Private Letter Ruling
Number: 202404009
Internal Revenue Service
October 20, 2023
   
   
   
Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
   
Release Number: 202404009
Release Date: 1/26/2024
UIL Code: 501.03-00
   
Date: 10/20/2023
Taxpayer ID number (last 4 digits):
Form:
Tax periods ended:
Person to contact:
Name:
ID number:
Telephone:
Fax:
   
Last day to file petition with United States
Tax Court: 1/18/2024
   
CERILFIED MAIL - Return Receipt Requested
   
Dear ******:
   
This is a final determination regarding your foundation classification. This modifies our letter dated ******, ******, in which we determined that you were an organization described in Internal Revenue Code (IRC) Section 501(c)(3) as a Type III Functionally Integrated Supporting organization (FISO). This letter modifies your foundation status to that of a public charity described in IRC Sections 501(c)(3) and 170(b)(1)(A)(vi), effective ******, ******.
   
Your tax exempt status under IRC Section 501(c)(3) of the Code is not affected. Grantors and contributors may rely on this determination, unless the Internal Revenue Service publishes a notice to the contrary. Because this letter could help resolve any questions about your private foundation status, please keep it with your permanent records.
   
We previously provided you a report of examination explaining the proposed modification of your tax-exempt status. At that time, we informed you of your right to contact the Taxpayer Advocate, as well as your appeal rights. On ******, ******, you signed Form 6018, Consent to Proposed Action - Section 7428, in which you agreed to the modification of your foundation classification to 170(b)(1)(A)(vi) and described in 501(c)(3). This is a final determination letter with regards to your federal tax-exempt status under Section 501(a).
   
You are required to file Form 990, Return of Organization Exempt from Income Tax. Form 990 must be filed by the 15th day of the fifth mouth after the end of your annual accounting periods. A penalty of $20 a day is charged when a return is filed late, unless there is a reasonable cause for the delay; however, the maximum penalty charged cannot exceed $10,000 or 5 percent of your gross receipts for the year whichever is less. In addition, organizations with gross receipts exceeding $1,000,000 for any year will be charged a penalty of $100 a day when a return is filed late; however, the maximum penalty charged cannot exceed $50,000. These penalties may also be charged if a return is not complete, so be sure your return is complete before you file it.
   
If you are subject to the tax on unrelated business income under IRC Section 511, you must also file an income tax return on Form 990-T, Exempt Organization Business Income Tax Return.
   
If you decide to contest this determination, you may file an action for declaratory judgment under the provisions of IRC Section 7428 in one of the following three venues: 1) United States Tax Court, 2) the United States Court of Federal Claims, or 3) the United States District Court for the District of Columbia. A petition or complaint in one of these three courts must be filed within 90 days from the date this determination was mailed to you. Please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory judgment by referring to the enclosed Publication 892. You may write to the courts at the following addresses:
   
United States Tax Court   
400 Second Street, NW
Washington, DC 20217
ustaxcourt.gov   
   
US Court of Federal Claims   
717 Madison Place, NW
Washington, DC 20005
uscfc.uscourts.gov   
   
US District Court for the District of Columbia   
333 Constitution Avenue, NW
Washington, DC 20001
dcd.uscourts.gov   
   
You may also be eligible for help from the Taxpayer Advocate Service (TAS). TAS is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.
   
Taxpayer Advocate assistance can't be used as substitute for established IRS procedures, formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or technically correct tax determination, nor extend the time fixed by law that you have to file a petition in Court. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling.
   
You can get any of the forms or publications mentioned in this letter by calling 800-TAX-FORM (800-829-3676) or visiting our website at www.irs.gov/forms-pubs.
   
If you have any questions about this letter, please contact the person whose name and telephone number are shown in the heading of this letter.
   
Sincerely,
   
Lynn A. Brinkley
Director, Exempt Organizations Examinations
   
Enclosures:
Publication 892
   
   
   
Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
   
Date:
February 24, 2023
Taxpayer ID number (last 4 digits):
Form:
990-EZ Return
Tax periods ended:
Person to contact:
Name:
ID number:
Telephone:
Fax:
Hours:
Address:
Manager's contact information:
Name:
ID number:
Telephone
Response due date:
March 27, 2023
   
CERTIFIED MAIL -- Return Receipt Requested
   
Dear ******:
   
Why you're receiving this letter   
We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to modify your organization's foundation status under Internal Revenue Code (IRC) Section 509(a).
   
Your exempt status under IRC Section 501(c)(3) is still in effect.
   
If you agree   
If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final letter modifying your foundation status.
   
If you disagree   
1. Request a meeting or telephone conference with the manager shown at the top of this letter.
   
2. Send any information you want us to consider.
   
3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information.
   
The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.
   
Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter.
   
4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS.
   
If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals.
   
If we don't hear from you   
If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final letter modifying your foundation status.
   
Contacting the Taxpayer Advocate Office is a taxpayer right   
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov  or call 877-777-4778.
   
Additional information   
You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs  or by calling 800-TAX-FORM (800-829-3676).
   
If you have questions, you can contact the person shown at the top of this letter.
   
Sincerely,
   
For: Lynn A. Brinkley
Director, Exempt Organizations
Examinations
   
Enclosures:
Form 886-A
Form 6018
Form 4621-A
Pub 892
Pub 3498
   
   
   
                          
   
 Issue 1:
   
Whether ****** failed the relationship test and fails to qualify as a Type III supporting organization.
   
 Issue 2:
   
Whether ****** meets the public support test of IRC 170(b)(1)(A)(vi) and can be to be excluded from private foundation classification.
   
 FACTS:
   
****** (hereinafter, EO) is exempt from taxation under IRC § 501(c)(3), with a foundation classification 509(a)(3) Operated in connection with Type III functionally integrated supporting organization. The relevant facts apply the EO received its exemption on ******, ******. On the 1023 application the EO stated it will be supporting a foreign organization that is not public charities under section 509(a)(1) or (2) or section 501(c)(4), 501(c)(5), or 501(c)(6). The EO is supporting ****** by providing grants for teaching materials for teachers, room and board and administrative support for the students and their families. ****** is operated and located in ******, ****** and is not organized in the United States. The EO solicits donations from local ****** Churches and their congregations located in the United States.
   
1023 Application:
   
       
   
Schedule A from Form 990 for year ending December 31, ******
   
       
   
Schedule B filed on form 990 for year ending December 31, 2020
   
       
   
List of contributors provide in IDR ****** for year ending December 31, ******
   
       
   
990 Schedule B filed for year ending December 31, ******:
   
       
   
Initial Interview question and response from ******, ****** with Secretary/Treasurer:
   
Question:
Is the supported organization a foreign org that was not established in the U.S.?
   
Answer:
Yes
   
 LAW:
   
Treas.Reg. 1.509(a)-4(i) Operated in connection with The third relationship type was revised by the Pension Protection Act (PPA) of 2006, which made significant changes in Type III requirements to ensure that supporting organizations are responsive to supported organizations. (Pension Protection Act of 2006, P.L. 109-280).
   
There are two types of Type III supporting organizations:
   
1. Functionally integrated supporting organizations (FISO)   
   
Functionally integrated Type Ill supporting organizations are described in Treas.Reg. 1.509(a)-4(i)(4), and are characterized by the performance of activities that directly further the exempt purpose of the supported organization(s)   
   
2. Non-functionally integrated supporting organizations (Non-FISO)
   
Non-functionally integrated Type III supporting organizations are described in Treas.Reg. 1.509(a)-4(i)(5), and are characterized by making payments, such as grants, to the supported organization(s). Non-FISOs are also subject to more restrictions and requirements than FISOs.
   
IRC 509(a) notes that all organizations, foreign and domestic, described in IRC 501(c)(3) are private foundations except for those described in IRC 509(a)(1), (2), (3), or (4). "Public charity" is the generic term given to the excepted organizations in the above listed Code sections.
   
Therefore, all IRC 501(c)(3) organizations are either private foundations or public charities. All IRC 501(c)(3) organizations are presumed to be private foundations unless they are described in IRC 509(a)(1), (2), (3), or (4).
   
Treas.Reg. 1.509(a)-4(f)(2)(iii) states that the supporting organization must be operated in connection with, one or more publicly supported organizations.
   
Section 1.509(a)-4(d)(1) of the regulations provides that in order to meet the requirements of section 509(a)(3)(A), an organization must be organized and operated exclusively to support or benefit one or more "specified" publicly supported organizations.
   
Treas.Reg. 1.509(a)-4(i)(10) states that 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. Type III supporting organizations, including both FISOs and non-FISOs, are prohibited from supporting any organization which isn't organized in the U.S. 
   
Foundation Status Under Sections 509(a)(1), 509(a)(2), 509(a)(3) or 509(a)(4)   
IRC 509(a)(1) excludes from private foundation classification those organizations described in IRC 170(b)(1)(A)(i)-(vi):
   
- IRC 170(b)(1)(A)(i) - Churches
- IRC 170(b)(1)(A)(ii) - Schools
- IRC 170(b)(1)(A)(iii) - Hospitals
- IRC 170(b)(1)(A)(iv) - Endowment funds for a state university's library
- IRC 170(b)(1)(A)(v) - Governmental entities
- IRC 170(b)(1)(A)(vi) - Publicly supported charities, such as, United Way
   
  Note: IRC 509 (a)(1) organizations engage in inherently public activities.
   
IRC 509(a)(2) excludes from private foundation classification those publicly supported organizations that receive more than one-third of their support from gifts, grants, contributions, membership fees, and certain gross receipts but not more than one-third from gross investment income and net unrelated business taxable income (UBI).   Note: IRC 509(a)(2) organizations are supported primarily by exempt function income. Exempt function income comes from an activity that is not an unrelated trade or business.
   
IRC 509(a)(3) excludes from private foundation classification those organizations that, in general, support organizations described in IRC 509(a)(1) or (2), although they themselves are not publicly supported.
   
Section 1.509(a)-4(d)(1) of the regulations provides that in order to meet the requirements of section 509(a)(3)(A), an organization must be organized and operated exclusively to support or benefit one or more "specified" publicly supported organizations.
   
Treas.Reg. 1.509(a)-4(i)(10) states that 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. Type III supporting organizations, including both FISOs and non-FISOs, are prohibited from supporting any organization which isn't organized in the U.S. 
   
Rev.Rul. 78-95 (IRS RRU), 1978-1 C.B. 71, 1978 WL 42293- An organization, exempt from Federal income tax under section 501(c)(3) of the Code and described in section 170(c)(2), is primarily supported by contributions from Individual churches.
   
The two percent limitation prescribed by section1.170A-9(e)(6)(i) of the regulations does not apply to the support received by an exempt organization described in section 170(c)(2) of the Code from individual churches described in section 170(b)(1)(A)(i) that are publicly supported and entitled to section 170(b)(1)(A)(vi) status.
   
 GOVERMENTS POSITION:
   
Issue 1:
Whether ****** failed the relationship test and fails to qualify as a Type III supporting organization.
   
The EO applied for exemption and stated on the 1023 application, that the supported organization will be ****** is operated and located in ******, ******. The EO is exempt from taxation under IRC§ 501(c)(3), with a foundation classification 509(a)(3) Operated in connection with Type III functionally integrated supporting organization. Per Treas.Reg. 1.509(a)-4(i) Operated in connection with the third relationship type was revised by the Pension Protection Act (PPA) of 2006, which made significant changes in Type III requirements to ensure that supporting organizations are responsive to supported organizations. (Pension Protection Act of 2006, P.L. 109-280). There are two types of Type III supporting organizations:
   
1. Functionally integrated supporting organizations (FISO)
2. Non-functionally integrated supporting organizations (Non-FISO)
   
Treas.Reg. 1.509(a)-4(i)(10) states that 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. Type III supporting organizations, including both FISOs and non-FISOs, are prohibited from supporting any organization which isn't organized in the U.S. The schedule A filed with form 990 for year ending ******, ******, the EO answered Yes  to the question 4a was any supported organization not organized in the United States. During the initial interview conducted with the ****** Secretary/Treasurer of the EO, he answered yes to the question is the supported organization a foreign org that was not organized in the U.S. Per the law the EO failed the relationship test and is not operated in connection with the supported org and the EO is not qualified as supporting organization foundation classification under IRC 509(a)(3).
   
ISSUE 2:
   
Whether ****** meets the public support test of IRC 170(b)(1)(A)(vi) and can be to be excluded from private foundation classification.
   
Since the EO is still exempt under IRC 501(c)(3) but is not qualified under 509(a)(3) foundation status, IRC 509(a) states that all organizations, foreign and domestic, described in IRC 501(c)(3) are private foundations except for those described in IRC 509(a)(1), (2), (3), or (4). The EO can't qualify under IRC 509(a)(4) because it is not organized and operated for the purpose of testing products for public safety. To be excluded as a private foundation the EO must pass the public support test under IRC 509(a)(1) or 509(a)(2). The public support test is satisfied by meeting either a 33 1/3 percent test or a facts and circumstances 10 percent test.
   
The foundation status of a organization is based on the type of organization and how it receive its support. IRC IRC 509(a)(1) excludes from private foundation classification those organizations described in IRC 170(b)(1)(A)(i)-(vi):
   
- IRC 170(b)(1)(A)(i) - Churches
- IRC 170(b)(1)(A)(ii) - Schools
- IRC 170(b)(1)(A)(iii) - Hospitals
- IRC 170(b)(1)(A)(iv) - Endowment funds for a state university's library
- IRC 170(b)(1)(A)(v) - Governmental entities
- IRC 170(b)(1)(A)(vi) - Publicly supported charities
   
The EO is not a Church, School, Hospital, endowment fund for state university library or a Governmental entity, then it could be consider a Public supported Charity under IRC 170(b)(1)(A)(vi). Organizations described in sections 509(a)(1) and 170(b)(1)(A)(vi) of the Code are publicly supported organizations that receive substantial financial support from contributions made by other publicly supported organizations, governmental units, the general public or a combination of such sources. The EO solicits donations from ****** church's and also thru the members of the church congregations. Per the books and records the EO provided a list of contributors for year ending ******, ****** confirms that the EO received it's support from Church's (publicly supported organizations) and Individuals (general public) only. The schedule B filed with the ******, ****** 990 return reflects the same type of support from churches and Individuals. Rev.Rul. 78-95 (IRS RRU), 1978-1 C.B. 71, 1978 WL 42293 - An organization, exempt from Federal income tax under section 501(c)(3) of the Code and described in section 170(c)(2), is primarily supported by contributions from Individual churches. The two percent limitation prescribed by section 1.170A-9(e)(6)(i) of the regulations does not apply to the support received by an exempt organization described in section 170(c)(2) of the Code from individual churches described in section 170(b)(1)(A)(i) that are publicly supported and entitled to section 170(b)(1)(A)(vi) status. Treas.Reg. 1.170A-9(e)(4)(i) notes normally, the organization meets the support computation test for the aggregate of the four taxable years before the year under audit and the current and next taxable year. The EO being operated since ****** doesn't provide a full 5 years to run the test for the rolling time frame the test calls for, the test will be based on the two years. Over the Two years the EO received support from publicly supported organizations and Individuals and had a *** % Public support percentage for the ******, ****** tax year.
   
       
   
 TAXPAYERS POSITION:
   
The EO disclosed that the supported organization is located and based in a foreign country on the Form 1023 application, and stated they we unaware that this was a problem.
   
 COUNCLUSION:
   
Issue 1:
   
Whether ****** failed the relationship test and fails to qualify as a Type III supporting organization.
   
****** supported a foreign organization that was not organized in the United States. The law clearly states that 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. Type III supporting organizations, including both FISOs and non-FISOs, are prohibited from supporting any organization which isn't organized in the U.S. per Treas.Reg. 1.509(a)-4(i)(10). The EO failed the relationship test and doesn't qualify as 509(a)(3) Type III supporting organization for Foundation Classification. The EO will need to be classified as a Private Foundation if it cant pass the public support test.
   
ISSUE 2:
   
Whether ****** meets the public support test of IRC 170(b)(1)(A)(vi) and can be to be excluded from private foundation classification.
   
****** sources of support are from publicly supported organizations (****** Church's) and the general public. Organizations described in sections 509(a)(1) and 170(b)(1)(A)(vi) of the Code are publicly supported organizations that receive substantial financial support from contributions made by other publicly supported organizations, governmental units, the general public or a combination of such sources. Rev.Rul. 78-95 (IRS RRU), 1978-1 C.B. 71, 1978 WL 42293 - An organization, exempt from Federal income tax under section 501(c)(3) of the Code and described in section 170(c)(2), is primarily supported by contributions from Individual churches are entitled to section 170(b)(1)(A)(vi) status. The EO support from ****** through ****** exceeds 33 1/3 percent test or a facts and circumstances 10 percent test. The EO passed the public support test under sections 509(a)(1) and 170(b)(1)(A)(vi) and the Foundation status needs to be changed to 170(b)(1)(A)(vi).
   
NOTE: If the ****** agrees with reclassifying the foundation statues from 509(a)(3) Operated in connection with Type III functionally integrated supporting organization to 509(a)(1) and 170(b)(1)(A)(vi) sign F6018.