Thursday, September 29, 2011
If you follow the world of exempt organizations under 501(c)(3), you are aware of the changes made in the law in 2006 regarding the regulation of supporting organizations, particularly those that we call "Type III" supporting organizations. This article in the Washington Post about the George Kaiser Foundation and its investments in the failed solar firm Solyndra is a good insight into the kinds of problems created by supporting organizations in general and Type III supporting organizations in particular (note that the story does not say whether, in fact, the George Kaiser Foundation was a Type III organization).
I understand the general rationale for supporting organizations not being classified as private foundations. If an organization truly is accountable to a public charity (which by definition must be accountable to the "general public" as a result of the various tests in Section 509(a)), then there is reason to believe that the supporting organization will not suffer from the kinds of abuses that the private foundation regulatory scheme enacted in 1969 (and updated since then) was designed to address. But some "supporting organizations" (particularly the Type III's) historically have not had this level of accountability, and I tend to agree that they should simply be abolished; let's have "real" public charities with real public accountability, private foundations with the tighter regulatory scheme necessary to overcome the lack of accountability, and no "in-betweens."
Hat tip on story to Karly Simon