this paragraph (i)(5)(ii)(D).

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(E) Emergency temporary reduction.
The Secretary may provide by
publication in the Internal Revenue
Bulletin (see § 601.601(d)(2)(ii)(b) of this
chapter) for a temporary reduction in
the distributable amount in the case of
a disaster or emergency.
(F) Reasonable cause exception. A
non-functionally integrated Type III
supporting organization that fails to
meet the distribution requirement of
this paragraph (i)(5)(ii) will not be
classified as a private foundation for the
taxable year in which it fails to meet the
distribution requirement if the
organization establishes to the
satisfaction of the Secretary that—
(1) The failure was due solely to
unforeseen events or circumstances that
are beyond the organization’s control, a
clerical error, or an incorrect valuation
of assets;
(2) The failure was due to reasonable
cause and not to willful neglect; and
(3) The distribution requirement is
met within 180 days after the
organization is first able to distribute its
distributable amount notwithstanding
the unforeseen events or circumstances,
or 180 days after the date the incorrect
valuation or clerical error was or should
have been discovered; however, no
amounts paid to meet a distribution
requirement for a prior taxable year
under this paragraph (i)(5)(ii)(F)(3) may
be counted toward the distribution
requirement for the taxable year in
which such amounts are paid.
(iii) Attentiveness requirement—(A)
General rule. With respect to each
taxable year, a non-functionally
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) and to which the supporting
organization is responsive (within the
meaning of paragraph (i)(3) of this
section).
(B) Attentiveness. A supported
organization is attentive to the
operations of the supporting
organization during a taxable year if, in
the taxable year, at least one of the
following requirements is satisfied:
(1) The supporting organization
distributes to the supported
organization amounts equaling or
exceeding 10 percent of the supported
organization’s total support (or, in the
case of a particular department or
school of a university, hospital, or
church, the total support of the
department or school) received during
the supported organization’s last taxable

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year ending before the beginning of the
supporting organization’s taxable year.
(2) The amount of support received
from the supporting organization is
necessary to avoid the interruption of
the carrying on of a particular function
or activity of the supported
organization. The support is necessary if
the supporting organization or the
supported organization earmarks the
support for a particular program or
activity of the supported organization,
even if such program or activity is not
the supported organization’s primary
program or activity, as long as such
program or activity is a substantial one.
(3) Based on the consideration of all
pertinent factors, including the number
of supported organizations, the length
and nature of the relationship between
the supported organization and
supporting organization, and the
purpose to which the funds are put, the
amount of support received from the
supporting organization is a sufficient
part of a supported organization’s total
support (or, in the case of a particular
department or school of a university,
hospital, or church, the total support of
the department or school) to ensure
attentiveness. Normally the
attentiveness of a supported
organization is influenced by the
amounts received from the supporting
organization. Thus, the more substantial
the amount involved in terms of a
percentage of the supported
organization’s total support, the greater
the likelihood that the required degree
of attentiveness will be present.
However, in determining whether the
amount received from the supporting
organization is sufficient to ensure the
attentiveness of the supported
organization to the operations of the
supporting organization (including
attentiveness to the nature and yield of
the supporting organization’s
investments), evidence of actual
attentiveness by the supported
organization is of almost equal
importance. A supported organization is
not considered to be attentive solely
because it has enforceable rights against
the supporting organization under state
law.
(C) Distribution to donor advised fund
disregarded. Notwithstanding paragraph
(i)(5)(iii)(B) of this section, in
determining whether a supported
organization will be considered
attentive to the operations of a
supporting organization, any amount
received from the supporting
organization that is held by the
supported organization in a donor
advised fund described in section
4966(d)(2) will be disregarded.

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(D) Examples. This paragraph
(i)(5)(iii) is illustrated by the following
examples:
Example 1. K, an organization described in
section 501(c)(3), annually pays an aggregate
amount equaling or exceeding its
distributable amount described in § 1.509(a)–
4T(i)(5)(ii)(B) to L, a museum described in
section 509(a)(2). K meets the responsiveness
test described in paragraph (i)(3) of this
section with respect to L. In recent years, L
has earmarked the income received from K to
underwrite the cost of carrying on a chamber
music series consisting of 12 performances a
year that are performed for the general public
free of charge at its premises. The chamber
music series is not L’s primary activity but
it is a substantial activity. L could not
continue the performances without K’s
support. Based on these facts, K meets the
requirements of paragraph (i)(5)(iii)(B)(2) of
this section.
Example 2. M, an organization described in
section 501(c)(3), annually pays an aggregate
amount equaling or exceeding its
distributable amount described in § 1.509(a)–
4T(i)(5)(ii)(B) to the Law School of N
University, an organization described in
section 509(a)(1). M meets the responsiveness
test described in paragraph (i)(3) of this
section with respect to N. M has earmarked
the income paid over to N’s Law School to
endow a chair in International Law. Without
M’s continued support, N could not continue
to maintain this chair. The chair is not N’s
primary activity but it is a substantial
activity. Based on these facts, M meets the
requirements of paragraph (i)(5)(iii)(B)(2) of
this section.
Example 3. R is a charitable trust created
under the will of B, who died in 1969. R’s
purpose is to hold assets as an endowment
for S (a hospital), T (a university), and U (a
national medical research organization), all
organizations described in section 509(a)(1)
and specifically named in the trust
instrument, and to distribute all of the
income each year in equal shares among the
three named beneficiaries. Each year, R pays
to S, T, and U an aggregate amount equaling
or exceeding its distributable amount
described in § 1.509(a)–4T(i)(5)(ii)(B). Such
payments equal less than one percent of the
total support that each supported
organization received in its most recently
completed taxable year. Based on these facts,
R does not meet the requirements of
paragraph (i)(5)(iii)(B)(1) of this section.
However, because B died prior to November
20, 1970, R could meet the requirements of
paragraph (i)(5)(i)(B) of this section upon
meeting all of the requirements of paragraph
(i)(9) of this section.
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
under paragraph (i)(3) of this section only as
to V. Each year, O distributes an aggregate
amount that equals its distributable amount
described in § 1.509(a)–4T(i)(5)(ii)(B) and
distributes an equal amount to each of the
five universities. Accordingly, O distributes
only one-fifth of its distributable amount to

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a supported organization to which O is also
responsive (V). Because O does not distribute
at least one-third of its distributable amount
to supported organizations that are both
attentive to the operations of O and to which
the O is responsive, O does not meet the
attentiveness requirements of this paragraph
(i)(5)(iii).

(6) Distributions that count toward
distribution requirement. For purposes
of this paragraph (i)(6), the amount of a
distribution made to a supported
organization is the amount of cash
distributed or the fair-market value of
the property distributed as of the date
the distribution is made. The amount of
a distribution will be determined solely
on the cash receipts and disbursements
method of accounting described in
section 446(c)(1). Distributions by the
supporting organization that count
toward the distribution requirement
imposed in paragraph (i)(5)(ii) of this
section shall include, but not be limited
to—
(i) Any amount paid to a supported
organization to accomplish the
supported organization’s exempt
purposes;
(ii) Any amount paid by the
supporting organization to perform an
activity that satisfies the requirements of
paragraph (i)(4)(ii) of this section, but
only to the extent such amount exceeds
any income derived by the supporting
organization from the activity;
(iii) 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;
(iv) Any amount paid to acquire an
exempt-use asset described in
§ 1.509(a)–4T(i)(8)(ii); and
(v) Any amount set aside for a specific
project that accomplishes the exempt
purposes of a supported organization to
which the supporting organization is
responsive, 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
set-aside, the supporting organization—
(A) Obtains a written statement from
each supported organization whose
exempt purposes the specific project
accomplishes, signed under penalty of
perjury by one of the supported
organization’s principal officers, as
defined in paragraph (i)(2)(iv) of this
section, stating that the supported
organization approves the project as one
that accomplishes one or more of the
supported organization’s exempt
purposes and also approves the
supporting organization’s determination
that the project is one that can be better

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accomplished by such a set-aside than
by the immediate payment of funds;
(B) Establishes to the satisfaction of
the Commissioner, by meeting the
approval and information requirements
described in § 53.4942(a)–3(b)(7)(i) of
this chapter and by providing the
written statement described in
paragraph (i)(6)(v)(A) of this section,
that the amount set aside will be paid
for the specific project within 60
months after it is set aside and that the
project is one that can better be
accomplished by the set-aside than by
the immediate payment of funds; and
(C) Evidences the set-aside by the
entry of a dollar amount on the books
and records of the supporting
organization as a pledge or obligation to
be paid at a future date or dates within
60 months of the set aside.
(7) Carryover of excess amounts—(i)
In general. If with respect to any taxable
year, an excess amount, as defined in
paragraph (i)(7)(ii) of this section, is
created, such excess amount may be
used to reduce the distributable amount
in any of the five taxable years
immediately following the taxable year
in which the excess amount is created.
An excess amount created in a taxable
year can only be carried over for five
taxable years.
(ii) Excess amount. An excess amount
is created for any taxable year beginning
after December 28, 2012, if the total
distributions made in that taxable year
that count toward the distribution
requirement exceed the supporting
organization’s distributable amount for
the taxable year, as determined under
§ 1.509(a)–4T(i)(5)(ii)(B). With respect to
any taxable year to which an excess
amount is carried over, in determining
whether an excess amount is created in
that taxable year, the distributable
amount is first reduced by any excess
amounts carried over (with the oldest
excess amounts applied first) and then
by any distributions made in that
taxable year.
(8) Valuation of non-exempt-use
assets. [Reserved]. For further guidance,
see § 1.509(a)–4T(i)(8).
(9) Alternate integral part test for
certain trusts. A trust (whether or not
exempt from taxation under section
501(a)) that on November 20, 1970, met
and continues to meet the requirements
of paragraphs (i)(9)(i) through (i)(9)(v) of
this section, shall be treated as meeting
the requirements of paragraph (i)(5) of
this section if for taxable years
beginning after October 16, 1972, the
trustee of such trust makes annual
written reports to all of the trust’s
supported organizations, setting forth a
description of the trust’s assets,
including a detailed list of the assets

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and the income produced by such
assets. A trust that meets the
requirements of this paragraph (i)(9)
may request a ruling that it is described
in section 509(a)(3) in such manner as
the Commissioner may prescribe. The
requirements of this paragraph (i)(9) are
as follows:
(i) All the unexpired interests in the
trust are devoted to one or more
purposes described in section 170(c)(1)
or (c)(2)(B) and a deduction was allowed
with respect to such interests under
sections 170, 545(b)(2), 556(b)(2), 642(c),
2055, 2106(a)(2), 2522, or corresponding
provisions of prior law (or would have
been allowed such a deduction if the
trust had not been created before 1913).
(ii) The trust was created prior to
November 20, 1970, and did not receive
any grant, contribution, bequest or other
transfer on or after such date. For
purposes of this paragraph (i)(9)(ii), a
split-interest trust described in section
4947(a)(2) that was created prior to
November 20, 1970, was irrevocable on
such date, and that becomes a charitable
trust described in section 4947(a)(1)
after such date shall be treated as having
been created prior to such date.
(iii) The trust is required by its
governing instrument to distribute all of
its net income currently to a designated
beneficiary supported organization. If
more than one beneficiary supported
organization is designated in the
governing instrument of a trust, all of
the net income must be distributable
and must be distributed currently to
each of such supported organizations in
fixed shares pursuant to such governing
instrument. For purposes of this
paragraph (i)(9)(iii), the governing
instrument of a charitable trust shall be
treated as requiring distribution to a
designated supported organization
when the trust instrument describes the
charitable purpose of the trust so
completely that such description can
apply to only one existing supported
organization and is of sufficient
particularity as to vest in such
organization rights against the trust
enforceable in a court possessing
equitable powers.
(iv) The trustee of the trust does not
have discretion to vary either the
beneficiary supported organizations or
the amounts payable to the supported
organizations. For purposes of this
paragraph (i)(9)(iv), a trustee shall not
be treated as having such discretion if
the trustee has discretion to make
payments of principal to the single
supported organization that is currently
entitled to receive all of the trust’s
income or if the trust instrument
provides that the trustee may cease
making income payments to a particular

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Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Rules and Regulations
supported organization in the event of
certain specific occurrences, such as the
loss of exemption under section
501(c)(3) or classification under section
509(a)(1) or (a)(2) by the supported
organization or the failure of the
supported organization to carry out its
charitable purpose properly.
(v) None of the trustees would be
disqualified persons within the meaning
of section 4946(a) (other than
foundation managers under section
4946(a)(1)(B)) with respect to the trust if
such trust were treated as a private
foundation.
(10) Foreign supported organizations.
A supporting organization is not
operated in connection with one or
more supported organizations if it
supports any supported organization
organized outside of the United States.
(11) Transition rules—(i) Notification
requirement. A Type III supporting
organization will be treated as having
satisfied the notification requirement
described in paragraph (i)(2) of this
section for its taxable year that includes
December 28, 2012, if the required
notification is postmarked or
electronically transmitted by the later of
the last day of the fifth calendar month
following the close of that taxable year
or the due date (including extensions) of
the supporting organization’s annual
information return described in section
6033 for that taxable year.
(ii) Integral part test—(A)
Qualification as a functionally
integrated Type III supporting
organization. A Type III supporting
organization in existence on December
28, 2012, that met and continues to meet
the requirements of Treas. Reg.
§ 1.509(a)–4(i)(3)(ii), as in effect prior to
December 28, 2012, will be treated as
meeting the requirements of paragraph
(i)(4) of this section until the first day
of the organization’s second taxable year
beginning after December 28, 2012.
(B) Qualification as a nonfunctionally integrated Type III
supporting organization. A Type III
supporting organization in existence on
December 28, 2012, that met and
continues to meet the requirements of
Treas. Reg. § 1.509(a)–4(i)(3)(iii), as in
effect prior to December 28, 2012, will
be treated as meeting the requirements
of paragraph (i)(5)(i)(A) of this section
until the first day of its second taxable
year beginning after December 28, 2012.
Notwithstanding the foregoing, in
determining whether an excess amount
is created under paragraph (i)(7)(ii) of
this section in the first taxable year
beginning after December 28, 2012, the
distributable amount for that taxable
year of a Type III supporting
organization treated as meeting the

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requirements of paragraph (i)(5)(i)(A) of
this section under this paragraph
(i)(11)(ii)(B) is the amount described in
§ 1.509(a)–4T(i)(5)(ii)(B).
(C) Transitioning to a nonfunctionally integrated Type III
supporting organization in the first
taxable year after effective date. A Type
III supporting organization in existence
on December 28, 2012, that meets the
requirements of Treas. Reg. § 1.509(a)–
4(i)(3)(ii), as in effect prior to December
28, 2012, in its taxable year including
December 28, 2012, but not in its first
taxable year beginning after December
28, 2012, is a non-functionally
integrated Type III supporting
organization and will be treated as
having a distributable amount of zero
for purposes of meeting the
requirements of paragraph (i)(5)(i)(A) of
this section during the organization’s
first taxable year beginning after
December 28, 2012. Notwithstanding
the foregoing, in determining whether
an excess amount is created under
paragraph (i)(7)(ii) of this section in the
first taxable year beginning after
December 28, 2012, the distributable
amount for that taxable year of a Type
III supporting organization described in
this paragraph (i)(11)(ii)(C) is the
amount described in § 1.509(a)–
4T(i)(5)(ii)(B), determined without
regard to paragraph (i)(5)(ii)(D) of this
section.
(D) Second taxable year after effective
date. Beginning in the second taxable
year beginning after December 28, 2012,
and in all succeeding taxable years, all
Type III supporting organizations
described in this paragraph (i)(11)(ii)
must meet either the requirements of
paragraph (i)(4) or (i)(5) of this section.
If a Type III supporting organization
described in paragraph (i)(11)(ii)(A) of
this section does not meet the
requirements of paragraph (i)(4) of this
section during its second taxable year
beginning after December 28, 2012, its
distributable amount for that second
taxable year will be determined under
§ 1.509(a)–4T(i)(5)(ii)(B), without regard
to paragraph (i)(5)(ii)(D) of this section.
Any Type III supporting organization
intending to meet the requirements of
paragraph (i)(5) of this section in its
second taxable year beginning after
December 28, 2012, must value its assets
in accordance with § 1.509(a)–4T(i)(8)
beginning in its first taxable year
beginning after December 28, 2012.
(E) Judicial proceedings to reform
instruments. During any taxable years in
which there is pending a judicial
proceeding that meets the requirements
of this paragraph (i)(11)(ii)(E), a nonfunctionally integrated Type III
supporting organization organized

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76399

before September 24, 2009, will not
have to comply with the distribution
requirement under paragraph (i)(5)(ii) of
this section to the extent such
compliance would be inconsistent with
mandatory provisions of a governing
instrument or other instrument executed
before September 24, 2009, that
prohibits distributing capital or corpus.
Beginning with the first taxable year
following the taxable year in which
such judicial proceeding is terminated,
such a non-functionally integrated Type
III supporting organization must satisfy
the distribution requirement under
paragraph (i)(5)(ii) of this section,
regardless of the outcome of the judicial
proceeding. Thus, if, during a taxable
year after such a judicial proceeding, an
organization fails to comply with
paragraph (i)(5)(ii) of this section, the
organization will not qualify as a nonfunctionally integrated Type III
supporting organization, regardless of
whether such failure to comply was a
result of the organization operating in
accordance with its governing
instrument or other instrument. To meet
the requirements of this paragraph
(i)(11)(ii)(E), a judicial proceeding must
be—
(1) Necessary to reform, or to excuse
the supporting organization from
compliance with, a governing
instrument or other instrument (as in
effect on September 24, 2009, and all
times thereafter) in order to permit the
organization to satisfy paragraph
(i)(5)(ii) of this section;
(2) Commenced before June 26, 2013;
and
(3) Not subject to any unreasonable
delay for which the supporting
organization is responsible.
*
*
*
*
*
(l) Effective/applicability date.
Paragraphs (a)(6), (f)(5), and (i) of this
section are effective on December 28,
2012.
Par. 3. Section 1.509(a)–4T is added
to read as follows:
§ 1.509(a)–4T
(temporary).

Supporting organizations

(a) through (i)(5)(ii)(A) [Reserved]. For
further guidance, see § 1.509(a)–4(a)
through (i)(5)(ii)(A).
(B) Distributable amount. Except as
provided in §§ 1.509(a)–4(i)(5)(ii)(D) and
1.509(a)–4(i)(5)(ii)(E), 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’’)

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Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Rules and Regulations

or its minimum asset amount (as
defined in paragraph (i)(5)(ii)(C) of this
section) for the immediately preceding
taxable year, reduced by the amount of
taxes imposed on the supporting
organization under subtitle A of the
Internal Revenue Code during the
immediately preceding taxable year.
(C) Minimum asset amount. For
purposes of this paragraph (i)(5), a
supporting organization’s minimum
asset amount for the immediately
preceding taxable year is 3.5 percent of
the excess of the aggregate fair market
value of all of the supporting
organization’s non-exempt-use assets
(determined under paragraph (i)(8) of
this section) in that immediately
preceding taxable year over the
acquisition indebtedness with respect to
such non-exempt-use assets (determined
under section 514(c)(1) without regard
to the taxable year in which the
indebtedness was incurred), increased
by—
(1) Amounts received or accrued
during the immediately preceding
taxable year as repayments of amounts
which were taken into account by the
organization to meet the distribution
requirement imposed in § 1.509(a)–
4(i)(5)(ii)(A) for any taxable year;
(2) Amounts received or accrued
during the immediately preceding
taxable year from the sale or other
disposition of property to the extent that
the acquisition of such property was
taken into account by the organization
to meet the distribution requirement
imposed in § 1.509(a)–4(i)(5)(ii)(A) for
any taxable year; and
(3) Any amount set aside under
§ 1.509(a)–4(i)(6)(v) to the extent it is
determined during the immediately
preceding taxable year that such amount
is not necessary for the purposes for
which it was set aside and such amount
was taken into account by the
organization to meet the distribution
requirement imposed in § 1.509(a)–
4(i)(5)(ii)(A) for any taxable year.
(i)(5)(ii)(D) through (i)(7) [Reserved].
For further guidance, see § 1.509(a)–
4(i)(5)(ii)(D) through (i)(7).
(8) Valuation of non-exempt-use
assets. For purposes of determining its
distributable amount for a taxable year,
a supporting organization determines its
minimum asset amount, as defined in
paragraph (i)(5)(ii)(C) of this section, by
determining the aggregate fair market
value of all of its non-exempt-use assets
in the immediately preceding taxable
year. For these purposes, the
determination of the aggregate fair
market value of all non-exempt-use
assets shall be made using the valuation
methods described in § 53.4942(a)–2(c)
of this chapter. The aggregate fair

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market value of the supporting
organization’s non-exempt-use assets
shall not be reduced by any amount that
is set aside under § 1.509(a)–4(i)(6)(v).
For these purposes, the non-exempt-use
assets of the supporting organization are
all assets of the supporting organization
other than—
(i) Assets described in § 53.4942(a)–
2(c)(2)(i) through (iv) of this chapter
(with ‘‘supporting organization’’ being
substituted for ‘‘foundation’’ or ‘‘private
foundation’’ and ‘‘August 17, 2006’’
being substituted for ‘‘December 31,
1969’’); and
(ii) Exempt-use assets, which are
assets that are used (or held for use) to
carry out the exempt purposes of the
supporting organization’s supported
organization(s) (determined by applying
the principles described in § 53.4942(a)–
2(c)(3) of this chapter) by either—
(A) The supporting organization; or
(B) One or more supported
organizations, but only if the supporting
organization makes the asset available to
the supported organization(s) at no cost
(or nominal rent) to the supported
organization(s).
(i)(9) through (l) [Reserved]. For
further guidance, see § 1.509(a)–4(i)(9)
through (l).
(m) Effective/applicability date. This
section is effective on December 28,
2012. The applicability of this section
expires on or before December 21, 2015.
PART 53—FOUNDATION AND SIMILAR
EXCISE TAXES
■ Par. 4. The authority citation for part
53 continues to read as follows:

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

Par. 5. Section 53.4943–11 is
amended by revising the section
heading and adding paragraphs (f) and
(g) to read as follows:

trusts before November 20, 1970. A trust
that qualifies as a Type III supporting
organization under section 509(a)(3) and
meets the requirements of § 1.509(a)–
4(i)(9) of this chapter will be treated as
a ‘‘functionally integrated Type III
supporting organization’’ for purposes
of section 4943(f)(3)(A).
PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
■ Par. 6. The authority citation for part
602 continues to read as follows:

Authority: 26 U.S.C. 7805.
■ Par. 7. In § 602.101, paragraph (b) is
amended by adding the following entry
in numerical order to the table to read
as follows:

§ 602.101

*

OMB Control numbers.

*
*
(b) * * *

*

*

CFR part or section where
identified and described
*
*
*
1.509(a)–4 ............................
*

*

*

Current OMB
Control No.
*

*
1545–2157

*

*

Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
Approved: December 19, 2012.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2012–31050 Filed 12–21–12; 4:15 pm]
BILLING CODE 4830–01–P

■

§ 53.4943–11

*
*
*
*
(f) Special transitional rule for private
foundations that qualified as Type III
supporting organizations before August
17, 2006. The present holdings of a
private foundation that qualified as a
Type III supporting organization under
section 509(a)(3) immediately before
August 17, 2006, and that was
reclassified as a private foundation
under section 509(a) on or after August
17, 2006, solely as a result of the rules
enacted by section 1241 of the Pension
Protection Act of 2006, Public Law 109–
280 (120 Stat. 780), will be determined
using the same rules that apply to Type
III supporting organizations under
section 4943(f)(7).
(g) Special transitional rule for Type
III supporting organizations created as

Frm 00060

Internal Revenue Service

Effective/applicability date.

*

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26 CFR Part 301
[TD 9608]
RIN 1545–BI85

Disclosure or Use of Information by
Preparers of Returns
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
temporary regulations.
AGENCY:

SUMMARY: This document contains final
regulations that provide rules relating to
the disclosure or use of tax return
information by tax return preparers.
These regulations provide updated
guidance affecting tax return preparers
regarding the use of information related
to lists for solicitation of tax return

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