Federal Register / Vol. 88, No. 198 / Monday, October 16, 2023 / Rules and Regulations 71287 

paragraph under 5 U.S.C. 552(a) and 1 CFR 

part 51. 

(2) You must use this service information 

as applicable to do the actions required by 

this AD, unless this AD specifies otherwise. 

(i) European Union Aviation Safety Agency 

(EASA) Emergency AD 2023–0174–E, dated 

October 2, 2023. 

(ii) [Reserved] 

(3) For EASA AD 2023–0174–E, contact 

EASA, Konrad-Adenauer-Ufer 3, 50668 

Cologne, Germany; telephone +49 221 8999 

000; email ADs@easa.europa.eu; internet 

easa.europa.eu. You may find the EASA 

material on the EASA website at 

ad.easa.europa.eu. 

(4) You may view this service information 

at the FAA, Office of the Regional Counsel, 

Southwest Region, 10101 Hillwood Pkwy., 

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information on the availability of this 

material at the FAA, call (817) 222–5110. 

(5) You may view this material that is 

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Issued on October 11, 2023. 

Victor Wicklund, 

Deputy Director, Compliance & Airworthiness 

Division, Aircraft Certification Service. 

[FR Doc. 2023–22856 Filed 10–12–23; 4:15 pm] 

BILLING CODE 4910–13–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Parts 1 and 53 

[TD 9981] 

RIN 1545–BJ53 

Requirements for Type I and Type III 

Supporting Organizations 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document contains final 

regulations providing guidance on the 

prohibition on certain gifts or 

contributions to Type I and Type III 

supporting organizations from persons 

who control a supported organization 

and on certain other requirements for 

Type III supporting organizations. The 

regulations reflect changes to the law 

made by the Pension Protection Act of 

2006. The regulations affect certain 

Type I and Type III supporting 

organizations and their supported 

organizations. 

DATES: 

Effective date: These regulations are 

effective on October 16, 2023. 

Applicability date: For dates of 

applicability, see § 1.509(a)–4(I). 

FOR FURTHER INFORMATION CONTACT: 

Michael Gruccio at (202) 317–4541 or 

Don Spellmann at (202) 317–4086. 

SUPPLEMENTARY INFORMATION: 

Background 

I. Overview 

This document amends the Income 

Tax Regulations (26 CFR part 1) by 

adding final regulations under section 

509(a) of the Internal Revenue Code 

(Code). These final regulations amend 

§ 1.509(a)–4 to provide guidance on 

amendments to the Code enacted by 

section 1241 of the Pension Protection 

Act of 2006 (PPA), Public Law 109–280, 

120 Stat. 780 (August 17, 2006). 

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 be 

described in section 509(a)(1), (2), or (3). 

Organizations described in section 

509(a)(3) are known as ‘‘supporting 

organizations.’’ Supporting 

organizations achieve their public 

charity status by providing support to 

one or more organizations described in 

section 509(a)(1) or (2), which, in this 

context, are referred to as ‘‘supported 

organizations.’’ 

To be described in section 509(a)(3), 

an organization must satisfy (1) an 

organizational test, (2) an operational 

test, (3) a relationship test, and (4) a 

disqualified person control test. The 

organizational and operational tests 

require that a supporting organization 

be organized, and at all times thereafter 

operated, exclusively for the benefit of, 

to perform the functions of, or to carry 

out the purposes of one or more 

supported organizations. The 

relationship test requires a supporting 

organization to establish one of three 

types of relationships with one or more 

supported organizations. A supporting 

organization that is operated, 

supervised, or controlled by one or more 

supported organizations is known as a 

‘‘Type I’’ supporting organization. The 

relationship of a Type I supporting 

organization with its supported 

organization(s) is comparable to that of 

a corporate parent-subsidiary 

relationship. A supporting organization 

that is supervised or controlled in 

connection with one or more supported 

organizations is known as a ‘‘Type II’’ 

supporting organization. The 

relationship of a Type II supporting 

organization with its supported 

organization(s) involves common 

supervision or control by the persons 

supervising or controlling both the 

supporting organization and the 

supported organization(s). A supporting 

organization that is operated in 

connection with one or more supported 

organizations is known as a ‘‘Type III’’ 

supporting organization and is 

discussed further in the remainder of 

this preamble. Finally, the disqualified 

person control test requires that a 

supporting organization not be 

controlled directly or indirectly by 

certain disqualified persons. 

Sections 1241 through 1243 of the 

PPA revised the requirements for 

supporting organizations. These final 

regulations under § 1.509(a)–4 address 

section 1241’s five changes to the 

requirements an organization must 

satisfy to qualify as a Type III 

supporting organization. 

II. PPA Changes to Type III Supporting 

Organizations 

The PPA made the following five 

changes to the requirements an 

organization must satisfy to qualify as a 

Type III supporting organization: 

(1) Section 1241(c) of the PPA 

removed the ability of a charitable trust 

to rely on the special rule under 

§ 1.509(a)–4(i)(2)(iii) as then in effect, 

which allowed a trust to satisfy the 

attentiveness requirement of the integral 

part test for non-functionally integrated 

Type III supporting organizations if the 

supported organization was a 

beneficiary of the trust and state law 

allowed the beneficiary to enforce the 

trust and compel an accounting of the 

trust; 

(2) Section 1241(d) of the PPA 

directed the Secretary of the Treasury or 

her delegate (Secretary) to promulgate 

regulations under section 509 that 

establish a new distribution requirement 

for Type III supporting organizations 

that are not ‘‘functionally integrated’’ (a 

non-functionally integrated (NFI) Type 

III supporting organization) to ensure 

that a ‘‘significant amount’’ is paid to 

supported organizations; for this 

purpose, the term ‘‘functionally 

integrated’’ means a Type III supporting 

organization that is not required under 

regulations to make payments to 

supported organizations, because the 

supporting organization engages in 

activities that relate to performing the 

functions of, or carrying out the 

purposes of, its supported 

organization(s); 

(3) Section 1241(b) of the PPA 

required a Type III supporting 

organization to provide annually to each 

of its supported organizations the 

information required by the Department 

of the Treasury (Treasury Department) 

and the IRS (referred to in § 1.509(a)– 

4(i)(2) as the notification requirement) 


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to ensure that the supporting 

organization is responsive to the needs 

or demands of its supported 

organization(s); 

(4) Section 1241(b) of the PPA also 

prohibited a Type III supporting 

organization from supporting any 

supported organization not organized in 

the United States; and 

(5) Section 1241(b) of the PPA 

additionally prohibited a Type I or Type 

III supporting organization from 

accepting any 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. 

III. Prior Rulemaking 

On August 2, 2007, the Treasury 

Department and the IRS published in 

the Federal Register (72 FR 42335) an 

advanced notice of proposed 

rulemaking (ANPRM) (REG–155929–06) 

in response to the PPA. The ANPRM 

described proposed rules to implement 

the changes made by the PPA to the 

Type III supporting organization 

requirements and solicited comments 

regarding those proposed rules. 

On September 24, 2009, the Treasury 

Department and the IRS published a 

notice of proposed rulemaking (REG– 

155929–06) in the Federal Register (74 

FR 48672) proposing regulations 

regarding certain requirements to 

qualify as a Type III supporting 

organization under the PPA (2009 

proposed regulations). The 2009 

proposed regulations set forth those 

proposed requirements in § 1.509(a)– 

4(i). 

On December 28, 2012, the Treasury 

Department and the IRS published a 

Treasury Decision (TD 9605) in the 

Federal Register (77 FR 76382) 

containing final and temporary 

regulations under § 1.509(a)–4 regarding 

the requirements to qualify as a Type III 

supporting organization (2012 TD). Also 

on December 28, 2012, the Treasury 

Department and the IRS published a 

notice of proposed rulemaking (REG– 

155929–06) in the Federal Register (77 

FR 76426) containing proposed 

regulations that incorporated the text of 

the temporary regulations in the 2012 

TD by cross-reference. The temporary 

regulations in the 2012 TD made 

significant changes to the distribution 

requirement for NFI Type III supporting 

organizations. The 2012 TD adopted 

other aspects of the 2009 proposed 

regulations with some changes in 

response to comments and provided 

transition relief for Type III supporting 

organizations in existence on December 

28, 2012, that met and continued to 

meet the test under former § 1.509(a)– 

4(i)(3)(ii), known as the ‘‘but for’’ test, 

as in effect prior to December 28, 2012, 

treating them as functionally integrated 

until the first day of their second taxable 

year beginning after December 28, 2012. 

Upon expiration of this relief period, the 

2012 TD requires these organizations to 

meet the same rules as all other 

supporting organizations to be 

considered functionally integrated. The 

preamble to the 2012 TD also identified 

issues for possible future rulemaking 

and requested comments. 

On January 6, 2014, the Treasury 

Department and the IRS published 

Notice 2014–4, 2014–2 I.R.B. 274, to 

provide additional transition relief for 

any Type III supporting organization (1) 

supporting at least one supported 

organization that is a governmental 

entity to which the supporting 

organization is responsive (within the 

meaning of § 1.509(a)–4(i)(3)) and (2) 

engaging in activities for or on behalf of 

the governmental supported 

organization that perform the functions 

of, or carry out the purposes of, the 

governmental supported organization 

and that, but for the involvement of the 

supporting organization, would 

normally be engaged in by the 

governmental supported organization 

itself. Notice 2014–4 stated that such an 

organization will be treated as a 

functionally integrated Type III 

supporting organization until the earlier 

of the date final regulations under 

§ 1.509(a)–4(i)(4)(iv) are published in 

the Federal Register or the first day of 

the organization’s third taxable year 

beginning after December 31, 2013. 

On December 23, 2015, the Treasury 

Department and the IRS published a 

Treasury Decision (TD 9746) in the 

Federal Register (80 FR 79684) 

containing final regulations under 

§ 1.509(a)–4(i) regarding the distribution 

requirement for NFI Type III supporting 

organizations, finalizing the rule in the 

2012 proposed and temporary 

regulations with very minor changes 

(2015 final regulations). The preamble 

to the 2015 final regulations indicated 

that additional proposed regulations 

would be forthcoming to provide 

additional guidance for Type III 

supporting organizations, including 

specific rules under § 1.509(a)–4(i)(4)(iv) 

for Type III supporting organizations 

that support governmental supported 

organizations; the 2012 TD had reserved 

§ 1.509(a)–4(i)(4)(iv). In addition, the 

preamble to the 2015 final regulations 

indicated that supporting organizations 

that support a governmental supported 

organization could continue to rely on 

Notice 2014–4 until the date of 

publication of the new proposed 

regulations. 

On February 19, 2016, the Treasury 

Department and the IRS published a 

notice of proposed rulemaking (REG– 

118867–10) in the Federal Register (81 

FR 8446) containing proposed 

regulations under § 1.509(a)–4(f) and (i) 

regarding the prohibition on certain 

contributions to Type I and Type III 

supporting organizations and the 

requirements for Type III supporting 

organizations (2016 proposed 

regulations). The 2016 proposed 

regulations addressed issues identified 

in the preamble to the 2012 TD as well 

as the comments (six in total) on the 

2012 TD and Notice 2014–4. 

The Treasury Department and the IRS 

received six comments in response to 

the 2016 proposed regulations. The 

comments are available for public 

inspection at https://

www.regulations.gov or upon request. 

No public hearing was requested. After 

considering the comments received, the 

Treasury Department and the IRS adopt 

the 2016 proposed regulations in these 

final regulations with certain revisions 

described in the Summary of Comments 

and Explanation of Revisions. 

Summary of Comments and 

Explanation of Revisions 

I. Overview 

This Summary of Comments and 

Explanation of Revisions addresses the 

comments that the Treasury Department 

and the IRS received in response to the 

2016 proposed regulations and 

describes the revisions adopted in these 

final regulations. As described in this 

Summary of Comments and Explanation 

of Revisions, these final regulations 

define the term ‘‘control’’ for purposes 

of section 509(f)(2), which prohibits a 

Type I or Type III supporting 

organization from accepting any gift or 

contribution from any person who 

controls the governing body of the 

supported organization(s). These final 

regulations also set forth additional 

rules and requirements for Type III 

supporting organizations, including (1) 

additional requirements to meet the 

responsiveness test for all Type III 

supporting organizations; (2) additional 

rules regarding the qualification of an 

organization as a functionally integrated 

Type III supporting organization under 

§ 1.509(a)–4(i)(4), including specific 

rules for supporting organizations that 

support governmental supported 

organizations; and (3) additional rules 

regarding the required annual 

distributions under § 1.509(a)–4(i)(5) by 

an NFI Type III supporting organization. 


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II. Contributions From Controlling 

Donors—Meaning of Control 

Section 509(f)(2) and § 1.509(a)–4(f)(5) 

prohibit Type I and Type III supporting 

organizations from accepting any gift or 

contribution from any person (other 

than an organization described in 

section 509(a)(1), (2), or (4)) who, alone 

or together with certain related persons 

(as described in § 1.509(a)–4(f)(5)(i)(B) 

or (C)), directly or indirectly controls 

the governing body of a supported 

organization of the Type I or Type III 

supporting organization, or from 

persons related to a person possessing 

such control. Section 509(f)(2) does not 

define ‘‘directly or indirectly controls.’’ 

The 2012 TD reserved § 1.509(a)– 

4(f)(5)(ii), titled ‘‘Meaning of control,’’ 

for future proposed regulations. 

The 2016 proposed regulations 

proposed defining ‘‘control’’ 

consistently with the definition of 

control in § 1.509(a)–4(j), which relates 

to control by disqualified persons for 

purposes of the disqualified person 

control test in section 509(a)(3)(C) and 

§ 1.509(a)–4(a)(4). In general, under the 

2016 proposed regulations, the 

governing body of a supported 

organization is considered ‘‘controlled’’ 

by a person if that person, alone or by 

aggregating his or her votes or positions 

of authority with certain related persons 

described in § 1.509(a)–4(f)(5)(i)(B) or 

(C), may require the governing body of 

the supported organization to perform 

any act that significantly affects its 

operations or may prevent the governing 

body of the supported organization from 

performing any such act. 

These final regulations adopt the 

definition of ‘‘control’’ proposed in the 

2016 proposed regulations with minor 

changes to add clarity. These final 

regulations make clear that control 

exists if one or more persons described 

in § 1.509(a)–4(f)(5)(i)(A), (B), or (C) 

hold 50 percent or more of the total 

voting power of the governing body or 

have the right to exercise veto power 

over the actions of the governing body. 

These final regulations also incorporate 

language from § 1.509(a)–4(j)(1) to make 

clear that even if persons do not have 

control by virtue of having 50 percent or 

more of the voting power or a veto 

power, all pertinent facts and 

circumstances will be taken into 

consideration in determining whether 

such persons do in fact directly or 

indirectly control the governing body of 

a supported organization. 

One commenter stated that if a parent 

supporting organization controls a 

supported organization, section 509(f)(2) 

would prohibit Type I and Type III 

supporting organizations of that 

controlled supported organization from 

accepting any gift or contribution from 

the parent supporting organization. To 

allow these contributions, the 

commenter recommended excluding 

from the definition of control the 

control a parent supporting organization 

exercises over its supported 

organizations. 

Section 509(f)(2) only excepts gifts or 

contributions from organizations 

described in section 509(a)(1), (2), and 

(4). Congress did not provide an 

exception for section 509(a)(3) 

organizations. For this reason, the 

commenter’s recommendation is not 

consistent with section 509(f)(2), and 

these final regulations do not adopt it. 

III. Type III Supporting Organization 

Relationship Test 

Section 1.509(a)–4(i)(1) provides that, 

for each taxable year, a Type III 

supporting organization must satisfy (i) 

a notification requirement, (ii) a 

responsiveness test, and (iii) an integral 

part test provided in the regulations. 

The 2016 proposed regulations 

proposed additional rules regarding 

each of these requirements. These final 

regulations adopt the 2016 proposed 

rules with the modifications described 

in this part III. 

A. Notification Requirement 

Section 509(f)(1)(A) provides that an 

organization will not be considered a 

Type III supporting organization unless 

the organization provides to each 

supported organization, for each taxable 

year, such information as the Secretary 

may require to ensure that the 

organization is responsive to the needs 

or demands of the supported 

organizations. To satisfy this 

notification requirement, § 1.509(a)– 

4(i)(2) requires a Type III supporting 

organization to provide to each of its 

supported organizations for each taxable 

year: (1) A written notice addressed to 

a principal officer of the supported 

organization describing the type and 

amount of all of the support it provided 

to the supported organization during the 

supporting organization’s preceding 

taxable year; (2) a copy of the 

supporting organization’s most recently 

filed Form 990, Return of Organization 

Exempt from Income Tax, or other 

annual information return required to be 

filed under section 6033; and (3) a copy 

of the supporting organization’s 

governing documents, including any 

amendments (unless previously 

provided and not subsequently 

amended). The 2016 proposed 

regulations proposed clarifying that for 

NFI Type III supporting organizations 

the description of support in the written 

notice must include all of the 

distributions described in § 1.509(a)– 

4(i)(6) to the supported organization. 

These final regulations adopt this 

clarification. 

Section 1.509(a)–4(i)(2)(iii) requires 

that the notification be transmitted by 

the last day of the fifth calendar month 

following the close of ‘‘that taxable 

year.’’ Due to the lack of clarity 

regarding the reference to ‘‘that taxable 

year,’’ the 2016 proposed regulations 

proposed amending § 1.509(a)–4(i)(2) to 

clarify that a supporting organization 

must deliver the required documents to 

each of its supported organizations by 

the last day of the fifth month of the 

supporting organization’s taxable year 

after the taxable year in which it 

provided the support it is reporting. The 

preamble to the 2016 proposed 

regulations stated that the proposed 

change is intended to reduce confusion 

but does not substantively change the 

due date or the content of the required 

notification. The preamble also stated 

that the date of delivery is determined 

by applying the general principles of 

section 7502. The final regulations 

adopt this proposed amendment 

without change. 

One commenter requested 

clarification that the annual written 

notice may summarize all the programs 

and services a supporting organization 

performs for its supported organization. 

The Treasury Department and the IRS 

agree that a supporting organization 

may summarize its activities directly 

furthering the exempt purpose of the 

supported organization as long as that 

summary provides sufficient notice to 

the supported organization on the 

character of the activity and its related 

costs. The report must include a brief 

narrative description of the support 

provided and sufficient financial detail 

for the recipient to identify the types 

and amounts of support being reported. 

B. Responsiveness Test 

Section 1.509(a)–4(i)(3)(i) provides 

that a supporting organization meets the 

responsiveness test if it is ‘‘responsive 

to the needs or demands of a supported 

organization.’’ To meet this 

responsiveness test, an organization 

must satisfy two elements—the 

‘‘relationship requirement’’ and the 

‘‘significant voice requirement.’’ Under 

the relationship requirement, described 

in § 1.509(a)–4(i)(3)(ii), the officers, 

directors, or trustees of the organization 

must have one of three specified 

relationships with the officers, directors, 

or trustees (and in some cases the 

members) of the supported organization. 

Under the significant voice requirement, 

described in § 1.509(a)–4(i)(3)(iii), the 


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officers, directors, or trustees of the 

supported organization, by reason of 

their relationships described in 

§ 1.509(a)–4(i)(3)(ii), must have a 

significant voice in the investment 

policies of the supporting organization, 

the timing of grants, the manner of 

making grants, and the selection of grant 

recipients by the supporting 

organization, and in otherwise directing 

the use of the income or assets of the 

supporting organization. 

The preamble to the 2012 TD stated 

that, in determining the appropriate 

distribution amount for NFI Type III 

supporting organizations, the Treasury 

Department and the IRS considered the 

required relationship between a 

supporting organization and its 

supported organizations, and that the 

Treasury Department and the IRS 

intended to issue proposed regulations 

in the future that would amend the 

responsiveness test by requiring a Type 

III supporting organization to be 

responsive to all of its supported 

organizations. 

In response to this proposal in the 

preamble to the 2012 TD, one 

commenter stated that a supporting 

organization should not be required to 

be responsive to all of its supported 

organizations because the resulting 

administrative burden would effectively 

limit the total number of organizations 

a supporting organization could 

support. The commenter suggested 

alternatives under which a supporting 

organization would be responsive to 

only a subset of its supported 

organizations that would vary from year 

to year. 

As stated in the preamble to the 2016 

proposed regulations, the distinguishing 

characteristic of Type III supporting 

organizations, and the basis for their 

public charity classification, is that they 

are responsive to and significantly 

involved in the operations of their 

publicly supported organizations. See 

§ 1.509(a)–4(f)(4). Unless a Type III 

supporting organization is responsive to 

each of its supported organizations, the 

supported organizations cannot exercise 

the requisite level of oversight of and 

engagement with the supporting 

organization. Limiting the 

responsiveness requirement to fewer 

than all of the supported organizations 

may result in the necessary oversight 

and accountability being present for less 

than all of a supporting organization’s 

operations. Consistent with this view, 

the 2016 proposed regulations proposed 

revising § 1.509(a)–4(i)(3)(i) to require a 

supporting organization to be 

responsive to the needs and demands of 

each of its supported organizations to 

meet the responsiveness test. 

In addition, to illustrate how concerns 

about potential administrative burdens 

may be addressed consistent with the 

revised responsiveness test, the 2016 

proposed regulations proposed a new 

Example 3 in § 1.509(a)–4(i)(3)(iv) to 

demonstrate one way in which a Type 

III supporting organization that supports 

multiple organizations may satisfy the 

responsiveness test in a manner that can 

be cost-effective. The Example shows 

that a supporting organization can meet 

the relationship requirement in 

§ 1.509(a)–4(i)(3)(ii) in different ways 

with respect to each of its supported 

organizations. The Example also shows 

how a supporting organization can 

organize and hold regular meetings, 

provide information, and encourage 

communication to help ensure that its 

supported organizations have a 

significant voice in the operations of the 

supporting organization. 

As noted in the preamble to the 2016 

proposed regulations, another 

commenter in response to the preamble 

of the 2012 TD requested additional 

guidance regarding the ability of trusts 

to satisfy the significant voice 

requirement of the responsiveness test. 

The new Example 3 in the 2016 

proposed regulations provides further 

illustration of how Type III supporting 

organizations, including charitable 

trusts, might satisfy the significant voice 

requirement of the responsiveness test. 

The Treasury Department and the IRS 

note that although the examples in the 

regulations relating to the 

responsiveness test may involve a Type 

III supporting organization that is 

organized as either a corporation or a 

trust, the applicable law and relevant 

regulatory provisions, as modified by 

the final regulations, are applicable to 

all Type III supporting organizations in 

the same manner, whether they are 

organized as corporations or trusts. 

As the preamble to the 2016 proposed 

regulations stated, the Treasury 

Department and the IRS anticipate that 

Type III supporting organizations may 

be able to demonstrate that they satisfy 

the responsiveness test in a variety of 

ways, and that the determination will be 

based on all the facts and 

circumstances. 

As a result of the proposed changes to 

the responsiveness test, the 2016 

proposed regulations also include 

conforming changes to examples and 

other regulatory provisions, specifically, 

removing references to ‘‘supported 

organizations to which the supporting 

organization is responsive’’ since the 

supporting organization is to be 

responsive to each supported 

organization. 

Two commenters to the 2016 

proposed regulations address the 

responsiveness test, agreeing with the 

proposed amendments to § 1.509(a)– 

4(i)(3)(i) and the new example in 

§ 1.509(a)–4(i)(3)(iv). Thus, these final 

regulations adopt these proposed 

amendments without change. 

C. Integral Part Test—Functionally 

Integrated Type III Supporting 

Organizations 

Section 1.509(a)–4(i)(1)(iii) provides 

that, for each taxable year, a Type III 

supporting organization must satisfy the 

integral part test. The integral part test 

under § 1.509(a)–4(i)(1)(iii) is satisfied 

by maintaining significant involvement 

in the operations of one or more 

supported organizations and providing 

support on which the supported 

organizations are dependent. To satisfy 

this test, a Type III supporting 

organization must meet the 

requirements either for a functionally 

integrated Type III supporting 

organization or for an NFI Type III 

supporting organization, as set forth in 

§ 1.509(a)–4(i)(4) or (5), respectively. 

One commenter to the 2016 proposed 

regulations stated that the cross 

reference in § 1.509(a)–4(d)(4)(i)(C) to 

the integral part test should be corrected 

to conform to the amendments made by 

the 2012 TD. The final regulations adopt 

this recommendation and revise 

§ 1.509(a)–4(d)(4)(i)(C) to reference the 

requirements of the integral part test set 

forth in § 1.509(a)–4(i)(1)(iii). 

A Type III supporting organization is 

functionally integrated under 

§ 1.509(a)–4(i)(4) if it (1) 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 that 

section, (2) is the parent of each of its 

supported organizations as described in 

paragraph (i)(4)(iii) of that section, or (3) 

supports a governmental supported 

organization and otherwise meets the 

requirements of paragraph (i)(4)(iv) of 

that section. 

1. ‘‘Substantially All’’ Test 

Section 1.509(a)–4(i)(4)(ii)(B) provides 

that all pertinent facts and 

circumstances will be taken into 

consideration in determining whether 

substantially all of a supporting 

organization’s activities directly further 

the exempt purposes of its supported 

organization(s). One commenter to the 

2016 proposed regulations requested 

that supporting organizations be given 

the option of meeting the ‘‘substantially 

all’’ test on average over a three- or fiveyear period. The commenter also 


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recommended that transition relief be 

provided if an organization does not 

meet the test over the most recent three 

or five years before the promulgation of 

final regulations. 

The 2012 TD adopted the 

substantially all test in § 1.509(a)– 

4(i)(4)(ii). The 2012 TD also provided 

transition relief in § 1.509(a)–4(i)(11)(ii) 

for existing organizations to adjust to 

the new rules. The 2016 proposed 

regulations did not include any 

substantive changes to § 1.509(a)– 

4(i)(4)(ii). Furthermore, the substantially 

all test in § 1.509(a)–4(i)(4)(ii)(B) takes 

into consideration all pertinent facts 

and circumstances, which allows for 

some consideration of year-to-year 

changes in activities. Finally, the 

Treasury Department and the IRS note 

that the commenter’s proposed multiyear averaging test would be complex, 

create uncertainty about a supporting 

organization’s functionally integrated 

status at the close of each taxable year, 

and would be difficult to administer. 

For these reasons, the final regulations 

do not adopt this recommendation. 

2. Parent of Each Supported 

Organization 

Under § 1.509(a)–4(i)(4)(iii), a 

supporting organization is the parent of 

a supported organization, and thus is 

deemed to be functionally integrated, if 

the supporting organization exercises a 

substantial degree of direction over the 

policies, programs, and activities of the 

supported organization and a majority 

of the officers, directors, or trustees of 

the supported organization is appointed 

or elected, directly or indirectly, by the 

governing body, members of the 

governing body, or officers (acting in 

their official capacities) of the 

supporting organization. 

As the 2009 proposed regulations 

noted, the classification of a parent 

organization as functionally integrated 

was intended to ‘‘apply to supporting 

organizations that oversee or facilitate 

the operation of an integrated system, 

such as hospital systems.’’ To more fully 

accomplish this objective, the 2016 

proposed regulations proposed a 

revision to § 1.509(a)–4(i)(4)(iii) 

clarifying that for a supporting 

organization to qualify as the parent of 

each of its supported organizations, the 

supporting organization and its 

supported organizations must be part of 

an integrated system (such as a hospital 

system), and the supporting 

organization must engage in activities 

typical of the parent of an integrated 

system. The 2016 proposed regulations 

stated that examples of these activities 

include (but are not limited to) 

coordinating the activities of the 

supported organizations and engaging in 

overall planning, policy development, 

budgeting, and resource allocation for 

the supported organizations. 

One commenter requested that the 

final regulations provide additional 

examples of integrated systems, such as 

private schools and universities, 

continuing care retirement 

communities, and residential 

rehabilitation facilities. The 

parenthetical in the 2016 proposed 

regulations—such as a hospital 

system—is stated as only one example 

and is not exclusive. This section of the 

regulations applies to any type of 

integrated system of which the parent 

organization and its supported 

organizations are a part. The test is 

whether the structure is that of an 

integrated system and whether the 

requirements of § 1.509(a)–4(i)(4)(iii) are 

satisfied, not whether the system is in 

a particular industry. The Treasury 

Department and the IRS conclude that it 

is unnecessary to add other examples of 

industries that may have integrated 

systems; doing so at this time may 

indicate that any industries not 

specifically mentioned in the final 

regulations are excluded. Accordingly, 

the final regulations do not adopt the 

commenter’s request to provide 

additional examples. Nevertheless, in 

response to the comment and to make 

clear that a hospital system is just one 

example of an integrated system, the 

final regulations revise the parenthetical 

in the 2016 proposed regulations to read 

as follows: (such as, for example, a 

hospital system). 

The commenter also recommended 

including additional examples of 

activities that are typical of a parent of 

an integrated system and suggested that 

the examples might include financial 

planning and forecasting, legal services, 

human resources, information 

management, billing and collection 

services, marketing, and community 

outreach and education. The Treasury 

Department and the IRS note that the 

list of activities in the 2016 proposed 

regulations was only illustrative of how 

a parent directs the overall policies, 

programs, and activities of the 

supported organizations within the 

integrated system and was not 

exclusive. Thus, the absence of any 

particular activity, such as financial 

planning, from this list is not 

determinative. The final regulations 

clarify that a parent of an integrated 

system of supported organizations must 

direct the overall policies, programs, 

and activities of the supported 

organizations (such as, for example, 

coordinating the activities of the 

supported organizations and engaging in 

overall planning, policy development, 

budgeting, and resource allocation). The 

Treasury Department and the IRS note 

that a parent of an integrated system 

may also perform system-wide 

administrative services, such as the 

examples provided by the commenter, 

in conjunction with directing the overall 

policies, programs, and activities of the 

supported organizations. For clarity, 

these final regulations omit the defined 

term ‘‘activities typical of a parent’’ in 

proposed § 1.509(a)–4(i)(4)(iii). The 

2016 proposed regulations proposed to 

retain the requirement in § 1.509(a)– 

4(i)(4)(iii) that the governing body, 

members of the governing body, or 

officers of a parent supporting 

organization must appoint or elect a 

majority of the officers, directors, or 

trustees of the supported organization. 

The preamble to the 2016 proposed 

regulations stated that the use of the 

phrase ‘‘appointed or elected, directly or 

indirectly’’ means the supporting 

organization could qualify as a parent of 

a second-tier (or lower) subsidiary. 

Thus, for example, if the directors of 

supporting organization A appoint a 

majority of the directors of supported 

organization B, which in turn appoints 

a majority of the directors of supported 

organization C, the directors of 

supporting organization A will be 

treated as appointing the majority of the 

directors of both supported organization 

B and supported organization C. One 

commenter agreed with this 

interpretation and requested that it be 

addressed in the final regulations. These 

final regulations adopt this 

recommendation. 

As stated in the preamble to the 2016 

proposed regulations, the Treasury 

Department and the IRS interpret the 

existing requirement under § 1.509(a)– 

4(i)(4)(iii) that the parent organization 

have the power to appoint or elect a 

majority of the officers, directors, or 

trustees of each supported organization 

to include the requirement that the 

parent organization also have the power 

to remove and replace such officers, 

directors, or trustees, or otherwise have 

an ongoing power to appoint or elect 

with reasonable frequency. One 

commenter requested that language 

reflecting this interpretation be 

specifically added to § 1.509(a)– 

4(i)(4)(iii). The final regulations adopt 

this commenter’s recommendation. 

3. Supporting a Governmental 

Supported Organization 

The 2012 TD reserved § 1.509(a)– 

4(i)(4)(iv) for future guidance on how a 

Type III supporting organization can 

qualify as functionally integrated by 

supporting a governmental entity. As 


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interim guidance, Notice 2014–4 

provided that a Type III supporting 

organization will be treated as 

functionally integrated if it (i) supports 

a supported organization that is a 

governmental entity to which the 

supporting organization is responsive; 

and (ii) engages in activities for or on 

behalf of that governmental supported 

organization that perform the functions 

of, or carry out the purposes of, that 

governmental supported organization 

and that, but for the involvement of the 

supporting organization, would 

normally be engaged in by the 

governmental supported organization 

itself. This interim guidance was 

subsequently extended by the 2015 final 

regulations. The 2016 proposed 

regulations proposed new rules under 

which a Type III supporting 

organization would qualify as 

functionally integrated by supporting 

governmental supported organizations. 

These final regulations adopt the 

proposed § 1.509(a)–4(i)(4)(iv), with the 

modifications discussed in the 

following paragraphs. 

The 2016 proposed regulations 

proposed that a supporting organization 

that only supports governmental 

supported organizations would be 

considered functionally integrated if a 

substantial part of its total activities 

directly further the exempt purposes of 

its governmental supported 

organizations and, if the supporting 

organization supports more than one 

governmental supported organization, 

all of its governmental supported 

organizations either: (1) Operate within 

the same geographic region (defined as 

a city, county, or metropolitan area); or 

(2) work in close coordination or 

collaboration with each other to conduct 

a service, program, or activity that the 

supporting organization supports. The 

2016 proposed regulations proposed 

defining a governmental supported 

organization as a governmental unit 

described in section 170(c)(1), or an 

organization described in section 

170(c)(2) and (b)(1)(A) (other than in 

clauses (vii) and (viii)) that is an 

instrumentality of one or more 

governmental units described in section 

170(c)(1). To satisfy the close 

coordination or collaboration 

requirement, the proposed regulations 

proposed requiring a supporting 

organization to maintain on file a letter 

from each of the governmental 

supported organizations (or a joint letter 

from all of them) describing their 

coordination or collaboration efforts 

with respect to the particular service, 

program, or activity. The 2016 proposed 

regulations proposed an exception to 

this rule for certain pre-existing 

organizations that support no more than 

one non-governmental supported 

organization along with one or more 

governmental supported organizations, 

as well as a transition rule for preexisting organizations that continue to 

meet the requirements of Notice 2014– 

4. 

Two commenters recommended that 

Type III functionally integrated 

supporting organizations should not be 

limited to only supporting governmental 

supported organizations. One 

commenter proposed that a supporting 

organization which supports both 

governmental and non-governmental 

supported organizations should qualify 

as functionally integrated if the 

supporting organization (i) conducts 

activities that perform the functions of 

or carry out the purposes of its 

governmental supported organization(s), 

(ii) its non-governmental supported 

organizations operate in the same 

geographic region or work in close 

coordination or collaboration with the 

governmental supported organization(s), 

and (iii) substantially all of the 

supporting organization’s activities 

directly further the exempt purposes of 

its governmental supported 

organization(s). 

The other commenter recommended 

replacing the requirement that all 

supported organizations be 

governmental supported organizations 

with a new requirement that 

substantially all the activities of the 

supporting organization either (i) 

directly further the purposes of the 

governmental supported organizations, 

or (ii) consist of grantmaking, 

fundraising, or investing for 

governmental supported organizations 

that meet either the same geographic 

region or close coordination and 

collaboration requirements in the 2016 

proposed regulations. 

A third commenter requested that, 

when a supporting organization 

supports more than one governmental 

supported organization, the 

governmental supported organizations 

should only be required to work in close 

coordination or collaboration. The 

commenter requested deleting the 

requirement that the governmental 

supported organizations conduct a 

service, program, or activity that the 

supporting organization supports. 

The 2016 proposed regulations 

proposed allowing certain Type III 

supporting organizations that support 

governmental supported organizations 

to be classified as functionally 

integrated on the basis that the 

involvement of the governmental 

supported organizations in the 

supporting organization’s activities 

would minimize the potential for abuse. 

As stated in the preamble to the 2016 

proposed regulations, requiring close 

cooperation and collaboration on a 

common service, program, or activity 

that the supporting organization 

supports helps ensure that the 

governmental supported organizations 

will provide sufficient input to and 

oversight of the supporting organization. 

Moreover, the coordination and 

collaboration between the governmental 

supported organizations would be 

greatly diminished if they engaged in 

different services, programs, or 

activities. Furthermore, governmental 

input and oversight would be diluted if 

the definition of functionally integrated 

were expanded to permit these 

supporting organizations to support and 

be responsive to non-governmental 

supported organizations as well. 

Additionally, for the reasons discussed 

later in this preamble, the Treasury 

Department and the IRS utilize the 

substantial part test for supporting 

governmental supported organizations 

(instead of the substantially all test) but 

specifically exclude grant making and 

other financial activities from the 

definition of activities that directly 

further the exempt purposes of the 

governmental supported organizations. 

Accordingly, these final regulations do 

not adopt these recommendations. For 

clarity, these final regulations omit the 

defined term ‘‘geographic region’’ 

contained in proposed § 1.509(a)– 

4(i)(4)(iv)(C). 

As noted previously in this preamble, 

the 2016 proposed regulations proposed 

that, for simplicity and administrability, 

the term ‘‘governmental supported 

organization’’ be defined using an 

existing Code definition of 

governmental unit. Three commenters 

stated their support for this definition. 

Thus, the final regulations adopt the 

definition in the 2016 proposed 

regulations with the clarification 

described in the following paragraph. 

The preamble to the 2016 proposed 

regulations noted that, because a 

governmental unit described in section 

170(c)(1) includes all of the agencies, 

departments, and divisions of that 

governmental unit, all such agencies, 

departments, and divisions will be 

treated as one governmental supported 

organization for purposes of § 1.509(a)– 

4(i)(4)(iv). One commenter stated its 

support for this position and requested 

that it be specifically written into the 

regulations. These final regulations 

adopt this commenter’s 

recommendation. The final regulations 

specifically state that a governmental 

unit includes all of its agencies, 


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departments, and divisions, and that 

they will be treated as one governmental 

supported organization for these 

purposes. 

One commenter on the 2016 proposed 

regulations requested that an 

instrumentality of a governmental 

supported organization and the 

governmental supported organization 

with respect to which it is an 

instrumentality should be treated as one 

governmental supported organization. 

The final regulations do not adopt this 

recommendation because, unlike an 

agency, department, or division of a 

governmental unit, an instrumentality 

described in § 1.509(a)–4(i)(4)(iv)(B)(2) 

is a separate legal entity. 

The 2016 proposed regulations also 

proposed that supporting organizations 

that support only governmental 

supported organizations may qualify as 

functionally integrated only if a 

‘‘substantial part’’ of their activities 

directly furthers the exempt purposes of 

their governmental supported 

organization(s). The 2016 proposed 

regulations proposed using the same 

definition of ‘‘directly further’’ 

contained in § 1.509(a)–4(i)(4)(ii)(C), the 

integral part test for functionally 

integrated Type III supporting 

organizations, as promulgated in the 

2012 TD. This definition provides that 

fundraising, making grants, and 

investing and managing non-exempt-use 

assets are not activities that directly 

further the exempt purposes of the 

supported organization. 

One commenter recommended that 

fundraising, making grants, and 

investing and managing non-exempt-use 

assets should be considered activities 

that directly further the exempt 

purposes of a governmental supported 

organization. The Treasury Department 

and the IRS determined that a Type III 

supporting organization should qualify 

as functionally integrated only if the 

supporting organization itself conducts 

activities that perform the functions of 

or carry out the purposes of its 

supported organization (as 

distinguished from providing financial 

support for the activities carried out by 

the supported organization). As the 

2012 TD stated, fundraising, making 

grants, and investing and managing nonexempt-use assets relate to producing 

and distributing income to finance the 

charitable activities directly carried out 

by the supported organization. The 2016 

proposed regulations did not adopt 

comments seeking to apply a different 

definition of ‘‘directly further’’ to 

supporting organizations that support 

governmental supported organizations. 

These final regulations do not adopt the 

commenter’s proposal because using a 

different definition of ‘‘directly further’’ 

for governmental supported 

organizations would undermine a 

fundamental distinction that § 1.509(a)– 

4(i)(4) makes between functionally 

integrated and NFI Type III supporting 

organizations, i.e., directly conducting 

charitable activities versus financing 

charitable activities. The Treasury 

Department and the IRS also note the 

complexity and administrative difficulty 

of applying different definitions of 

‘‘directly further’’ under the integral 

part test. 

These final regulations adopt the 

requirement in the 2016 proposed 

regulations that a substantial part of the 

supporting organization’s total activities 

must directly further the exempt 

purposes of its governmental supported 

organizations. These final regulations 

also add a new example to clarify that 

a supporting organization can meet this 

requirement and still make grants to one 

of its governmental supported 

organizations as a substantial part of its 

activities. As the preamble to the 2016 

proposed regulations stated, the 

‘‘substantial part’’ test in § 1.509(a)– 

4(i)(4)(iv) allows these supporting 

organizations to conduct more 

fundraising and other financial 

activities, if certain requirements are 

met, than is permitted under the 

‘‘substantially all’’ test of § 1.509(a)– 

4(i)(4)(ii) that applies generally to be a 

functionally integrated Type III 

supporting organization. One 

commenter requested confirmation 

concerning the identity of these certain 

requirements that must be met. Under 

§ 1.509(a)–4(i)(4) as promulgated by the 

2012 TD and amplified by these final 

regulations in providing the rules for 

supporting governmental supported 

organizations, the organization must 

meet the annual notification 

requirement in § 1.509(a)–4(i)(2) and the 

responsiveness test in § 1.509(a)–4(i)(3), 

in addition to the specific requirements 

in § 1.509(a)–4(i)(4)(iv), in order to be a 

functionally integrated Type III 

supporting organization by virtue of 

supporting governmental supported 

organizations. 

One commenter recommended 

providing a clear definition of what 

constitutes a substantial part of a 

supporting organization’s total activities 

for purposes of meeting § 1.509(a)– 

4(i)(4)(iv). Another commenter 

recommended not adopting a bright line 

rule to measure the quantity of activities 

that equal a substantial part, but 

requested a statement in the final 

regulations that all pertinent facts and 

circumstances will be taken into 

account. This commenter also requested 

more examples of activities that directly 

further the exempt purpose of the 

governmental supported organization 

and clarification in the regulations to 

require that a substantial part of a 

supporting organization’s activities 

directly further the exempt purposes of 

‘‘at least one’’ (as opposed to all) of its 

governmental supported organizations 

when the governmental supported 

organizations share a common 

geographic region. 

In response to these comments, the 

final regulations revise proposed 

§ 1.509(a)–4(i)(4)(iv) to provide that, in 

determining whether a substantial part 

of a supporting organization’s total 

activities directly further the exempt 

purposes of its governmental supported 

organization(s), all pertinent facts and 

circumstances will be taken into 

consideration. This approach is 

consistent with the approach in 

§ 1.509(a)–4(i)(4)(ii)(B), which 

determines ‘‘substantially all’’ for the 

general test of being functionally 

integrated by considering all pertinent 

facts and circumstances. The final 

regulations also revise proposed 

§ 1.509(a)–4(i)(4)(iv)(A) and add a new 

example in § 1.509(a)–4(i)(4)(v) to make 

clear that a supporting organization that 

supports more than one governmental 

supported organization as described in 

§ 1.509(a)–4(i)(4)(iv)(A) satisfies the 

substantial part test if a substantial part 

of its activities directly furthers the 

exempt purpose of at least one of its 

governmental supported organizations. 

One commenter stated that proposed 

§ 1.509(a)–4(i)(4)(iv)(A)(1)(ii), which 

uses the phrase ‘‘close coordination or 

collaboration,’’ should be made 

consistent with proposed § 1.509(a)– 

4(i)(4)(iv)(D), which uses the phrase 

‘‘close cooperation or coordination.’’ 

The final regulations adopt this 

recommendation and make the 

provisions consistent by changing the 

phrasing in § 1.509(a)–4(i)(4)(iv)(C) of 

the final regulations to ‘‘close 

coordination or collaboration.’’ No 

substantive change is intended by this 

revision. 

The 2016 proposed regulations 

proposed an exception to the general 

rule for supporting organizations that 

support governmental supported 

organizations. The exception would 

treat a Type III supporting organization 

in existence on or before February 19, 

2016 (the date of the issuance of the 

2016 proposed regulations), as 

functionally integrated if: (1) It supports 

one or more governmental supported 

organizations and no more than one 

supported organization that is not a 

governmental supported organization; 

(2) it designated each of its supported 

organizations as provided in § 1.509(a)– 


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4(d)(4) on or before February 19, 2016; 

and (3) a substantial part of its total 

activities directly furthers the exempt 

purposes of its governmental supported 

organization(s). One commenter stated 

that the proposed exception would 

allow it and similar organizations 

currently to qualify as functionally 

integrated. The final regulations adopt 

the proposed exception without change. 

The 2016 proposed regulations also 

proposed further extending the 

transition relief provided in Notice 

2014–4 and extended in the preamble to 

the 2015 final regulations. Under the 

2016 proposed regulations, a Type III 

supporting organization in existence on 

or before February 19, 2016, that met 

and continues to meet the requirements 

of Notice 2014–4 would be treated as 

functionally integrated until the earlier 

of the first day of the organization’s first 

taxable year beginning after the date 

final regulations are published under 

§ 1.509(a)–4(i)(4)(iv) or the first day of 

the organization’s second taxable year 

beginning after February 19, 2016. The 

Treasury Department and the IRS did 

not receive any comments about the 

transition rule or any requests to extend 

the transition period in the 2016 

proposed regulations, which now has 

expired. The Treasury Department and 

the IRS therefore conclude supporting 

organizations have had sufficient time 

to adjust to the new rules and further 

transition relief is not necessary. 

Accordingly, these final regulations do 

not provide a further extension of the 

transition relief proposed in the 2016 

proposed regulations. 

D. Integral Part Test—Non-Functionally 

Integrated Type III Supporting 

Organizations 

Section 1.509(a)–4(i)(5) provides that 

a supporting organization meets the 

integral part test to be an NFI Type III 

supporting organization if it satisfies the 

distribution requirement of § 1.509(a)– 

4(i)(5)(ii) and the attentiveness 

requirement of § 1.509(a)–4(i)(5)(iii), or 

the pre-November 2, 1970, trust 

requirements of § 1.509(a)–4(i)(9). 

Section 1.509(a)–4(i)(5)(ii) provides that, 

with respect to each taxable year, a 

supporting organization must distribute 

to or for the use of one or more 

supported organizations an amount 

equaling or exceeding its ‘‘distributable 

amount.’’ Section 1.509(a)–4(i)(6) 

provides the amount of a distribution 

made to a supported organization is the 

amount of cash or the fair market value 

of the property distributed. 

The 2016 proposed regulations 

proposed revising § 1.509(a)–4(i)(5)(ii) 

to state that a supporting organization 

must make distributions as described in 

§ 1.509(a)–4(i)(6) in a total amount 

equaling or exceeding the supporting 

organization’s distributable amount to 

satisfy the distribution requirement, and 

proposed revising § 1.509(a)–4(i)(6) to 

describe in detail what distributions 

count toward satisfying the distribution 

requirement. These final regulations 

adopt these proposed revisions, 

explained as follows, without change. 

1. No Reduction of Distributable 

Amount for Taxes Subtitle A Imposes 

Section 1.509(a)–4(i)(5)(ii)(B) provides 

that the distributable amount is equal to 

the greater of 85 percent of an 

organization’s adjusted net income for 

the immediately preceding taxable year 

(as determined by applying the 

principles of section 4942(f) of the Code 

and § 53.4942(a)–2(d)) or its minimum 

asset amount for the immediately 

preceding taxable year, reduced by the 

amount of taxes imposed on the 

supporting organization under subtitle 

A of the Code (subtitle A) during the 

immediately preceding taxable year. 

Because the taxes under subtitle A are 

imposed on a supporting organization’s 

unrelated business taxable income 

(pursuant to section 511 of the Code) 

and the activity that produces the 

unrelated business taxable income does 

not further the supported organization’s 

exempt purposes, the preamble to the 

2016 proposed regulations stated that 

these taxes should not be treated as the 

functional equivalent of an amount 

distributed to a supported organization. 

The 2016 proposed regulations, 

therefore, proposed removing the 

provision in § 1.509(a)–4(i)(5)(ii)(B) that 

reduces the distributable amount by the 

amount of taxes subtitle A imposed on 

a supporting organization during the 

immediately preceding taxable year. 

One commenter stated that the 

distributable amount should be reduced 

by the amount of taxes imposed on the 

supporting organization’s unrelated 

business income, as section 4942(d) 

provides for private foundations. In 

advocating to retain the reduction in the 

distributable amount, the commenter 

suggested that only the supporting 

organization’s after-tax income from 

unrelated business activities should be 

considered available for distribution to 

its supported organizations. 

A supporting organization’s adjusted 

net income under § 1.509(a)– 

4(i)(5)(ii)(B) includes gross income from 

all sources, including investment 

income that is not subject to tax under 

section 511. The 2012 TD and the 2015 

final regulations, therefore, stated it was 

necessary to revise the distribution 

requirement to ensure that NFI Type III 

supporting organizations distribute 

significant amounts to their supported 

organizations, as Congress directed in 

the PPA. As stated in the 2015 final 

regulations, the 85 percent of adjusted 

net income test makes it more likely that 

supported organizations will timely 

benefit from higher returns received by 

their supported organizations. Reducing 

the distributable amount by any taxes 

on the income would be counter to this 

objective. 

The Treasury Department and the IRS 

further note that section 4942(d) only 

applies to private non-operating 

foundations. As the preamble to the 

2012 TD recounted, a number of 

commenters to the 2009 proposed 

regulations stated that NFI Type III 

supporting organizations should not be 

subject to the higher payout for private 

non-operating foundations because they 

are distinguishable from them. These 

commenters stated that NFI Type III 

supporting organizations are more 

similar to private operating foundations 

and medical research organizations and 

therefore should be subject to their 

lower payout requirements. The 2012 

TD and the 2015 final regulations 

adopted this recommendation, 

providing lower payout requirements 

for NFI Type III supporting 

organizations than for private nonoperating foundations. Private operating 

foundations and medical research 

organizations are not able to reduce 

their payout requirements by the taxes 

imposed by subtitle A. See § 1.170A– 

9(d)(2)(v)(B); § 53.4942(b)–1(a)(1)(ii). 

The Treasury Department and the IRS 

conclude for the foregoing reasons that 

it would be inconsistent to apply a 

different rule to NFI Type III supporting 

organizations. Therefore, these final 

regulations adopt the 2016 proposed 

revision to § 1.509(a)–4(i)(5)(ii)(B) 

without change. 

2. Distributions That Count Toward 

Distribution Requirement 

Section 1.509(a)–4(i)(6) provides 

details on the distributions by a 

supporting organization that count 

toward satisfying the distribution 

requirement imposed in § 1.509(a)– 

4(i)(5)(ii). The regulations provide that 

distributions include but are not limited 

to: (1) Any amount paid to a supported 

organization to accomplish the 

supported organization’s exempt 

purposes; (2) any amount paid by the 

supporting organization to perform an 

activity that directly furthers the exempt 

purposes of the supported organization 

within the meaning of § 1.509(a)– 

4(i)(4)(ii), but only to the extent such 

amount exceeds any income derived by 

the supporting organization from the 

activity; (3) any reasonable and 


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necessary administrative expenses paid 

to accomplish the exempt purposes of 

the supported organization(s), which do 

not include expenses incurred in the 

production of investment income; (4) 

any amount paid to acquire an exemptuse asset described in § 1.509(a)– 

4(i)(8)(ii); and (5) any amount set aside 

for a specific project that accomplishes 

the exempt purposes of a supported 

organization to which the supporting 

organization is responsive. 

The list in § 1.509(a)–4(i)(6) is not 

exhaustive and other distributions may 

count towards the distribution 

requirement. As stated in the preamble 

to the 2016 proposed regulations, the 

use of a non-exclusive list creates 

uncertainty for supporting organizations 

and the IRS about what counts toward 

the distribution requirement. Therefore, 

the 2016 proposed regulations proposed 

revising and clarifying the list in 

§ 1.509(a)–4(i)(6) of what counts toward 

the distribution requirement and 

making it an exclusive list. 

a. Reasonable and Necessary 

Administrative Expenses 

Under § 1.509(a)–4(i)(6), reasonable 

and necessary administrative expenses 

paid to accomplish the exempt purposes 

of supported organizations, but not 

expenses incurred in the production of 

investment income, count toward the 

distribution requirement. For example, 

if a supporting organization conducts 

exempt activities that are for the benefit 

of, perform the functions of, or carry out 

the purposes of its supported 

organization(s) and also conducts 

nonexempt activities (such as 

investment activities or unrelated 

business activities), then the supporting 

organization’s administrative expenses 

(such as salaries, rent, utilities and other 

overhead expenses) must be allocated 

between the exempt and nonexempt 

activities on a reasonable and 

consistently-applied basis. The 

supporting organization’s administrative 

expenses attributable to the exempt 

activities are treated as distributions to 

its supported organization(s) if such 

expenses are reasonable and necessary. 

Conversely, the administrative expenses 

and operating costs attributable to the 

nonexempt activities are not treated as 

distributions to the supported 

organization(s). The 2016 proposed 

regulations proposed retaining this 

provision, with additional guidance 

regarding fundraising expenses. 

b. Fundraising Expenses 

Section 1.509(a)–4(i)(6) does not 

specifically address whether fundraising 

expenses count toward the distribution 

requirement. The 2016 proposed 

regulations addressed the issue, 

specifying that reasonable and necessary 

administrative expenses paid to 

accomplish the exempt purposes of a 

supported organization generally do not 

include fundraising expenses the 

supporting organization incurs. For 

example, when a supporting 

organization conducts a fundraising 

event for its supported organization(s) 

and distributes the proceeds of the 

event, net of its fundraising expenses, to 

its supported organization(s), only the 

amount that the supporting organization 

actually distributes to its supported 

organization(s) counts towards the 

distribution requirement. Thus, under 

the 2016 proposed regulations, the 

supporting organization’s fundraising 

expenses do not count towards the 

distribution requirement. 

If a supporting organization conducts 

a fundraising event at which the 

supporting organization instructs 

donors to make contributions directly to 

the supported organization, the 2016 

proposed regulations proposed that 

those contributions would not count as 

a distribution from the supporting 

organization to its supported 

organization. However, in this situation 

the supporting organization could count 

towards the distribution requirement 

the reasonable and necessary expenses 

it incurs to solicit the contributions the 

donors pay directly to its supported 

organization: (1) to the extent that the 

amount of these solicitation expenses 

does not exceed the amount of 

contributions the supported 

organization actually receives; and (2) if 

the supporting organization can 

substantiate (as discussed later in this 

preamble) that those contributions were 

received as a result of the supporting 

organization’s solicitation activities. The 

2016 proposed regulations proposed 

this rule to provide consistency with the 

treatment of contributions that 

supporting organizations receive 

directly and then distribute to their 

supported organizations (net of the 

supporting organization’s solicitation 

expenses). 

While commenters were generally 

supportive of the proposal to count as 

distributions the fundraising expenses 

incurred to solicit contributions directly 

to the supported organization, one 

commenter recommended deleting the 

requirement that contributions be 

received directly by the supported 

organization for the fundraising 

expenses to count. Alternatively, the 

commenter requested this special rule 

for fundraising expenses also apply if 

the contributions were received directly 

by an agent of the supported 

organization. 

Another commenter proposed that 

contributions the supporting 

organization received directly from the 

fundraising solicitation as a matter of 

convenience should be treated as 

contributions the supported 

organization received directly if the 

supporting organization is contractually 

obligated to remit the contributions to 

the supported organization and the 

supporting organization actually 

distributes the contributions to the 

supported organization within a 

reasonable time period. The commenter 

also proposed that the supporting 

organization be allowed to count its 

fundraising solicitation expenses in the 

year it incurred them so long as the 

supported organization received the 

corresponding contributions within a 

reasonable time period following the 

end of that year. 

In response to these comments, these 

final regulations adopt the proposed 

rules with certain modifications and 

clarifications. These final regulations 

provide that expenses the supporting 

organization incurs to solicit 

contributions count towards the 

distribution requirement when the 

resulting contributions are received 

directly by a supported organization, 

but only to the extent that the 

supporting organization’s expenses for 

each solicitation do not exceed the 

amount of contributions a supported 

organization actually receives, and only 

if the supporting organization 

substantiates that those contributions 

were received as a result of the 

supporting organization’s solicitation 

activities. This limitation is applied on 

a solicitation-by-solicitation basis; the 

supporting organization may not 

aggregate its expenses, or the 

contributions a supported organization 

receives, from more than one 

solicitation to determine the amount of 

solicitation expenses that count towards 

its distribution requirement. The 

Treasury Department and the IRS intend 

that contributions are received directly 

by the supported organization when 

donors make their checks, credit card or 

other payments payable to the 

supported organization. The Treasury 

Department and the IRS also intend that 

when a supporting organization receives 

checks or processes credit card or other 

transactions that are payable to its 

supported organization, the supporting 

organization may count as distributions 

the expenses it incurs for soliciting 

those checks or credit card or other 

payments, but only up to the amount of 

contributions received directly by or 

paid directly to the supported 

organization and substantiated by the 


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supported organization. Thus, for 

purposes of meeting its distribution 

requirement, the supporting 

organization may not count as 

distributions from the supporting 

organization to the supported 

organization the amount of the check 

and credit card or other contributions 

the donors make payable to the 

supported organization. Contributions 

made payable to the supporting 

organization that are transferred to the 

supported organization, however, may 

be counted as distributions from the 

supporting organization to the 

supported organization at the time that 

the funds are given by the supporting 

organization to the supported 

organization. These final regulations do 

not adopt a rule permitting payments 

that are first deposited with the 

supporting organization to count as 

contributions received directly by the 

supported organization (for purposes of 

permitting additional solicitation 

expenses related to those contributions 

to count as distributions). Preventing 

the supporting organization from 

counting those amounts twice toward 

satisfying the supporting organization’s 

annual distribution requirements and 

accounting for those funds in the 

supporting organization’s account 

would be administratively difficult. 

c. Joint Fundraising Expenses 

One commenter also requested 

guidance on how to allocate 

contributions when the supporting 

organization and the supported 

organization share the costs of a 

solicitation event. The Treasury 

Department and the IRS do not intend 

for the rule for fundraising expenses to 

apply with respect to a solicitation 

event if the supported organization 

incurs more than de minimis costs 

related to the same solicitation event. 

Section 1.509(a)–4(i)(6)(i) permits 

supporting organizations to count any 

amount they pay to their supported 

organization as a distribution for 

purposes of satisfying the annual 

distribution requirement described in 

§ 1.509(a)–4(i)(5)(ii). A supporting 

organization can, therefore, share the 

costs of a fundraiser by distributing to 

the supported organization an amount 

equal to the supporting organization’s 

share of the joint fundraising expenses. 

Section 1.509(a)–4(i)(6)(i) would permit 

the supporting organization to count 

this payment as a distribution for 

purposes of § 1.509(a)–4(i)(5)(ii), 

negating the need for a special rule in 

proposed § 1.509(a)–4(i)(6)(iii)(B). The 

Treasury Department and the IRS note 

that it would be very difficult to 

determine and substantiate what portion 

of the contributions a supported 

organization receives are attributable to 

the supporting organization’s 

expenditures. Thus, expanding the rule 

to cover joint solicitation efforts as the 

commenter suggests would increase the 

compliance burden on supporting 

organizations and supported 

organizations and would be difficult for 

the IRS to administer. These final 

regulations, therefore, do not adopt this 

recommendation. 

d. Taxable Year to Which Fundraising 

Expenses Are Attributable 

One commenter requested a 

clarification that contributions made to 

a supported organization in response to 

a supporting organization’s end-of-theyear fundraiser that the supported 

organization does not receive until the 

following year may be used to 

determine the portion of reasonable and 

necessary fundraising expenses the 

supporting organization may treat as a 

distribution for the year in which the 

fundraiser occurred. This commenter 

recommended a 90-day window in the 

second year for counting such 

contributions. These final regulations 

clarify that, for purposes of applying the 

limitation on the supporting 

organization’s solicitation expenses for 

each taxable year that count toward its 

distribution requirement, any 

contributions the supported 

organization receives directly from 

donors that are attributable to a 

solicitation the supporting organization 

conducted in a particular taxable year 

includes any contributions the 

supported organization receives and 

substantiates in writing on or before the 

due date (without regard to extensions) 

of the supporting organization’s Form 

990 for the year in which it conducted 

the solicitation. 

For example, assume a supporting 

organization makes a solicitation on 

December 15, 2024. The supported 

organization receives contributions from 

donors of $1x on December 26, 2024, 

and $2x on March 15, 2025, that are 

attributable to the solicitation made on 

December 15, 2024. The supported 

organization substantiates the total 

contributions of $3x in writing prior to 

May 15, 2025 (the due date without 

extensions of the supporting 

organization’s Form 990 for 2024). The 

written substantiation indicates that 

these contributions were attributable to 

the December 15, 2024 solicitation. 

Under § 1.509(a)–4(i)(6)(iii)(B), the 

supporting organization may treat up to 

$3x of any reasonable and necessary 

expenses it incurred for the December 

15, 2024 solicitation toward its 

distribution requirement. 

A supporting organization may not 

take into account the same contributions 

in computing the fundraising expense 

limitation in more than one year or with 

respect to more than one solicitation. 

Thus, in the preceding example, the $2x 

contribution the supported organization 

received on March 15, 2025, may only 

be used by the supporting organization 

to determine its fundraising expense 

limitation for the December 15, 2024, 

solicitation. The supporting 

organization may not use the $2x again 

to determine its 2025 fundraising 

expense limitation. 

e. Written Substantiation From 

Supported Organization 

The 2016 proposed regulations 

proposed requiring a supporting 

organization to obtain written 

substantiation from the supported 

organization of the amount of 

contributions the supported 

organization actually receives as a result 

of each of the supporting organization’s 

solicitations. One commenter requested 

that the permitted written substantiation 

include an email from the supported 

organization that the supporting 

organization maintains in its electronic 

records. These final regulations adopt 

this recommendation, stating that the 

written substantiation may be provided 

by electronic media. 

Another commenter requested that a 

supported organization be allowed to 

aggregate into a single annual written 

report the substantiation of all the 

contributions it received from the 

supporting organization’s fundraising 

activities. The commenter also 

requested that the supported 

organization should only be responsible 

for reporting the amount of the 

contributions it received and not be 

responsible for calculating the 

supporting organization’s fundraising 

activities. 

These final regulations clarify that the 

supporting organization may 

substantiate the contributions provided 

to the supported organization by a 

single annual statement in writing from 

the supported organization, provided 

that the amount of contributions, if any, 

received by the supported organization 

as a result of each solicitation is 

separately identified. To satisfy 

§ 1.509(a)–4(i)(6)(iii)(B), the written 

substantiation must be postmarked or 

electronically transmitted to the 

supporting organization no later than 

the due date (without regard to 

extensions) of the supporting 

organization’s Form 990 for the year of 

the solicitation. In addition, written 

substantiation relied on by the 

supporting organization (whether 


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provided in one or multiple reports) 

must separately state the amount of 

contributions, if any, received directly 

by the supported organization allocable 

to each solicitation made by the 

supporting organization that is covered 

in the report. The supporting 

organization is responsible for 

determining its solicitation expenses. 

The written substantiation the 

supporting organization is required to 

receive from the supported organization 

need only provide information relevant 

to the amount of contributions the 

supported organization received; it does 

not need to address the supporting 

organization’s expenses. 

f. Program-Related Investments Not 

Taken Into Account 

Finally, one commenter requested 

that program-related investments (PRIs) 

count toward the distribution 

requirement. The preamble to the 2016 

proposed regulations stated that, for 

purposes of meeting the integral part 

test, PRIs are not treated as distributions 

to the supported organizations. As the 

preamble to the 2016 proposed 

regulations stated, the Treasury 

Department and the IRS recognize that 

private foundations may use PRIs in a 

variety of ways to accomplish their 

exempt purposes and that PRIs thus are 

treated as qualifying distributions under 

section 4942. However, because 

supporting organizations must be 

operated exclusively for the benefit of, 

to perform the functions of, or to carry 

out the purposes of their supported 

organizations, they differ from private 

foundations. Furthermore, other 

provisions relating to the distribution 

requirement, such as the availability of 

set-asides and the potential for carryforwards of excess distributions, 

provide significant flexibility for 

supporting organizations to meet the 

current and future needs of their 

supported organizations. For these 

reasons, these final regulations do not 

adopt this recommendation. 

IV. Technical Corrections 

This Treasury Decision conforms the 

paragraphs throughout § 1.509(a)–4 to 

the Code of Federal Regulations by 

making non-substantive changes, 

including capitalizing letters of fourth 

level paragraphs. This Treasury 

Decision also modifies § 53.4947–1 to 

correct certain cross-references to 

§ 1.509(a)–4. 

V. Applicability Date 

These final regulations are applicable 

to taxable years beginning on or after 

October 16, 2023. Taxpayers may 

choose to apply these final regulations 

to taxable years beginning on or after 

February 19, 2016, and before October 

16, 2023, so long as the taxpayer applies 

the provisions of these final regulations 

in their entirety and in a consistent 

manner. 

Special Analyses 

I. Regulatory Planning and Review 

Pursuant to the Memorandum of 

Agreement, Review of Treasury 

Regulations under Executive Order 

12866 (June 9, 2023), tax regulatory 

actions issued by the IRS are not subject 

to the requirements of section 6(b) of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 

II. Paperwork Reduction Act 

The collection of information 

contained in these 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 1545–2271. 

The collection of information in these 

regulations is in § 1.509(a)–4(i)(4)(iv)(C) 

(written record of close coordination or 

collaboration by certain governmental 

supported organizations) and § 1.509(a)– 

4(i)(6)(iii)(B) (written record of 

contributions received by certain 

supported organizations). Requiring a 

supporting organization to collect (1) 

written records of its governmental 

supported organizations’ close 

coordination or collaboration with each 

other and (2) written records of the 

contributions its supported 

organizations directly received from 

donors in response to solicitations by 

the supporting organization helps the 

IRS determine whether the supporting 

organization is a functionally integrated 

or non-functionally integrated Type III 

supporting organization. The record 

keepers are certain Type III supporting 

organizations. 

Estimated number of recordkeepers: 

6,089. 

Estimated average annual burden 

hours per recordkeeper: 2 hours. 

Estimated total annual recordkeeping 

burden: 12,178 hours. 

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. 

III. Regulatory Flexibility Act 

In connection with the requirements 

of the Regulatory Flexibility Act (5 

U.S.C. chapter 6), it is hereby certified 

that these final regulations will not have 

a significant economic impact on a 

substantial number of small entities. 

This certification is based on the fact 

that these final regulations will not 

impact a substantial number of small 

entities. 

Based on IRS Statistics of Income data 

for 2019, there are 1,365,744 active 

nonprofit charitable organizations 

recognized by the IRS under section 

501(c)(3), of which only 6,089 

organizations self-identified as Type III 

supporting organizations. The universe 

of organizations that would be affected 

by § 1.509(a)–4(i)(4)(iv)(C) and 

§ 1.509(a)–4(i)(6)(iii)(B) is a subset of all 

Type III supporting organizations, 

because those provisions apply either to 

organizations seeking to qualify as 

functionally integrated based on support 

of two or more governmental supported 

organizations or to non-functionally 

integrated organizations that solicit 

contributions that are received directly 

by a supported organization (rather than 

by the supporting organization). Thus, 

the number of organizations that will be 

affected by the collection of information 

under § 1.509(a)–4(i)(4)(iv)(C) and 

(i)(6)(iii)(B) will not be substantial. 

Moreover, the time to complete the 

recordkeeping requirements is expected 

to be no more than 2 hours for each 

organization, thus the regulations will 

not have a significant economic impact. 

The requirements under § 1.509(a)– 

4(i)(4)(iv)(C) and (i)(6)(iii)(B), therefore, 

will not have a significant economic 

impact. 

Pursuant to section 7805(f) of the 

Code, this regulation was submitted to 

the Chief Counsel for the Office of 

Advocacy of the Small Business 

Administration for comment on its 

impact on small business and no 

comments were received. 

IV. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

requires that agencies assess anticipated 

costs and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditures in any one year 

by a State, local, or tribal government, 

in the aggregate, or by the private sector, 

of $100 million in 1995 dollars, updated 

annually for inflation. The regulations 


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71298 Federal Register / Vol. 88, No. 198 / Monday, October 16, 2023 / Rules and Regulations 

do not include any Federal mandate that 

may result in expenditures by State, 

local, or tribal governments, or by the 

private sector in excess of that 

threshold. 

V. Executive Order 13132: Federalism 

Executive Order 13132 (Federalism) 

prohibits an agency from publishing any 

rule that has federalism implications if 

the rule either imposes substantial, 

direct compliance costs on State and 

local governments, and is not required 

by statute, or preempts State law, unless 

the agency meets the consultation and 

funding requirements of section 6 of the 

Executive order. The regulations do not 

have federalism implications, impose 

substantial direct compliance costs on 

State and local governments, or preempt 

State law within the meaning of the 

Executive order. 

VI. Congressional Review Act 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), the Office of 

Management and Budget’s Office of 

Information and Regulatory Affairs 

designated this rule as not a ‘‘major 

rule,’’ as defined by 5 U.S.C. 804(2). 

Statement of Availability of IRS 

Documents 

Notice 2014–4 is published in the 

Internal Revenue Bulletin and is 

available from the Superintendent of 

Documents, U.S. Government Printing 

Office, Washington, DC 20402, or by 

visiting the IRS website at: https://

www.irs.gov/irb/20142_IRB/ar14.html?_

ga=1.74171665.204111657.1425931511. 

Drafting Information 

The principal authors of these 

regulations are Jonathan Carter and Don 

Spellmann, Office of Associate Chief 

Counsel (Employee Benefits, Exempt 

Organizations, and Employment Taxes). 

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. 

Amendments to the Regulations 

Accordingly, the Treasury Department 

and the IRS amend 26 CFR parts 1 and 

53 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. In paragraph (d)(2)(i) introductory 

text, removing ‘‘subdivision (iv) of this 

subparagraph’’ and ‘‘subparagraph (1) of 

this paragraph’’ and adding ‘‘paragraph 

(d)(2)(iv) of this section’’ and 

‘‘paragraph (d)(1) of this section’’ in 

their places, respectively. 

■ 2. Redesignating paragraphs 

(d)(2)(i)(a) and (b) as paragraphs 

(d)(2)(i)(A) and (B), respectively. 

■ 3. In newly redesignated paragraph 

(d)(2)(i)(B)(1), removing ‘‘(a) of this 

subdivision’’ and adding ‘‘paragraph 

(d)(2)(i)(A) of this section’’ in its place. 

■ 4. In newly redesignated paragraph 

(d)(2)(i)(B)(2), removing ‘‘subdivision 

(i)(a) or this subparagraph’’ and adding 

‘‘paragraph (d)(2)(i)(A) of this section or 

this paragraph (d)(2)(i)(B)(2)’’ in its 

place. 

■ 5. In paragraph (d)(2)(ii), removing 

‘‘subdivision (i)(a) or this 

subparagraph’’, ‘‘subparagraph (1) of 

this paragraph’’ and ‘‘subparagraphs 

(3)(i), (ii), and (iii) and (4)(i) (a) and (b) 

of this paragraph’’ and adding 

‘‘paragraph (d)(2)(i)(A) of this section’’, 

‘‘paragraph (d)(1) of this section’’, and 

‘‘paragraphs (d)(3)(i) through (iii) and 

(d)(4)(i)(A) and (B) of this section’’ in 

their places, respectively. 

■ 6. In paragraph (d)(2)(iii) introductory 

text, removing ‘‘subparagraph’’ and 

adding ‘‘paragraph (d)(2)’’ in its place. 

■ 7. Designating Examples 1 and 2 of 

paragraph (d)(2)(iii) as paragraphs 

(d)(2)(iii)(A) and (B), respectively. 

■ 8. In paragraph (d)(2)(iv) introductory 

text, removing ‘‘subparagraph (1) of this 

paragraph’’ and adding ‘‘paragraph 

(d)(1) of this section’’ in its place. 

■ 9. Redesignating paragraphs 

(d)(2)(iv)(a) and (b) as paragraphs 

(d)(2)(iv)(A) and (B), respectively. 

■ 10. In newly redesignated paragraph 

(d)(2)(iv)(A), removing ‘‘, and’’ and 

adding ‘‘; and’’ in its place. 

■ 11. In paragraph (d)(3) introductory 

text, removing ‘‘subparagraph (2)(i) (a) 

of this paragraph’’ and adding 

‘‘paragraph (d)(2)(i)(A) of this section’’ 

in its place. 

■ 12. In paragraph (d)(4)(i) introductory 

text, removing ‘‘subparagraph (2)(iv) of 

this paragraph’’ and ‘‘this 

subparagraph’’ and adding ‘‘paragraph 

(d)(2)(iv) of this section’’ and ‘‘this 

paragraph (d)(4)’’ in their places, 

respectively. 

■ 13. Redesignating paragraphs 

(d)(4)(i)(a) through (c) as paragraphs 

(d)(4)(i)(A) through (C), respectively. 

■ 14. Revising newly redesignated 

paragraph (d)(4)(i)(C). 

■ 15. In paragraph (d)(4)(ii), removing 

‘‘subdivision (i)(b) of this subparagraph’’ 

and ‘‘subdivision (i)(b)’’ and adding 

‘‘paragraph (d)(4)(i)(B) of this section’’ 

and ‘‘paragraph (d)(4)(i)(B)’’ in their 

places, respectively. 

■ 16. In paragraph (d)(4)(iii) 

introductory text, removing 

‘‘subparagraph’’ and adding ‘‘paragraph 

(d)(4)’’ in its place. 

■ 17. Designating the Example in 

paragraph (d)(4)(iii) as paragraph 

(d)(4)(iii)(A) and adding reserved 

paragraph (d)(4)(iii)(B). 

■ 18. In paragraph (e)(3) introductory 

text, removing ‘‘paragraph’’ and adding 

‘‘paragraph (e)’’ in its place. 

■ 19. Designating Examples 1 through 5 

of paragraph (e)(3) as paragraphs (e)(3)(i) 

through (v), respectively. 

■ 20. Revising paragraph (f)(5)(ii). 

■ 21. In paragraph (g)(2) introductory 

text, removing ‘‘paragraph’’ and adding 

‘‘paragraph (g)’’ in its place. 

■ 22. Designating Examples 1 through 3 

of paragraph (g)(2) as paragraphs (g)(2)(i) 

through (iii), respectively. 

■ 23. In newly redesignated paragraph 

(g)(2)(iii), removing ‘‘subparagraph 

(1)(ii) of this paragraph’’ and adding 

‘‘paragraph (g)(1)(ii) of this section’’ in 

its place. 

■ 24. In paragraph (h)(3) introductory 

text, removing ‘‘paragraph’’ and adding 

‘‘paragraph (h)’’ in its place. 

■ 25. Designating Examples 1 through 3 

of paragraph (h)(3) as paragraphs 

(h)(3)(i) through (iii), respectively. 

■ 26. Revising paragraphs (i)(2)(i) 

introductory text, (i)(2)(i)(A), (i)(2)(iii), 

and (i)(3)(i). 

■ 27. Designating Examples 1 and 2 of 

paragraph (i)(3)(iv) as paragraphs 

(i)(3)(iv)(A) and (B), respectively. 

■ 28. Adding paragraph (i)(3)(iv)(C). 

■ 29. Revising paragraphs (i)(4)(ii)(A)(1), 

(i)(4)(ii)(B), and (i)(4)(iii) and (iv). 

■ 30. Designating Examples 1 through 5 

of paragraph (i)(4)(v) as paragraphs 

(i)(4)(v)(A) through (E), respectively. 

■ 31. Adding paragraph (i)(4)(v)(F). 

■ 32. Revising paragraphs (i)(5)(ii)(A) 

and (B) and (i)(5)(iii)(A). 

■ 33. Designating Examples 1 through 4 

of paragraph (i)(5)(iii)(D) as paragraphs 

(i)(5)(iii)(D)(1) through (4), respectively. 

■ 34. Revising newly designated 

paragraph (i)(5)(iii)(D)(4), the third 

sentence of paragraph (i)(6) introductory 

text, and paragraphs (i)(6)(iii) and (v) 

introductory text. 

■ 35. In paragraph (k)(2) introductory 

text, removing ‘‘paragraph’’ and adding 

‘‘paragraph (k)’’ in its place. 


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■ 36. Designating the Example in 

paragraph (k)(2) as paragraph (k)(2)(i) 

and adding reserved paragraph (k)(2)(ii). 

■ 37. Revising paragraph (l). 

The revisions and additions read as 

follows: 

§ 1.509(a)–4 Supporting organizations. 

* * * * * 

(d) * * * 

(4) * * * 

(i) * * * 

(C) Permit the supporting organization 

to vary the amount of its support 

between different designated 

organizations, so long as it meets the 

requirements of the integral part test set 

forth in paragraph (i)(1)(iii) of this 

section with respect to at least one 

beneficiary organization. 

* * * * * 

(f) * * * 

(5) * * * 

(ii) Meaning of control. For purposes 

of paragraph (f)(5)(i) of this section, the 

governing body of a supported 

organization will be considered 

controlled by a person described in 

paragraph (f)(5)(i)(A) of this section if 

that person, alone or by aggregating the 

person’s votes or positions of authority 

with persons described in paragraph 

(f)(5)(i)(B) or (C) of this section, may 

require the governing body of the 

supported organization to perform any 

act that significantly affects its 

operations or may prevent the governing 

body of the supported organization from 

performing any such act. The governing 

body of a supported organization will be 

considered to be controlled directly or 

indirectly by one or more persons 

described in paragraph (f)(5)(i)(A), (B), 

or (C) of this section if the voting power 

of such persons is 50 percent or more 

of the total voting power of such 

governing body or if one or more of such 

persons have the right to exercise veto 

power over the actions of the governing 

body of the supported organization. 

Thus, if the governing body of a 

supported organization is composed of 

five members, none of whom has a veto 

power over the actions of the supported 

organization, and no more than two 

members are at any time described in 

paragraph (f)(5)(i)(A), (B), or (C) of this 

section, such supported organization 

will not be considered to be controlled 

directly or indirectly by such persons by 

reason of this fact alone. However, all 

pertinent facts and circumstances will 

be taken into consideration in 

determining whether one or more 

persons do in fact directly or indirectly 

control the governing body of a 

supported organization. 

* * * * * 

(i) * * * 

(2) * * * 

(i) Annual notification. For each 

taxable year (Reporting Year), a Type III 

supporting organization must provide 

the following documents to each of its 

supported organizations: 

(A) A written notice addressed to a 

principal officer of the supported 

organization describing the type and 

amount of all of the support (including 

all of the distributions described in 

paragraph (i)(6) of this section, if 

applicable) the supporting organization 

provided to the supported organization 

during the supporting organization’s 

taxable year immediately preceding the 

Reporting Year (and during any other 

taxable year of the supporting 

organization ending after December 28, 

2012, for which such support 

information has not previously been 

provided), including a brief narrative 

description of the support provided and 

sufficient financial detail for the 

recipient to identify the types and 

amounts of support being reported; 

* * * * * 

(iii) Due date. The notification 

documents required by this paragraph 

(i)(2) must be delivered or electronically 

transmitted by the last day of the fifth 

calendar month of the Reporting Year. 

* * * * * 

(3) * * * 

(i) General rule. A supporting 

organization meets the responsiveness 

test only if it is responsive to the needs 

or demands of each of its supported 

organizations. Except as provided in 

paragraph (i)(3)(v) of this section, in 

order to meet this test, a supporting 

organization must satisfy the 

requirements of paragraphs (i)(3)(ii) and 

(iii) of this section with respect to each 

of its supported organizations. 

* * * * * 

(iv) * * * 

(C) Example 3. Z is described in 

section 501(c)(3). Z’s organizational 

documents provide that it supports ten 

different organizations, each of which is 

described in section 509(a)(1). One of 

the directors of S (one of the supported 

organizations) is a voting member of Z’s 

board of directors and participates in Z’s 

regular board meetings. Officers of Z 

hold regularly scheduled face-to-face or 

telephonic meetings during the year, to 

which officers of all the supported 

organizations are invited. Z’s meetings 

with the supported organizations may 

be held jointly or separately. Prior to the 

meetings, Z makes available to the 

supported organizations (including by 

email) up-to-date information about its 

activities, including its assets and 

liabilities, receipts and distributions, 

and investment policies and returns. In 

the meetings, officers of each of the 

supported organizations have an 

opportunity to ask questions and 

discuss with officers of Z the projected 

needs of their organizations, as well as 

Z’s investment and grant making 

policies and practices. In addition to 

holding these meetings with the 

supported organizations, Z provides the 

contact information of one of its officers 

to each of the supported organizations 

and encourages them to contact that 

officer if they have questions, or if they 

wish to schedule additional meetings to 

discuss the projected needs of their 

organization and how Z should 

distribute its income and invest its 

assets. Z provides the information 

required under paragraph (i)(2) of this 

section and a copy of its annual audited 

financial statements to the principal 

officers of the supported organizations. 

Z meets the relationship requirement of 

paragraph (i)(3)(ii)(B) or (C) of this 

section with respect to each of its 

supported organizations. Based on these 

facts, Z also satisfies the significant 

voice requirement of paragraph (i)(3)(iii) 

of this section, and therefore meets the 

responsiveness test of this paragraph 

(i)(3) with respect to each of its ten 

supported organizations. 

* * * * * 

(4) * * * 

(ii) * * * 

(A) * * * 

(1) Directly further the exempt 

purposes of one or more supported 

organizations by performing the 

functions of, or carrying out the 

purposes of, such supported 

organization(s); and 

* * * * * 

(B) Meaning of substantially all. For 

purposes of paragraph (i)(4)(ii)(A) of this 

section, in determining whether 

substantially all of a supporting 

organization’s activities directly further 

the exempt purposes of one or more 

supported organization(s), all pertinent 

facts and circumstances will be taken 

into consideration. 

* * * * * 

(iii) Parent of supported 

organization(s)—(A) In general. For 

purposes of paragraph (i)(4)(i)(B) of this 

section, in order for a supporting 

organization to qualify as the parent of 

each of its supported organizations— 

(1) The supporting organization and 

its supported organizations must be part 

of an integrated system (such as, for 

example, a hospital system); 

(2) The supporting organization must 

direct the overall policies, programs, 

and activities of the supported 

organizations (such as, for example, 


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coordinating the activities of the 

supported organizations and engaging in 

overall planning, policy development, 

budgeting, and resource allocation); and 

(3) The supporting organization’s 

governing body, members of the 

governing body, or officers (acting in 

their official capacities) must appoint or 

elect, directly or indirectly, a majority of 

the officers, directors, or trustees of each 

supported organization and have the 

power to remove and replace such 

directors, officers, or trustees, or 

otherwise have an ongoing power to 

appoint or elect such directors, officers 

or trustees with reasonable frequency. 

(B) Subsidiary organizations. A 

supporting organization may meet the 

requirements of paragraph 

(i)(4)(iii)(A)(3) of this section with 

respect to a second-tier (or lower) 

subsidiary provided that the supporting 

organization, by control of its first-tier 

subsidiary, has the power to appoint or 

elect (as described in paragraph 

(i)(4)(iii)(A)(3) of this section) a majority 

of the officers, directors, or trustees of 

the lower-tier subsidiary. For example, 

if the board of directors of supporting 

organization A elects a majority of the 

directors of supported organization B, 

and the board of directors of B, in turn 

elect, by a simple majority vote, a 

majority of the directors of supported 

organization C, the directors of 

supporting organization A will be 

treated as electing a majority of the 

directors of both supported organization 

B and supported organization C. 

(iv) Supporting a governmental 

supported organization—(A) In general. 

A supporting organization satisfies the 

requirements of this paragraph (i)(4)(iv) 

if— 

(1) The supporting organization only 

supports one or more governmental 

supported organizations; 

(2) In any case in which the 

supporting organization supports more 

than one governmental supported 

organization, all of the governmental 

supported organizations either— 

(i) Operate within the same city, 

county, or metropolitan area; or 

(ii) Work in close coordination or 

collaboration with one another to 

conduct a service, program, or activity 

that the supporting organization 

supports; and 

(3) A substantial part of the 

supporting organization’s total activities 

are activities that directly further, as 

defined by paragraph (i)(4)(ii)(C) of this 

section, the exempt purposes of at least 

one governmental supported 

organization. 

(B) Governmental supported 

organization defined. For purposes of 

paragraph (i)(4)(iv)(A) of this section, 

the term governmental supported 

organization means a supported 

organization that is: 

(1) A governmental unit described in 

section 170(c)(1), including all of its 

agencies, departments, and divisions 

(all of which will be treated as one 

governmental supported organization 

for purposes of this paragraph (i)(4)(iv)); 

or 

(2) An organization described in 

section 170(c)(2) and (b)(1)(A) (other 

than in clauses (vii) and (viii)) that is an 

instrumentality of one or more 

governmental units described in section 

170(c)(1). 

(C) Close coordination or 

collaboration. To satisfy the close 

coordination or collaboration 

requirement of paragraph (i)(4)(iv)(A)(2) 

of this section, the supporting 

organization must maintain on file a 

letter from each of the governmental 

supported organizations (or a joint letter 

from all of them) describing their 

coordination or collaboration efforts 

with respect to the particular service, 

program, or activity. 

(D) Substantial part. For purposes of 

paragraph (i)(4)(iv)(A)(3) of this section, 

in determining whether a substantial 

part of a supporting organization’s 

activities directly further the exempt 

purposes of one or more governmental 

supported organization(s), all pertinent 

facts and circumstances will be taken 

into consideration. 

(E) Exception for organizations 

supporting a governmental supported 

organization on or before February 19, 

2016. A Type III supporting 

organization in existence on or before 

February 19, 2016, will be treated as 

meeting the requirements of this 

paragraph (i)(4)(iv) if it met and 

continues to meet the following 

requirements: 

(1) It supports one or more 

governmental supported organizations 

described in paragraph (i)(4)(iv)(B) of 

this section and does not support more 

than one supported organization that is 

not a governmental supported 

organization; 

(2) Each of the supported 

organizations is designated by the 

supporting organization as provided in 

paragraph (d)(4) of this section on or 

before February 19, 2016; and 

(3) A substantial part (as defined in 

paragraph (i)(4)(iv)(D) of this section) of 

the supporting organization’s total 

activities are activities that directly 

further (as defined by paragraph 

(i)(4)(ii)(C) of this section) the exempt 

purposes of its governmental supported 

organization(s). 

(F) Transition rule for supporting 

organizations in existence on or before 

February 19, 2016. Until the first day of 

the organization’s second taxable year 

beginning after February 19, 2016, a 

Type III supporting organization in 

existence on or before February 19, 

2016, will be treated as meeting the 

requirements of this paragraph (i)(4)(iv) 

if it continuously met the following 

requirements prior to the first day of the 

organization’s second taxable year 

beginning after February 19, 2016— 

(1) It supported at least one supported 

organization that was a governmental 

entity to which the supporting 

organization was responsive within the 

meaning of paragraph (i)(3) of this 

section; and 

(2) It engaged in activities for or on 

behalf of the governmental supported 

organization described in paragraph 

(i)(4)(iv)(E)(1) of this section that 

performed the functions of, or carried 

out the purposes of, that governmental 

supported organization and that, but for 

the involvement of the supporting 

organization, would normally have been 

engaged in by the governmental 

supported organization itself. 

* * * * * 

(v) * * * 

(F) Example 6. X, an organization 

described in section 501(c)(3), is 

organized and operated as a supporting 

organization to two organizations, City 

and Park. X meets the responsiveness 

test described in paragraph (i)(3) of this 

section with respect to both City and 

Park. City and Park are both 

governmental units described in section 

170(c)(1). Park maintains a state park 

located within the same county as City. 

X does not support any other 

organizations. X supports Park by 

operating an information center for 

visitors to Park. The information center 

provides educational material and 

informational sessions to visitors to 

Park. X’s activities related to operating 

the Park information center constitute a 

substantial part of X’s activities. X also 

makes grants directly to City to fund 

City’s other programs. X’s grant making 

activities constitute a substantial part of 

X’s activities. X meets the requirements 

of paragraph (i)(4)(iv)(A)(1) of this 

section because X only supports City 

and Park, both of which are 

governmental supported organizations 

described in paragraph (i)(4)(iv)(B) of 

this section. X meets the requirements 

of paragraph (i)(4)(iv)(A)(2) of this 

section because City and Park operate 

within the same county in accordance 

with paragraph (i)(4)(iv)(A)(2)(i) of this 

section. Finally, X meets the 

requirements of paragraph 

(i)(4)(iv)(A)(3) of this section because a 

substantial part of X’s activities directly 


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further (within the meaning of 

paragraph (i)(4)(ii)(C) of this section) 

Park’s exempt purposes, even though 

X’s grants to City are also a substantial 

part of X’s activities. Based on these 

facts, X qualifies as functionally 

integrated under paragraph (i)(4)(iv) of 

this section. 

(5) * * * 

(ii) * * * 

(A) Annual distribution. With respect 

to each taxable year, a supporting 

organization must make distributions 

described in paragraph (i)(6) of this 

section in a total amount equaling or 

exceeding the supporting organization’s 

distributable amount for the taxable 

year, as defined in paragraph (i)(5)(ii)(B) 

of this section, on or before the last day 

of the taxable year. 

(B) Distributable amount. Except as 

provided in paragraphs (i)(5)(ii)(D) and 

(E) of this section, the distributable 

amount for a taxable year is an amount 

equal to the greater of 85 percent of the 

supporting organization’s adjusted net 

income (as determined by applying the 

principles of section 4942(f) and 

§ 53.4942(a)–2(d) of this chapter) for the 

taxable year immediately preceding the 

taxable year of the required distribution 

(immediately preceding taxable year) or 

its minimum asset amount (as defined 

in paragraph (i)(5)(ii)(C) of this section) 

for the immediately preceding taxable 

year. 

* * * * * 

(iii) * * * 

(A) General rule. With respect to each 

taxable year, a 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). 

* * * * * 

(D) * * * 

(4) Example 4. O is an organization 

described in section 501(c)(3). O is 

organized to support five private 

universities, V, W, X, Y, and Z, each of 

which is described in section 509(a)(1). 

O meets the responsiveness test 

described in paragraph (i)(3) of this 

section with respect to each of its 

supported organizations. Each year, O 

distributes an aggregate amount that 

equals its distributable amount 

described in paragraph (i)(5)(ii)(B) of 

this section and distributes an equal 

amount to each of the five universities. 

O distributes annually to each of V and 

W an amount that equals more than 10 

percent of each university’s total annual 

support received in its most recently 

completed taxable year. Based on these 

facts, O meets the requirements of 

paragraph (i)(5)(iii) of this section 

because it distributes two-fifths (more 

than the required one-third) of its 

distributable amount to supported 

organizations that are attentive to O. 

* * * * * 

(6) * * * Distributions by the 

supporting organization that count 

toward the distribution requirement 

imposed in paragraph (i)(5)(ii) of this 

section are limited to— 

* * * * * 

(iii) Any reasonable and necessary— 

(A) Administrative expenses paid to 

accomplish the exempt purposes of the 

supported organization, which do not 

include expenses incurred in the 

production of investment income or 

expenses incurred in the conduct of 

fundraising activities (except 

solicitation expenses described in 

paragraph (i)(6)(iii)(B) of this section); 

and 

(B) Expenses incurred to solicit 

contributions that are received directly 

by a supported organization (rather than 

by the supporting organization), but 

only to the extent the amount of the 

reasonable and necessary expenses the 

supporting organization incurs for each 

solicitation does not exceed the amount 

of contributions that are actually 

received by the supported organization 

directly from donors as a result of each 

such solicitation, as substantiated in a 

written report by the supported 

organization to the supporting 

organization that is postmarked or 

electronically transmitted by the due 

date of the supporting organization’s 

Form 990 (or successor form) for the 

year of the solicitation(s) (without 

regard to extensions); 

* * * * * 

(v) Any amount set aside for a specific 

project that accomplishes the exempt 

purposes of a supported organization, 

with such set-aside counting toward the 

distribution requirement for the taxable 

year in which the amount is set aside 

but not in the year in which it is 

actually paid, if at the time of the setaside, the supporting organization— 

* * * * * 

(l) Applicability dates. (1) Paragraphs 

(a)(6), (f)(5), and (i) of this section are 

applicable on December 28, 2012, 

except— 

(i) Paragraphs (i)(4)(ii)(C), (i)(5)(ii)(C) 

and (D), (i)(6)(iv), (i)(7)(ii), and (i)(8) of 

this section are applicable on December 

21, 2015; and 

(ii) Paragraphs (d)(4)(i)(C), (f)(5)(ii), 

(i)(2)(i) and (iii), (i)(3)(i), (i)(3)(iv)(C) 

(Example 3), (i)(4)(ii)(A)(1), (i)(4)(ii)(B), 

(i)(4)(iii) and (iv), (i)(4)(v)(F) (Example 

6), (i)(5)(ii)(A) and (B), (i)(5)(iii)(A), 

(i)(5)(iii)(D)(4) (Example 4), (i)(6) 

introductory text, and (i)(6)(iii) and (v) 

of this section are applicable to taxable 

years beginning on or after October 16, 

2023. 

(2) Taxpayers may choose to apply the 

paragraphs listed in paragraph (I)(1)(ii) 

of this section to taxable years beginning 

on or after February 19, 2016, and before 

October 16, 2023, provided the taxpayer 

applies the provisions listed in 

paragraph (l)(1)(ii) of this section in 

their entirety and in a consistent 

manner. 

(3) See paragraphs (i)(5)(ii)(B) and (C) 

and (i)(8) of § 1.509(a)–4T contained in 

26 CFR part 1, revised as of April 1, 

2015, for certain rules regarding nonfunctionally integrated Type III 

supporting organizations effective 

before December 21, 2015. See 

paragraphs (i)(5)(ii)(A) and (B) and 

(i)(5)(iii)(D) of § 1.509(a)–4 contained in 

26 CFR part 1, revised as of April 1, 

2023, for certain rules regarding nonfunctionally integrated Type III 

supporting organizations effective 

before October 16, 2023. 

PART 53—FOUNDATION AND SIMILAR 

EXCISE TAXES 

■ Par. 3. The authority citation for part 

53 continues to read in part as follows: 

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

§ 53.4947–1 [Amended] 

■ Par. 4. Section 53.4947–1 is amended 

in paragraph (b)(3) by removing the 

language ‘‘§§ 1.509(a)–4(d)(2)(iv)(a), and 

1.509(a)–4(i)(1) (ii) and (iii)(c)’’ and ‘‘the 

regulations under section 507(b)(1)’’ and 

adding in their places ‘‘§ 1.509(a)– 

4(d)(2)(iv)(A) and (i)(1)(ii) of this 

chapter’’ and ‘‘the regulations in this 

part under section 507(b)(1)’’, 

respectively. 

Douglas W. O’Donnell, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: August 20, 2023. 

Lily L. Batchelder, 

Assistant Secretary of the Treasury (Tax 

Policy). 

[FR Doc. 2023–22286 Filed 10–13–23; 8:45 am] 

BILLING CODE 4830–01–P 


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