December 27, 2012
Treasury Releases Type III Supporting Organization Regulations
The Treasury Department has released final and temporary regulations regarding the requirements to quality as a Type III ("operated in connection with") supporting organization. Changes from the proposed regulations include (1) adding back in the defined term "publicly supported organization," (2) clarifying which Form 990 such a supporting organization must provide to its supported organizations, (3) clarifying certain aspects of the requirements for being considered "functionally integrated," and, most significantly, (4) modifying the payout requirement for non-functionally integrated Type III supporting organizations to now require an annual distribution equal to the greater of 85% of adjusted net income or 3.5% of the fair market value of the supporting organization's non-exempt-use assets. The Treasury also stated it is still considering certain further changes, including providing a definition of "control" for purposes of the provision prohibiting the acceptance of gifts or contributions from a person who controls the governing body of a supporting organization, providing additional examples of how Type III supporting organizations can satisfy the responsiveness test, and whether program-related investments may count toward the payout requirement for non-functionally integrated Type III supporting organizations.
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