8446 Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Proposed Rules 

(f) Technical data (see § 120.10) and 

defense services (see § 120.9) directly 

related to the defense articles 

enumerated in paragraphs (a) through 

(e) of this category and classified 

technical data directly related to items 

controlled in ECCNs 7A611, 7B611, and 

7D611. (See § 125.4 for exemptions.) 

(MT for technical data and defense 

services related to articles designated as 

such.) Technical data directly related to 

manufacture or production of any 

defense articles enumerated elsewhere 

in this category that are designated as 

Significant Military Equipment (SME) 

shall itself be designated as SME. 

(g)–(w) [Reserved] 

(x) Commodities, software, and 

technology subject to the EAR (see 

§ 120.42 of this subchapter) used in or 

with defense articles controlled in this 

category. 

Note to paragraph (x): Use of this 

paragraph is limited to license applications 

for defense articles controlled in this category 

where the purchase documentation includes 

commodities, software, or technology subject 

to the EAR (see § 123.1(b) of this subchapter). 

Note to Category XII: For purposes of 

determining whether an item (i.e., system, 

end item, part, component, accessory, 

attachment, or software) is specially designed 

for a military end user, a ‘‘military end user’’ 

means the national armed services (army, 

navy, marine, air force, or coast guard), 

national guard, national police, government 

intelligence or reconnaissance organizations, 

or any person or entity whose actions or 

functions are intended to support military 

end uses. A system or end item is not 

specially designed for a military end user if 

the item was developed with knowledge that 

it is or would be for use by both military end 

users and non-military end users, or if the 

item was or is being developed with no 

knowledge for use by a particular end user. 

In such instances, documents 

contemporaneous with the development 

must establish such knowledge. 

* * * * * 

Rose E. Gottemoeller, 

Under Secretary, Arms Control and 

International Security, Department of State. 

[FR Doc. 2016–03197 Filed 2–18–16; 8:45 am] 

BILLING CODE 4710–25–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–118867–10] 

RIN 1545–BJ53 

Requirements for Type I and Type III 

Supporting Organizations 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document contains 

proposed regulations regarding the 

prohibition on certain contributions to 

Type I and Type III supporting 

organizations and the requirements for 

Type III supporting organizations. The 

regulations reflect changes to the law 

made by the Pension Protection Act of 

2006. The regulations will affect Type I 

and Type III supporting organizations 

and their supported organizations. 

DATES: Written or electronic comments 

and requests for a public hearing must 

be received by May 19, 2016. 

ADDRESSES: Send submissions to: 

CC:PA:LPD:PR (REG–118867–10), Room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. Submissions 

may be hand-delivered Monday through 

Friday between the hours of 8:00 a.m. 

and 4 p.m. to CC:PA:LPD:PR (REG– 

118867–10), Courier’s Desk, Internal 

Revenue Service, 1111 Constitution 

Avenue NW., Washington, DC, 20224 or 

sent electronically via the Federal 

eRulemaking Portal at http://

www.regulations.gov/ (IRS REG– 

118867–10). 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Jonathan Carter at (202) 317–5800 or 

Mike Repass at (202) 317–4086; 

concerning submissions of comments 

and requests for a public hearing, 

Regina Johnson at (202) 317–6901 (not 

toll-free numbers). 

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act 

The collection of information 

contained in this notice of proposed 

rulemaking has been submitted to the 

Office of Management and Budget for 

review and approval in accordance with 

the Paperwork Reduction Act of 1995 

(44 U.S.C. 3507(d)). Comments on the 

collection of information should be sent 

to the Office of Management and 

Budget, Attn: Desk Officer for the 

Department of the Treasury, Office of 

Information and Regulatory Affairs, 

Washington, DC 20503, with copies to 

the Internal Revenue Service, Attn: IRS 

Reports Clearance Officer, 

SE:W:CAR:MP:T:T:SP, Washington, DC 

20224. Comments on the collection of 

information should be received by April 

19, 2016. 

Comments are specifically requested 

concerning: 

• Whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the IRS, 

including whether the information will 

have practical utility; 

• The accuracy of the estimated 

burden associated with the proposed 

collection of information; 

• How the quality, utility, and clarity 

of the information to be collected may 

be enhanced; 

• How the burden of complying with 

the proposed collection of information 

may be minimized, including through 

forms of information technology; and 

• Estimates of capital or start-up costs 

and costs of operation, maintenance, 

and purchase of services to provide 

information. 

The collection of information in these 

proposed regulations is in § 1.509(a)– 

4(i)(4)(iv)(D) (written record of close 

cooperation and coordination by the 

governmental supported organizations) 

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

record of contributions received by the 

supported organization). Requiring the 

supporting organization to collect 

written records of its governmental 

supported organizations’ close 

cooperation and coordination with each 

other and written records of the 

contributions its supported 

organizations directly received in 

response to solicitations by the 

supporting organization permits the IRS 

to determine whether the supporting 

organization satisfies the requirements 

to be a functionally integrated or nonfunctionally integrated Type III 

supporting organization. The record 

keepers are Type III supporting 

organizations. 

Estimated number of recordkeepers: 

7,872. 

Estimated average annual burden 

hours per recordkeeper: 2 hours. 

Estimated total annual recordkeeping 

burden: 15,744. 

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 


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of any internal revenue law. Generally, 

tax returns and return information are 

confidential, as required by 26 U.S.C. 

6103. 

Background 

1. Overview 

This document contains proposed 

amendments to the Income Tax 

Regulations (26 CFR part 1) regarding 

organizations described in section 

509(a)(3) of the Internal Revenue Code 

(Code). An organization described in 

section 501(c)(3) 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. 

These proposed regulations focus 

primarily on the relationship test for 

Type III supporting organizations. 

Specifically, the proposed regulations 

reflect statutory changes enacted by 

sections 1241 through 1243 of the 

Pension Protection Act of 2006, Public 

Law 109–280 (120 Stat. 780) (2006) 

(PPA)), which made the following five 

changes to the requirements an 

organization must satisfy to qualify as a 

Type III supporting organization: 

(1) Removed the ability of a charitable 

trust to rely on the special rule under 

§ 1.509(a)–4(i)(2)(iii) of the regulations 

then in effect; 

(2) Directed the Secretary of the 

Treasury to promulgate regulations 

under section 509 that establish a new 

distribution requirement for Type III 

supporting organizations that are not 

‘‘functionally integrated’’ (a nonfunctionally 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 

Treasury 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) Required a Type III supporting 

organization to provide annually to each 

of its supported organizations the 

information required by the Treasury 

Department and the IRS to ensure that 

the supporting organization is 

responsive to the needs or demands of 

its supported organization(s); 

(4) Prohibited a Type III supporting 

organization from supporting any 

supported organization not organized in 

the United States; and 

(5) Prohibited a Type I or Type III 

supporting organization from accepting 

a gift or contribution from a person who, 

alone or together with certain related 

persons, directly or indirectly controls 

the governing body of a supported 

organization of the Type I or Type III 

supporting organization. 

These proposed regulations set forth 

additional rules on the requirements for 

Type III supporting organizations, 

including additional requirements to 

meet the responsiveness test for all Type 

III supporting organizations; additional 

rules regarding the qualification of an 

organization as a functionally integrated 

Type III supporting organization under 

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

for supporting organizations that 

support governmental entities; and 

additional rules regarding the required 

annual distributions under § 1.509(a)– 

4(i)(5) by a NFI Type III supporting 

organization. The proposed regulations 

also define the term ‘‘control’’ for 

purposes of section 509(f)(2), which 

prohibits a Type I supporting 

organization or a Type III supporting 

organization from accepting 

contributions from persons who control 

the governing body of its supported 

organization(s). 

2. 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 in 

the Federal Register (74 FR 48672) a 

notice of proposed rulemaking (the 2009 

NPRM) (REG–155929–06). The 2009 

NPRM contained proposed regulations 

(the 2009 proposed regulations) setting 

forth the requirements to qualify as a 

Type III supporting organization under 

the PPA. 

On December 28, 2012, the Treasury 

Department and the IRS published in 

the Federal Register (77 FR 76382) a 

Treasury decision (TD 9605) containing 

final and temporary regulations (the 

2012 TD) regarding the requirements to 

qualify as a Type III supporting 

organization. Based on the comments 

received, the 2012 TD made certain 

changes to the rules proposed in the 

2009 NPRM, included in the temporary 

regulations significant changes to the 

distribution requirement, and reserved 

certain topics for further consideration. 

Also on December 28, 2012, the 

Treasury Department and the IRS 

published in the Federal Register (77 

FR 76426) a notice of proposed 

rulemaking (the 2012 NPRM) (REG– 

155929–06) that incorporated the text of 

the temporary regulations in the 2012 

TD by cross-reference. The 2012 TD 

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), as in effect prior to 

December 28, 2012, treating them as 

functionally integrated until the first 

day of their second taxable years 


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beginning after December 28, 2012. The 

preamble to the 2012 TD also identified 

issues for possible future rulemaking 

and requested comments. The IRS 

received three comments on these 

issues. The comments were considered 

in developing these proposed 

regulations and are available for public 

inspection at www.regulations.gov or 

upon request. No public hearing was 

requested. 

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 that (1) supports at least 

one governmental supported 

organization to which the supporting 

organization is responsive within the 

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

engages 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 provides that such 

an organization will be treated as a 

functionally integrated Type III 

supporting organization until the earlier 

of the date final regulations are 

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

the Federal Register (80 FR 79684) a 

Treasury Decision (TD 9746) containing 

final regulations (the 2015 TD) regarding 

the distribution requirement for NFI 

Type III supporting organizations. The 

preamble of those regulations provided 

that supporting organizations 

supporting a governmental supported 

organization could continue to rely on 

Notice 2014–4 until the date of 

publication of the notice of proposed 

rulemaking prescribing the new 

proposed regulations under § 1.509(a)– 

(i)(4)(iv). The IRS received three 

comments in response to Notice 2014– 

4, which the Treasury Department and 

the IRS considered in developing these 

proposed regulations. 

Explanation of Provisions and 

Summary of Comments 

This section describes the proposed 

provisions and addresses comments that 

the Treasury Department and the IRS 

received in response to the 2012 TD and 

Notice 2014–4. 

1. Gifts From Controlling Donor— 

Meaning of Control 

Type I and Type III supporting 

organizations are prohibited from 

accepting a gift or contribution from a 

person who, alone or together with 

certain related persons, directly or 

indirectly controls the governing body 

of a supported organization of the Type 

I or Type III supporting organization, or 

from persons related to a person 

possessing such control. Section 

509(f)(2) and § 1.509(a)–4(f)(5). For this 

purpose, related persons include family 

members and 35-percent controlled 

entities within the meaning of section 

4958(f). Although the 2012 TD reserved 

§ 1.509(a)–4(f)(5)(ii), ‘‘Meaning of 

control,’’ the preamble to the 2012 TD 

indicated that the Treasury Department 

and the IRS intended to issue proposed 

regulations that would provide such a 

definition. 

These proposed regulations define 

‘‘control’’ for this purpose consistently 

with § 1.509(a)–4(j), which relates to 

control by disqualified persons for 

purposes of the disqualified person 

control test. In general, under the 

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, as 

described in section 509(f)(2)(B)(ii) and 

(iii), 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. 

2. 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. 

These proposed regulations provide 

additional rules regarding each of these 

requirements. 

A. Notification Requirement 

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

organization shall 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). For NFI Type III supporting 

organizations, the description of support 

in the written notice includes all of the 

distributions described in § 1.509(a)– 

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

The proposed regulations amend 

§ 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 taxable year 

after the taxable year in which the 

supporting organization provided the 

support it is reporting. This proposed 

change is intended to reduce confusion, 

but does not substantively change the 

due date or the content of the required 

notification. Date of delivery is 

determined applying the general 

principles of section 7502. 

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: (1) A relationship test 

described in § 1.509(a)–4(i)(3)(ii) under 

which the officers, directors, or trustees 

of the organization have a specified 

relationship with the officers, directors, 

or trustees (and in some cases the 

members) of the supported organization; 

and (2) a significant voice test described 

in § 1.509(a)–4(i)(3)(iii) under which the 

officers, directors, or trustees of the 

supported organization, by reason of 

this relationship, 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 


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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. 

The Treasury Department and the IRS 

note that 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). The Treasury 

Department and the IRS believe that, 

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. Therefore, the proposed 

regulations revise § 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 in 

order to meet the responsiveness test. 

To illustrate how concerns about 

potential administrative burdens may be 

addressed consistent with the 

responsiveness test, the proposed 

regulations include a new example. The 

proposed example is intended 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, with 

respect to each of its supported 

organizations, meet a different subset of 

the required relationships with the 

supporting organization’s officers, 

directors, or trustees listed in § 1.509(a)– 

4(i)(3)(ii). It also shows how a 

supporting organization can organize 

and hold regular meetings, provide 

information, and encourage 

communication to help ensure that the 

supported organizations have a 

significant voice in the operations of the 

supporting organization. 

Another commenter requested 

additional guidance regarding the 

ability of trusts to satisfy the significant 

voice requirement of the responsiveness 

test. The new Example 3 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 proposed regulations, are applicable 

to all Type III supporting organizations 

in the same manner, whether organized 

as a corporation or a trust. The Treasury 

Department and the IRS anticipate that 

Type III supporting organizations may 

be able to demonstrate 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 proposed 

regulations also include conforming 

changes to examples and other 

regulatory provisions. 

C. Integral Part Test—Functionally 

Integrated Type III Supporting 

Organizations 

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

for each taxable year, a Type III 

supporting organization must satisfy the 

integral part test. The integral part test 

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

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. 

A Type III organization is functionally 

integrated under § 1.509(a)–4(i)(4) if (1) 

it 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) it is the 

parent of each of its supported 

organizations as described in paragraph 

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

supports a governmental supported 

organization and otherwise meets the 

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

that section. The direct furtherance test 

is not addressed by these regulations. 

i. Parent of Each Supported 

Organization 

Under the current regulations, a 

supporting organization is the parent of 

a supported organization if the 

supporting organization exercises a 

substantial degree of direction over the 

policies, programs, and activities of the 

supported organization and a majority 

of the officers, directors, or trustees of 

the supported organization is appointed 

or elected, directly or indirectly, by the 

governing body, members of the 

governing body, or officers (acting in 

their official capacities) of the 

supporting organization. See § 1.509(a)– 

4(i)(4)(iii). This definition was adopted 

by the 2012 TD; however, the preamble 

to the 2012 TD stated that the Treasury 

Department and the IRS had determined 

that the definition of parent was 

insufficiently specific. It further stated 

that the Treasury Department and the 

IRS intended to issue proposed 

regulations that would provide a new 

definition of parent. 

As noted in the preamble to the 2009 

NPRM, 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 purpose, the proposed 

regulations amend § 1.509(a)–4(i)(4)(iii) 

to clarify that in order 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. 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. The 

Treasury Department and the IRS 

request comments on what activities are 

typical of the parent of an integrated 

system, and whether additional 


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activities should be explicitly listed as 

examples. 

The proposed regulations retain the 

requirement that the governing body, 

members of the governing body, or 

officers of the supporting organization 

must appoint or elect a majority of the 

officers, directors, or trustees of the 

supported organization. The Treasury 

Department and the IRS intend, as 

stated in the 2009 NPRM, the use of the 

phrase ‘‘appointed or elected, directly or 

indirectly’’ to mean 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. 

The preamble to the 2012 TD stated 

that the Treasury Department and the 

IRS intended that the new definition of 

parent would specifically address the 

power to remove and replace officers, 

directors, or trustees of the supported 

organization. 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. The Treasury 

Department and the IRS request 

comments on whether § 1.509(a)– 

4(i)(4)(iii) should be amended to 

provide further clarification on this 

issue. 

ii. Supporting a Governmental 

Supported Organization 

The 2009 NPRM proposed an 

exception to the general rules for 

qualifying as a functionally integrated 

Type III supporting organization if the 

supporting organization supported only 

one governmental entity, which was 

defined as an entity the assets of which 

are subject to the appropriations process 

of a federal, state, local, or Indian tribal 

government. The 2009 NPRM also 

provided that in order to be considered 

functionally integrated, a substantial 

part of the supporting organization’s 

total activities had to directly further the 

exempt purpose(s) of its supported 

organization, and that exempt purposes 

are not directly furthered by 

fundraising, grantmaking, or investing 

and managing non-exempt-use assets. 

The Treasury Department and IRS 

received multiple comments regarding 

this proposal. The 2012 TD stated the 

Treasury Department and the IRS were 

continuing to consider the public 

comments on the 2009 NPRM regarding 

this governmental entity exception and 

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. 

These proposed regulations take the 

prior comments into consideration and 

provide rules to qualify as functionally 

integrated both for new and existing 

Type III supporting organizations that 

support governmental supported 

organizations. These proposed rules also 

define the term ‘‘governmental 

supported organization.’’ 

One commenter stated that the 

definition of a governmental supported 

organization in the 2009 NPRM was too 

complicated and difficult to understand 

and administer. This commenter 

proposed using the existing definition of 

a governmental unit in section 

170(b)(1)(A)(v) and (c)(1). 

The Treasury Department and the IRS 

agree with the commenter that for 

simplicity and administrability the term 

‘‘governmental supported organization’’ 

should be defined by using an existing 

Code definition of a governmental unit. 

The proposed regulations define 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). The Treasury 

Department and the IRS further note 

that a governmental unit described in 

section 170(c)(1) includes all of the 

agencies, departments, and divisions of 

the governmental unit, and all such 

agencies, departments, and divisions 

will be treated as one governmental 

supported organization for purposes of 

§ 1.509(a)–4(i)(4)(iv). The Treasury 

Department and the IRS specifically 

request comments on the proposed 

definition of governmental supported 

organization. 

Two commenters said that the 2009 

NPRM’s limit of only one governmental 

supported organization was too strict 

and instead recommended allowing a 

supporting organization to qualify for 

this exception if it supports at least one 

governmental supported organization, 

as Notice 2014–4 provides. One 

commenter noted that the 2009 NPRM’s 

limit of only one governmental 

supported organization would adversely 

affect existing supporting organizations 

that support an additional supported 

organization that is not itself a 

governmental entity, but that has a 

substantial operational connection with 

the governmental supported 

organization. Another commenter said 

that the test in Notice 2014–4 was not 

sufficient because it did not cover 

activities, such as fundraising and grant 

making, that the governmental 

supported organization could not 

otherwise perform. 

In response to these comments, the 

Treasury Department and the IRS 

propose a new test for Type III 

supporting organizations that support 

only governmental supported 

organizations to qualify as functionally 

integrated. The Treasury Department 

and the IRS agree it would be 

appropriate to treat a Type III 

supporting organization that supports 

two or more governmental supported 

organizations as functionally integrated, 

provided that the governmental 

supported organizations are themselves 

connected geographically or 

operationally, which will help ensure 

that the supported organizations 

provide sufficient input to and oversight 

of the supporting organization. Thus, 

the proposed regulations provide that a 

supporting organization that supports 

more than one governmental supported 

organization may be considered 

functionally integrated if 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 one another to 

conduct a service, program, or activity 

that the supporting organization 

supports. To satisfy the close 

cooperation or coordination 

requirement, the proposed regulations 

require 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 collaborative or 

cooperative efforts with respect to the 

particular service, program, or activity. 

In addition, the proposed regulations 

incorporate the 2009 NPRM proposed 

requirement that a substantial part of 

the supporting organization’s total 

activities must directly further the 

exempt purposes of its governmental 

supported organization(s). The Treasury 

Department and the IRS believe that 

using a substantial part requirement, 

instead of the substantially all 

requirement in § 1.509(a)–4(i)(4)(iv)(A), 

is appropriate when supporting 


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organizations support only 

governmental supported organizations 

operating in the same geographic region 

or working in close collaboration 

because the input from and oversight by 

the governmental supported 

organizations minimize the potential for 

abuse. 

Two commenters stated that activities 

such as fundraising, grant-making, 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 

note that the integral part test’s 

definition of ‘‘directly further’’ in 

§ 1.509(a)–4(i)(4)(ii)(C) generally 

excludes fundraising, making grants, 

and investing and managing nonexempt-use assets. The Treasury 

Department and the IRS excluded these 

items because they 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 

the supported organization (as 

distinguished from providing financial 

support for the activities carried out by 

the supported organization). The 

Treasury Department and the IRS do not 

believe a different definition of ‘‘directly 

further’’ should apply to supporting 

organizations that support governmental 

supported organizations. Accordingly, 

the proposed regulations do not adopt 

this comment. However, under the 

proposed rules, these types of 

organizations would be considered 

functionally integrated if a substantial 

part, but not substantially all, of their 

total activities directly further the 

exempt purposes of their governmental 

supported organization(s). Accordingly, 

these proposed regulations allow these 

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). 

In response to comments, the 

proposed regulations also provide a 

special rule for existing Type III 

supporting organizations, provided that 

they support no more than one 

additional supported organization that 

is not a governmental supported 

organization. A Type III supporting 

organization in existence on or before 

February 19, 2016 is treated 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)– 

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). 

The proposed regulations also further 

extend the transition relief provided in 

Notice 2014–4 and extended by the 

2015 TD. Under the proposed 

regulations, a Type III supporting 

organization in existence on or before 

February 19, 2016 that continues to 

meet the requirements of Notice 2014– 

4 is treated as functionally integrated 

until the earlier of the first day of the 

organization’s first taxable year 

beginning after the date final regulations 

under § 1.509(a)–4(i)(4)(iv) are 

published or the first day of the 

organization’s second taxable year 

beginning after February 19, 2016. 

D. Integral Part Test—Non-Functionally 

Integrated Type III Supporting 

Organizations 

Section 1.509(a)–4(i)(5) generally 

provides that an NFI Type III supporting 

organization meets the integral part test 

if it satisfies the distribution 

requirement of paragraph (i)(5)(ii) of 

that section and the attentiveness 

requirement of paragraph (i)(5)(iii) of 

that section. 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. 

For clarity and consistency, the 

proposed regulations revise § 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) to satisfy 

the distribution requirement, and revise 

section 1.509(a)–4(i)(6) to describe in 

detail what distributions count towards 

the distribution requirement. 

i. 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) 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 during the immediately preceding 

taxable year. See § 1.509(a)–4(i)(5)(ii)(B). 

The Treasury Department and the IRS 

believe that, because the taxes under 

subtitle A of the Code are imposed on 

a supporting organization’s unrelated 

business taxable income (pursuant to 

section 511) and the activity that 

produces the unrelated business taxable 

income does not further the supported 

organization’s exempt purposes, these 

taxes should not be treated as an 

amount distributed to a supported 

organization. Therefore, the proposed 

regulations remove the provision in 

§ 1.509(a)–4(i)(5)(ii)(B) that reduces the 

distributable amount by the amount of 

taxes subtitle A of the Code imposed on 

a supporting organization during the 

immediately preceding taxable year. 

ii. Distributions That Count Toward 

Distribution Requirement 

As noted above, § 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 current 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 

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 preamble to the 2012 TD stated 

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

exhaustive and other distributions may 

count toward the distribution 

requirement. The preamble further 

stated the Treasury Department and the 

IRS intended to propose regulations that 

more fully describe the expenditures 

(including expenditures for 

administrative and additional charitable 

activities) that do and do not count 

toward the distribution requirement. 

The Treasury Department and the IRS 

believe that the non-exclusive list in the 

current regulations creates uncertainty 


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8452 Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Proposed Rules 

for supporting organizations and the IRS 

about what counts toward the 

distribution requirement. Therefore, the 

proposed regulations revise and clarify 

the list in § 1.509(a)–4(i)(6) of what 

counts toward the distribution 

requirement and make it an exclusive 

list. 

The 2012 TD clarified that reasonable 

and necessary administrative expenses 

paid to accomplish the exempt purposes 

of supported organizations, and 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 

administrative expenses attributable to 

the exempt activities are treated as 

distributions to its supported 

organization(s) if such expenses are 

reasonable and necessary. The 

administrative expenses and operating 

costs attributable to the nonexempt 

activities are not treated as distributions 

to the supported organization(s). The 

proposed regulations retain this 

provision, but also provide additional 

guidance on fundraising expenses. 

The 2012 TD did not specifically 

address whether fundraising expenses 

count toward the distribution 

requirement. The proposed regulations 

specify 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. 

However, under the proposed 

regulations, reasonable and necessary 

expenses incurred by the supporting 

organization to solicit contributions that 

a supported organization receives 

directly from donors count toward the 

distribution requirement, but only to the 

extent that the amount of such expenses 

does not exceed the amount of 

contributions actually received by the 

supported organization as a result of the 

solicitation activities of the supporting 

organization. The Treasury Department 

and the IRS believe this rule would 

provide greater consistency with the 

treatment of contributions that 

supporting organizations receive 

directly and then distribute to their 

supported organizations (net of the 

supporting organizations’ solicitation 

expenses). To ensure that a supporting 

organization has the information it 

needs to calculate the allowable 

expenses, the proposed regulations 

require the supporting organization to 

obtain written substantiation from the 

supported organization of the amount of 

contributions the supported 

organization actually received as a 

result of the supporting organization’s 

solicitations. 

One commenter requested that 

program related investments (PRIs) 

count toward the distribution 

requirement. The preamble to the 2012 

TD stated the 2012 final and temporary 

regulations did not specifically address 

whether or not PRIs may count toward 

the distribution requirement or are 

excluded in calculating a supporting 

organization’s distributable amount for a 

taxable year. 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. For purposes of meeting 

the integral part test, the Treasury 

Department and the IRS do not believe 

that PRIs should be treated as 

distributions to supported 

organizations. The Treasury Department 

and the IRS believe that 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, the proposed regulations do not 

adopt this comment. 

Effective Date and Reliance 

These regulations are proposed to be 

effective on the date the Treasury 

decision adopting these rules as final or 

temporary regulations is published in 

the Federal Register. However, 

taxpayers may rely on the provisions of 

the proposed regulations until final or 

temporary regulations are issued. 

Statement of Availability of IRS 

Documents 

The IRS Notice 2014–4 cited in this 

preamble 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 Web site at http://www.irs.gov. 

Special Analyses 

Certain IRS regulations, including this 

one, are exempt from the requirements 

of Executive Order 12866, as 

supplemented and reaffirmed by 

Executive Order 13563. Therefore, a 

regulatory impact assessment is not 

required. It has also been determined 

that section 553(b) of the Administrative 

Procedure Act (5 U.S.C. chapter 5) does 

not apply to these regulations. 

In connection with the requirements 

of the Regulatory Flexibility Act (5 

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

that the collection of information 

contained in the proposed regulations 

will not have a significant economic 

impact on a substantial number of small 

entities. This certification is based on 

the fact that the proposed regulations 

will not impact a substantial number of 

small entities. 

Based on IRS Statistics of Income data 

for 2013, there are 1,052,495 active 

nonprofit charitable organizations 

recognized by the IRS under section 

501(c)(3), of which only 7,872 

organizations self-identified as Type III 

supporting organizations. The universe 

of organizations that would be affected 

by the collection of information under 

proposed § 1.509(a)–4(i)(4)(iii) and 

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

Type III supporting organizations. Thus, 

the number of organizations that would 

be affected by the collection of 

information under proposed § 1.509(a)– 

4(i)(4)(iii) and (i)(6)(iii), which is 

expected to be significantly less than 

7,872, would not be substantial. 

Moreover, the time to complete the 

recordkeeping requirements is expected 

to be no more than 2 hours for each 

organization, which would not have a 

significant economic impact. Therefore, 

the collection of information under 

proposed § 1.509(a)–4(i)(4)(iii) and 

(i)(6)(iii) would not have a significant 

economic impact. 

Pursuant to section 7805(f) of the 

Code, this regulation has been 

submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on its 

impact on small business. 

Comments and Requests for a Public 

Hearing 

Before these proposed regulations are 

adopted as final regulations, 

consideration will be given to any 

electronic comments or written 

comments (a signed original and eight 

(8) copies) that are submitted timely to 

the IRS. The Treasury Department and 


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the IRS request comments on all aspects 

of the proposed rules. All comments 

that are submitted by the public will be 

available for public inspection and 

copying at www.regulations.gov or upon 

request. A public hearing may be 

scheduled if requested in writing by any 

person that timely submits written 

comments. If a public hearing is 

scheduled, notice of the date, time, and 

place for the public hearing will be 

published in the Federal Register. 

Drafting Information 

The principal authors of these 

regulations are Jonathan Carter and 

Mike Repass, Office of Associate Chief 

Counsel (Tax-Exempt and Government 

Entities). However, other personnel 

from the Treasury Department and the 

IRS participated in their development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, 26 CFR part 1 is 

proposed to be amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

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

■ Par. 2. Section 1.509(a)–4 is amended 

by: 

■ 1. Revising paragraphs (f)(5)(ii), 

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

(i)(2)(iii), and (i)(3)(i); 

■ 2. Adding Example 3 to paragraph 

(i)(3)(iv); 

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

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

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

Example 4 of paragraph (i)(5)(iii)(D), the 

third sentence of paragraph (i)(6) 

introductory text, and paragraphs 

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

(l). 

The revisions and additions read as 

follows: 

§ 1.509(a)–4 Supporting organizations. 

* * * * * 

(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 

generally 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. 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 (the 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); 

* * * * * 

(iii) Due date. The notification 

documents required by this paragraph 

(i)(2) shall 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) * * * 

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 regular 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 test 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). 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 


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supported organizations, the supporting 

organization and its supported 

organizations must be part of an 

integrated system (such as a hospital 

system), the supporting organization 

must engage in activities typical of the 

parent of an integrated system, and a 

majority of the officers, directors, or 

trustees of each supported organization 

must be 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. For purposes of this 

paragraph (i)(4)(iii), examples of 

activities typical of the parent of an 

integrated system of supported 

organizations 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. 

(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 

supports only governmental supported 

organizations, and, if the supporting 

organization supports more than one 

governmental supported organization, 

all of the governmental supported 

organizations either— 

(i) Operate within the same 

geographic region; or 

(ii) Work in close coordination or 

collaboration with one another to 

conduct a service, program, or activity 

that the supporting organization 

supports; and 

(2) 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 its 

governmental supported organization(s). 

(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); 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) Geographic region defined. For 

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

this section, the term geographic region 

means a city, county, or metropolitan 

area. 

(D) Close cooperation or coordination. 

To satisfy the close cooperation or 

coordination requirement of paragraph 

(i)(4)(iv)(A)(1) of this section, the 

supporting organization shall maintain 

on file a letter from each of the 

governmental supported organizations 

(or a joint letter from all of them) 

describing their collaborative or 

cooperative efforts with respect to the 

particular service, program, or activity. 

(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 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 earlier of 

the first day of the organization’s first 

taxable year beginning after the date 

final regulations are published in the 

Federal Register under this paragraph 

(i)(4)(iv) or 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 met and continues to meet the 

following requirements— 

(1) It supports at least one supported 

organization that is a governmental 

entity to which the supporting 

organization is responsive within the 

meaning of paragraph (i)(3) of this 

section; and 

(2) It engages in activities for or on 

behalf of the governmental supported 

organization described in paragraph 

(i)(4)(iv)(F)(1) of this section 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. 

* * * * * 

(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 nonfunctionally 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) * * * 

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 


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Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Proposed Rules 8455 

distributable amount to supported 

organizations that are attentive to O. 

(6) Distributions that count toward 

distribution requirement. * * * 

Distributions by the supporting 

organization that count toward the 

distribution requirement imposed in 

paragraph (i)(5)(ii) of this section are 

limited to the following— 

* * * * * 

(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 the 

conduct of fundraising activities, except 

as provided in paragraph (i)(6)(iii)(B) of 

this section; and 

(B) Expenses incurred to solicit 

contributions that are received directly 

by a supported organization, but only to 

the extent the amount of such expenses 

does not exceed the amount of 

contributions actually received by the 

supported organization as a result of the 

solicitation, as substantiated in writing 

by the supported organization; 

* * * * * 

(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) Effective/applicability dates. (1) 

Paragraphs (a)(6), (f)(5), and (i) of this 

section are effective 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 (f)(5)(ii), (i)(2)(i) and 

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

(i)(4)(iii) and (iv), (i)(5)(ii)(A) and (B), 

(i)(5)(iii)(A), (i)(6)(i), (iii) and (v) of this 

section, Example 3 of paragraph 

(i)(3)(iv) of this section, and Example 4 

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

are effective on the date the Treasury 

decision adopting these rules as final or 

temporary regulations is published in 

the Federal Register. 

(2) 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 (as effective 

December 21, 2015), for certain rules 

regarding non-functionally integrated 

Type III supporting organizations 

effective before the date the Treasury 

decision adopting these rules as final or 

temporary regulations is published in 

the Federal Register. 

John Dalrymple, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 2016–02858 Filed 2–18–16; 8:45 am] 

BILLING CODE 4830–01–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R02–OAR–2016–0060, FRL–9942–52– 

Region 2] 

Approval of Air Quality Implementation 

Plans; Puerto Rico; Infrastructure 

Requirements for the 1997 and 2008 

Ozone, 1997 and 2006 Fine Particulate 

Matter and 2008 Lead NAAQS 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule. 

SUMMARY: The Environmental Protection 

Agency (EPA) is proposing to approve 

most elements of the five State 

Implementation Plan (SIP) revision 

submittals from the Commonwealth of 

Puerto Rico to demonstrate that the 

State meets the requirements of section 

110(a)(1) and (2) of the Clean Air Act 

(CAA) for the 1997 and 2008 ozone, 

1997 and 2006 fine particulate matter 

(PM2.5) and 2008 lead National Ambient 

Air Quality Standards (NAAQS). The 

plan is required to address basic 

program elements, including, but not 

limited to, regulatory structure, 

monitoring, modeling, legal authority, 

and adequate resources necessary to 

assure attainment and maintenance of 

the standards. These elements are 

referred to as infrastructure 

requirements. In this rulemaking action, 

EPA is proposing to approve, in 

accordance with the requirements of the 

CAA, the infrastructure SIP submissions 

with the exception of some portions of 

the submittals addressing Prevention of 

Significant Deterioration (PSD). 

DATES: Written comments must be 

received on or before March 21, 2016. 

ADDRESSES: Submit your comments, 

identified by Docket ID Number EPA– 

R02–OAR–2016–0060 at http://

www.regulations.gov. Follow the online 

instructions for submitting comments. 

Once submitted, comments cannot be 

edited or removed from Regulations.gov. 

The EPA may publish any comment 

received to its public docket. Do not 

submit electronically any information 

you consider to be Confidential 

Business Information (CBI) or other 

information whose disclosure is 

restricted by statute. Multimedia 

submissions (audio, video, etc.) must be 

accompanied by a written comment. 

The written comment is considered the 

official comment and should include 

discussion of all points you wish to 

make. The EPA will generally not 

consider comments or comment 

contents located outside of the primary 

submission (i.e., on the web, cloud, or 

other file sharing system). For 

additional submission methods, the full 

EPA public comment policy, 

information about CBI or multimedia 

submissions, and general guidance on 

making effective comments, please visit 

http://www2.epa.gov/dockets/

commenting-epa-dockets. 

FOR FURTHER INFORMATION CONTACT: 

Raymond K. Forde, Air Programs 

Branch, Environmental Protection 

Agency, 290 Broadway, 25th Floor, New 

York, New York 10007–1866, (212) 637– 

3716, or by email at forde.raymond@

epa.gov. 

SUPPLEMENTARY INFORMATION: 

The SUPPLEMENTARY INFORMATION

section is arranged as follows: 

Table of Contents 

I. Background 

II. Summary of State Submittals 

III. EPA’s Approach To Review Infrastructure 

SIPs 

IV. Summary of EPA’s Rationale for 

Proposing Approval and Disapproval 

V. Proposed Action 

VI. Incorporation by Reference 

VII. Statutory and Executive Order Reviews 

I. Background 

On July 18, 1997, the Environmental 

Protection Agency (EPA) promulgated a 

revised national ambient air quality 

standard (NAAQS or standards) for 

ozone (62 FR 38856) and a new NAAQS 

for fine particle matter (PM2.5) (62 FR 

38652). The revised ozone NAAQS was 

based on 8-hour average concentrations. 

The 8-hour averaging period replaced 

the previous 1-hour averaging period, 

and the level of the NAAQS was 

changed from 0.12 parts per million 

(ppm) to 0.08 ppm. The new PM2.5

NAAQS established a health-based 

annual standard of 15.0 micrograms per 

cubic meter (mg/m3) based on a 3-year 

average of annual mean PM2.5

concentrations, and a 24-hour standard 

of 65 mg/m3 based on a 3-year average 

of the 98th percentile of 24-hour 

concentrations. 

On October 17, 2006 (71 FR 61144), 

effective December 18, 2006, EPA 

revised the 24-hour average PM2.5


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