52528 Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Parts 1 and 602 

[TD 9423] 

RIN 1545–BH85 

Implementation of Form 990 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final and temporary 

regulations. 

SUMMARY: This document contains final 

and temporary regulations necessary to 

implement the redesigned Form 990, 

‘‘Return of Organization Exempt From 

Income Tax.’’ The final regulations 

contained in this document make only 

nonsubstantive revisions to comply 

with Federal Register requirements. The 

temporary regulations make revisions to 

the regulations under section 6033 and 

section 6043 to allow for new threshold 

amounts for reporting compensation, to 

require that compensation be reported 

on a calendar year basis, and to modify 

the scope of organizations subject to 

information reporting requirements 

upon a substantial contraction. The 

temporary regulations also eliminate the 

advance ruling process for new 

organizations, change the public 

support computation period for 

organizations described in sections 

170(b)(1)(A)(vi) and 509(a)(1) and in 

section 509(a)(2) to five years, consistent 

with the revised Form 990, and clarify 

that support must be reported using the 

organization’s overall method of 

accounting. All tax-exempt 

organizations required under section 

6033 of the Internal Revenue Code 

(Code) to file annual information returns 

are affected by these temporary 

regulations. The text of these temporary 

regulations also serves as the text of the 

proposed regulations (REG–142333–07) 

published in the Proposed Rules section 

in this issue of the Federal Register. 

DATES: Effective Date: These regulations 

are effective on September 9, 2008. 

Applicability Date: These regulations 

apply to taxable years beginning on or 

after January 1, 2008. 

FOR FURTHER INFORMATION CONTACT: 

Terri Harris at (202) 622–6070 (not a 

toll-free number). 

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act 

The collection of information 

contained in these temporary 

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 

1545–2117. 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 

tax return information are confidential, 

as required by 26 U.S.C. 6103. 

Background 

Form 990 

Under section 6033 of the Code, 

organizations that are exempt from 

Federal income tax under section 501(a) 

are generally required to file an annual 

information return reporting gross 

income, receipts, disbursements and 

such other information as the IRS 

requires. Certain exceptions to this 

filing requirement apply. For example, 

churches are not required to file annual 

information returns. The Treasury 

regulations direct that the annual 

information return shall be filed on 

Form 990, ‘‘Return of Organization 

Exempt From Income Tax’’ or Form 

990–PF, ‘‘Return of Private Foundation 

or Section 4947(a)(1) Nonexempt 

Charitable Trust Treated as a Private 

Foundation.’’ The regulations further 

specify certain information to be 

reported on the return. 

The IRS revises forms and 

instructions on an annual basis to reflect 

changes in the law and evolving tax 

administration needs. On December 20, 

2007, the IRS released a redesigned 

Form 990. The Form 990 had not been 

significantly revised since 1979, and 

both the IRS and stakeholders regarded 

the form as needing major revision to 

keep pace with changes in the law and 

with the increasing size, diversity, and 

complexity of the exempt sector. The 

new form incorporates many 

recommendations made in public 

comments on the discussion draft 

released on June 14, 2007. With the 

exception of certain smaller 

organizations for which there is a 

graduated transition period, 

organizations must begin using the new 

form for the 2008 tax year (returns filed 

in 2009). The current Form 990 will be 

used for tax year 2007 (returns filed in 

2008) but will be replaced with the 

redesigned Form 990 beginning with the 

2008 tax year. Earlier this year, the IRS 

released draft instructions for the new 

form and schedules for public comment. 

These regulations make the revisions 

that must be made to the regulations 

under sections 6033 and 6043 of the 

Code to implement the Form 990 

redesign. For example, the regulation 

that currently gives organizations a 

choice of using either the calendar year 

or the organization’s annual accounting 

period as the basis for reporting 

compensation of officers, directors, 

trustees and certain employees and 

contractors is revised to require 

calendar year reporting. Revisions are 

also made to allow for new threshold 

amounts for reporting compensation 

and to expand the scope of 

organizations subject to information 

reporting requirements upon a 

substantial contraction. 

In addition, as discussed in further 

detail in this preamble, these 

regulations eliminate the advance ruling 

process and change the public support 

computation period for organizations 

described in sections 170(b)(1)(A)(vi) 

and 509(a)(1) and in section 509(a)(2) to 

five years, consistent with the revised 

Schedule A, ‘‘Public Charity Status and 

Public Support’’ to the redesigned Form 

990. These regulations also clarify that 

support must be reported using the 

organization’s overall method of 

accounting. 

Private Foundation Status and Advance 

Rulings 

Public Support Tests 

Under present law, as established in 

the Tax Reform Act of 1969, an 

organization described in section 

501(c)(3) of the Code is a private 

foundation unless it meets one of the 

exceptions described in sections 

509(a)(1) through 509(a)(4). 

Organizations that are described in 

section 509(a)(1), (2), (3) or (4) are 

classified as public charities, and are 

not subject to various excise taxes in 

Chapter 42 that apply to private 

foundations. The Code defines two 

major categories of organizations that 

are considered public charities and not 

private foundations because they are 

broadly publicly supported: (1) 

Organizations described in section 

170(b)(1)(A)(vi), which are not private 

foundations because they are referenced 

in section 509(a)(1); and (2) 

organizations described in section 

509(a)(2). 

Section 170(b)(1)(A)(vi) encompasses 

organizations that normally receive a 

substantial part of their support from a 

governmental unit or from direct or 

indirect contributions from the general 

public. The regulations under section 

170 provide that an organization will be 

described in section 170(b)(1)(A)(vi) if it 

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Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 52529 

normally receives at least 331⁄3 percent 

of its support from governmental units 

or from the general public. See 

§ 1.170A–9(f). Alternatively, an 

organization can meet a ‘‘facts and 

circumstances’’ test, under which it may 

qualify as a section 170(b)(1)(A)(vi) 

organization if it normally receives at 

least 10 percent of its support from 

governmental units or the general 

public, and can establish that, under all 

the facts and circumstances, it normally 

receives a substantial part of its support 

from governmental units or the general 

public. 

Section 509(a)(2) encompasses 

organizations that normally receive 

more than one-third of their support 

from a combination of gifts, grants, 

contributions, membership fees, and 

gross receipts from performing exempt 

function activities, and normally receive 

not more than one-third of their support 

from investment income and unrelated 

business taxable income. The major 

difference between the section 509(a)(2) 

and section 170(b)(1)(A)(vi) tests is that 

the former includes in support gross 

receipts from exempt function activities, 

for example, admission proceeds for a 

museum or ticket sales for a symphony, 

while the latter does not. As noted, 

section 509(a)(2) also includes an 

investment income limitation. For ease 

of reference, the tests in sections 

170(b)(1)(A)(vi) and 509(a)(2) will be 

referred to collectively as the public 

support tests. 

The statute does not define, for either 

provision, the meaning of ‘‘normally.’’ 

The current regulations for both public 

support tests generally use a rolling 

four-year computation period, with two 

exceptions: New organizations and 

organizations that experience 

‘‘substantial and material changes’’ in 

their sources of support for the current 

year are permitted to use a five-year 

computation period. For any particular 

taxable year, the four-year computation 

period is the four years immediately 

preceding the current taxable year. For 

example, for taxable year 1998, the 

computation period would be taxable 

years 1994, 1995, 1996, and 1997. The 

regulations further provide that if the 

public support test is met for the fouryear computation period, the 

organization will be considered to meet 

the public support test for the taxable 

year being tested and the immediately 

succeeding taxable year. In the example 

above, a section 170(b)(1)(A)(vi) 

organization would meet the public 

support test for 1998 and 1999 if the 

support it received from the general 

public and from governmental units for 

the years 1994 through 1997 exceeded 

331⁄3 percent of the total support it 

received for those years. 

The effect of the current rule 

regarding the subsequent taxable year is 

that an organization must fail to meet a 

public support test two years in a row 

to become a private foundation. In the 

example above, the organization met the 

public support test for 1998 and 1999, 

based on support received during the 

four-year computation period 1994 

through 1997. If the organization does 

not meet a public support test for the 

1995 through 1998 computation period, 

it is still a public charity in 1999 

because it met a support test for taxable 

year 1998. However, if the organization 

again does not meet a public support 

test for the 1996 through 1999 

computation period, the organization 

becomes a private foundation effective 

at the beginning of its taxable year 2000. 

Advance Rulings 

In its application for recognition of 

tax-exempt status (Form 1023, 

‘‘Application for Recognition of 

Exemption Under Section 501(c)(3) of 

the Internal Revenue Code’’), a section 

501(c)(3) organization also requests a 

determination of its private foundation 

status, that is, whether it is a private 

foundation and, if not, the Code 

provision excepting it from private 

foundation classification. Under the 

current statute and regulations, an 

organization can request either an 

advance ruling or a definitive ruling 

addressing the organization’s exemption 

under section 501(c)(3) and its private 

foundation status under section 509(a). 

Under the current regulations, a new 

organization applying for exemption can 

request a definitive ruling as to its 

foundation status only if it has 

completed its first tax year consisting of 

at least eight full months. In lieu of the 

general four-year computation period 

for public support, a new organization 

requesting a definitive ruling tests its 

public support based on the years it has 

been in existence. If an organization 

qualifies as an organization described in 

section 509(a)(1) or (2) based on the 

support received in its initial year(s) of 

existence, the IRS issues a definitive 

ruling stating that the organization is 

recognized as exempt under section 

501(c)(3) and classified as a public 

charity. 

If a new organization has not yet 

completed its first tax year consisting of 

at least eight full months at the time it 

applies for recognition of tax exemption, 

or if the organization so elects, it 

requests an ‘‘advance ruling’’ regarding 

its private foundation status in its 

application for exemption. Current 

regulations provide for an advance 

ruling period of two or three years, 

depending on the length of the 

organization’s first tax year, and an 

additional ‘‘extended advance ruling 

period’’ of three more years if the 

organization requests. These current 

regulations have been overridden. In the 

conference report to the Tax Reform Act 

of 1984, Congress directed that the 

advance ruling period in all cases be 

five years. See H.R. Rep. No. 98–861, 

98th Cong., 2d Sess. 1 (1984), 1984–3 

CB (Vol. 2) 1090. The advance ruling 

period gives new organizations time to 

build up broad public support in the 

first few years of their existence. In lieu 

of the general four-year computation 

period for public support, a new 

organization requesting an advance 

ruling tests its public support over the 

first five years of its existence as an 

organization described in section 

501(c)(3). If an organization 

demonstrates to the IRS’s satisfaction 

that it can reasonably be expected to 

meet a public support test during its 

first five years, the IRS issues an 

advance ruling stating that the 

organization is recognized as exempt 

under section 501(c)(3) and classified as 

a public charity during its first five 

years. With limited exceptions, donors 

can rely on this advance ruling as to 

public charity status. 

At the end of the initial five-year 

advance ruling period, the organization 

is required to file Form 8734, ‘‘Support 

Schedule for Advance Ruling Period’’ to 

establish that it actually met a public 

support test. As noted above, for this 

purpose, public support is calculated 

over the five-year advance ruling period, 

rather than over a four-year period. If 

the organization meets a public support 

test for its advance ruling period, the 

IRS issues a definitive ruling letter 

classifying the organization as a public 

charity. If the organization does not 

meet a public support test for its 

advance ruling period, or the 

organization fails to submit Form 8734, 

the IRS reclassifies the organization as 

a private foundation as of its first 

taxable year and publishes notice of the 

change in status in the Internal Revenue 

Bulletin and Publication 78, 

‘‘Cumulative List of Organizations 

described in Section 170(c) of the 

Internal Revenue Code of 1986,’’ which 

can be searched at www.irs.gov. Once 

notice of a change in status is published, 

donors can no longer automatically rely 

on the advance ruling for charitable 

contribution deduction purposes and 

must assume that the organization is a 

private foundation. See 

§ 601.601(d)(2)(ii)(b). 

An organization that is reclassified as 

a private foundation is subject to the 

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52530 Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 

section 4940 investment income tax and 

the section 507 termination tax for its 

five-year advance ruling period. The 

other Chapter 42 excise taxes applicable 

to private foundations do not apply 

during the five-year advance ruling 

period. In year six, the reclassified 

organization is subject to all Chapter 42 

excise taxes that apply to private 

foundations. 

The advance ruling process is 

complex and burdensome for both 

taxpayers and the IRS and provides 

little tax administration or compliance 

benefit. While statistics vary from year 

to year, approximately 95 percent of the 

organizations that receive advance 

rulings later receive definitive rulings 

that the organizations are public 

charities at the end of the advance 

ruling period. The current regulations 

governing advance rulings are complex, 

and, as discussed above, were 

overridden in part by the Tax Reform 

Act of 1984. Moreover, the public 

support information that is reported on 

Form 8734 will be captured on 

Schedule A of the redesigned Form 990. 

For these reasons, in its 2003 report, the 

IRS Advisory Committee for Tax 

Exempt and Governmental Entities, a 

group that includes representatives of 

exempt organizations and practitioners, 

recommended that the advance ruling 

process be eliminated. 

The IRS believes that it can more 

effectively deploy its compliance 

resources by eliminating the advance 

ruling process and Form 8734 and 

instead monitoring public charity status 

based on public support information 

reported on the revised Schedule A, to 

the redesigned Form 990. The revised 

Schedule A sets forth easier-to-follow 

rules for calculating public support and 

captures all of the information necessary 

for the IRS to monitor and verify 

compliance with the public support 

tests. 

Explanation of Provisions 

Private Foundation Status and Advance 

Rulings 

The temporary regulations eliminate 

the advance ruling process and provide 

instead that an organization will be a 

public charity in its first five years if it 

can show, in its application for 

exemption, that it can reasonably be 

expected to receive the requisite public 

support during such period. The 

temporary regulations also change the 

public support computation period for 

purposes of sections 170(b)(1)(A)(vi) 

and 509(a)(1) and section 509(a)(2) from 

a four-year period prior to the tested 

year to a five-year period that includes 

the current year. The temporary 

regulations also eliminate the 

substantial and material changes 

exception, which is made obsolete by 

the establishment of a general five-year 

computation period. In addition, 

§ 1.170A–9T(f), which corresponds to 

§ 1.170A–9(e) of the prior regulations 

and governs section 170(b)(1)(A)(vi) 

organizations, has been revised 

throughout to simplify some of the 

language and to provide a better ‘‘road 

map’’ of what the provisions are 

designed to do. 

Elimination of Advance Ruling Process 

The temporary regulations eliminate 

advance rulings and the Form 8734 

filing requirement for all new section 

501(c)(3) organizations. Under the 

temporary regulations, if, at the time of 

the initial application for exemption, an 

organization can establish to the 

satisfaction of the IRS that the 

organization can reasonably be expected 

to meet a public support test during its 

first five years, the organization 

qualifies as publicly supported for its 

first five years as a section 501(c)(3) 

organization. The IRS will issue a 

determination letter stating that the 

organization is exempt under section 

501(c)(3) and is classified as a public 

charity. The organization will be a 

public charity for its first five years, 

regardless of the level of public support 

it in fact receives during this period. In 

addition, unlike a new organization’s 

public charity status under an advance 

ruling, which was conditioned on its 

ultimate satisfaction of a public support 

test on a Form 8734 filed with the IRS, 

under the temporary regulations a new 

organization that can show it can 

reasonably be expected to meet a public 

support test will be classified as a 

public charity for all purposes during its 

first five years. The organization will 

not owe any section 4940 tax or section 

507 termination tax with respect to its 

first five years. Beginning with the 

organization’s sixth year, if the 

organization cannot establish that it is 

not a private foundation, such as a 

public charity or a supporting 

organization under section 509(a)(3), it 

will be liable for the section 4940 excise 

tax and other Chapter 42 excise taxes 

applicable to private foundations for 

any year for which it cannot establish 

that it is not a private foundation. 

The standards for whether an 

organization can reasonably be expected 

to be publicly supported are drawn from 

the existing regulations. A new 

organization required to file Form 990 

or Form 990–EZ, ‘‘Short Form Return of 

Organization Exempt From Income 

Tax,’’ will be required to report its 

support on Schedule A every year, but 

it will not be required to file Form 8734 

after its first five years. Organizations 

will be required to meet a public 

support test using the general five-year 

computation period beginning in their 

sixth taxable years. The five-year 

computation period is discussed in 

detail in this preamble. 

Computation Period for Public Support 

The temporary regulations change the 

computation period for public support 

from a four-year period comprised of the 

four years prior to the tested year to a 

five-year period that includes the 

current year. Because all organizations 

will use a five-year computation period 

under the temporary regulations, the 

temporary regulations eliminate the 

substantial and material change 

exception, which allowed organizations 

to use a five-year computation period 

rather than the four-year computation 

period under certain circumstances. 

An organization that meets a public 

support test for the current taxable year 

is treated as publicly supported for the 

current taxable year and the 

immediately succeeding taxable year. 

Thus, for example, a calendar year 

organization that meets a public support 

test for taxable year 2011, based on the 

five-year computation period 2007 

through 2011, is a public charity for 

taxable years 2011 and 2012. If the 

organization cannot meet a public 

support test for taxable year 2012 (based 

on the five-year computation period 

2008 through 2012), it still will be a 

public charity for taxable year 2012, 

because it met the public support test 

for taxable year 2011 (based on the fiveyear computation period 2007 through 

2011). If, however, the organization 

cannot meet a public support test for 

taxable year 2013 as well, based on the 

computation period 2009 through 2013, 

the organization will be classified as a 

private foundation as of the beginning of 

taxable year 2013. Because an 

organization that cannot meet a public 

support test for the current taxable year 

is at risk of private foundation 

classification as of the first day of the 

subsequent taxable year, organizations 

may wish to carefully monitor their 

public support calculations. 

The IRS and the Treasury Department 

recognize that an organization may not 

be able to compute its public support for 

the current taxable year until some time 

in the subsequent taxable year. In the 

example above, taxable year 2013 may 

have already begun by the time the 

calendar year organization computes its 

public support for taxable year 2012 and 

realizes (perhaps for the first time) that 

it is at risk of being classified as a 

private foundation as of January 1, 2013. 

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Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 52531 

Moreover, the organization may not 

know definitively that it is a private 

foundation for taxable year 2013 until 

some time in 2014, when it is able to 

definitively calculate its public support. 

Accordingly, the IRS will not assert 

private foundation excise taxes and/or 

penalties for all or part of the first 

taxable year in which an organization is 

reclassified as a private foundation due 

to failure to satisfy a public support test 

in cases where the imposition of such 

taxes would lead to unfair or inequitable 

results, such as where the change in the 

organization’s public support was 

unforeseeable or due to circumstances 

beyond the organization’s control. 

Organizations that believe that the 

imposition of private foundation excise 

taxes and/or penalties against them for 

all or part of the first year in which they 

are reclassified as a private foundation 

would be unfair or inequitable should 

contact the IRS, Exempt Organizations, 

Rulings and Agreements, Washington, 

DC, at (202) 283–4905. An organization 

will be required to provide to the IRS all 

of the relevant facts and circumstances 

establishing that the imposition of 

private foundation taxes would be 

unfair or inequitable. Comments are 

requested regarding the specific 

circumstances that may warrant relief. 

The existing regulations contain 

numerous examples reflecting the fouryear computation period. The temporary 

regulations update the examples to 

reflect the new computation period. 

These examples are in § 1.170A–

9T(f)(9), § 1.509(a)–3T(c)(6) and 

§ 1.509(a)–3T(e)(3). 

Method of Accounting 

Previously, when a section 501(c)(3) 

organization computed its public 

support, it was required to use the cash 

method of accounting to report the 

amount of public support it received on 

Schedule A, even if it used the accrual 

method of accounting in keeping its 

books under section 446, and in 

otherwise reporting on Form 990. Under 

these temporary regulations, when a 

section 501(c)(3) organization computes 

its public support and reports the 

information on Schedule A, it must use 

the same accounting method that it uses 

in keeping its books under section 446 

and that it otherwise uses to report on 

its Form 990. An organization that uses 

the accrual method will not be able to 

use the support information reported on 

Form 990 for prior years (because that 

support was reported using the cash 

method) to compute its public support 

for the current year, and instead must 

report all support for the computation 

period on the accrual method. 

Reliance 

These temporary regulations provide 

that donors may rely on an 

organization’s ruling that the 

organization is described in sections 

170(b)(1)(A)(vi) and 509(a)(1) or in 

section 509(a)(2) until notice of a change 

in status is provided to the public (such 

as by publication in the Internal 

Revenue Bulletin), unless the donor was 

responsible for or aware of the act or 

failure to act that results in the 

organization’s loss of public charity 

status. This rule is substantively the 

same as the rules contained in the 

current regulations. The regulations 

further provide that donors may rely on 

advance rulings that expire on or after 

June 9, 2008, until notice of a change in 

status is provided to the public (such as 

by publication in the Internal Revenue 

Bulletin). 

Effective/Applicability Date and 

Transition Rules 

These temporary regulations are 

effective on September 9, 2008, and 

apply to taxable years beginning on or 

after January 1, 2008. All organizations, 

including organizations that received a 

definitive ruling prior to the effective 

date of these regulations, must use the 

new five-year computation period to 

calculate public support for their first 

taxable year beginning on or after 

January 1, 2008 and for all subsequent 

taxable years. 

These regulations provide a transition 

rule under which an organization that 

cannot meet a public support test for its 

first taxable year beginning on or after 

January 1, 2008, using the five-year 

computation period will continue to 

qualify as a public charity for its 2008 

taxable year if it satisfied a public 

support test for its 2007 taxable year, 

based on public support received over 

the four-year period 2003 through 2006. 

These regulations also provide a 

transition rule under which 

organizations that received advance 

rulings that expire on or after June 9, 

2008, are treated as new public charities 

under the new regulations, that is, 

public charities for all purposes without 

regard to public support in fact received 

during the first five years of their 

existence as section 501(c)(3) 

organizations. This rule effectively 

applies the temporary regulations to all 

organizations that are in their advance 

ruling period as of the effective date of 

these temporary regulations. As such, 

these organizations will not have to file 

Form 8734 at the end of the advance 

ruling period. Grantors and contributors 

can rely upon these organizations’

advance ruling letter as if it were a 

definitive ruling letter. The IRS plans to 

send follow-up letters to such 

organizations explaining the new rules. 

An organization that did not timely file 

Form 8734 at the expiration of its 

advance ruling period is not covered by 

the transition rule. Such an organization 

must file information with the IRS 

establishing that it met a public support 

test during its advance ruling period in 

order to qualify as a public charity 

during its first five years. 

Forms 1023 filed prior to the effective 

date of these regulations that have not 

yet been processed by the IRS will be 

processed under the new regulations. 

The IRS will issue definitive rulings 

regarding private foundation status to 

such organizations. 

Community Trust Rules 

Sections 1.170A–9(f)(10) through 

1.170A–9(f)(14), which establish rules 

for when multiple trusts can be treated 

as a single entity for purposes of the 

public support tests, provide old 

transition rules that are obsolete, and, 

therefore, the transition rules are being 

deleted in these temporary regulations. 

Compensation Reporting 

Current § 1.6033–2(a)(2)(ii)(g) requires 

that exempt organizations report on 

Form 990 the names and addresses of all 

officers, directors, trustees, and persons 

having responsibilities or powers 

similar to those of officers, directors or 

trustees, of the organization. The 

reference to a person having 

responsibilities and powers similar to 

those of officers, directors or trustees is 

meant to capture those persons who 

function as officers, directors or trustees 

of the organization, regardless of title, as 

well as the key employees of the 

organization. The redesigned Form 990 

expanded the definition of key 

employee to cover not only persons 

having responsibilities or powers 

similar to those of officers, directors or 

trustees, but also persons who manage 

a discrete segment or activity of the 

organization that represents a 

substantial portion of the activities, 

assets, income, or expenses of the 

organization. The redesigned Form 990 

requires reporting for only those key 

employees whose compensation 

exceeds $150,000. These temporary 

regulations add key employees to the 

list of persons in § 1.6033–2T(a)(2)(ii)(g) 

who may be required to be reported on 

Form 990, as prescribed by publication, 

form or instructions. 

Current § 1.6033–2(a)(2)(ii)(g) requires 

that exempt organizations that make 

payments of more than $30,000 

annually to employees and independent 

contractors report these persons’ names 

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52532 Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 

and addresses on Form 990. Current 

§ 1.6033–2(a)(2)(ii)(h) requires a 

schedule showing the compensation or 

other payments made to the persons 

listed in paragraph (a)(2)(ii)(g). The 

redesigned Form 990 requires an 

organization to report, for each person 

listed (other than a key employee or a 

former director or trustee of the 

organization), compensation and other 

payments totaling more than $100,000 

annually paid by the organization and 

its related organizations to the person. 

For key employees, the redesigned Form 

990 requires an organization to report 

compensation and other payments 

totaling more than $150,000 annually 

paid by the organization and its related 

organizations to the person. For former 

directors and trustees, the redesigned 

Form 990 requires an organization to 

report compensation and other 

payments totaling more than $10,000 

annually paid by the organization and 

its related organizations to the person 

solely on account of the person’s past 

services as a director or trustee of the 

organization. As amended in these 

temporary regulations, § 1.6033–

2T(a)(2)(ii)(g) gives the Commissioner 

discretion to revise the threshold 

amount for reporting by form and 

instruction. 

Furthermore, the current rule in 

§ 1.6033–2(a)(2)(ii)(h), which requires 

generally the reporting of compensation 

paid by an organization during its 

annual accounting period (or during the 

calendar year ending within such 

period), imposes no requirement that 

the compensation reported on Form 990 

be consistent with what is reported on 

Form W–2, ‘‘Wage and Tax Statement,’’

or Form 1099–MISC, ‘‘Miscellaneous 

Income.’’ The current rule permits, but 

does not require, a fiscal year 

organization to report paid 

compensation on a calendar year basis. 

The redesigned Form 990 (Part VII and 

Schedule J) requires that compensation 

reported as paid to officers and other 

employees be consistent with Form W–

2 (box 5) and that compensation 

reported as paid to directors, individual 

trustees, and independent contractors be 

consistent with Form 1099–MISC (box 

7). As amended by these temporary 

regulations, § 1.6033–2T(a)(2)(ii)(h) 

requires an organization to report 

compensation it has paid during the 

calendar year ending with or within the 

organization’s annual accounting 

period, or during such other period as 

specified by form or form instructions. 

The rule in these temporary regulations 

will ensure consistency in 

compensation reporting, provide greater 

certainty about what compensation is to 

be reported, and reduce the reporting 

burden for most filing organizations. A 

fiscal year organization will continue to 

be required to use fiscal year accounting 

when reporting aggregate compensation 

as an expense item (Form 990, Part IX). 

In addition, an organization will not be 

required to reconcile compensation for 

individuals reported in Part VII with 

compensation for such individuals 

included in its Part IX statement of 

expenses. 

Asset Disposition Reporting 

Schedule N, ‘‘Liquidation, 

Termination, Dissolution, or Significant 

Disposition of Assets,’’ of the redesigned 

Form 990 requires information about 

organizations that liquidate, terminate, 

or dissolve, or sell, exchange, dispose of 

or otherwise transfer more than 25 

percent of the organization’s assets. The 

collection of this information is 

authorized by section 6033, the general 

authorization for the collection of 

information on Form 990. The 

collection of information with respect to 

liquidations, dissolutions, terminations 

and substantial contractions is also 

authorized by section 6043(b). While 

section 6043(b) and its companion 

penalty provision section 6652(c) 

contemplate a separate return, since 

1981 this information has been collected 

on Form 990. 

In order to eliminate the potential for 

inconsistency and confusion by 

taxpayers, the regulations under section 

6043(b) have been amended so that they 

are consistent with section 6033 and the 

redesigned Schedule N. Generally, 

current § 1.6043–3(b)(8) excuses from 

the information reporting requirement 

of section 6043(b) organizations other 

than former section 501(c)(3) 

organizations. The IRS believes that this 

exception is too broad, because 

information reporting from other 

exempt organizations may facilitate 

sound tax administration. Therefore, 

these temporary regulations amend 

§ 1.6043–3(b)(8) to provide discretion to 

narrow the exception and require 

reporting from organizations exempt 

under other Code sections by form or 

form instructions. In addition, these 

temporary regulations remove the 

definition of ‘‘substantial contraction’’

in § 1.6043–3(d)(1), leaving this term to 

be defined by form or form instructions. 

Private Foundation Termination 

Section 1.507–2, which addresses 

private foundation terminations under 

section 507(b), contains references to 

the four-year computation period for 

public support and old transition rules 

related to 12-month terminations that 

are obsolete. These temporary 

regulations revise § 1.507–2 to delete 

references to the four-year computation 

period and the transition rules related to 

12-month terminations. 

Revisions To Comply With Federal 

Register 

The final regulations make various 

nonsubstantive revisions to comply 

with Federal Register requirements. For 

example, the undesignated flush 

language preceding prior § 1.170A–9(a) 

was designated as paragraph (a), and all 

following paragraphs were redesignated 

accordingly. 

Special Analyses 

It has been determined that this 

Treasury decision is not a significant 

regulatory action as defined in 

Executive Order 12866. Therefore, a 

regulatory 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. 

It is hereby certified that the collection 

of information in this regulation will not 

have a significant economic impact on 

a substantial number of small entities. 

This certification is based on the fact 

that burden on tax-exempt entities will 

be reduced by (1) eliminating the 

separate advance ruling process and the 

additional process for subsequently 

seeking a definitive ruling, (2) clarifying 

rules regarding the method of 

accounting and period for reporting 

certain items, and (3) providing 

discretion for the IRS to narrow or 

clarify circumstances under which 

reporting is required. Accordingly, a 

Regulatory Flexibility Analysis under 

the Regulatory Flexibility Act (5 U.S.C. 

chapter 6) is not required. Pursuant to 

section 7805(f) of the Code, these 

regulations have been submitted to the 

Chief Counsel for Advocacy of the Small 

Business Administration for comment 

on its impact on small business. 

Drafting Information 

The principal author of this regulation 

is Terri Harris, Office of Associate Chief 

Counsel (Tax Exempt and Government 

Entities). However, other personnel 

from the IRS and the Treasury 

Department participated in their 

development. 

List of Subjects 

26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

26 CFR Part 602 

Reporting and recordkeeping 

requirements. 

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Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 52533 

Amendments to the Regulations 

■ Accordingly, 26 CFR parts 1 and 602 

are 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 1.170A–9 is amended 

as follows: 

■ 1. Paragraphs (a), (b), (c), (d), (e), (f), 

(g), (h) and (i) are redesignated as 

paragraphs (b), (c), (d), (e), (f), (g), (h), 

(i) and (j), respectively. 

■ 2. The undesignated text following the 

section heading is designated as 

paragraph (a). 

■ 3. The newly-designated paragraphs 

(a) and (d) are revised. 

■ 4. New paragraph (k) is added. 

The addition and revisions read as 

follows: 

§ 1.170A–9 Definition of section 

170(b)(1)(A) organization. 

(a) The term section 170(b)(1)(A) 

organization as used in the regulations 

under section 170 means any 

organization described in paragraphs (b) 

through (j) of this section, effective with 

respect to taxable years beginning after 

December 31, 1969, except as otherwise 

provided. Section 1.170–2(b) shall 

continue to be applicable with respect 

to taxable years beginning prior to 

January 1, 1970. The term one or more 

organizations described in section 

170(b)(1)(A) (other than clauses (vii) 

and (viii)) as used in sections 507 and 

509 of the Internal Revenue Code (Code) 

and the regulations means one or more 

organizations described in paragraphs 

(b) through (f) of this section, except as 

modified by the regulations under part 

II of subchapter F of chapter 1 or under 

chapter 42. 

* * * * * 

(d) Hospitals and medical research 

organizations—(1) Hospitals. An 

organization (other than one described 

in paragraph (d)(2) of this section) is 

described in section 170(b)(1)(A)(iii) if—

(i) It is a hospital; and 

(ii) Its principal purpose or function 

is the providing of medical or hospital 

care or medical education or medical 

research. 

(A) The term hospital includes—

(1) Federal hospitals; and 

(2) State, county, and municipal 

hospitals which are instrumentalities of 

governmental units referred to in 

section 170(c)(1) and otherwise come 

within the definition. A rehabilitation 

institution, outpatient clinic, or 

community mental health or drug 

treatment center may qualify as a 

‘‘hospital’’ within the meaning of 

paragraph (d)(1)(i) of this section if its 

principal purpose or function is the 

providing of hospital or medical care. 

For purposes of this paragraph (d)(1)(ii), 

the term medical care shall include the 

treatment of any physical or mental 

disability or condition, whether on an 

inpatient or outpatient basis, provided 

the cost of such treatment is deductible 

under section 213 by the person treated. 

An organization, all the 

accommodations of which qualify as 

being part of a ‘‘skilled nursing facility’’

within the meaning of 42 U.S.C. 

1395x(j), may qualify as a ‘‘hospital’’

within the meaning of paragraph 

(d)(1)(i) of this section if its principal 

purpose or function is the providing of 

hospital or medical care. For taxable 

years ending after June 28, 1968, the 

term hospital also includes cooperative 

hospital service organizations which 

meet the requirements of section 501(e) 

and § 1.501(e)–1. 

(B) The term hospital does not, 

however, include convalescent homes 

or homes for children or the aged, nor 

does the term include institutions 

whose principal purpose or function is 

to train handicapped individuals to 

pursue some vocation. An organization 

whose principal purpose or function is 

the providing of medical education or 

medical research will not be considered 

a ‘‘hospital’’ within the meaning of 

paragraph (d)(1)(i) of this section, unless 

it is also actively engaged in providing 

medical or hospital care to patients on 

its premises or in its facilities, on an 

inpatient or outpatient basis, as an 

integral part of its medical education or 

medical research functions. See, 

however, paragraph (d)(2) of this section 

with respect to certain medical research 

organizations. 

(2) Certain medical research 

organizations—(i) Introduction. A 

medical research organization is 

described in section 170(b)(1)(A)(iii) if 

the principal purpose or functions of 

such organization are medical research 

and if it is directly engaged in the 

continuous active conduct of medical 

research in conjunction with a hospital. 

In addition, for purposes of the 50 

percent limitation of section 

170(b)(1)(A) with respect to a 

contribution, during the calendar year 

in which the contribution is made such 

organization must be committed to 

spend such contribution for such 

research before January 1 of the fifth 

calendar year which begins after the 

date such contribution is made. An 

organization need not receive 

contributions deductible under section 

170 to qualify as a medical research 

organization and such organization need 

not be committed to spend amounts to 

which the limitation of section 

170(b)(1)(A) does not apply within the 

5-year period referred to in this 

paragraph (d)(2)(i). However, the 

requirement of continuous active 

conduct of medical research indicates 

that the type of organization 

contemplated in this paragraph (d)(2) is 

one which is primarily engaged directly 

in the continuous active conduct of 

medical research, as compared to an 

inactive medical research organization 

or an organization primarily engaged in 

funding the programs of other medical 

research organizations. As in the case of 

a hospital, since an organization is 

ordinarily not described in section 

170(b)(1)(A)(iii) as a hospital unless it 

functions primarily as a hospital, 

similarly a medical research 

organization is not so described unless 

it is primarily engaged directly in the 

continuous active conduct of medical 

research in conjunction with a hospital. 

Accordingly, the rules of this paragraph 

(d)(2) shall only apply with respect to 

such medical research organizations. 

(ii) General rule. An organization 

(other than a hospital described in 

paragraph (d)(1) of this section) is 

described in section 170(b)(1)(A)(iii) 

only if within the meaning of this 

paragraph (d)(2): 

(A) The principal purpose or 

functions of such organization are to 

engage primarily in the conduct of 

medical research; and 

(B) It is primarily engaged directly in 

the continuous active conduct of 

medical research in conjunction with a 

hospital which is—

(1) Described in section 501(c)(3); 

(2) A Federal hospital; or 

(3) An instrumentality of a 

governmental unit referred to in section 

170(c)(1). 

(C) In order for a contribution to such 

organization to qualify for purposes of 

the 50 percent limitation of section 

170(b)(1)(A), during the calendar year in 

which such contribution is made or 

treated as made, such organization must 

be committed (within the meaning of 

paragraph (d)(2)(viii) of this section) to 

spend such contribution for such active 

conduct of medical research before 

January 1 of the fifth calendar year 

beginning after the date such 

contribution is made. For the meaning 

of the term ‘‘medical research’’ see 

paragraph (d)(2)(iii) of this section. For 

the meaning of the term ‘‘principal 

purpose or functions’’ see paragraph 

(d)(2)(iv) of this section. For the 

meaning of the term ‘‘primarily engaged 

directly in the continuous active 

conduct of medical research’’ see 

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52534 Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 

paragraph (d)(2)(v) of this section. For 

the meaning of the term ‘‘medical 

research in conjunction with a hospital’’

see paragraph (d)(2)(vii) of this section. 

(iii) Definition of medical research. 

Medical research means the conduct of 

investigations, experiments, and studies 

to discover, develop, or verify 

knowledge relating to the causes, 

diagnosis, treatment, prevention, or 

control of physical or mental diseases 

and impairments of man. To qualify as 

a medical research organization, the 

organization must have or must have 

continuously available for its regular 

use the appropriate equipment and 

professional personnel necessary to 

carry out its principal function. Medical 

research encompasses the associated 

disciplines spanning the biological, 

social and behavioral sciences. Such 

disciplines include chemistry 

(biochemistry, physical chemistry, 

bioorganic chemistry, etc.), behavioral 

sciences (psychiatry, physiological 

psychology, neurophysiology, 

neurology, neurobiology, and social 

psychology, etc.), biomedical 

engineering (applied biophysics, 

medical physics, and medical 

electronics, for example, developing 

pacemakers and other medically related 

electrical equipment), virology, 

immunology, biophysics, cell biology, 

molecular biology, pharmacology, 

toxicology, genetics, pathology, 

physiology, microbiology, parasitology, 

endocrinology, bacteriology, and 

epidemiology. 

(iv) Principal purpose or functions. 

An organization must be organized for 

the principal purpose of engaging 

primarily in the conduct of medical 

research in order to be an organization 

meeting the requirements of this 

paragraph (d)(2). An organization will 

normally be considered to be so 

organized if it is expressly organized for 

the purpose of conducting medical 

research and is actually engaged 

primarily in the conduct of medical 

research. Other facts and circumstances, 

however, may indicate that an 

organization does not meet the principal 

purpose requirement of this paragraph 

(d)(2)(iv) even where its governing 

instrument so expressly provides. An 

organization that otherwise meets all of 

the requirements of this paragraph (d)(2) 

(including this paragraph (d)(2)(iv)) to 

qualify as a medical research 

organization will not fail to so qualify 

solely because its governing instrument 

does not specifically state that its 

principal purpose is to conduct medical 

research. 

(v) Primarily engaged directly in the 

continuous active conduct of medical 

research—(A) In order for an 

organization to be primarily engaged 

directly in the continuous active 

conduct of medical research, the 

organization must either devote a 

substantial part of its assets to, or 

expend a significant percentage of its 

endowment for, such purposes, or both. 

Whether an organization devotes a 

substantial part of its assets to, or makes 

significant expenditures for, such 

continuous active conduct depends 

upon the facts and circumstances 

existing in each specific case. An 

organization will be treated as devoting 

a substantial part of its assets to, or 

expending a significant percentage of its 

endowment for, such purposes if it 

meets the appropriate test contained in 

paragraph (d)(2)(v)(B) of this section. If 

an organization fails to satisfy both of 

such tests, in evaluating the facts and 

circumstances, the factor given most 

weight is the margin by which the 

organization failed to meet such tests. 

Some of the other facts and 

circumstances to be considered in 

making such a determination are—

(1) If the organization fails to satisfy 

the tests because it failed to properly 

value its assets or endowment, then 

upon determination of the improper 

valuation it devotes additional assets to, 

or makes additional expenditures for, 

such purposes, so that it satisfies such 

tests on an aggregate basis for the prior 

year in addition to such tests for the 

current year; 

(2) The organization acquires new 

assets or has a significant increase in the 

value of its securities after it had 

developed a budget in a prior year based 

on the assets then owned and the then 

current values; 

(3) The organization fails to make 

expenditures in any given year because 

of the interrelated aspects of its budget 

and long-term planning requirements, 

for example, where an organization 

prematurely terminates an unsuccessful 

program and because of long-term 

planning requirements it will not be 

able to establish a fully operational 

replacement program immediately; and 

(4) The organization has as its 

objective to spend less than a significant 

percentage in a particular year but make 

up the difference in the subsequent few 

years, or to budget a greater percentage 

in an earlier year and a lower percentage 

in a later year. 

(B) For purposes of this section, an 

organization which devotes more than 

one half of its assets to the continuous 

active conduct of medical research will 

be considered to be devoting a 

substantial part of its assets to such 

conduct within the meaning of 

paragraph (d)(2)(v)(A) of this section. 

An organization which expends funds 

equaling 3.5 percent or more of the fair 

market value of its endowment for the 

continuous active conduct of medical 

research will be considered to have 

expended a significant percentage of its 

endowment for such purposes within 

the meaning of paragraph (d)(2)(v)(A) of 

this section. 

(C) Engaging directly in the 

continuous active conduct of medical 

research does not include the disbursing 

of funds to other organizations for the 

conduct of research by them or the 

extending of grants or scholarships to 

others. Therefore, if an organization’s 

primary purpose is to disburse funds to 

other organizations for the conduct of 

research by them or to extend grants or 

scholarships to others, it is not 

primarily engaged directly in the 

continuous active conduct of medical 

research. 

(vi) Special rules. The following rules 

shall apply in determining whether a 

substantial part of an organization’s 

assets are devoted to, or its endowment 

is expended for, the continuous active 

conduct of medical research activities: 

(A) An organization may satisfy the 

tests of paragraph (d)(2)(v)(B) of this 

section by meeting such tests either for 

a computation period consisting of the 

immediately preceding taxable year, or 

for the computation period consisting of 

the immediately preceding four taxable 

years. In addition, for taxable years 

beginning in 1970, 1971, 1972, 1973, 

and 1974, if an organization meets such 

tests for the computation period 

consisting of the first four taxable years 

beginning after December 31, 1969, an 

organization will be treated as meeting 

such tests, not only for the taxable year 

beginning in 1974, but also for the 

preceding four taxable years. Thus, for 

example, if a calendar year organization 

failed to satisfy such tests for a 

computation period consisting of 1969, 

1970, 1971, and 1972, but on the basis 

of a computation period consisting of 

the years 1970 through 1973, it 

expended funds equaling 3.5 percent or 

more of the fair market value of its 

endowment for the continuous active 

conduct of medical research, such 

organization will be considered to have 

expended a significant percentage of its 

endowment for such purposes for the 

taxable years 1970 through 1974. In 

applying such tests for a four-year 

computation period, although the 

organization’s expenditures for the 

entire four-year period shall be 

aggregated, the fair market value of its 

endowment for each year shall be 

summed, even though, in the case of an 

asset held throughout the four-year 

period, the fair market value of such an 

asset will be counted four times. 

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Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 52535 

Similarly, the fair market value of an 

organization’s assets for each year of a 

four-year computation period shall be 

summed. 

(B) Any property substantially all the 

use of which is ‘‘substantially related’’

(within the meaning of section 

514(b)(1)(A)) to the exercise or 

performance of the organization’s 

medical research activities will not be 

treated as part of its endowment. 

(C) The valuation of assets must be 

made with commonly accepted methods 

of valuation. A method of valuation 

made in accordance with the principles 

stated in the regulations under section 

2031 constitutes an acceptable method 

of valuation. Assets may be valued as of 

any day in the organization’s taxable 

year to which such valuation applies, 

provided the organization follows a 

consistent practice of valuing such asset 

as of such date in all taxable years. For 

purposes of paragraph (d)(2)(v) of this 

section, an asset held by the 

organization for part of a taxable year 

shall be taken into account by 

multiplying the fair market value of 

such asset by a fraction, the numerator 

of which is the number of days in such 

taxable year that the organization held 

such asset and the denominator of 

which is the number of days in such 

taxable year. 

(vii) Medical research in conjunction 

with a hospital. The organization need 

not be formally affiliated with a hospital 

to be considered primarily engaged 

directly in the continuous active 

conduct of medical research in 

conjunction with a hospital, but in any 

event there must be a joint effort on the 

part of the research organization and the 

hospital pursuant to an understanding 

that the two organizations will maintain 

continuing close cooperation in the 

active conduct of medical research. For 

example, the necessary joint effort will 

normally be found to exist if the 

activities of the medical research 

organization are carried on in space 

located within or adjacent to a hospital, 

the organization is permitted to utilize 

the facilities (including equipment, case 

studies, etc.) of the hospital on a 

continuing basis directly in the active 

conduct of medical research, and there 

is substantial evidence of the close 

cooperation of the members of the staff 

of the research organization and 

members of the staff of the particular 

hospital or hospitals. The active 

participation in medical research by 

members of the staff of the particular 

hospital or hospitals will be considered 

to be evidence of such close 

cooperation. Because medical research 

may involve substantial investigation, 

experimentation and study not 

immediately connected with hospital or 

medical care, the requisite joint effort 

will also normally be found to exist if 

there is an established relationship 

between the research organization and 

the hospital which provides that the 

cooperation of appropriate personnel 

and the use of facilities of the particular 

hospital or hospitals will be required 

whenever it would aid such research. 

(viii) Commitment to spend 

contributions. The organization’s 

commitment that the contribution will 

be spent within the prescribed time only 

for the prescribed purposes must be 

legally enforceable. A promise in 

writing to the donor in consideration of 

his making a contribution that such 

contribution will be so spent within the 

prescribed time will constitute a 

commitment. The expenditure of 

contributions received for plant, 

facilities, or equipment, used solely for 

medical research purposes (within the 

meaning of paragraph (d)(2)(ii) of this 

section), shall ordinarily be considered 

to be an expenditure for medical 

research. If a contribution is made in 

other than money, it shall be considered 

spent for medical research if the funds 

from the proceeds of a disposition 

thereof are spent by the organization 

within the five-year period for medical 

research; or, if such property is of such 

a kind that it is used on a continuing 

basis directly in connection with such 

research, it shall be considered spent for 

medical research in the year in which it 

is first so used. A medical research 

organization will be presumed to have 

made the commitment required under 

this paragraph (d)(2)(viii) with respect 

to any contribution if its governing 

instrument or by-laws require that every 

contribution be spent for medical 

research before January 1 of the fifth 

year which begins after the date such 

contribution is made. 

(ix) Organizational period for new 

organizations. A newly created 

organization, for its ‘‘organizational’’

period, shall be considered to be 

primarily engaged directly in the 

continuous active conduct of medical 

research in conjunction with a hospital 

within the meaning of paragraphs 

(d)(2)(v) and (d)(2)(vii) of this section if 

during such period the organization 

establishes to the satisfaction of the 

Commissioner that it reasonably can be 

expected to be so engaged by the end of 

such period. The information to be 

submitted shall include detailed plans 

showing the proposed initial medical 

research program, architectural 

drawings for the erection of buildings 

and facilities to be used for medical 

research in accordance with such plans, 

plans to assemble a professional staff 

and detailed projections showing the 

timetable for the expected 

accomplishment of the foregoing. The 

‘‘organizational’’ period shall be that 

period which is appropriate to 

implement the proposed plans, giving 

effect to the proposed amounts involved 

and the magnitude and complexity of 

the projected medical research program, 

but in no event in excess of three years 

following organization. 

(x) Examples. The application of this 

paragraph (d)(2) may be illustrated by 

the following examples: 

Example 1. N, an organization referred to 

in section 170(c)(2), was created to promote 

human knowledge within the field of 

medical research and medical education. All 

of N’s assets were contributed to it by A and 

consist of a diversified portfolio of stocks and 

bonds. N’s endowment earns 3.5 percent 

annually, which N expends in the conduct of 

various medical research programs in 

conjunction with Y hospital. N is located 

adjacent to Y hospital, makes substantial use 

of Y’s facilities, and there is close 

cooperation between the staffs of N and Y. N 

is directly engaged in the continuous active 

conduct of medical research in conjunction 

with a hospital, meets the principal purpose 

test described in paragraph (d)(2)(iv) of this 

section, and is therefore an organization 

described in section 170(b)(1)(A)(iii). 

Example 2. O, an organization referred to 

in section 170(c)(2), was created to promote 

human knowledge within the field of 

medical research and medical education. All 

of O’s assets consist of a diversified portfolio 

of stocks and bonds. O’s endowment earns 

3.5 percent annually, which O expends in the 

conduct of various medical research 

programs in conjunction with certain 

hospitals. However, in 1974, O receives a 

substantial bequest of additional stocks and 

bonds. O’s budget for 1974 does not take into 

account the bequest and as a result O 

expends only 3.1 percent of its endowment 

in 1974. However, O establishes that it will 

expend at least 3.5 percent of its endowment 

for the active conduct of medical research for 

taxable years 1975 through 1978. O is 

therefore directly engaged in the continuous 

active conduct of medical research in 

conjunction with a hospital for taxable year 

1975. Since O also meets the principal 

purpose test described in paragraph (d)(2)(iv) 

of this section, it is therefore an organization 

described in section 170(b)(1)(A)(iii) for 

taxable year 1975. 

Example 3. M, an organization referred to 

in section 170(c)(2), was created to promote 

human knowledge within the field of 

medical research and medical education. M’s 

activities consist of the conduct of medical 

research programs in conjunction with 

various hospitals. Under such programs, 

researchers employed by M engage in 

research at laboratories set aside for M within 

the various hospitals. Substantially all of M’s 

assets consist of 100 percent of the stock of 

X corporation, which has a fair market value 

of approximately 100 million dollars. X pays 

M approximately 3.3 million dollars in 

dividends annually, which M expends in the 

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52536 Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 

conduct of its medical research programs. 

Since M expends only 3.3 percent of its 

endowment, which does not constitute a 

significant percentage, in the active conduct 

of medical research, M is not an organization 

described in section 170(b)(1)(A)(iii) because 

M is not engaged in the continuous active 

conduct of medical research. 

(xi) Special rule for organizations 

with existing ruling. This paragraph 

(d)(2)(xi) shall apply to an organization 

that prior to January 1, 1970, had 

received a ruling or determination letter 

which has not been expressly revoked 

holding the organization to be a medical 

research organization described in 

section 170(b)(1)(A)(iii) and with 

respect to which the facts and 

circumstances on which the ruling was 

based have not substantially changed. 

An organization to which this paragraph 

(d)(2)(xi) applies shall be treated as an 

organization described in section 

170(b)(1)(A)(iii) for a period not ending 

prior to 90 days after February 13, 1976 

(or where appropriate, for taxable years 

beginning before such 90th day). In 

addition, with respect to a grantor or 

contributor under sections 170, 507, 

545(b)(2), 556(b)(2), 642(c), 4942, 4945, 

2055, 2106(a)(2), and 2522, the status of 

an organization to which this paragraph 

(d)(2)(xi) applies will not be affected 

until notice of change of status under 

section 170(b)(1)(A)(iii) is made to the 

public (such as by publication in the 

Internal Revenue Bulletin). The 

preceding sentence shall not apply if the 

grantor or contributor had previously 

acquired knowledge that the Internal 

Revenue Service had given notice to 

such organization that it would be 

deleted from classification as a section 

170(b)(1)(A)(iii) organization. 

* * * * * 

(k) Effective/applicability date. This 

section shall apply to taxable years 

beginning after December 31, 1969. The 

applicability of paragraph (f) of this 

section shall be limited to taxable years 

beginning before January 1, 2008. 

■ Par. 3. Section 1.170A–9T is added to 

read as follows: 

§ 1.170A–9T Definition of section 

170(b)(1)(A) organization (temporary). 

(a) through (e) [Reserved]. For further 

guidance, see § 1.170A–9(a) through (e). 

(f) Definition of section 

170(b)(1)(A)(vi) organization—(1) In 

general. An organization is described in 

section 170(b)(1)(A)(vi) if it—

(i) Is referred to in section 170(c)(2) 

(other than an organization specifically 

described in paragraphs (b) through (e) 

of this section); and 

(ii) Normally receives a substantial 

part of its support from a governmental 

unit referred to in section 170(c)(1) or 

from direct or indirect contributions 

from the general public (‘‘publicly 

supported’’). For purposes of this 

paragraph (f)(1)(ii), an organization is 

publicly supported if it meets the 

requirements of either paragraph (f)(2) 

of this section (331⁄3 percent support 

test) or paragraph (f)(3) of this section 

(facts and circumstances test). Paragraph 

(f)(4) of this section defines normally for 

purposes of the 331⁄3 percent support 

test, the facts and circumstances test 

and for new organizations in the first 5 

years of the organization’s existence as 

a section 501(c)(3) organization. 

Paragraph (f)(5) of this section provides 

for determinations of foundation 

classification and rules for reliance by 

donors and contributors. Paragraphs 

(f)(6), (7), and (8) of this section list the 

items that are included and excluded 

from the term support. Paragraph (f)(9) 

of this section provides examples of the 

application of this paragraph. Types of 

organizations that, subject to the 

provisions of this paragraph, generally 

qualify under section 170(b)(1)(A)(vi) as 

‘‘publicly supported’’ are publicly or 

governmentally supported museums of 

history, art, or science, libraries, 

community centers to promote the arts, 

organizations providing facilities for the 

support of an opera, symphony 

orchestra, ballet, or repertory drama or 

for some other direct service to the 

general public. 

(2) Determination whether an 

organization is ‘‘publicly supported’’; 

331⁄3 percent support test. An 

organization is publicly supported if the 

total amount of support (see paragraphs 

(f)(6), (7), and (8) of this section) that the 

organization normally (see paragraph 

(f)(4)(i) of this section) receives from 

governmental units referred to in 

section 170(c)(1), from contributions 

made directly or indirectly by the 

general public, or from a combination of 

these sources, equals at least 331⁄3

percent of the total support normally 

received by the organization. See 

paragraph (f)(9) Example 1 of this 

section. 

(3) Determination whether an 

organization is ‘‘publicly supported’’; 

facts and circumstances test. Even if an 

organization fails to meet the 331⁄3

percent support test, it is publicly 

supported if it normally receives a 

substantial part of its support from 

governmental units, from contributions 

made directly or indirectly by the 

general public, or from a combination of 

these sources, and meets the other 

requirements of this paragraph (f)(3). In 

order to satisfy the facts and 

circumstances test, an organization must 

meet the requirements of paragraphs 

(f)(3)(i) and (f)(3)(ii) of this section. In 

addition, the organization must be in 

the nature of an organization that is 

publicly supported, taking into account 

all relevant facts and circumstances, 

including the factors listed in 

paragraphs (f)(3)(iii)(A) through (E) of 

this section. 

(i) Ten percent support limitation. 

The percentage of support (see 

paragraphs (f)(6), (7) and (8) of this 

section) normally (see paragraph (f)(4) of 

this section) received by an organization 

from governmental units, from 

contributions made directly or 

indirectly by the general public, or from 

a combination of these sources, must be 

substantial. For purposes of this 

paragraph (f)(3), an organization will not 

be treated as normally receiving a 

substantial amount of governmental or 

public support unless the total amount 

of governmental and public support 

normally received equals at least 10 

percent of the total support normally 

received by such organization. 

(ii) Attraction of public support. An 

organization must be so organized and 

operated as to attract new and 

additional public or governmental 

support on a continuous basis. An 

organization will be considered to meet 

this requirement if it maintains a 

continuous and bona fide program for 

solicitation of funds from the general 

public, community, or membership 

group involved, or if it carries on 

activities designed to attract support 

from governmental units or other 

organizations described in section 

170(b)(1)(A)(i) through (vi). In 

determining whether an organization 

maintains a continuous and bona fide 

program for solicitation of funds from 

the general public or community, 

consideration will be given to whether 

the scope of its fundraising activities is 

reasonable in light of its charitable 

activities. Consideration will also be 

given to the fact that an organization 

may, in its early years of existence, limit 

the scope of its solicitation to persons 

deemed most likely to provide seed 

money in an amount sufficient to enable 

it to commence its charitable activities 

and expand its solicitation program. 

(iii) In addition to the requirements 

set forth in paragraphs (f)(3)(i) and (ii) 

of this section that must be satisfied, all 

pertinent facts and circumstances, 

including the following factors, will be 

taken into consideration in determining 

whether an organization is ‘‘publicly 

supported’’ within the meaning of 

paragraph (f)(1) of this section. 

However, an organization is not 

generally required to satisfy all of the 

factors in paragraphs (f)(3)(iii)(A) 

through (E) of this section. The factors 

relevant to each case and the weight 

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accorded to any one of them may differ 

depending upon the nature and purpose 

of the organization and the length of 

time it has been in existence. 

(A) Percentage of financial support. 

The percentage of support received by 

an organization from public or 

governmental sources will be taken into 

consideration in determining whether 

an organization is ‘‘publicly supported.’’

The higher the percentage of support 

above the 10 percent requirement of 

paragraph (f)(3)(i) of this section from 

public or governmental sources, the 

lesser will be the burden of establishing 

the publicly supported nature of the 

organization through other factors 

described in this paragraph (f)(3), while 

the lower the percentage, the greater 

will be the burden. If the percentage of 

the organization’s support from public 

or governmental sources is low because 

it receives a high percentage of its total 

support from investment income on its 

endowment funds, such fact will be 

treated as evidence of compliance with 

this subdivision if such endowment 

funds were originally contributed by a 

governmental unit or by the general 

public. However, if such endowment 

funds were originally contributed by a 

few individuals or members of their 

families, such fact will increase the 

burden on the organization of 

establishing compliance with the other 

factors described in paragraph (f)(3)(iii) 

of this section. 

(B) Sources of support. The fact that 

an organization meets the requirement 

of paragraph (f)(3)(i) of this section 

through support from governmental 

units or directly or indirectly from a 

representative number of persons, rather 

than receiving almost all of its support 

from the members of a single family, 

will be taken into consideration in 

determining whether an organization is 

‘‘publicly supported.’’ In determining 

what is a ‘‘representative number of 

persons,’’ consideration will be given to 

the type of organization involved, the 

length of time it has been in existence, 

and whether it limits its activities to a 

particular community or region or to a 

special field which can be expected to 

appeal to a limited number of persons. 

(C) Representative governing body. 

The fact that an organization has a 

governing body which represents the 

broad interests of the public, rather than 

the personal or private interests of a 

limited number of donors (or persons 

standing in a relationship to such 

donors which is described in section 

4946(a)(1)(C) through (G)), will be taken 

into account in determining whether an 

organization is ‘‘publicly supported.’’

An organization will be treated as 

meeting this requirement if it has a 

governing body (whether designated in 

the organization’s governing instrument 

or bylaws as a Board of Directors, Board 

of Trustees, etc.) which is comprised of 

public officials acting in their capacities 

as such; of individuals selected by 

public officials acting in their capacities 

as such; of persons having special 

knowledge or expertise in the particular 

field or discipline in which the 

organization is operating; of community 

leaders, such as elected or appointed 

officials, clergymen, educators, civic 

leaders, or other such persons 

representing a broad cross-section of the 

views and interests of the community; 

or, in the case of a membership 

organization, of individuals elected 

pursuant to the organization’s governing 

instrument or bylaws by a broadly based 

membership. 

(D) Availability of public facilities or 

services; public participation in 

programs or policies. (1) The fact that an 

organization is of the type which 

generally provides facilities or services 

directly for the benefit of the general 

public on a continuing basis (such as a 

museum or library which holds open its 

building or facilities to the public, a 

symphony orchestra which gives public 

performances, a conservation 

organization which provides 

educational services to the public 

through the distribution of educational 

materials, or an old age home which 

provides domiciliary or nursing services 

for members of the general public) will 

be considered evidence that such 

organization is ‘‘publicly supported.’’

(2) The fact that an organization is an 

educational or research institution 

which regularly publishes scholarly 

studies that are widely used by colleges 

and universities or by members of the 

general public will also be considered 

evidence that such organization is 

‘‘publicly supported.’’

(3) Similarly, the following factors 

will also be considered evidence that an 

organization is ‘‘publicly supported’’: 

(i) The participation in, or 

sponsorship of, the programs of the 

organization by members of the public 

having special knowledge or expertise, 

public officials, or civic or community 

leaders. 

(ii) The maintenance of a definitive 

program by an organization to 

accomplish its charitable work in the 

community, such as combating 

community deterioration in an 

economically depressed area that has 

suffered a major loss of population and 

jobs. 

(iii) The receipt of a significant part of 

its funds from a public charity or 

governmental agency to which it is in 

some way held accountable as a 

condition of the grant, contract, or 

contribution. 

(E) Additional factors pertinent to 

membership organizations. The 

following are additional factors to be 

considered in determining whether a 

membership organization is ‘‘publicly 

supported’’: 

(1) Whether the solicitation for duespaying members is designed to enroll a 

substantial number of persons in the 

community or area, or in a particular 

profession or field of special interest 

(taking into account the size of the area 

and the nature of the organization’s 

activities). 

(2) Whether membership dues for 

individual (rather than institutional) 

members have been fixed at rates 

designed to make membership available 

to a broad cross section of the interested 

public, rather than to restrict 

membership to a limited number of 

persons. 

(3) Whether the activities of the 

organization will be likely to appeal to 

persons having some broad common 

interest or purpose, such as educational 

activities in the case of alumni 

associations, musical activities in the 

case of symphony societies, or civic 

affairs in the case of parent-teacher 

associations. See Examples 2 through 5 

contained in paragraph (f)(9) of this 

section for illustrations of this 

paragraph (f)(3). 

(4) Definition of normally; general 

rule—(i) Normally; 331⁄3 percent support 

test. An organization meets the 331⁄3

percent support test for its current 

taxable year and the taxable year 

immediately succeeding its current year, 

if, for the current taxable year and the 

4 taxable years immediately preceding 

the current taxable year, the 

organization meets the 331⁄3 percent 

support test on an aggregate basis. 

(ii) Normally; facts and circumstances 

test. An organization meets the facts and 

circumstances test for its current taxable 

year and the taxable year immediately 

succeeding its current year, if, for the 

current taxable year and the 4 taxable 

years immediately preceding the current 

taxable year, the organization meets the 

facts and circumstances test on an 

aggregate basis. In the case of 

paragraphs (f)(3)(iii)(A) and (B) of this 

section, facts pertinent to the 5-year 

period may also be taken into 

consideration. The combination of 

factors set forth in paragraphs 

(f)(3)(iii)(A) through (E) of this section 

that an organization ‘‘normally’’ must 

meet does not have to be the same for 

each 5-year period so long as there 

exists a sufficient combination of factors 

to show compliance with the facts and 

circumstances test. 

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(iii) Special rule. The fact that an 

organization has normally met the 

requirements of the 331⁄3 percent 

support test for a current taxable year, 

but is unable normally to meet such 

requirements for a succeeding taxable 

year, will not in itself prevent such 

organization from meeting the facts and 

circumstances test for such succeeding 

taxable year. 

(iv) Example. The application of 

paragraphs (f)(4)(i), (ii), and (iii) of this 

section may be illustrated by the 

following example: 

Example. (i) X is recognized as an 

organization described in section 501(c)(3). 

On the basis of support received during 

taxable years 2008, 2009, 2010, 2011 and 

2012, it meets the 331⁄3 percent support test 

for taxable year 2012 (the current taxable 

year). X also meets the 331⁄3 support test for 

2013, as the immediately succeeding taxable 

year. 

(ii) In taxable years 2009, 2010, 2011, 2012 

and 2013, in the aggregate, X does not receive 

at least 331⁄3 percent of its support from 

governmental units referred to in section 

170(c)(1), from contributions made directly 

or indirectly by the general public, or from 

a combination of these sources. X still meets 

the 331⁄3 percent support test for taxable year 

2013 based on the aggregate support received 

for taxable years 2008 through 2012. 

(iii) In taxable years 2010, 2011, 2012, 2013 

and 2014, in the aggregate, X does not receive 

at least 331⁄3 percent of its support from 

governmental units referred to in section 

170(c)(1), from contributions made directly 

or indirectly by the general public, or from 

a combination of these sources. X does not 

meet the 331⁄3 percent support test for taxable 

year 2014. 

(iv) Based on the aggregate support and 

other factors listed in paragraphs (f)(3)(iii)(A) 

through (E) of this section for taxable years 

2009, 2010, 2011, 2012, and 2013, X meets 

the facts and circumstances test for taxable 

year 2013 and for taxable year 2014 (as the 

immediately succeeding taxable year). 

Therefore, X is still an organization described 

in section 170(b)(1)(A)(vi) for taxable year 

2014, even though X did not meet the 331⁄3

percent support test for that year. 

(v) Normally; first five years of an 

organization’s existence. (A) An 

organization meets the 331⁄3 public 

support test or the facts and 

circumstances test during its first five 

taxable years as a section 501(c)(3) 

organization if the organization can 

reasonably be expected to meet the 

requirements of the 331⁄3 percent 

support test or the facts and 

circumstances test during that period. 

With respect to such organization’s 

sixth taxable year, the organization shall 

be described in section 170(b)(1)(A)(vi) 

if it meets the 331⁄3 percent support test 

or the facts and circumstances test 

under the definitions of normally set 

forth in paragraphs (f)(4)(i) through (iii) 

of this section for its sixth taxable year 

(based on support received in its second 

through sixth taxable years), or for its 

fifth taxable year (based on support 

received in its first through fifth taxable 

years). 

(B) Basic consideration. In 

determining whether an organization 

can reasonably be expected (within the 

meaning of paragraph (f)(4)(v)(A) of this 

section) to meet the requirements of the 

331⁄3 percent support test or the facts 

and circumstances test during its first 

five taxable years, the basic 

consideration is whether its 

organizational structure, current or 

proposed programs or activities, and 

actual or intended method of operation 

are such as can reasonably be expected 

to attract the type of broadly based 

support from the general public, public 

charities, and governmental units that is 

necessary to meet such tests. The factors 

that are relevant to this determination, 

and the weight accorded to each of 

them, may differ from case to case, 

depending on the nature and functions 

of the organization. The information to 

be considered for this purpose shall 

consist of all pertinent facts and 

circumstances relating to the 

requirements set forth in paragraph 

(f)(3) of this section. 

(vi) Example. The application of 

paragraph (f)(4)(v) of this section may be 

illustrated by the following example: 

Example. (i) Organization Y was formed in 

January 2008, and uses a December 31 

taxable year. After September 9, 2008, and 

before December 31, 2008, Organization Y 

filed Form 1023 requesting recognition of 

exemption as an organization described in 

section 501(c)(3) and in sections 

170(b)(1)(A)(vi) and 509(a)(1). In its 

application, Organization Y established that 

it can reasonably be expected to operate as 

a public charity under paragraph (f)(4)(v) of 

this section. Subsequently, Organization Y 

received a ruling or determination letter that 

it is an organization described in section 

501(c)(3) and sections 170(b)(1)(A)(vi) and 

509(a)(1) effective as of the date of its 

formation. 

(ii) Organization Y is described in sections 

170(b)(1)(A)(vi) and 509(a)(1) for its first 5 

taxable years (the taxable years ending 

December 31, 2008, through December 31, 

2012). 

(iii) Organization Y can qualify as a public 

charity beginning with the taxable year 

ending December 31, 2013, if Organization Y 

can meet the requirements of paragraphs 

(f)(2) through (3) of this section or § 1.509(a)–

3T(a) through (b) for the taxable years ending 

December 31, 2009, through December 31, 

2013, or for the taxable years ending 

December 31, 2008, through December 31, 

2012. 

(5) Determinations on foundation 

classification and reliance. (i) A ruling 

or determination letter that an 

organization is described in section 

170(b)(1)(A)(vi) may be issued to an 

organization. Such determination may 

be made in conjunction with the 

recognition of the organization’s taxexempt status or at such other time as 

the organization believes it is described 

in section 170(b)(1)(A)(vi). The ruling or 

determination letter that the 

organization is described in section 

170(b)(1)(A)(vi) may be revoked if, upon 

examination, the organization has not 

met the requirements of paragraph (f) of 

this section. The ruling or determination 

letter that the organization is described 

in section 170(b)(1)(A)(vi) also may be 

revoked if the organization’s application 

for a ruling or determination contained 

one or more material misstatements of 

fact or if such application was part of a 

scheme or plan to avoid or evade any 

provision of the Internal Revenue Code. 

The revocation of the determination that 

an organization is described in section 

170(b)(1)(A)(vi) does not preclude 

revocation of the determination that the 

organization is described in section 

501(c)(3). 

(ii) Status of grantors or contributors. 

For purposes of sections 170, 507, 

545(b)(2), 642(c), 4942, 4945, 2055, 

2106(a)(2), and 2522, grantors or 

contributors may rely upon a 

determination letter or ruling that an 

organization is described in section 

170(b)(1)(A)(vi) until the Internal 

Revenue Service publishes notice of a 

change of status (for example, in the 

Internal Revenue Bulletin or Publication 

78, ‘‘Cumulative List of Organizations 

described in Section 170(c) of the 

Internal Revenue Code of 1986,’’ which 

can be searched at www.irs.gov). For this 

purpose, grantors or contributors also 

may rely on an advance ruling that 

expires on or after June 9, 2008. 

However, a grantor or contributor may 

not rely on such an advance ruling or 

any determination letter or ruling if the 

grantor or contributor was responsible 

for, or aware of, the act or failure to act 

that resulted in the organization’s loss of 

classification under section 

170(b)(1)(A)(vi) or acquired knowledge 

that the Internal Revenue Service had 

given notice to such organization that it 

would be deleted from such 

classification. 

(6) Definition of support; meaning of 

general public—(i) In general. In 

determining whether the 331⁄3 percent 

support test or the 10 percent support 

limitation described in paragraph 

(f)(3)(i) of this section is met, 

contributions by an individual, trust, or 

corporation shall be taken into account 

as support from direct or indirect 

contributions from the general public 

only to the extent that the total amount 

of the contributions by any such 

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individual, trust, or corporation during 

the period described in paragraphs 

(f)(4)(i) or (ii) of this section does not 

exceed 2 percent of the organization’s 

total support for such period, except as 

provided in paragraph (f)(6)(ii) of this 

section. Therefore, any contribution by 

one individual will be included in full 

in the denominator of the fraction 

determining the 331⁄3 percent support or 

the 10 percent support limitation, but 

will be includible in the numerator of 

such fraction only to the extent that 

such amount does not exceed 2 percent 

of the denominator. In applying the 2 

percent limitation, all contributions 

made by a donor and by any person or 

persons standing in a relationship to the 

donor that is described in section 

4946(a)(1)(C) through (G) and the 

regulations relating to section 

4946(a)(1)(C) through (G) shall be 

treated as made by one person. The 2 

percent limitation shall not apply to 

support received from governmental 

units referred to in section 170(c)(1) or 

to contributions from organizations 

described in section 170(b)(1)(A)(vi), 

except as provided in paragraph (f)(6)(v) 

of this section. For purposes of 

paragraphs (f)(2), (f)(3)(i) and 

(f)(7)(iii)(A)(2) of this section, the term 

indirect contributions from the general 

public includes contributions received 

by the organization from organizations 

(such as section 170(b)(1)(A)(vi) 

organizations) that normally receive a 

substantial part of their support from 

direct contributions from the general 

public, except as provided in paragraph 

(f)(6)(v) of this section. See the examples 

in paragraph (f)(9) of this section for the 

application of this paragraph (f)(6)(i). 

For purposes of this paragraph (f), the 

term contributions includes qualified 

sponsorship payments (as defined in 

§ 1.513–4) in the form of money or 

property (but not services). 

(ii) Exclusion of unusual grants. (A) 

For purposes of applying the 2 percent 

limitation described in paragraph 

(f)(6)(i) of this section to determine 

whether the 331⁄3 percent support test or 

the 10 percent support limitation in 

paragraph (f)(3)(i) of this section is 

satisfied, one or more contributions may 

be excluded from both the numerator 

and the denominator of the applicable 

support fraction if such contributions 

meet the requirements of paragraph 

(f)(6)(iii) of this section. The exclusion 

provided by this paragraph (f)(6)(ii) is 

generally intended to apply to 

substantial contributions or bequests 

from disinterested parties, which 

contributions or bequests—

(1) Are attracted by reason of the 

publicly supported nature of the 

organization; 

(2) Are unusual or unexpected with 

respect to the amount thereof; and 

(3) Would, by reason of their size, 

adversely affect the status of the 

organization as normally being publicly 

supported for the applicable period 

described in paragraph (f)(4) of this 

section. 

(B) In the case of a grant (as defined 

in § 1.509(a)–3(g)) that meets the 

requirements of this paragraph (f)(6)(ii), 

if the terms of the granting instrument 

(whether executed before or after 1969) 

require that the funds be paid to the 

recipient organization over a period of 

years, the amount received by the 

organization each year pursuant to the 

terms of such grant may be excluded for 

such year. However, no item of gross 

investment income may be excluded 

under this paragraph (f)(6). The 

provisions of this paragraph (f)(6) shall 

apply to exclude unusual grants made 

during any of the applicable periods 

described in paragraph (f)(4) or (f)(6) of 

this section. See paragraph (f)(6)(iv) of 

this section as to reliance by a grantee 

organization upon an unusual grant 

ruling under this paragraph (f)(6). 

(iii) Determining factors. In 

determining whether a particular 

contribution may be excluded under 

paragraph (f)(6)(ii) of this section all 

pertinent facts and circumstances will 

be taken into consideration. No single 

factor will necessarily be determinative. 

For some of the factors similar to the 

factors to be considered, see § 1.509(a)–

3T(c)(4). 

(iv) Grantors and contributors. Prior 

to the making of any grant or 

contribution that will allegedly meet the 

requirements for exclusion under 

paragraph (f)(6)(ii) of this section, a 

potential grantee organization may 

request a determination whether such 

grant or contribution may be so 

excluded. Requests for such 

determination may be filed by the 

grantee organization. The issuance of 

such determination will be at the sole 

discretion of the Commissioner. The 

organization must submit all 

information necessary to make a 

determination on the factors referred to 

in paragraph (f)(6)(iii) of this section. If 

a favorable ruling is issued, such ruling 

may be relied upon by the grantor or 

contributor of the particular 

contribution in question for purposes of 

sections 170, 507, 545(b)(2), 642(c), 

4942, 4945, 2055, 2106(a)(2), and 2522 

and by the grantee organization for 

purposes of paragraph (f)(6)(ii) of this 

section. 

(v) Grants from public charities. 

Pursuant to paragraph (f)(6)(i) of this 

section, contributions received from a 

governmental unit or from a section 

170(b)(1)(A)(vi) organization are not 

subject to the 2 percent limitation 

described in paragraph (f)(6)(i) of this 

section unless such contributions 

represent amounts which have been 

expressly or impliedly earmarked by a 

donor to such governmental unit or 

section 170(b)(1)(A)(vi) organization as 

being for, or for the benefit of, the 

particular organization claiming section 

170(b)(1)(A)(vi) status. See § 1.509(a)–

3(j)(3) for examples illustrating the rules 

of this paragraph (f)(6)(v). 

(7) Definition of support; special rules 

and meaning of terms—(i) Definition of 

support. For purposes of this paragraph 

(f)(7), the term ‘‘support’’ shall be as 

defined in section 509(d) (without 

regard to section 509(d)(2)). The term 

‘‘support’’ does not include—

(A) Any amounts received from the 

exercise or performance by an 

organization of its charitable, 

educational, or other purpose or 

function constituting the basis for its 

exemption under section 501(a). In 

general, such amounts include amounts 

received from any activity the conduct 

of which is substantially related to the 

furtherance of such purpose or function 

(other than through the production of 

income); or 

(B) Contributions of services for 

which a deduction is not allowable. 

(ii) For purposes of the 331⁄3 percent 

support test and the 10 percent support 

limitation in paragraph (f)(3)(i) of this 

section, all amounts received that are 

described in paragraphs (f)(7)(i)(A) or 

(B) of this section are to be excluded 

from both the numerator and the 

denominator of the fractions 

determining compliance with such tests, 

except as provided in paragraph 

(f)(7)(iii) of this section. 

(iii) Organizations dependent 

primarily on gross receipts from related 

activities. (A) Notwithstanding the 

provisions of paragraph (f)(7)(i) of this 

section, an organization will not be 

treated as satisfying the 331⁄3 percent 

support test or the 10 percent support 

limitation in paragraph (f)(3)(i) of this 

section if it receives—

(1) Almost all of its support (as 

defined in section 509(d)) from gross 

receipts from related activities; and 

(2) An insignificant amount of its 

support from governmental units 

(without regard to amounts referred to 

in paragraph (f)(7)(i)(A) of this section) 

and contributions made directly or 

indirectly by the general public. 

(B) Example. The application of this 

paragraph (f)(7)(iii) may be illustrated 

by the following example: 

Example. Z, an organization described in 

section 501(c)(3), is controlled by A, its 

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president. Z received $500,000 during the 

period consisting of the current taxable year 

and the four immediately preceding taxable 

years under a contract with the Department 

of Transportation, pursuant to which Z has 

engaged in research to improve a particular 

vehicle used primarily by the Federal 

government. During this same period, the 

only other support received by Z consisted of 

$5,000 in small contributions primarily from 

Z’s employees and business associates. The 

$500,000 amount constitutes support under 

sections 509(d)(2) and 509(a)(2)(A). Under 

these circumstances, Z meets the conditions 

of paragraphs (f)(7)(iii)(A)(1) and (2) of this 

section and will not be treated as meeting the 

requirements of either the 331⁄3 percent 

support test or the facts and circumstances 

test. As to the rules applicable to 

organizations that fail to qualify under 

section 170(b)(1)(A)(vi) because of the 

provisions of this paragraph (f)(7)(ii), see 

section 509(a)(2) and the accompanying 

regulations. For the distinction between gross 

receipts (as referred to in section 509(d)(2)) 

and gross investment income (as referred to 

in section 509(d)(4)), see § 1.509(a)–3(m). 

(iv) Membership fees. For purposes of 

this paragraph (f)(7), the term support 

shall include ‘‘membership fees’’ within 

the meaning of § 1.509(a)–3(h) (that is, 

if the basic purpose for making a 

payment is to provide support for the 

organization rather than to purchase 

admissions, merchandise, services, or 

the use of facilities). 

(8) Support from a governmental unit. 

(i) For purposes of the 331⁄3 percent 

support test and the 10 percent support 

limitation described in paragraph 

(f)(3)(i) of this section, the term support 

from a governmental unit includes any 

amounts received from a governmental 

unit, including donations or 

contributions and amounts received in 

connection with a contract entered into 

with a governmental unit for the 

performance of services or in 

connection with a government research 

grant. However, such amounts will not 

constitute support from a governmental 

unit for such purposes if they constitute 

amounts received from the exercise or 

performance of the organization’s 

exempt functions as provided in 

paragraph (f)(7)(i)(A) of this section. 

(ii) For purposes of paragraph (f)(8)(i) 

of this section, any amount paid by a 

governmental unit to an organization is 

not to be treated as received from the 

exercise or performance of its charitable, 

educational, or other purpose or 

function constituting the basis for its 

exemption under section 501(a) (within 

the meaning of paragraph (f)(7)(i)(A) of 

this section) if the purpose of the 

payment is primarily to enable the 

organization to provide a service to, or 

maintain a facility for, the direct benefit 

of the public (regardless of whether part 

of the expense of providing such service 

or facility is paid for by the public), 

rather than to serve the direct and 

immediate needs of the payor. For 

example—

(A) Amounts paid for the 

maintenance of library facilities which 

are open to the public; 

(B) Amounts paid under government 

programs to nursing homes or homes for 

the aged in order to provide health care 

or domiciliary services to residents of 

such facilities; and 

(C) Amounts paid to child placement 

or child guidance organizations under 

government programs for services 

rendered to children in the community, 

are considered payments the purpose of 

which is primarily to enable the 

recipient organization to provide a 

service or maintain a facility for the 

direct benefit of the public, rather than 

to serve the direct and immediate needs 

of the payor. Furthermore, any amount 

received from a governmental unit 

under circumstances such that the 

amount would be treated as a ‘‘grant’’

within the meaning of § 1.509(a)–3(g) 

will generally constitute ‘‘support from 

a governmental unit’’ described in this 

paragraph (f)(8), rather than an amount 

described in paragraph (f)(7)(i)(A) of this 

section. 

(9) Examples. The application of 

paragraphs (f)(1) through (8) of this 

section may be illustrated by the 

following examples: 

Example 1. (i) M is recognized as an 

organization described in section 501(c)(3). 

For the years 2008 through 2012 (the 

applicable period with respect to the taxable 

year 2012 under paragraph (f)(4) of this 

section), M received support (as defined in 

paragraphs (f)(6) through (8) of this section) 

of $600,000 from the following sources: 

Investment income .................... $300,000 

City R (a governmental unit described in section 170(c)(1)) .. 40,000 

United Fund (an organization 

described in section 

170(b)(1)(A)(vi)) ..................... 40,000 

Contributions ............................. 220,000 

Total support ...................... $600,000 

(ii) With respect to the taxable year 2012, 

M’s public support is computed as follows: 

Support from a governmental 

unit described in section 

170(c)(1) .................................. $40,000 

Indirect contributions from the 

general public (United Fund) 40,000 

Contributions by various donors (no one having made 

contributions that total in excess of $12,000—2 percent of 

total support) .......................... 50,000 

Six contributions (each in excess of $12,000—2 percent 

total support) 6 × $12,000 ..... 72,000 

$202,000 

(iii) M’s support from governmental units 

referred to in section 170(c)(1) and from 

direct and indirect contributions from the 

general public (as defined in paragraph (f)(6) 

of this section) with respect to the taxable 

year 2012 normally exceeds 331⁄3 percent of 

M’s total support ($202,000/$600,000 = 33.67 

percent) for the applicable period (2008 

through 2012). M meets the 331⁄3 percent 

support test with respect to 2012 and is 

therefore publicly supported for the taxable 

years 2012 and 2013. 

Example 2. N is recognized as an 

organization described in section 501(c)(3). It 

was created to maintain public gardens 

containing botanical specimens and 

displaying statuary and other art objects. The 

facilities, works of art, and a large 

endowment were all contributed by a single 

contributor. The members of the governing 

body of the organization are unrelated to its 

creator. The gardens are open to the public 

without charge and attract a substantial 

number of visitors each year. For the current 

taxable year and the four taxable years 

immediately preceding the current taxable 

year, 95 percent of the organization’s total 

support was received from investment 

income from its original endowment. N also 

maintains a membership society that is 

supported by members of the general public 

who wish to contribute to the upkeep of the 

gardens by paying a small annual 

membership fee. Over the 5-year period in 

question, these fees from the general public 

constituted the remaining 5 percent of the 

organization’s total support for such period. 

Under these circumstances, N does not meet 

the 331⁄3 percent support test for its current 

taxable year. Furthermore, because only 5 

percent of its total support is, with respect to 

the current taxable year, normally received 

from the general public, N does not satisfy 

the 10 percent support limitation described 

in paragraph (f)(3)(i) of this section and 

therefore does not qualify as publicly 

supported under the facts and circumstances 

test. Because N has failed to satisfy the 10 

percent support limitation under paragraph 

(f)(3)(i) of this section, none of the other 

requirements or factors set forth in 

paragraphs (f)(3)(iii)(A) through (E) of this 

section can be considered in determining 

whether N qualifies as a publicly supported 

organization. For its current taxable year, N 

therefore is not an organization described in 

section 170(b)(1)(A)(vi). 

Example 3. (i) O, an art museum, is 

recognized as an organization described in 

section 501(c)(3). In 1930, O was founded in 

S City by the members of a single family to 

collect, preserve, interpret, and display to the 

public important works of art. O is governed 

by a Board of Trustees that originally 

consisted almost entirely of members of the 

founding family. However, since 1945, 

members of the founding family or persons 

standing in a relationship to the members of 

such family described in section 

4946(a)(1)(C) through (G) have annually 

constituted less than one-fifth of the Board of 

Trustees. The remaining board members are 

citizens of S City from a variety of 

professions and occupations who represent 

the interests and views of the people of S 

City in the activities carried on by the 

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organization rather than the personal or 

private interests of the founding family. O 

solicits contributions from the general public 

and for the current taxable year and each of 

the four taxable years immediately preceding 

the current taxable year, O has received total 

contributions (in small sums of less than 

$100, none of which exceeds 2 percent of O’s 

total support for such period) in excess of 

$10,000. These contributions from the 

general public (as defined in paragraph (f)(6) 

of this section) represent 25 percent of the 

organization’s total support for such 5-year 

period. For this same period, investment 

income from several large endowment funds 

has constituted 75 percent of O’s total 

support. O expends substantially all of its 

annual income for its exempt purposes and 

thus depends upon the funds it annually 

solicits from the public as well as its 

investment income in order to carry out its 

activities on a normal and continuing basis 

and to acquire new works of art. O has, for 

the entire period of its existence, been open 

to the public and more than 300,000 people 

(from S City and elsewhere) have visited the 

museum in each of the current taxable year 

and the four most recent taxable years. 

(ii) Under these circumstances, O does not 

meet the 331⁄3 percent support test for its 

current year because it has received only 25 

percent of its total support for the applicable 

5-year period from the general public. 

However, under the facts set forth above, O 

has met the 10 percent support limitation 

under paragraph (f)(3)(i) of this section, as 

well as the requirements of paragraph 

(f)(3)(ii) of this section. Under all of the facts 

set forth in this example, O is considered as 

meeting the requirements of the facts and 

circumstances test on the basis of satisfying 

paragraphs (f)(3)(i) and (ii) of this section and 

the factors set forth in paragraphs (f)(3)(iii)(A) 

through (D) of this section. O is therefore 

publicly supported for its current taxable 

year and the immediately succeeding taxable 

year. 

Example 4. (i) In 1960, the P Philharmonic 

Orchestra was organized in T City through 

the combined efforts of a local music society 

and a local women’s club to present to the 

public a wide variety of musical programs 

intended to foster music appreciation in the 

community. P is recognized as an 

organization described in section 501(c)(3). 

The orchestra is composed of professional 

musicians who are paid by the association. 

Twelve performances open to the public are 

scheduled each year. A small admission fee 

is charged for each of these performances. In 

addition, several performances are staged 

annually without charge. During the current 

taxable year and the four taxable years 

immediately preceding the current taxable 

year, P has received separate contributions of 

$200,000 each from A and B (not members 

of a single family) and support of $120,000 

from the T Community Chest, a public 

federated fundraising organization operating 

in T City. P depends on these funds in order 

to carry out its activities and will continue 

to depend on contributions of this type to be 

made in the future. P has also begun a 

fundraising campaign in an attempt to 

expand its activities for the coming years. P 

is governed by a Board of Directors 

comprised of 5 individuals. A faculty 

member of a local college, the president of a 

local music society, the head of a local 

banking institution, a prominent doctor, and 

a member of the governing body of the local 

chamber of commerce currently serve on P’s 

Board and represent the interests and views 

of the community in the activities carried on 

by P. 

(ii) With respect to P’s current taxable year, 

P’s sources of support are computed on the 

basis of the current taxable year and the four 

taxable years immediately preceding the 

current taxable year, as follows: 

Contributions ............................. $520,000 

Receipts from performances ..... 100,000 

Total support ...................... $620,000 

Less: 

Receipts from performances 

(excluded under paragraph 

(f)(7)(i)(A) of this section) .. 100,000 

Total support for purposes 

of paragraphs (f)(2) and 

(f)(3)(i) of this section ..... $520,000 

(iii) For purposes of paragraphs (f)(2) and 

(f)(3)(i) of this section, P’s support is 

computed as follows: 

T Community Chest (indirect 

support from the general 

public) .................................... $120,000 

Two contributions (each in excess of $10,400—2 percent of 

total support) 2 × $10,400 ..... 20,800 

Total .................................... $140,800 

(iv) P’s support from the direct and indirect 

contributions from the general public does 

not meet the 331⁄3 percent support test 

($140,800/$520,000 = 27 percent of total 

support). However, because P receives 27 

percent of its total support from the general 

public, it meets the 10 percent support 

limitation under paragraph (f)(3)(i) of this 

section. P also meets the requirements of 

paragraph (f)(3)(ii) of this section. As a result 

of satisfying these requirements and the 

factors set forth in paragraphs (f)(3)(iii)(A) 

through (D) of this section, P is considered 

to meet the facts and circumstances test and 

therefore qualifies as a publicly supported 

organization under paragraph (f)(1) of this 

section for its current taxable year and the 

immediately succeeding taxable year. 

Example 5. (i) Q is recognized as an 

organization described in section 501(c)(3). It 

is a philanthropic organization founded in 

1965 by C for the purpose of making annual 

contributions to worthy charities. C created 

Q as a charitable trust by the transfer of 

appreciated securities worth $500,000 to Q. 

Pursuant to the trust agreement, C and two 

other members of his family are the sole 

trustees of Q and are vested with the right to 

appoint successor trustees. In each of the 

current taxable year and the four taxable 

years immediately preceding the current 

taxable year, Q received $15,000 in 

investment income from its original 

endowment. Each year Q makes a solicitation 

for funds by operating a charity ball at C’s 

residence. Guests are invited and requested 

to make contributions of $100 per couple. 

During the 5-year period at issue, $15,000 

was received from the proceeds of these 

events. C and his family have also made 

contributions to Q of $25,000 over the 5-year 

period at issue. Q makes disbursements each 

year of substantially all of its net income to 

the public charities chosen by the trustees. 

(ii) Q’s sources of support for the current 

taxable year and the four taxable years 

immediately preceding the current taxable 

year as follows: 

Investment income .................... $60,000 

Contributions ............................. 40,000 

Total support ...................... $100,000 

(iii) For purposes of paragraphs (f)(2) and 

(f)(3)(i) of this section, Q’s support is 

computed as follows: 

Contributions from the general 

public ...................................... $15,000 

One contribution (in excess of 

$2,000—2 percent of total 

support) 1 × $2,000 ................ 2,000 

Total .................................... $17,000 

(iv) Q’s support from the general public 

does not meet the 331⁄3 percent support test 

($17,000/$100,000 = 17 percent of total 

support). Thus, Q’s classification as a 

‘‘publicly supported’’ organization depends 

on whether it meets the requirements of the 

facts and circumstances test. Even though it 

satisfies the 10 percent support limitation 

under paragraph (f)(3)(i) of this section, its 

method of solicitation makes it questionable 

whether Q satisfies the requirements of 

paragraph (f)(3)(ii) of this section. Because of 

its method of operating, Q also has a greater 

burden of establishing its publicly supported 

nature under paragraph (f)(3)(iii)(A) of this 

section. Based upon the foregoing and upon 

Q’s failure to receive favorable consideration 

under the remaining factors set forth in 

paragraphs (f)(3)(iii)(B), (C) and (D) of this 

section, Q does not satisfy the facts and 

circumstances test. 

(10) Community trust; introduction. 

Community trusts have often been 

established to attract large contributions 

of a capital or endowment nature for the 

benefit of a particular community or 

area, and often such contributions have 

come initially from a small number of 

donors. While the community trust 

generally has a governing body 

comprised of representatives of the 

particular community or area, its 

contributions are often received and 

maintained in the form of separate trusts 

or funds, which are subject to varying 

degrees of control by the governing 

body. To qualify as a ‘‘publicly 

supported’’ organization, a community 

trust must meet the 331⁄3 percent 

support test, or, if it cannot meet that 

test, be organized and operated so as to 

attract new and additional public or 

governmental support on a continuous 

basis sufficient to meet the facts and 

circumstances test. Such facts and 

circumstances test includes a 

requirement of attraction of public 

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support in paragraph (f)(3)(ii) of this 

section which, as applied to community 

trusts, generally will be satisfied if they 

seek gifts and bequests from a wide 

range of potential donors in the 

community or area served, through 

banks or trust companies, through 

attorneys or other professional persons, 

or in other appropriate ways that call 

attention to the community trust as a 

potential recipient of gifts and bequests 

made for the benefit of the community 

or area served. A community trust is not 

required to engage in periodic, 

community-wide, fundraising 

campaigns directed toward attracting a 

large number of small contributions in 

a manner similar to campaigns 

conducted by a community chest or 

united fund. Paragraph (f)(11) of this 

section provides rules for determining 

the extent to which separate trusts or 

funds may be treated as component 

parts of a community trust, fund or 

foundation (herein collectively referred 

to as a ‘‘community trust’’, and 

sometimes referred to as an 

‘‘organization’’) for purposes of meeting 

the requirements of this paragraph for 

classification as a publicly supported 

organization. Paragraph (f)(12) of this 

section contains rules for trusts or funds 

that are prevented from qualifying as 

component parts of a community trust 

by paragraph (f)(11) of this section. 

(11) Community trusts; requirements 

for treatment as a single entity—(i) 

General rule. For purposes of sections 

170, 501, 507, 508, 509, and Chapter 42, 

any organization that meets the 

requirements contained in paragraphs 

(f)(11)(iii) through (iv) of this section 

will be treated as a single entity, rather 

than as an aggregation of separate funds, 

and except as otherwise provided, all 

funds associated with such organization 

(whether a trust, not-for-profit 

corporation, unincorporated association, 

or a combination thereof) which meet 

the requirements of paragraph (f)(11)(ii) 

of this section will be treated as 

component parts of such organization. 

(ii) Component part of a community 

trust. In order to be treated as a 

component part of a community trust 

referred to in this paragraph (f)(11) 

(rather than as a separate trust or notfor-profit corporation or association), a 

trust or fund: 

(A) Must be created by a gift, bequest, 

legacy, devise, or other transfer to a 

community trust which is treated as a 

single entity under this paragraph 

(f)(11); and 

(B) May not be directly or indirectly 

subjected by the transferor to any 

material restriction or condition (within 

the meaning of § 1.507–2T(a)(7)) with 

respect to the transferred assets. For 

purposes of this paragraph (f)(11)(ii)(B), 

if the transferor is not a private 

foundation, the provisions of § 1.507–

2T(a)(7) shall be applied to the trust or 

fund as if the transferor were a private 

foundation established and funded by 

the person establishing the trust or fund 

and such foundation transferred all its 

assets to the trust or fund. Any transfer 

made to a fund or trust which is treated 

as a component part of a community 

trust under this paragraph (f)(11)(ii) will 

be treated as a transfer made ‘‘to’’ a 

‘‘publicly supported’’ community trust 

for purposes of section 170(b)(1)(A) and 

507(b)(1)(A) if such community trust 

meets the requirements of section 

170(b)(1)(A)(vi) as a ‘‘publicly 

supported’’ organization at the time of 

the transfer, except as provided in 

paragraph (f)(4)(v)(B) of this section or 

§ 1.508–1(b)(4) and (6) (relating, 

generally, to reliance by grantors and 

contributors). See also paragraphs 

(f)(12)(ii) and (iii) of this section for 

special provisions relating to splitinterest trusts and certain private 

foundations described in section 

170(b)(1)(F)(iii). 

(iii) Name. The organization must be 

commonly known as a community trust, 

fund, foundation or other similar name 

conveying the concept of a capital or 

endowment fund to support charitable 

activities (within the meaning of section 

170(c)(1) or (2)(B)) in the community or 

area it serves. 

(iv) Common instrument. All funds of 

the organization must be subject to a 

common governing instrument or a 

master trust or agency agreement (herein 

referred to as the ‘‘governing 

instrument’’), which may be embodied 

in a single document or several 

documents containing common 

language. Language in an instrument of 

transfer to the community trust making 

a fund subject to the community trust’s 

governing instrument or master trust or 

agency agreement will satisfy the 

requirements of this paragraph 

(f)(11)(iv). In addition, if a community 

trust adopts a new governing instrument 

(or creates a corporation) to put into 

effect new provisions (applying to 

future transfers to the community trust), 

the adoption of such new governing 

instrument (or creation of a corporation 

with a governing instrument) which 

contains common language with the 

existing governing instrument shall not 

preclude the community trust from 

meeting the requirements of this 

paragraph (f)(11)(iv). 

(v) Common governing body. (A) The 

organization must have a common 

governing body or distribution 

committee (herein referred to as the 

‘‘governing body’’) which either directs 

or, in the case of a fund designated for 

specified beneficiaries, monitors the 

distribution of all of the funds 

exclusively for charitable purposes 

(within the meaning of section 170(c)(1) 

or (2)(B)). For purposes of this 

paragraph (f)(11)(v), a fund is designated 

for specified beneficiaries only if no 

person is left with the discretion to 

direct the distribution of the fund. 

(B) Powers of modification and 

removal. The fact that the exercise of 

any power described in this paragraph 

(f)(11)(v)(B) is reviewable by an 

appropriate State authority will not 

preclude the community trust from 

meeting the requirements of this 

paragraph (f)(11)(v)(B). Except as 

provided in paragraph (f)(11)(v)(C) of 

this section, the governing body must 

have the power in the governing 

instrument, the instrument of transfer, 

the resolutions or by-laws of the 

governing body, a written agreement, or 

otherwise—

(1) To modify any restriction or 

condition on the distribution of funds 

for any specified charitable purposes or 

to specified organizations if in the sole 

judgment of the governing body 

(without the necessity of the approval of 

any participating trustee, custodian, or 

agent), such restriction or condition 

becomes, in effect, unnecessary, 

incapable of fulfillment, or inconsistent 

with the charitable needs of the 

community or area served; 

(2) To replace any participating 

trustee, custodian, or agent for breach of 

fiduciary duty under State law; and 

(3) To replace any participating 

trustee, custodian, or agent for failure to 

produce a reasonable (as determined by 

the governing body) return of net 

income (within the meaning of 

paragraph (f)(11)(v)(F) of this section) 

over a reasonable period of time (as 

determined by the governing body). 

(C) Transitional rule—(1) 

Notwithstanding paragraph (f)(11)(v)(B) 

of this section, if a community trust 

meets the requirements of paragraph 

(f)(11)(v)(C)(3) of this section, then in 

the case of any instrument of transfer 

which is executed before July 19, 1977, 

and is not revoked or amended 

thereafter (with respect to any 

dispositive provision affecting the 

transfer to the community trust), and in 

the case of any instrument of transfer 

which is irrevocable on January 19, 

1982, the governing body must have the 

power to cause proceedings to be 

instituted (by request to the appropriate 

State authority): 

(i) To modify any restriction or 

condition on the distribution of funds 

for any specified charitable purposes or 

to specified organizations if in the 

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judgment of the governing body such 

restriction or condition becomes, in 

effect, unnecessary, incapable of 

fulfillment, or inconsistent with the 

charitable needs of the community or 

area served; and 

(ii) To remove any participating 

trustee, custodian, or agent for breach of 

fiduciary duty under State law. 

(2) The necessity for the governing 

body to obtain the approval of a 

participating trustee to exercise the 

powers described in paragraph 

(f)(11)(v)(C)(1) of this section shall be 

treated as not preventing the governing 

body from having such power, unless 

(and until) such approval has been (or 

is) requested by the governing body and 

has been (or is) denied. 

(3) Paragraph (f)(11)(v)(C)(1) of this 

section shall not apply unless the 

community trust meets the requirements 

of paragraph (f)(11)(v)(B) of this section, 

with respect to funds other than those 

under instruments of transfer described 

in the first sentence of such paragraph 

(f)(11)(v)(C)(1) of this section, by 

January 19, 1978, or such later date as 

the Commissioner may provide for such 

community trust, and unless the 

community trust does not, once it so 

complies, thereafter solicit for funds 

that will not qualify under the 

requirements of paragraph (f)(11)(v)(B) 

of this section. 

(D) Inconsistent State law—(1) For 

purposes of paragraphs (f)(11)(v)(B)(1), 

(2), or (3), (f)(11)(v)(C)(1)(i) or (ii) or 

(f)(11)(v)(E) of this section, if a power 

described in such a provision is 

inconsistent with State law even if such 

power were expressly granted to the 

governing body by the governing 

instrument and were accepted without 

limitation under an instrument of 

transfer, then the community trust will 

be treated as meeting the requirements 

of such a provision if it meets such 

requirements to the fullest extent 

possible consistent with State law (if 

such power is or had been so expressly 

granted). 

(2) For example, if, under the 

conditions of paragraph (f)(11)(v)(D)(1) 

of this section, the power to modify is 

inconsistent with State law, but the 

power to institute proceedings to 

modify, if so expressly granted, would 

be consistent with State law, the 

community trust will be treated as 

meeting such requirements to the fullest 

extent possible if the governing body 

has the power (in the governing 

instrument or otherwise) to institute 

proceedings to modify a condition or 

restriction. On the other hand, if in such 

a case the community trust has only the 

power to cause proceedings to be 

instituted to modify a condition or 

restriction, it will not be treated as 

meeting such requirements to the fullest 

extent possible. 

(3) In addition, if, for example, under 

the conditions of paragraph 

(f)(11)(v)(D)(1) of this section, the power 

to modify and the power to institute 

proceedings to modify a condition or 

restriction is inconsistent with State 

law, but the power to cause such 

proceedings to be instituted would be 

consistent with State law, if it were 

expressly granted in the governing 

instrument and if the approval of the 

State Attorney General were obtained, 

then the community trust will be treated 

as meeting such requirements to the 

fullest extent possible if it has the power 

(in the governing instrument or 

otherwise) to cause such proceedings to 

be instituted, even if such proceedings 

can be instituted only with the approval 

of the State Attorney General. 

(E) Exercise of powers. The governing 

body shall (by resolution or otherwise) 

commit itself to exercise the powers 

described in paragraphs (f)(11)(v)(B), (C) 

and (D) of this section in the best 

interests of the community trust. The 

governing body will be considered not 

to be so committed where it has grounds 

to exercise such a power and fails to 

exercise it by taking appropriate action. 

Such appropriate action may include, 

for example, consulting with the 

appropriate State authority prior to 

taking action to replace a participating 

trustee. 

(F) Reasonable return. In addition to 

the requirements of paragraphs 

(f)(11)(v)(B), (C), (D) or (E) of this 

section, the governing body shall (by 

resolution or otherwise) commit itself to 

obtain information and take other 

appropriate steps with the view to 

seeing that each participating trustee, 

custodian, or agent, with respect to each 

restricted trust or fund that is, and with 

respect to the aggregate of the 

unrestricted trusts or funds that are, a 

component part of the community trust, 

administers such trust or fund in 

accordance with the terms of its 

governing instrument and accepted 

standards of fiduciary conduct to 

produce a reasonable return of net 

income (or appreciation where not 

inconsistent with the community trust’s 

need for current income), with due 

regard to safety of principal, in 

furtherance of the exempt purposes of 

the community trust (except for assets 

held for the active conduct of the 

community trust’s exempt activities). In 

the case of a low return of net income 

(and, where appropriate, appreciation), 

the Internal Revenue Service will 

examine carefully whether the 

governing body has, in fact, committed 

itself to take the appropriate steps. For 

purposes of this paragraph (f)(11)(v)(F), 

any income that has been designated by 

the donor of the gift or bequest to which 

such income is attributable as being 

available only for the use or benefit of 

a broad charitable purpose, such as the 

encouragement of higher education or 

the promotion of better health care in 

the community, will be treated as 

unrestricted. However, any income that 

has been designated for the use or 

benefit of a named charitable 

organization or agency or for the use or 

benefit of a particular class of charitable 

organizations or agencies, the members 

of which are readily ascertainable and 

are less than five in number, will be 

treated as restricted. 

(vi) Common reports. The 

organization must prepare periodic 

financial reports treating all of the funds 

which are held by the community trust, 

either directly or in component parts, as 

funds of the organization. 

(12) Community trusts; treatment of 

trusts and not-for-profit corporations 

and associations not included as 

components. (i) For purposes of sections 

170, 501, 507, 508, 509 and Chapter 42, 

any trust or not-for-profit corporation or 

association that is alleged to be a 

component part of a community trust, 

but that fails to meet the requirements 

of paragraph (f)(11)(ii) of this section, 

shall not be treated as a component part 

of a community trust and, if a trust, 

shall be treated as a separate trust and 

be subject to the provisions of section 

501 or section 4947(a)(1) or (2), as the 

case may be. If such organization is a 

not-for-profit corporation or association, 

it will be treated as a separate entity, 

and, if it is described in section 

501(c)(3), it will be treated as a private 

foundation unless it is described in 

section 509(a)(1), (2), (3), or (4). In the 

case of a fund that is ultimately treated 

as not being a component part of a 

community trust pursuant to this 

paragraph (f)(12), if the Forms 990 filed 

annually by the community trust 

included financial information with 

respect to such fund and treated such 

fund in the same manner as other 

component parts thereof, such returns 

filed by the community trust prior to the 

taxable year in which the Commissioner 

notifies such fund that it will not be 

treated as a component part will be 

treated as its separate return for purpose 

of Subchapter A of Chapter 61 of 

Subtitle F, and the first such return filed 

by the community trust will be treated 

as the notification required of the 

separate entity for purposes of section 

508(a). 

(ii) If a transfer is made in trust to a 

community trust to make income or 

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52544 Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 

other payments for a period of a life or 

lives in being or a term of years to any 

individual or for any noncharitable 

purpose, followed by payments to or for 

the use of the community trust (such as 

in the case of a charitable remainder 

annuity trust or a charitable remainder 

unitrust described in section 664 or a 

pooled income fund described in 

section 642(c)(5)), such trust will be 

treated as a component part of the 

community trust upon the termination 

of all intervening noncharitable interests 

and rights to the actual possession or 

enjoyment of the property if such trust 

satisfies the requirements of paragraph 

(f)(11) of this section at such time. Until 

such time, the trust will be treated as a 

separate trust. If a transfer is made in 

trust to a community trust to make 

income or other payments to or for the 

use of the community trust, followed by 

payments to any individual or for any 

noncharitable purpose, such trust will 

be treated as a separate trust rather than 

as a component part of the community 

trust. See section 4947(a)(2) and the 

regulations relating to section 4947(a)(2) 

for the treatment of such split-interest 

trusts. The provisions of this paragraph 

(f)(12)(ii) provide rules only for 

determining when a charitable 

remainder trust or pooled income fund 

may be treated as a component part of 

a community trust and are not intended 

to preclude a community trust from 

maintaining a charitable remainder trust 

or pooled income fund. For purposes of 

grantors and contributors, a pooled 

income fund of a publicly supported 

community trust shall be treated no 

differently than a pooled income fund of 

any other publicly supported 

organization. 

(iii) An organization described in 

section 170(b)(1)(F)(iii) will not 

ordinarily satisfy the requirements of 

paragraph (f)(11)(ii) of this section 

because of the unqualified right of the 

donor to designate the recipients of the 

income and principal of the trust. Such 

organization will therefore ordinarily be 

treated as other than a component part 

of a community trust under paragraph 

(f)(12)(i) of this section. However, see 

section 170(b)(1)(F)(iii) and the 

regulations relating to section 

170(b)(1)(F)(iii) with respect to the 

treatment of contributions to such 

organizations. 

(13) Method of accounting. For 

purposes of section 170(b)(1)(A)(vi), an 

organization’s support will be 

determined under the method of 

accounting on the basis of which the 

organization regularly computes its 

income in keeping its books under 

section 446. For example, if a grantor 

makes a grant to an organization payable 

over a term of years, such grant will be 

includible in the support fraction of the 

grantee organization under the method 

of accounting on the basis of which the 

grantee organization regularly computes 

its income in keeping its books under 

section 446. 

(14) Transition rules. (i) An 

organization that received an advance 

ruling, that expires on or after June 9, 

2008, that it will be treated as an 

organization described in sections 

170(b)(1)(A)(vi) and 509(a)(1) or in 

section 509(a)(2) will be treated as 

meeting the requirements of paragraph 

(f)(4)(v) of this section for the first five 

taxable years of its existence as a section 

501(c)(3) organization unless the 

Internal Revenue Service issued the 

organization a proposed determination 

prior to September 9, 2008, that the 

organization is not described in sections 

170(b)(1)(A)(vi) and 509(a)(1) or in 

section 509(a)(2). 

(ii) Paragraph (f)(4)(v) of this section 

shall not apply to an organization that 

received an advance ruling that expired 

prior to June 9, 2008, and that did not 

timely file with the Internal Revenue 

Service the required information to 

establish that it is an organization 

described in sections 170(b)(1)(A)(vi) 

and 509(a)(1) or in section 509(a)(2). 

(iii) An organization that fails to meet 

a public support test for its first taxable 

year beginning on or after January 1, 

2008, under the regulations in this 

section may use the prior test set forth 

in § 1.170A–9(e)(4)(i) and (ii) or 

§ 1.509(a)–3(c)(1) as in effect before 

September 9, 2008, (as contained in 26 

CFR part 1 revised April 1, 2008) to 

determine whether the organization may 

be publicly supported for its 2008 

taxable year based on its satisfaction of 

a public support test for taxable year 

2007, computed over the period 2003 

through 2006. 

(iv) Examples. The application of this 

paragraph (f)(14) may be illustrated by 

the following examples: 

Example 1. (i) Organization X was formed 

in January 2004 and uses a June 30 taxable 

year. Organization X received an advance 

ruling letter that it is recognized as an 

organization described in section 501(c)(3) 

effective as of the date of its formation and 

that it is treated as a public charity under 

sections 170(b)(1)(A)(vi) and 509(a)(1) during 

the five-year advance ruling period that will 

end on June 30, 2008. This date is within 90 

days before September 9, 2008. 

(ii) Under the transition rule, Organization 

X is a public charity described in sections 

170(b)(1)(A)(vi) and 509(a)(1) for the taxable 

years ending June 30, 2004, through June 30, 

2008. Organization X does not need to 

establish within 90 days after June 30, 2008, 

that it met a public support test under 

§ 1.170A–9(e) or § 1.509(a)–3, as in effect 

prior September 9, 2008, (as contained in 26 

CFR part 1 revised April 1, 2008), for its 

advance ruling period. 

(iii) Organization X can qualify as a public 

charity beginning with the taxable year 

ending June 30, 2009, if Organization X can 

meet the requirements of paragraphs (f)(4)(i) 

or (ii) of this section or § 1.509(a)–3T(c)(1) for 

the taxable years ending June 30, 2005, 

through June 30, 2009, or for the taxable 

years ending June 30, 2004, through June 30, 

2008. In addition, for its taxable year ending 

June 30, 2009, Organization X may qualify as 

a public charity by availing itself of the 

transition rule contained in paragraph 

(f)(14)(iii) of this section, which looks to 

support received by X in the taxable years 

ending June 30, 2004, through June 30, 2007. 

Example 2. (i) Organization Y was formed 

in January 2000, and uses a December 31 

taxable year. Organization Y received a final 

determination that it was recognized as taxexempt under section 501(c)(3) and as a 

public charity prior to September 9, 2008. 

(ii) For taxable year 2008, Organization Y 

will qualify as publicly supported if it meets 

the requirements under either paragraphs 

(f)(4)(i) or (ii) of this section or § 1.509(a)–

3T(c)(1) for the five-year period January 1, 

2004, through December 31, 2008. 

Organization Y will also qualify as publicly 

supported for taxable year 2008 if it meets 

the requirements under either § 1.170A–

9(e)(4)(i) or (ii) or § 1.509(a)–3(c)(1) as in 

effect prior to September 9, 2008, (as 

contained in 26 CFR part 1 revised April 1, 

2008) for taxable year 2007, using the fouryear period from January 1, 2003, through 

December 31, 2006. 

(g) through (j) [Reserved]. For further 

guidance, see § 1.170A–9(g) through (j). 

(k) Effective/applicability date—(1) 

Effective date. These regulations are 

effective on September 9, 2008. 

(2) Applicability date. The regulations 

in paragraph (f) of this section shall 

apply to tax years beginning on or after 

January 1, 2008. 

(3) Expiration date. The applicability 

of this section expires on September 8, 

2011. 

■ Par. 4. Section 1.507–2 is amended by 

adding new paragraph (h) to read as 

follows: 

§ 1.507–2 Special rules; transfer to, or 

operation as, public charity. 

* * * * * 

(h) Effective/applicability date. This 

section shall apply to tax years 

beginning before January 1, 2008. 

■ Par. 5. Section 1.507–2T is added to 

read as follows: 

§ 1.507–2T Special rules; transfer to, or 

operation as, public charity (temporary). 

(a) Transfer to public charities—(1) 

General rule. Under section 507(b)(1)(A) 

a private foundation, with respect to 

which there have not been either willful 

repeated acts (or failures to act) or a 

willful and flagrant act (or failure to act) 

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Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 52545 

giving rise to liability for tax under 

chapter 42, may terminate its private 

foundation status by distributing all of 

its net assets to one or more 

organizations described in section 

170(b)(1)(A) (other than in clauses (vii) 

and (viii)) each of which has been in 

existence and so described for a 

continuous period of at least 60 

calendar months immediately preceding 

such distribution. Because section 

507(a) does not apply to such a 

termination, a private foundation which 

makes such a termination is not 

required to give the notification 

described in section 507(a)(1). A private 

foundation that terminates its private 

foundation status under section 

507(b)(1)(A) does not incur tax under 

section 507(c) and, therefore, no 

abatement of such tax under section 

507(g) is required. 

(2) Effect of current ruling. A private 

foundation seeking to terminate its 

private foundation status pursuant to 

section 507(b)(1)(A) may rely on a ruling 

or determination letter issued to a 

potential distributee organization that 

such distributee organization is an 

organization described in section 

170(b)(1)(A)(i), (ii), (iii), (iv), (v) or (vi) 

in accordance with the provisions of 

§ 1.509(a)–7. 

(3) Organizations described in more 

than one clause of section 170(b)(1)(A). 

For purposes of this paragraph and 

section 507(b)(1)(A), the parenthetical 

term ‘‘other than in clauses (vii) and 

(viii)’’ shall refer only to an organization 

that is described only in section 

170(b)(1)(A)(vii) or (viii). Thus, an 

organization described in section 

170(b)(1)(A)(i), (ii), (iii), (iv), (v), or (vi) 

will not be precluded from being a 

distributee described in section 

507(b)(1)(A) merely because it also 

appears to meet the description of an 

organization described in section 

170(b)(1)(A) (vii) or (viii). 

(4) Applicability of chapter 42 to 

foundations terminating under section 

507(b)(1)(A). An organization that 

terminates its private foundation status 

pursuant to section 507(b)(1)(A) will 

remain subject to the provisions of 

chapter 42 until the distribution of all 

of its net assets to distributee 

organizations described in section 

507(b)(1)(A) has been completed. 

(5) Return required from 

organizations terminating private 

foundation status under section 

507(b)(1)(A). 

(i) An organization that terminates its 

private foundation status under section 

507(b)(1)(A) is required to file a return 

under the provisions of section 6043(b), 

rather than under the provisions of 

section 6050. 

(ii) An organization that terminates its 

private foundation status under section 

507(b)(1)(A) is not required to comply 

with section 6104(d) for the taxable year 

in which such termination occurs. 

(6) Distribution of net assets. A 

private foundation will meet the 

requirement that it ‘‘distribute all of its 

net assets’’ within the meaning of 

section 507(b)(1)(A) only if it transfers 

all of its right, title, and interest in and 

to all of its net assets to one or more 

organizations referred to in section 

507(b)(1)(A). 

(7) Effect of restrictions and 

conditions upon distributions of net 

assets—(i) In general. In order to 

effectuate a transfer of ‘‘all of its right, 

title, and interest in and to all of its net 

assets’’ within the meaning of paragraph 

(a)(6) of this section, a transferor private 

foundation may not impose any material 

restriction or condition that prevents the 

transferee organization referred to in 

section 507(b)(1)(A) (herein sometimes 

referred to as the ‘‘public charity’’) from 

freely and effectively employing the 

transferred assets, or the income derived 

therefrom, in furtherance of its exempt 

purposes. Whether or not a particular 

condition or restriction imposed upon a 

transfer of assets is material (within the 

meaning of this paragraph (a)(7)) must 

be determined from all of the facts and 

circumstances of the transfer. Some of 

the more significant facts and 

circumstances to be considered in 

making such a determination are—

(A) Whether the public charity 

(including a participating trustee, 

custodian, or agent in the case of a 

community trust) is the owner in fee of 

the assets it receives from the private 

foundation; 

(B) Whether such assets are to be held 

and administered by the public charity 

in a manner consistent with one or more 

of its exempt purposes; 

(C) Whether the governing body of the 

public charity has the ultimate authority 

and control over such assets, and the 

income derived therefrom; and 

(D) Whether, and to what extent, the 

governing body of the public charity is 

organized and operated so as to be 

independent from the transferor. 

(ii) Independent governing body. As 

provided in paragraph (a)(7)(i)(D) of this 

section, one of the more significant facts 

and circumstances to be considered in 

making the determination whether a 

particular condition or restriction 

imposed upon a transfer of assets is 

material within the meaning of this 

paragraph (a)(7) is whether, and the 

extent to which, the governing body is 

organized and operated so as to be 

independent from the transferor. In 

turn, the determination as to such factor 

must be determined from all of the facts 

and circumstances. Some of the more 

significant facts and circumstances to be 

considered in making such a 

determination are—

(A) Whether, and to what extent, 

members of the governing body are 

comprised of persons selected by the 

transferor private foundation or 

disqualified persons with respect 

thereto, or are themselves such 

disqualified persons; 

(B) Whether, and to what extent, 

members of the governing body are 

selected by public officials acting in 

their capacities as such; and 

(C) How long a period of time each 

member of the governing body may 

serve as such. In the case of a transfer 

that is to a community trust, the 

community trust shall meet this 

paragraph (a)(7)(ii)(C) if, with respect to 

terms of office beginning after the date 

of transfer: 

(1) its governing body is comprised of 

members who may serve a period of not 

more than ten consecutive years; and 

(2) Upon completion of a period of 

service (beginning before or after the 

date of transfer), no member may serve 

again within a period consisting of the 

lesser of 5 years or the number of 

consecutive years the member has 

immediately completed serving. 

(iii) Factors not adversely affecting 

determination. The presence of some or 

all of the following factors will not be 

considered as preventing the transferee 

‘‘from freely and effectively employing 

the transferred assets, or the income 

derived therefrom, in furtherance of its 

exempt purposes’’ (within the meaning 

of paragraph (a)(7)(i) of this section): 

(A) Name. The fund is given a name 

or other designation which is the same 

as or similar to that of the transferor 

private foundation or otherwise 

memorializes the creator of the 

foundation or his family. 

(B) Purpose. The income and assets of 

the fund are to be used for a designated 

purpose or for one or more particular 

section 509(a)(1), (2), or (3) 

organizations, and such use is 

consistent with the charitable, 

educational, or other basis for the 

exempt status of the public charity 

under section 501(c)(3). 

(C) Administration. The transferred 

assets are administered in an 

identifiable or separate fund, some or all 

of the principal of which is not to be 

distributed for a specified period, if the 

public charity (including a participating 

trustee, custodian, or agent in the case 

of a community trust) is the legal and 

equitable owner of the fund and the 

governing body exercises ultimate and 

direct authority and control over such 

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52546 Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 

fund, as, for example, a fund to endow 

a chair at a university or a medical 

research fund at a hospital. In the case 

of a community trust, the transferred 

assets must be administered in or as a 

component part of the community trust 

within the meaning of § 1.170A–

9T(f)(11). 

(D) Restrictions on disposition. The 

transferor private foundation transfers 

property the continued retention of 

which by the transferee is required by 

the transferor if such retention is 

important to the achievement of 

charitable or other similar purposes in 

the community because of the peculiar 

features of such property, as, for 

example, where a private foundation 

transfers a woodland preserve which is 

to be maintained by the public charity 

as an arboretum for the benefit of the 

community. Such a restriction does not 

include a restriction on the disposition 

of an investment asset or the 

distribution of income. 

(iv) Adverse factors. The presence of 

any of the following factors will be 

considered as preventing the transferee 

‘‘from freely and effectively employing 

the transferred assets, or the income 

derived therefrom, in furtherance of its 

exempt purposes’’ (within the meaning 

of paragraph (a)(7)(i) of this section): 

(A) Distributions. (1) With respect to 

distributions made after April 19, 1977, 

the transferor private foundation, a 

disqualified person with respect thereto, 

or any person or committee designated 

by, or pursuant to the terms of an 

agreement with, such a person 

(hereinafter referred to as donor), 

reserves the right, directly or indirectly, 

to name (other than by designation in 

the instrument of transfer of particular 

section 509(a)(1), (2), or (3) 

organizations) the persons to which the 

transferee public charity must 

distribute, or to direct the timing of such 

distributions (other than by direction in 

the instrument of transfer that some or 

all of the principal, as opposed to 

specific assets, not be distributed for a 

specified period) as, for example, by a 

power of appointment. The Internal 

Revenue Service will examine carefully 

whether the seeking of advice by the 

transferee from, or the giving of advice 

by, any donor after the assets have been 

transferred to the transferee constitutes 

an indirect reservation of a right to 

direct such distributions. In any such 

case, the reservation of such a right will 

be considered to exist where the only 

criterion considered by the public 

charity in making a distribution of 

income or principal from a donor’s fund 

is advice offered by the donor. Whether 

there is a reservation of such a right will 

be determined from all of the facts and 

circumstances, including, but not 

limited to, the factors contained in 

paragraphs (a)(7)(iv)(A)(2) and (3) of this 

section. 

(2) The presence of some or all of the 

following factors will indicate that the 

reservation of such a right does not 

exist: 

(i) There has been an independent 

investigation by the staff of the public 

charity evaluating whether the donor’s 

advice is consistent with specific 

charitable needs most deserving of 

support by the public charity (as 

determined by the public charity). 

(ii) The public charity has 

promulgated guidelines enumerating 

specific charitable needs consistent with 

the charitable purposes of the public 

charity and the donor’s advice is 

consistent with such guidelines. 

(iii) The public charity has instituted 

an educational program publicizing to 

donors and other persons the guidelines 

enumerating specific charitable needs 

consistent with the charitable purposes 

of the public charity. 

(iv) The public charity distributes 

funds in excess of amounts distributed 

from the donor’s fund to the same or 

similar types of organizations or 

charitable needs as those recommended 

by the donor. 

(v) The public charity’s solicitations 

(written or oral) for funds specifically 

state that such public charity will not be 

bound by advice offered by the donor. 

(3) The presence of some or all of the 

following factors will indicate the 

reservation of such a right does exist: 

(i) The solicitations (written or oral) of 

funds by the public charity state or 

imply, or a pattern of conduct on the 

part of the public charity creates an 

expectation, that the donor’s advice will 

be followed. 

(ii) The advice of a donor (whether or 

not restricted to a distribution of income 

or principal from the donor’s trust or 

fund) is limited to distributions of 

amounts from the donor’s fund, and the 

factors described in paragraph 

(a)(7)(iv)(A)(2)(i) or (ii) of this section 

are not present. 

(iii) Only the advice of the donor as 

to distributions of such donor’s fund is 

solicited by the public charity and no 

procedure is provided for considering 

advice from persons other than the 

donor with respect to such fund. 

(iv) For the taxable year and all prior 

taxable years the public charity follows 

the advice of all donors with respect to 

their funds substantially all of the time. 

(B) Other action or withholding of 

action. The terms of the transfer 

agreement, or any expressed or implied 

understanding, required the public 

charity to take or withhold action with 

respect to the transferred assets which is 

not designed to further one or more of 

the exempt purposes of the public 

charity, and such action or withholding 

of action would, if performed by the 

transferor private foundation with 

respect to such assets, have subjected 

the transferor to tax under chapter 42 

(other than with respect to the 

minimum investment return 

requirement of section 4942(e)). 

(C) Assumption of leases, contractual 

obligations, or liabilities. The public 

charity assumes leases, contractual 

obligations, or liabilities of the 

transferor private foundation, or takes 

the assets thereof subject to such 

liabilities (including obligations under 

commitments or pledges to donees of 

the transferor private foundation), for 

purposes inconsistent with the purposes 

or best interests of the public charity, 

other than the payment of the 

transferor’s chapter 42 taxes incurred 

prior to the transfer to the public charity 

to the extent of the value of the assets 

transferred. 

(D) Retention of investment assets. 

The transferee public charity is required 

by any restriction or agreement (other 

than a restriction or agreement imposed 

or required by law or regulatory 

authority), express or implied, to retain 

any securities or other investment assets 

transferred to it by the private 

foundation. In a case where such 

transferred assets consistently produce a 

low annual return of income, the 

Internal Revenue Service will examine 

carefully whether the transferee is 

required by any such restriction or 

agreement to retain such assets. 

(E) Right of first refusal. An agreement 

is entered into in connection with the 

transfer of securities or other property 

which grants directly or indirectly to the 

transferor private foundation or any 

disqualified person with respect thereto 

a right of first refusal with respect to the 

transferred securities or other property 

when and if disposed of by the public 

charity, unless such securities or other 

property was acquired by the transferor 

private foundation subject to such right 

of first refusal prior to October 9, 1969. 

(F) Relationships. An agreement is 

entered into between the transferor 

private foundation and the transferee 

public charity which establishes 

irrevocable relationships with respect to 

the maintenance or management of 

assets transferred to the public charity, 

such as continuing relationships with 

banks, brokerage firms, investment 

counselors, or other advisors with 

regard to the investments or other 

property transferred to the public 

charity (other than a relationship with a 

trustee, custodian, or agent for a 

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community trust acting as such). The 

transfer of property to a public charity 

subject to contractual obligations which 

were established prior to November 11, 

1976, between the transferor private 

foundation and persons other than 

disqualified persons with respect to 

such foundation will not be treated as 

prohibited under the preceding 

sentence, but only if such contractual 

obligations were not entered into 

pursuant to a plan to terminate the 

private foundation status of the 

transferor under section 507(b)(1)(A) 

and if the continuation of such 

contractual obligations is in the best 

interests of the public charity. 

(G) Other conditions. Any other 

condition is imposed on action by the 

public charity which prevents it from 

exercising ultimate control over the 

assets received from the transferor 

private foundation for purposes 

consistent with its exempt purposes. 

(v) Examples. The provisions of this 

paragraph (a)(7) may be illustrated by 

the following examples: 

Example 1. The M Private Foundation 

transferred all of its net assets to the V Cancer 

Institute, a public charity described in 

section 170(b)(1)(A)(iii). Prior to the transfer, 

M’s activities consisted of making grants to 

hospitals and universities to further research 

into the causes of cancer. Under the terms of 

the transfer, V is required to keep M’s assets 

in a separate fund and use the income and 

principal to further cancer research. 

Although the assets may be used only for a 

limited purpose, this purpose is consistent 

with and in furtherance of V’s exempt 

purposes, and does not prevent the transfer 

from being a distribution for purposes of 

section 507(b)(1)(A). 

Example 2. The N Private Foundation 

transferred all of its net assets to W 

University, a public charity described in 

section 170(b)(1)(A)(ii). Under the terms of 

the transfer, W is required to use the income 

and principal to endow a chair at the 

university to be known as the ‘‘John J. Doe 

Memorial Professorship’’, named after N’s 

creator. Although the transferred assets are to 

be used for a specified purpose by W, this 

purpose is in furtherance of W’s exempt 

educational purposes, and there are no 

conditions on investment or reinvestment of 

the principal or income. The use of the name 

of the foundation’s creator for the chair is not 

a restriction which would prevent the 

transfer from being a distribution for 

purposes of section 507(b)(1)(A). 

Example 3. The O Private Foundation 

transferred all of its net assets to X Bank as 

trustee for the Q Community Trust, a 

community trust that is a public charity 

described in section 170(b)(1)(A)(vi). Under 

the terms of the transfer, X is to hold the 

assets in trust for Q and is directed to 

distribute the income annually to the Y 

Church, a public charity described in section 

170(b)(1)(A)(i). The distribution of income to 

Y Church is consistent with Q’s exempt 

purposes. If the trust created by this transfer 

otherwise meets the requirements of 

§ 1.170A–9T(f)(11) as a component part of the 

Q Community Trust, the assets transferred by 

O to X will be treated as distributed to one 

or more public charities within the meaning 

of section 507(b)(1)(A). The direction to 

distribute the income to Y Church meets the 

conditions of paragraph (a)(7)(iii)(B) of this 

section and will therefore not disqualify the 

transfer under section 507(b)(1)(A). 

Example 4. (i) The P Private Foundation 

transferred all of its net assets to Z Bank as 

trustee for the R Community Trust, a 

community trust that is a public charity 

described in section 170(b)(1)(A)(vi). Under 

the terms of the transfer, Z is to hold the 

assets in trust for R and distribute the income 

to those public charities described in section 

170(b)(1)(A)(i) through (vi) that are 

designated by B, the creator of P. R’s 

governing body has no authority during B’s 

lifetime to vary B’s direction. Under the 

terms of the transfer, it is intended that Z 

retain the transferred assets in their present 

form for a period of 20 years, or until the date 

of B’s death if it occurs before the expiration 

of such period. Upon the death of B, R will 

have the power to distribute the income to 

such public charities as it selects and may 

dispose of the corpus as it sees fit. 

(ii) Under paragraph (a)(7)(iv)(A) or (D) of 

this section, as a result of the restrictions 

imposed with respect to the transferred 

assets, there has been no distribution of all 

P’s net assets within the meaning of section 

507(b)(1)(A) at the time of the transfer. In 

addition, P has not transferred its net assets 

to a component part of R Community Trust, 

but rather to a separate trust described in 

§ 1.170A–9T(f)(12). 

(b) Operation as a public charity—(1) 

In general. Under section 507(b)(1)(B), 

an organization can terminate its private 

foundation status if the organization—

(i) Meets the requirements of section 

509(a)(1), (2) or (3) for a continuous 

period of 60 calendar months beginning 

with the first day of any taxable year 

that begins after December 31, 1969; 

(ii) In compliance with section 

507(b)(1)(B)(ii) and paragraph (b)(3) of 

this section, properly notifies the 

Internal Revenue Service, in such 

manner as may be provided by 

published guidance, publication, form 

or instructions, before the 

commencement of such 60-month 

period, that it is terminating its private 

foundation status; and 

(iii) Properly establishes immediately 

after the expiration of such 60-month 

period that such organization has 

complied with the requirements of 

section 509(a)(1), (2) or (3) during the 

60-month period, in the manner 

described in paragraph (b)(4) of this 

section. 

(2) Relationship of section 

507(b)(1)(B) to section 507(a), (c), and 

(g). Because section 507(a) does not 

apply to a termination described in 

section 507(b)(1)(B), a private 

foundation’s notification that it is 

commencing a termination pursuant to 

section 507(b)(1)(B) will not be treated 

as a notification described in section 

507(a) even if the private foundation 

does not successfully terminate its 

private foundation status pursuant to 

section 507(b)(1)(B). A private 

foundation that terminates its private 

foundation status under section 

507(b)(1)(B) does not incur tax under 

section 507(c) and, therefore, no 

abatement of such tax under section 

507(g) is required. 

(3) Notification of termination. In 

order to comply with the requirements 

under section 507(b)(1)(B)(ii), an 

organization shall before the 

commencement of the 60-month period 

under section 507(b)(1)(B)(i) notify the 

Internal Revenue Service, in such 

manner as may be provided by 

published guidance, publication, form 

or instructions, of its intention to 

terminate its private foundation status. 

Such notification shall contain the 

following information: 

(i) The name and address of the 

private foundation. 

(ii) Its intention to terminate its 

private foundation status. 

(iii) The Code section under which it 

seeks classification (section 509(a)(1), 

(2) or (3)). 

(iv) If section 509(a)(1) is applicable, 

the clause of section 170(b)(1)(A) 

involved. 

(v) The date its regular taxable year 

begins. 

(vi) The date of commencement of the 

60-month period. 

(4) Establishment of termination. In 

order to comply with the requirements 

under section 507(b)(1)(B)(iii), an 

organization shall within 90 days after 

the expiration of the 60-month period 

file such information with the Internal 

Revenue Service, in such manner as 

may be provided by published 

guidance, publication, form or 

instructions, as is necessary to make a 

determination as to the organization’s 

status as an organization described 

under section 509(a)(1), (2) or (3) and 

the accompanying regulations. See 

paragraph (c) of this section as to the 

information required to be submitted 

under this paragraph (b)(4). 

(5) Incomplete information. The 

failure to supply, within the required 

time, all of the information required by 

paragraph (b)(3) or (4) of this section is 

not alone sufficient to constitute a 

failure to satisfy the requirements of 

section 507(b)(1)(B). If the information 

that is submitted within the required 

time is incomplete and the organization 

supplies the necessary additional 

information at the request of the 

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52548 Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 

Commissioner within the additional 

time period allowed by him, the original 

submission will be considered timely. 

(6) Application of special rules and 

filing requirements. An organization 

that has terminated its private 

foundation status under section 

507(b)(1)(B) is not required to comply 

with the special rules set forth in 

section 508(a) and (b). Such 

organization is also not required to file 

a return under the provisions of section 

6043(b) or 6050 by reason of termination 

of its private foundation status under 

the provisions of section 507(b)(1)(B). 

(7) Extension of time to assess 

deficiencies. If a private foundation files 

a notification (defined in paragraph 

(b)(3) of this section) that it intends to 

begin a 60-month termination pursuant 

to section 507(b)(1)(B) and does not file 

a request for an advance ruling pursuant 

to paragraph (d) of this section, such 

private foundation may file with the 

notification described in paragraph 

(b)(3) of this section a consent under 

section 6501(c)(4) to the effect that the 

period of limitation upon assessment 

under section 4940 for any taxable year 

within the 60-month termination period 

shall not expire prior to one year after 

the date of expiration of the time 

prescribed by law for the assessment of 

a deficiency for the last taxable year 

within the 60-month period. Such 

consents, if filed, will ordinarily be 

accepted by the Commissioner. See 

paragraph (e)(3) of this section for an 

illustration of the procedure required to 

obtain a refund of the tax imposed by 

section 4940 in a case where such a 

consent is not in effect. 

(c) Sixty-month terminations—(1) 

Method of determining normal sources 

of support. (i) In order to meet the 

requirements of section 507(b)(1)(B) for 

the 60-month termination period as a 

section 509(a)(1) or (2) organization, an 

organization must meet the 

requirements of section 509(a)(1) or (2), 

as the case may be, for a continuous 

period of at least 60 calendar months. In 

determining whether an organization 

seeking status under section 509(a)(1) as 

an organization described in section 

170(b)(1)(A)(iv) or (vi) or under section 

509(a)(2) normally meets the 

requirements set forth under such 

sections, support received in taxable 

years prior to the commencement of the 

60-month period shall not be taken into 

consideration, except as otherwise 

provided in this section. 

(ii) For purposes of section 

507(b)(1)(B), an organization will be 

considered to be a section 509(a)(1) 

organization described in section 

170(b)(1)(A)(vi) for a continuous period 

of 60 calendar months only if the 

organization satisfies the provisions of 

§ 1.170A–9T(f), other than § 1.170A–

9T(f)(4)(v), based upon aggregate data 

for such entire period. The calculation 

of public support shall be made over the 

period beginning with the date of the 

commencement of the 60-month period, 

and ending with the last day of the 60- 

month period. 

(iii) For purposes of section 

507(b)(1)(B), an organization will be 

considered to be a section 509(a)(2) 

organization only if such organization 

meets the support requirements set forth 

in section 509(a)(2)(A) and (B) and the 

accompanying regulations, other than 

§ 1.509(a)–3T(d), for the continuous 

period of 60 calendar months prescribed 

under section 507(b)(1)(B). The 

calculation of public support shall be 

made over the period beginning with 

the date of the commencement of the 

60-month period, and ending with the 

last day of the 60-month period. 

(2) Organizational and operational 

tests. In order to meet the requirements 

of section 507(b)(1)(B) for the 60-month 

termination period as an organization 

described in section 170(b)(1)(A)(i), (ii), 

(iii), (iv), or (v) or section 509(a)(3), as 

the case may be, an organization must 

meet the requirements of the applicable 

provisions for a continuous period of at 

least 60 calendar months. For purposes 

of section 507(b)(1)(B), an organization 

will be considered to be such an 

organization only if it satisfies the 

requirements of the applicable provision 

(including with respect to section 

509(a)(3), the organizational and 

operational test set forth in 

subparagraph (A) thereof) at the 

commencement of such 60-month 

period and continuously thereafter 

during such period. 

(d) Advance rulings for 60-month 

terminations—(1) In general. An 

organization that files the notification 

required by section 507(b)(1)(B)(ii) that 

it is commencing a 60-month 

termination may obtain an advance 

ruling from the Commissioner that it 

can be expected to satisfy the 

requirements of section 507(b)(1)(B)(i) 

during the 60-month period. Such an 

advance ruling may be issued if the 

organization can reasonably be expected 

to meet the requirements of section 

507(b)(1)(B)(i) during the 60-month 

period. The issuance of a ruling will be 

discretionary with the Commissioner. 

(2) Basic consideration. In 

determining whether an organization 

can reasonably be expected (within the 

meaning of paragraph (d)(1) of this 

section) to meet the requirements of 

section 507(b)(1)(B)(i) for the 60-month 

period, the basic consideration is 

whether its organizational structure 

(taking into account any revisions made 

prior to the beginning of the 60-month 

period), current or proposed programs 

or activities, actual or intended method 

of operation, and current or projected 

sources of support are such as to 

indicate that the organization is likely to 

satisfy the requirements of section 

509(a)(1), (2), or (3) and paragraph (d) of 

this section during the 60-month period. 

In making such a determination, all 

pertinent facts and circumstances shall 

be considered. 

(3) Reliance by grantors and 

contributors. For purposes of sections 

170, 545(b)(2), 642(c), 4942, 4945, 2055, 

2106(a)(2), and 2522, grants or 

contributions to an organization which 

has obtained a ruling referred to in this 

paragraph will be treated as made to an 

organization described in section 

509(a)(1), (2), or (3), as the case may be, 

until the Internal Revenue Service 

publishes notice that such advance 

ruling is being revoked (such as by 

publication in the Internal Revenue 

Bulletin). However, a grantor or 

contributor may not rely on such an 

advance ruling if the grantor or 

contributor was responsible for, or 

aware of, the act or failure to act that 

resulted in the organization’s failure to 

meet the requirements of section 

509(a)(1), (2), or (3), or acquired 

knowledge that the Internal Revenue 

Service had given notice to such 

organization that its advance ruling 

would be revoked. Prior to the making 

of any grant or contribution which 

allegedly will not result in the grantee’s 

failure to meet the requirements of 

section 509(a)(1), (2), or (3), a potential 

grantee organization may request a 

ruling whether such grant or 

contribution may be made without such 

failure. A request for such ruling may be 

filed by the grantee organization with 

the Internal Revenue Service. The 

issuance of such ruling will be at the 

sole discretion of the Commissioner. 

The organization must submit all 

information necessary to make a 

determination on the factors referred to 

in paragraph (d)(2) of this section. If a 

favorable ruling is issued, such ruling 

may be relied upon by the grantor or 

contributor of the particular 

contribution in question for purposes of 

sections 170, 507, 545(b)(2), 642(c), 

4942, 4945, 2055, 2106(a)(2), and 2522. 

(4) Reliance by organization. An 

organization obtaining an advance 

ruling pursuant to this paragraph cannot 

rely on such a ruling. Consequently, if 

the organization does not pay the tax 

imposed by section 4940 for any taxable 

year or years during the 60-month 

period, and it is subsequently 

determined that such tax is due for such 

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Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 52549 

year or years (because the organization 

did not in fact complete a successful 

termination pursuant to section 

507(b)(1)(B) and was not treated as an 

organization described in section 

509(a)(1), (2), or (3) for such year or 

years), the organization is liable for 

interest in accordance with section 6601 

if any amount of tax under section 4940 

has not been paid on or before the last 

date prescribed for payment. However, 

because any failure to pay such tax 

during the 60-month period (or prior to 

the revocation of such ruling) is due to 

reasonable cause, the penalty under 

section 6651 with respect to the tax 

imposed by section 4940 shall not 

apply. 

(5) Extension of time to assess 

deficiencies. The advance ruling 

described in paragraph (d)(1) of this 

section shall be issued only if such 

organization’s request for an advance 

ruling is filed with a consent under 

section 6501(c)(4) to the effect that the 

period of limitation upon assessment 

under section 4940 for any taxable year 

within the advance ruling period shall 

not expire prior to 1 year after the date 

of the expiration of the time prescribed 

by law for the assessment of a 

deficiency for the last taxable year 

within the 60-month period. 

(e) Effect on grantors or contributors 

and on the organization itself—(1) Effect 

of satisfaction of requirements for 

termination; treatment during the 

termination period. In the event that an 

organization satisfies the requirements 

of section 507(b)(1)(B) for termination of 

its private foundation status during the 

continuous 60-month period, such 

organization shall be treated for such 

entire 60-month period in the same 

manner as an organization described in 

section 509(a)(1), (2) or (3), as the case 

may be. 

(2) Failure to meet termination 

requirements—(i) In general. Except as 

otherwise provided in paragraphs 

(e)(2)(ii) and (d) of this section, any 

organization that fails to satisfy the 

requirements of section 507(b)(1)(B) for 

termination of its private foundation 

status during the continuous 60-month 

period shall be treated as a private 

foundation for the entire 60-month 

period, for purposes of sections 507 

through 509 and chapter 42, and grants 

or contributions to such an organization 

shall be treated as made to a private 

foundation for purposes of sections 170, 

507(b)(1)(A), 4942, and 4945. 

(ii) Certain 60-month terminations. 

Notwithstanding paragraph (e)(2)(i) of 

this section, if an organization fails to 

satisfy the requirements of section 

509(a)(1), (2) or (3) for the continuous 

60-month period but does satisfy the 

requirements of section 509(a)(1), (2) or 

(3), as the case may be, for any taxable 

year or years during such 60-month 

period, the organization shall be treated 

as a section 509(a)(1), (2) or (3) 

organization for such taxable year or 

years and grants or contributions made 

during such taxable year or years shall 

be treated as made to an organization 

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

In addition, sections 507 through 509 

and chapter 42 shall not apply to such 

organization for any taxable year within 

such 60-month period for which it does 

meet such requirements. For purposes 

of determining whether an organization 

satisfies the requirements of section 

509(a)(1), (2) or (3) for any taxable year 

in the 60-month period, the calculation 

of public support shall be made over the 

period beginning with the date of the 

commencement of the 60-month period, 

and ending with the last day of the 

taxable year being tested. The 

organization shall not be treated as a 

section 509(a)(1) or (2) organization for 

any taxable year during the 60-month 

period solely by reason of having met a 

public support test for the preceding 

year. In addition, the transition rules in 

§ 1.170–9T(f)(14)(iii) and § 1.509(a)–

3T(n)(iii) shall not apply. 

(iii) Aggregate tax benefit. For 

purposes of section 507(d), the 

organization’s aggregate tax benefit 

resulting from the organization’s section 

501(c)(3) status shall continue to be 

computed from the date from which 

such computation would have been 

made, but for the notice filed under 

section 507(b)(1)(B)(ii), except that any 

taxable year within such 60-month 

period for which such organization 

meets the requirements of section 

509(a)(1), (2), or (3) shall be excluded 

from such computations. 

(iv) Excess business holdings. See 

section 4943 and the accompanying 

regulations for rules relating to 

decreases in a private foundation’s 

holdings in a business enterprise which 

are caused by the foundation’s failure to 

terminate its private foundation status 

after giving the notification for 

termination under section 

507(b)(1)(B)(ii). 

(3) Example. The provisions of this 

paragraph (e) may be illustrated by the 

following example: 

Example. Y, a calendar year private 

foundation, notifies the Internal Revenue 

Service that it intends to terminate its private 

foundation status by converting into a 

publicly supported organization described in 

section 170(b)(1)(A)(vi) and that its 60-month 

termination period will commence on 

January 1, 2010. Y does not obtain a ruling 

described in paragraph (d) of this section. 

Based upon its support for 2010, Y does not 

qualify as a publicly supported organization 

within the meaning of § 1.170A–9T(f) and 

this paragraph for 2010. Consequently, in 

order to avoid the risks of penalties and 

interest if Y fails to terminate within the 60- 

month period, Y files its 2010 return as a 

private foundation and pays the tax imposed 

by section 4940. Because a consent 

(described in paragraph (b)(7) of this section), 

which would prevent the period of 

limitations for all years in the 60-month 

period from expiring, is not in effect, in order 

to be able to file a claim for refund, Y and 

the Internal Revenue Service must agree to 

extend the period of limitation for all taxes 

imposed under chapter 42 for 2010. Based on 

the aggregate data for the entire 60-month 

period (2010 through 2014), Y does qualify 

as a publicly-supported organization for the 

entire 60-month period. Consequently, Y is 

treated as a publicly-supported organization 

for the entire 60-month period. Y files a 

claim for refund for the taxes paid under 

section 4940 for 2010, and such taxes are 

refunded. 

(f) Effective/applicability date—(1) 

Effective date. These regulations are 

effective on September 9, 2008. 

(2) Applicability date. The regulations 

in this section shall apply to taxable 

years beginning on or after January 1, 

2008. 

(3) Expiration date. The applicability 

of this section expires on September 8, 

2011. 

■ Par. 6. Section 1.509(a)–3 is amended 

by adding new paragraph (n) to read as 

follows: 

§ 1.509(a)–3 Broadly, publicly supported 

organizations. 

* * * * * 

(n) Effective/applicability date. This 

section shall apply to taxable years 

beginning after December 31, 1969. The 

applicability of paragraphs (a)(2), 

(a)(3)(i), (c), (d), (e) and (k) of this 

section shall be limited to taxable years 

beginning before January 1, 2008. 

■ Par. 7. Section 1.509(a)–3T is added 

to read as follows: 

§ 1.509(a)–3T Broadly, publicly supported 

organizations (temporary). 

(a)(1) [Reserved]. For further guidance 

see § 1.509(a)–3(a)(1). 

(2) One-third support test. An 

organization will meet the one-third 

support test if it normally (within the 

meaning of paragraph (c) or (d) of this 

section) receives more than one-third of 

its support in each taxable year from 

any combination of—

(i) Gifts, grants, contributions, or 

membership fees; and 

(ii) Gross receipts from admissions, 

sales of merchandise, performance of 

services, or furnishing of facilities, in an 

activity that is not an unrelated trade or 

business (within the meaning of section 

513), subject to certain limitations 

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52550 Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 

described in paragraph (b) of this 

section, from permitted sources. For 

purposes of this section, governmental 

units, organizations described in section 

509(a)(1) and persons other than 

disqualified persons with respect to the 

organization shall be referred to as 

permitted sources. For purposes of this 

section, the amount of support received 

from the sources described in paragraph 

(a)(2)(i) of this section and this 

paragraph (a)(2)(ii) (subject to the 

limitations referred to in this paragraph 

(a)(2)) will be referred to as the 

numerator of the one-third support 

fraction, and the total amount of support 

received (as defined in section 509(d)) 

will be referred to as the denominator of 

the one-third support fraction. For 

purposes of section 509(a)(2), 

§ 1.509(a)–3(f) distinguishes gifts and 

contributions from gross receipts; 

§ 1.509(a)–3(g) distinguishes grants from 

gross receipts; § 1.509(a)–3(h) defines 

membership fees; § 1.509(a)–3(i) defines 

‘‘any bureau or similar agency of a 

governmental unit’’; § 1.509(a)–3(j) 

describes the treatment of certain 

indirect forms of support; paragraph (k) 

of this section describes the method of 

accounting for support; § 1.509(a)–3(l) 

describes the treatment of gross receipts 

from section 513(a)(1), (2), or (3) 

activities; and § 1.509(a)–3(m) 

distinguishes gross receipts from gross 

investment income. 

(3) Not-more-than-one-third support 

test—(i) In general. An organization will 

meet the not-more-than-one-third 

support test under section 509(a)(2)(B) if 

it normally (within the meaning of 

paragraph (c) or (d) of this section) 

receives not more than one-third of its 

support in each taxable year from the 

sum of its gross investment income (as 

defined in section 509(e)) and the excess 

(if any) of the amount of its unrelated 

business taxable income (as defined in 

section 512) derived from trades or 

businesses that were acquired by the 

organization after June 30, 1975, over 

the amount of tax imposed on such 

income by section 511. For purposes of 

this section the amount of support 

received from items described in section 

509(a)(2)(B) will be referred to as the 

numerator of the not-more-than-onethird support fraction, and the total 

amount of support (as defined in section 

509(d)) will be referred to as the 

denominator of the not-more-than-onethird support fraction. For purposes of 

section 509(a)(2), paragraph (m) of this 

section distinguishes gross receipts from 

gross investment income. For purposes 

of section 509(e), gross investment 

income includes the items of investment 

income described in § 1.512(b)–1(a). 

(a)(3)(ii) through (b) [Reserved]. For 

further guidance, see § 1.509(a)–

3(a)(3)(ii) through (b). 

(c) Normally—(1) In general—(i) 

Definition. The support tests set forth in 

section 509(a)(2) are to be computed on 

the basis of the nature of the 

organization’s normal sources of 

support. An organization will be 

considered as normally receiving one 

third of its support from any 

combination of gifts, grants, 

contributions, membership fees, and 

gross receipts from permitted sources 

(subject to the limitations described in 

§ 1.509(a)–3(b)) and not more than one 

third of its support from items described 

in section 509(a)(2)(B) for its current 

taxable year and the taxable year 

immediately succeeding its current year, 

if, for the current taxable year and the 

four taxable years immediately 

preceding the current taxable year, the 

aggregate amount of the support 

received during the applicable period 

from gifts, grants, contributions, 

membership fees, and gross receipts 

from permitted sources (subject to the 

limitations described in § 1.509(a)–3(b)) 

is more than one third, and the 

aggregate amount of the support 

received from items described in section 

509(a)(2)(B) is not more than one third, 

of the total support of the organization 

for such 5-year period. 

(ii) First five years of an 

organization’s existence. See paragraph 

(d)(1) of this section for the definition of 

‘‘normally’’ for organizations in the first 

five years of their existence. 

(2) Terminations under section 

507(b)(1)(B). For the special rules 

applicable to the term normally as 

applied to private foundations that elect 

to terminate their private foundation 

status pursuant to the 60-month 

procedure provided in section 

507(b)(1)(B), see the regulations under 

such section. 

(3) Exclusion of unusual grants. For 

purposes of applying the 5-year 

aggregation test for support set forth in 

paragraph (c)(1) of this section, one or 

more contributions may be excluded 

from the numerator of the one-third 

support fraction and from the 

denominator of both the one-third 

support and not-more-than-one-third 

support fractions only if such a 

contribution meets the requirements of 

this paragraph (c)(3). The exclusion 

provided by this paragraph (c)(3) is 

generally intended to apply to 

substantial contributions and bequests 

from disinterested parties, which 

contributions or bequests—

(i) Are attracted by reason of the 

publicly supported nature of the 

organization; 

(ii) Are unusual or unexpected with 

respect to the amount thereof; and 

(iii) Would by reason of their size, 

adversely affect the status of the 

organization as normally meeting the 

one-third support test for any of the 

applicable periods described in this 

paragraph (c) or paragraph (d) of this 

section. In the case of a grant (as defined 

in § 1.509(a)–3(g)) that meets the 

requirements of this paragraph (c)(3), if 

the terms of the granting instrument 

(whether executed before or after 1969) 

require that the funds be paid to the 

recipient organization over a period of 

years, the amount received by the 

organization each year pursuant to the 

terms of such grant may be excluded for 

such year. However, no item described 

in section 509(a)(2)(B) may be excluded 

under this paragraph (c)(3). The 

provisions of this paragraph (c)(3) shall 

apply to exclude unusual grants made 

during any of the applicable periods 

described in this paragraph (c) or 

paragraph (d) of this section. See 

paragraph (c)(5)(ii) of this section as to 

reliance by a grantee organization upon 

an unusual grant ruling under this 

paragraph (c)(3). 

(4) Determining factors. In 

determining whether a particular 

contribution may be excluded under 

paragraph (c)(3) of this section, all 

pertinent facts and circumstances will 

be taken into consideration. No single 

factor will necessarily be determinative. 

Among the factors to be considered 

are—

(i) Whether the contribution was 

made by any person (or persons 

standing in a relationship to such 

person which is described in section 

4946(a)(1)(C) through (G)) who created 

the organization, previously contributed 

a substantial part of its support or 

endowment, or stood in a position of 

authority, such as a foundation manager 

(within the meaning of section 4946(b)), 

with respect to the organization. A 

contribution made by a person other 

than those persons described in this 

paragraph (c)(4)(i) will ordinarily be 

given more favorable consideration than 

a contribution made by a person 

described in this paragraph (c)(4)(i); 

(ii) Whether the contribution was a 

bequest or an inter vivos transfer. A 

bequest will ordinarily be given more 

favorable consideration than an inter 

vivos transfer; 

(iii) Whether the contribution was in 

the form of cash, readily marketable 

securities, or assets which further the 

exempt purposes of the organization, 

such as a gift of a painting to a museum; 

(iv) Except in the case of a new 

organization, whether, prior to the 

receipt of the particular contribution, 

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the organization has carried on an actual 

program of public solicitation and 

exempt activities and has been able to 

attract a significant amount of public 

support; 

(v) Whether the organization may 

reasonably be expected to attract a 

significant amount of public support 

subsequent to the particular 

contribution. In this connection, 

continued reliance on unusual grants to 

fund an organization’s current operating 

expenses (as opposed to providing new 

endowment funds) may be evidence that 

the organization cannot reasonably be 

expected to attract future support from 

the general public; 

(vi) Whether, prior to the year in 

which the particular contribution was 

received, the organization met the onethird support test described in 

paragraph (c)(1) of this section without 

the benefit of any exclusions of unusual 

grants pursuant to paragraph (c)(3) of 

this section; 

(vii) Whether neither the contributor 

nor any person standing in a 

relationship to such contributor which 

is described in section 4946(a)(1)(C) 

through (G) continues directly or 

indirectly to exercise control over the 

organization; 

(viii) Whether the organization has a 

representative governing body as 

described in § 1.509(a)–3(d)(3)(i); and 

(ix) Whether material restrictions or 

conditions (within the meaning of 

§ 1.507–2T(a)(7)) have been imposed by 

the transferor upon the transferee in 

connection with such transfer. 

(5) Grantors and contributors. Prior to 

the making of any grant or contribution 

expected to meet the requirements for 

exclusion under paragraph (c)(3) of this 

section, a potential grantee organization 

may request a ruling whether such grant 

or contribution may be so excluded. 

Requests for such ruling may be filed by 

the grantee organization. The issuance 

of such determination will be at the sole 

discretion of the Commissioner. The 

organization must submit all 

information necessary to make a 

determination of the applicability of 

paragraph (c)(3) of this section, 

including all information relating to the 

factors described in paragraph (c)(4) of 

this section. If a favorable ruling is 

issued, such ruling may be relied upon 

by the grantor or contributor of the 

particular contribution in question for 

purposes of sections 170, 507, 545(b)(2), 

642(c), 4942, 4945, 2055, 2106(a)(2), and 

2522 and by the grantee organization for 

purposes of paragraph (c)(3) of this 

section. 

(6) Examples. The application of the 

principles set forth in this paragraph are 

illustrated by the examples as follows. 

For purposes of these examples, the 

term general public is defined as 

persons other than disqualified persons 

and other than persons from whom the 

foundation received gross receipts in 

excess of the greater of $5,000 or 1 

percent of its support in any taxable 

year, the term gross investment income 

is as defined in section 509(e), and the 

term gross receipts is limited to receipts 

from activities which are not unrelated 

trades or businesses (within the 

meaning of section 513). 

Example 1. (i) For the years 2008 through 

2012, X, an organization exempt under 

section 501(c)(3) that makes scholarship 

grants to needy students of a particular city, 

received support from the following sources: 

2008: 

Gross receipts (general public) ....................................... $35,000 

Contributions (substantial 

contributors) ....................... 36,000 

Gross investment income ...... 29,000 

Total support ...................... 100,000 

2009: 

Gross receipts (general public) ....................................... 34,000 

Contributions (substantial 

contributors) ....................... 35,000 

Gross investment income ...... 31,000 

Total support ...................... 100,000 

2010: 

Gross receipts (general public) ....................................... 35,000 

Contributions (substantial 

contributors) ....................... 30,000 

Gross investment income ...... 35,000 

Total support ...................... 100,000 

2011: 

Gross receipts (general public) ....................................... 33,000 

Contributions (substantial 

contributors) ....................... 32,000 

Gross investment income ...... 35,000 

Total support ...................... 100,000 

2012: 

Gross receipts (general public) ....................................... 31,000 

Contributions (substantial 

contributors) ....................... 39,000 

Gross investment income ...... 30,000 

Total support ...................... $100,000 

(ii) In applying section 509(a)(2) to the 

taxable year 2012, on the basis of paragraph 

(c)(1)(i) of this section, the total amount of 

support from gross receipts from the general 

public ($168,000) for the period 2008 through 

2012, was more than one third, and the total 

amount of support from gross investment 

income ($160,000) was less than one third, of 

X’s total support for the same period 

($500,000). For the taxable years 2012 and 

2013, X is therefore considered normally to 

receive more than one third of its support 

from the public sources described in section 

509(a)(2)(A) and less than one third of its 

support from items described in section 

509(a)(2)(B). The fact that X received less 

than one third of its support from section 

509(a)(2)(A) sources in 2012 and more than 

one third of its support from items described 

in section 509(a)(2)(B) in 2011 does not affect 

its status because it met the normally test 

over a 5-year period. 

Example 2. Assume the same facts as in 

Example 1 except that in 2012, X also 

received an unexpected bequest of $50,000 

from A, an elderly widow who was interested 

in encouraging the work of X, but had no 

other relationship to it. Solely by reason of 

the bequest, A became a disqualified person. 

X used the bequest to create 5 new 

scholarships. Its operations otherwise 

remained the same. Under these 

circumstances X could not meet the 5-year 

support test because the total amount 

received from gross receipts from the general 

public ($168,000) would not be more than 

one-third of its total support for the 5-year 

period ($550,000). Because A is a 

disqualified person, her bequest cannot be 

included in the numerator of the one-third 

support test under section 509(a)(2)(A). 

However, based on the factors set forth in 

paragraph (c)(4) of this section, A’s bequest 

may be excluded as an unusual grant under 

paragraph (c)(3) of this section. Therefore, X 

will be considered to have met the support 

test for the taxable years 2012 and 2013. 

Example 3. Y, an organization described in 

section 501(c)(3), was created by A, the 

holder of all the common stock in M 

corporation, B, A’s wife, and C, A’s business 

associate. The purpose of Y was to sponsor 

and equip athletic teams for underprivileged 

children in the community. Each of the three 

creators makes small cash contributions to Y. 

A, B, and C have been active participants in 

the affairs of Y since its creation. Y regularly 

raises small amounts of contributions 

through fundraising drives and selling 

admission to some of the sponsored sporting 

events. The operations of Y are carried out 

on a small scale, usually being restricted to 

the sponsorship of two to four baseball teams 

of underprivileged children. In 2009, M 

recapitalizes and creates a first and second 

class of 6 percent nonvoting preferred stock, 

most of which is held by A and B. In 2010, 

A contributes 49 percent of his common 

stock in M to Y. A’s contribution of M’s 

common stock was substantial and 

constitutes 90 percent of Y’s total support for 

2010. A combination of the facts and 

circumstances described in paragraph (c)(4) 

of this section preclude A’s contribution of 

M’s common stock in 2010 from being 

excluded as an unusual grant under 

paragraph (c)(3) of this section for purposes 

of determining whether Y meets the onethird support test under section 509(a)(2). 

Example 4. (i) M is organized in 2009 to 

promote the appreciation of ballet in a 

particular region of the United States. Its 

principal activities consist of erecting a 

theater for the performance of ballet and the 

organization and operation of a ballet 

company. M receives a determination letter 

that it is an organization described in section 

501(c)(3) and that it is a public charity 

described in section 509(a)(2). The governing 

body of M consists of 9 prominent unrelated 

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citizens residing in the region who have 

either an expertise in ballet or a strong 

interest in encouraging appreciation of the art 

form. 

(ii) In 2010, Z, a private foundation, 

proposes to makes a grant of $500,000 in cash 

to M to provide sufficient capital for M to 

commence its activities. Although A, the 

creator of Z, is one of the nine members of 

M’s governing body, was one of M’s original 

founders, and continues to lend his prestige 

to M’s activities and fund raising efforts, A 

does not, directly or indirectly, exercise any 

control over M. M also receives a significant 

amount of support from a number of smaller 

contributions and pledges from other 

members of the general public. M charges 

admission to the ballet performances to the 

general public. 

(iii) Although the support received in 2010 

will not impact M’s status as a public charity 

for its first 5 taxable years, it will be relevant 

to the determination of whether M meets the 

one-third support test under section 509(a)(2) 

for the 2014 taxable year, using the 

computation period 2010 through 2014. 

Within the appropriate timeframe, M may 

submit a request for a private letter ruling 

that the $500,000 contribution from Z 

qualifies as an unusual grant. 

(iv) Under the above circumstances, even 

though A was a founder and member of the 

governing body of M, M may exclude Z’s 

contribution of $500,000 in 2010 as an 

unusual grant under paragraph (c)(3) of this 

section for purposes of determining whether 

M meets the one-third support test under 

section 509(a)(2) for 2014. 

Example 5. (i) Assume the same facts as 

Example 4. In 2013, B, a widow, passes away 

and bequeaths $4 million to M. During 2009 

through 2013, B made small contributions to 

M, none exceeding $10,000 in any year. 

During 2009 through 2013, M received 

approximately $550,000 from receipts for 

admissions and contributions from the 

general public. At the time of B’s death, no 

person standing in a relationship to B 

described in section 4946(a)(1)(C) through (G) 

was a member of M’s governing body. B’s 

bequest was in the form of cash and readily 

marketable securities. The only condition 

placed upon the bequest was that it be used 

by M to advance the art of ballet. 

(ii) Although the support received in 2013 

will not impact M’s status as a public charity 

for its first five taxable years, it will be 

relevant to the determination of whether M 

meets the one-third support test under 

section 509(a)(2) for future years. Within the 

appropriate timeframe, M may submit a 

request for a private letter ruling that the $4 

million bequest from B qualifies as an 

unusual grant. 

(iii) Under the above circumstances, M 

may exclude B’s bequest of $4 million in 

2013 as an unusual grant under paragraph 

(c)(3) of this section for purposes of 

determining whether M meets the one-third 

support test under section 509(a)(2) for 2014 

and subsequent years. 

Example 6. (i) N is a research organization 

that was created by A in 2009 for the purpose 

of carrying on economic studies primarily 

through persons receiving grants from N and 

engaging in the sale of economic 

publications. N received a determination 

letter that it is described in section 501(c)(3) 

and that it is a public charity described in 

509(a)(2). N’s five-member governing body 

consists of A, A’s sons, B and C, and two 

unrelated economists. In 2009, A made a 

contribution to N of $100,000 to help 

establish the organization. During 2009 

through 2013, A made annual contributions 

to N averaging $20,000 a year. During the 

same period, N received annual contributions 

from members of the general public averaging 

$15,000 per year and receipts from the sale 

of its publications averaging $50,000 per 

year. In 2013, B made an inter vivos 

contribution to N of $600,000 in cash and 

readily marketable securities. 

(ii) Although the support received in 2013 

will not impact N’s status as a public charity 

for its first 5 taxable years, it will be relevant 

to the determination of whether N meets the 

one-third support test under section 509(a)(2) 

for future years. In determining whether B’s 

contribution of $600,000 in 2013 may be 

excluded as an unusual grant, the support N 

received in 2009 through 2013 is relevant in 

considering the factor described in paragraph 

(c)(4)(vi) of this section, notwithstanding that 

N received a determination letter that it is 

described in section 509(a)(2). 

(iii) Based on the application of the factors 

in paragraphs (c)(4)(i) through (ix) of this 

section to N’s circumstances, in particular 

the facts that B is a disqualified person 

described in section 4946(a)(1)(D) and N does 

not have a representative governing body as 

described in paragraphs (c)(4)(viii) and 

(d)(3)(i) of this section, N cannot exclude B’s 

contribution of $600,000 in 2013 as an 

unusual grant under paragraph (c)(3) of this 

section for purposes of determining whether 

N meets the one-third support test under 

section 509(a)(2) for 2014 and future years. 

Example 7. (i) O is an educational 

organization created in 2009. O received a 

determination letter that it is described in 

section 501(c)(3) and that it is a public 

charity described in section 509(a)(2). The 

governing body of O has 9 members, 

consisting of A, a prominent civic leader and 

8 other unrelated civic leaders and educators 

in the community, all of whom participated 

in the creation of O. During 2009 through 

2013, the principal source of income for O 

has been receipts from the sale of its 

educational periodicals. These sales have 

amounted to $200,000 for this period. Small 

contributions amounting to $50,000 have also 

been received during the same period from 

members of the governing body, including A, 

as well as other members of the general 

public. 

(ii) In 2013, A contributed $750,000 of the 

nonvoting stock of S, a closely held 

corporation, to O. A retained a substantial 

portion of the voting stock of S. By a majority 

vote, the governing body of O decided to 

retain the S stock for a period of at least 5 

years. 

(iii) Although the support received in 2013 

will not impact O’s status as a public charity 

for its first 5 taxable years, it will be relevant 

to the determination of whether O meets the 

one-third support test under section 509(a)(2) 

for future years. In determining whether A’s 

contribution of the S stock in 2013 may be 

excluded as an unusual grant, the support O 

received in 2009 through 2013 is relevant in 

considering the factor described in paragraph 

(c)(4)(vi) of this section, notwithstanding that 

O received a determination letter that it is 

described in section 509(a)(2). 

(iv) Based on the application of the factors 

in paragraphs (c)(4)(i) through (ix) of this 

section to O’s circumstances, in particular 

the facts that A is a foundation manager 

within the meaning of section 4946(b) and 

A’s contribution is in the form of closely held 

stock, O cannot exclude A’s contribution of 

the S stock in 2013 as an unusual grant under 

paragraph (c)(3) of this section for purposes 

of determining whether O meets the onethird support test under section 509(a)(2) for 

2014 and future years. 

(d) Definition of normally—first five 

years of an organization’s existence—(1) 

In general. An organization meets the 

one-third support test and the not-morethan-one-third support test during its 

first five taxable years as a section 

501(c)(3) organization if the 

organization can reasonably be expected 

to meet the requirements of the onethird support test and the not-morethan-one-third support test during that 

period. With respect to such 

organization’s sixth taxable year, the 

organization shall be described in 

section 509(a)(2) if it meets the onethird support test and the not-morethan-one-third support test under the 

definition of normally set forth in 

paragraph (c)(1)(i) of this section for its 

sixth taxable year (based on support 

received in its second through sixth 

taxable years), or for its fifth taxable 

year (based on support received in its 

first through fifth taxable years). 

(2) Basic consideration. In 

determining whether an organization 

can reasonably be expected (within the 

meaning of paragraph (c)(1)(i) of this 

section) to meet the one-third support 

test under section 509(a)(2)(A) and the 

not-more-than-one-third support test 

under section 509(a)(2)(B) described in 

paragraph (c) of this section during its 

first 5 taxable years, the basic 

consideration is whether its 

organizational structure, current or 

proposed programs or activities, and 

actual or intended method of operation 

are such as to attract the type of broadly 

based support from the general public, 

public charities, and governmental units 

that is necessary to meet such tests. The 

factors that are relevant to this 

determination, and the weight accorded 

to each of them, may differ from case to 

case, depending on the nature and 

functions of the organization. An 

organization cannot reasonably be 

expected to meet the one-third support 

test and the not-more-than-one-third 

support test where the facts indicate 

that an organization is likely during its 

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first five taxable years to receive less 

than one-third of its support from 

permitted sources (subject to the 

limitations of paragraph (b) of this 

section) or to receive more than onethird of its support from items described 

in section 509(a)(2)(B). 

(3) Factors taken into account. All 

pertinent facts and circumstances shall 

be taken into account under paragraph 

(d)(2) of this section in determining 

whether the organizational structure, 

programs or activities, and method of 

operation of an organization are such as 

to enable it to meet the tests under 

section 509(a)(2) during its first five 

taxable years. Some of the pertinent 

factors are: 

(i) Whether the organization has or 

will have a governing body which is 

comprised of public officials, or 

individuals chosen by public officials 

acting in their capacity as such, of 

persons having special knowledge in the 

particular field or discipline in which 

the organization is operating, of 

community leaders, such as elected 

officials, clergymen, and educators, or, 

in the case of a membership 

organization, of individuals elected 

pursuant to the organization’s governing 

instrument or bylaws by a broadly based 

membership. This characteristic does 

not exist if the membership of the 

organization’s governing body is such as 

to indicate that it represents the 

personal or private interests of 

disqualified persons, rather than the 

interests of the community or the 

general public. 

(ii) Whether a substantial portion of 

the organization’s initial funding is to be 

provided by the general public, by 

public charities, or by government 

grants, rather than by a limited number 

of grantors or contributors who are 

disqualified persons with respect to the 

organization. The fact that the 

organization plans to limit its activities 

to a particular community or region or 

to a special field which can be expected 

to appeal to a limited number of persons 

will be taken into consideration in 

determining whether those persons 

providing the initial support for the 

organization are representative of the 

general public. On the other hand, the 

subsequent sources of funding which 

the organization can reasonably expect 

to receive after it has become 

established and fully operational will 

also be taken into account. 

(iii) Whether a substantial proportion 

of the organization’s initial funds are 

placed, or will remain, in an 

endowment, and whether the 

investment of such funds is unlikely to 

result in more than one-third of its total 

support being received from items 

described in section 509(a)(2)(B). 

(iv) In the case of an organization that 

carries on fundraising activities, 

whether the organization has developed 

a concrete plan for solicitation of funds 

from the general public on a community 

or area-wide basis; whether any steps 

have been taken to implement such 

plan; whether any firm commitments of 

financial or other support have been 

made to the organization by civic, 

religious, charitable, or similar groups 

within the community; and whether the 

organization has made any 

commitments to, or established any 

working relationships with, those 

organizations or classes of persons 

intended as the future recipients of its 

funds. 

(v) In the case of an organization that 

carries on community services, such as 

combating community deterioration in 

an economically depressed area that has 

suffered a major loss of population and 

jobs, whether the organization has a 

concrete program to carry out its work 

in the community; whether any steps 

have been taken to implement that 

program; whether it will receive any 

part of its funds from a public charity 

or governmental agency to which it is in 

some way held accountable as a 

condition of the grant or contribution; 

and whether it has enlisted the 

sponsorship or support of other civic or 

community leaders involved in 

community service programs similar to 

those of the organization. 

(vi) In the case of an organization that 

carries on educational or other exempt 

activities for, or on behalf of, members, 

whether the solicitation for dues-paying 

members is designed to enroll a 

substantial number of persons in the 

community, area, profession, or field of 

special interest (depending on the size 

of the area and the nature of the 

organization’s activities); whether 

membership dues for individual (rather 

than institutional) members have been 

fixed at rates designed to make 

membership available to a broad crosssection of the public rather than to 

restrict membership to a limited number 

of persons; and whether the activities of 

the organization will be likely to appeal 

to persons having some broad common 

interest or purpose, such as educational 

activities in the case of alumni 

associations, musical activities in the 

case of symphony societies, or civic 

affairs in the case of parent-teacher 

associations. 

(vii) In the case of an organization that 

provides goods, services, or facilities, 

whether the organization is or will be 

required to make its services, facilities, 

performances, or products available 

(regardless of whether a fee is charged) 

to the general public, public charities, or 

governmental units, rather than to a 

limited number of persons or 

organizations; whether the organization 

will avoid executing contracts to 

perform services for a limited number of 

firms or governmental agencies or 

bureaus; and whether the service to be 

provided is one which can be expected 

to meet a special or general need among 

a substantial portion of the general 

public. 

(4) Example. The application of this 

paragraph (d) may be illustrated by the 

following example: 

Example. (i) Organization X was formed in 

January 2008 and uses a December 31 taxable 

year. After September 9, 2008, and before 

December 31, 2008, Organization X filed 

Form 1023 requesting recognition of 

exemption as an organization described in 

section 501(c)(3) and in section 509(a)(2). In 

its application, Organization X established 

that it can reasonably be expected to operate 

as a public charity under this paragraph (d). 

Subsequently, Organization X received a 

ruling or determination letter that it is an 

organization described in sections 501(c)(3) 

and 509(a)(2) effective as of the date of its 

formation. 

(ii) Organization X is described in section 

509(a)(2) for its first 5 taxable years (for the 

taxable years ending December 31, 2008, 

through December 31, 2012). 

(iii) Organization X can qualify as a public 

charity beginning with the taxable year 

ending December 31, 2013, if Organization X 

can meet the requirements of § 1.170A–

9T(f)(4)(i) through (iii) or paragraphs (a) 

through (b) of this section for the taxable 

years ending December 31, 2009, through 

December 31, 2013, or for the taxable years 

ending December 31, 2008, through 

December 31, 2012. 

(e) Determinations on foundation 

classification and reliance. (1) A ruling 

or determination letter that an 

organization is described in section 

509(a)(2) may be issued to an 

organization. Such determination may 

be made in conjunction with the 

recognition of the organization’s taxexempt status or at such other time as 

the organization believes it is described 

in section 509(a)(2). The ruling or 

determination letter that the 

organization is described in section 

509(a)(2) may be revoked if, upon 

examination, the organization has not 

met the requirements of this section. 

The ruling or determination letter that 

the organization is described in section 

509(a)(2) also may be revoked if the 

organization’s application for a ruling or 

determination contained one or more 

material misstatements of fact or such 

application was part of a scheme or plan 

to avoid or evade any provision of the 

Internal Revenue Code. The revocation 

of the determination that an 

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organization is described in section 

509(a)(2) does not preclude revocation 

of the determination that the 

organization is described in section 

501(c)(3). 

(2) Status of grantors or contributors. 

For purposes of sections 170, 507, 

545(b)(2), 642(c), 4942, 4945, 2055, 

2106(a)(2), and 2522, grantors and 

contributors may rely upon a 

determination letter or ruling that an 

organization is described in section 

509(a)(2) until the Internal Revenue 

Service publishes notice of a change of 

status (for example, in the Internal 

Revenue Bulletin or Publication 78, 

‘‘Cumulative List of Organizations 

described in Section 170(c) of the 

Internal Revenue Code of 1986,’’ which 

can be searched at www.irs.gov). For this 

purpose, grantors or contributors may 

also rely on an advance ruling that 

expires on or after June 9, 2008. 

However, a grantor or contributor may 

not rely on such an advance ruling or 

any determination letter or ruling if the 

grantor or contributor was responsible 

for, or aware of, the act or failure to act 

that resulted in the organization’s loss of 

classification under section 509(a)(2) or 

acquired knowledge that the Internal 

Revenue Service had given notice to 

such organization that it would be 

deleted from such classification. 

(3) Examples. The provisions of this 

paragraph (e) may be illustrated by the 

following examples: 

Example 1. Y, a calendar year organization 

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

February 2008 for the purpose of displaying 

African art. On its exemption application Y 

shows, under penalties of perjury, that it can 

reasonably, in accordance with the 

requirements of paragraph (d) of this section, 

expect to receive support from the public in 

2008 through 2012 that will satisfy the onethird support and not-more-than-one-third 

support tests described in section 509(a)(2) 

for its first 5 taxable years, 2008 through 

2012. Y may therefore receive a 

determination that it meets the requirements 

of paragraph (a) of this section. Pursuant to 

such determination, Y will be a public 

charity for its first five taxable years (2008, 

2009, 2010, 2011, and 2012), regardless of the 

public support Y in fact receives during this 

period. 

Example 2. Z, a calendar year organization 

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

July 2008. On its exemption application Z 

shows, under penalties of perjury, that it can 

reasonably, in accordance with the 

requirements of paragraph (d) of this section, 

expect to receive support from the public in 

2008 through 2012 that will satisfy the onethird support and not-more-than-one-third 

support tests described in section 509(a)(2) 

for its first 5 taxable years, 2008 through 

2012. Z receives a determination that it is 

described in section 509(a)(2). However, the 

support actually received from the public 

over Z’s first 5 taxable years (2008 through 

2012) does not satisfy the one-third support 

and not-more-than-one-third support tests 

described in section 509(a)(2), nor does the 

support Z receives from 2009 through and 

including its sixth taxable year, 2013, meet 

the one-third support and not-more-than-onethird support tests described in section 

509(a)(2). Z is described in section 509(a)(2) 

during its first five years for all purposes. 

But, because Z has not met the requirements 

of paragraph (a) of this section either for 2008 

through 2012 or 2009 through 2013, Z is not 

described in section 509(a)(2) for its taxable 

year 2013. If Z is not described in section 

509(a)(1), (3), or (4), then Z is a private 

foundation as of 2013, and Z will be treated 

as a private foundation for all purposes 

(except as provided in paragraph (e)(2) of this 

section with respect to grantors and 

contributors). 

(f) through (j) [Reserved]. For further 

guidance, see § 1.509(a)–3(f) through (j). 

(k) Method of accounting. For 

purposes of section 509(a)(2), an 

organization’s support will be 

determined under the method of 

accounting on the basis of which the 

organization regularly computes its 

income in keeping its books under 

section 446. For example, if a grantor 

makes a grant to an organization payable 

over a term of years, such grant will be 

includible in the support fraction of the 

grantee organization under the method 

of accounting on the basis of which it 

regularly computes its income in 

keeping its books under section 446. 

(l) and (m) [Reserved]. For further 

guidance, see § 1.509(a)–3(l) and (m). 

(n) Transition rules. (i) An 

organization that received an advance 

ruling, that expires on or after June 9, 

2008, that it will be treated as an 

organization described in sections 

170(b)(1)(A)(vi) and 509(a)(1) or in 

section 509(a)(2) will be treated as 

meeting the requirements of paragraph 

(d)(1) of this section for the first five 

taxable years of its existence as a section 

501(c)(3) organization unless the 

Internal Revenue Service issued to the 

organization a proposed determination 

prior to September 9, 2008, that the 

organization is not described in sections 

170(b)(1)(A)(vi) and 509(a)(1) or in 

section 509(a)(2). 

(ii) Paragraph (d)(1) of this section 

shall not apply to an organization that 

received an advance ruling that expired 

prior to June 9, 2008, and that did not 

timely file with the Internal Revenue 

Service the required information to 

establish that it is an organization 

described in sections 170(b)(1)(A)(vi) 

and 509(a)(1) or in section 509(a)(2). 

(iii) An organization that fails to meet 

a public support test for its first taxable 

year beginning on or after January 1, 

2008, under the regulations in this 

section may use the prior test set forth 

in § 1.509(a)–3(c)(1) or § 1.170A–

9(e)(4)(i) or (ii) as in effect before 

September 9, 2008, (as contained in 26 

CFR part 1 revised April 1, 2008) to 

determine whether the organization may 

be publicly supported for its 2008 

taxable year based on its satisfaction of 

a public support test for taxable year 

2007, computed over the period 2003 

through 2006. 

(iv) Examples. The application of this 

paragraph (n) may be illustrated by the 

following examples: 

Example 1. (i) Organization M was formed 

in January 2004, and uses a June 30 taxable 

year. Organization M received an advance 

ruling letter that it is recognized as an 

organization described in section 501(c)(3) 

effective as of the date of its formation and 

that it is treated as a public charity under 

section 509(a)(2) during the five-year advance 

ruling period that will end on June 30, 2008. 

This date is within 90 days before September 

9, 2008. 

(ii) Under the transition rule, Organization 

M is a public charity described in section 

509(a)(2) for the taxable years ending June 30, 

2004, through June 30, 2008. Organization M 

does not need to establish within 90 days 

after June 30, 2008, that it met a public 

support test under § 1.170A–9(e) or 

§ 1.509(a)–3, as in effect prior to September 

9, 2008, (as contained in 26 CFR part 1 

revised April 1, 2008) for its advance ruling 

period. 

(iii) Organization M can qualify as a public 

charity beginning with the taxable year 

ending June 30, 2009, if Organization M can 

meet the requirements of § 1.170A–9T(f)(4)(i) 

or (ii) or paragraph (c)(1) of this section for 

the taxable years ending June 30, 2005, 

through June 30, 2009, or for the taxable 

years ending June 30, 2004, through June 30, 

2008. In addition, for its taxable year ending 

June 30, 2009, Organization M may qualify as 

a public charity by availing itself of the 

transition rule contained in paragraph (n)(iii) 

of this section, which looks to support 

received by M in the taxable years ending 

June 30, 2004, through June 30, 2007. 

Example 2. (i) Organization N was formed 

in January 2000 and uses a December 31 

taxable year. Organization N received a final 

determination that it was recognized as taxexempt under section 501(c)(3) and as a 

public charity prior to September 9, 2008. 

(ii) For taxable year 2008, Organization N 

will qualify as publicly supported if it meets 

the requirements under either § 1.170A–

9T(f)(4)(i) or (ii) or paragraph (c)(1) of this 

section for the five-year period January 1, 

2004, through December 31, 2008. 

Organization N will also qualify as publicly 

supported for taxable year 2008 if it meets 

the requirements under either § 1.170A–

9(e)(4)(i) or (ii) or § 1.509(a)–3(c)(1) as in 

effect prior to September 9, 2008, (as 

contained in 26 CFR part 1 revised April 1, 

2008) for taxable year 2007, using the fouryear period from January 1, 2003, through 

December 31, 2006. 

(o) Effective/applicability date—(1) 

Effective date. These regulations are 

effective on September 9, 2008. 

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Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Rules and Regulations 52555 

(2) Applicability date. The regulations 

in paragraphs (a)(2), (a)(3)(i), (c), (d), (e) 

and (k) of this section shall apply to 

taxable years beginning on or after 

January 1, 2008. 

(3) Expiration date. The applicability 

of this section expires on September 8, 

2011. 

■ Par. 8. Section 1.6033–2 is amended 

by revising paragraph (k) to read as 

follows: 

§ 1.6033–2 Returns by exempt 

organizations (taxable years beginning after 

December 31, 1969) and returns by certain 

nonexempt organizations (taxable years 

beginning after December 31, 1980). 

* * * * * 

(k) Effective/applicability date. The 

provisions of this section shall apply 

with respect to returns filed for taxable 

years beginning after December 31, 

1969. The applicability of paragraphs 

(a)(2)(ii)(g) and (a)(2)(ii)(h) of this 

section shall be limited to taxable years 

beginning before January 1, 2008. 

■ Par. 9. Section 1.6033–2T is added to 

read as follows: 

§ 1.6033–2T Returns by exempt 

organizations (taxable years beginning after 

December 31, 1969) and returns by certain 

nonexempt organizations (taxable years 

beginning after December 31, 1980) 

(temporary). 

(a)(1) through (a)(2)(ii)(f) [Reserved]. 

For further guidance, see § 1.6033–

2(a)(1) through (a)(2)(ii)(f). 

(g) The names and addresses of all 

officers, directors, or trustees (or any 

person having responsibilities or powers 

similar to those of officers, directors or 

trustees) of the organization, and, in the 

case of a private foundation, all persons 

who are foundation managers, within 

the meaning of section 4946(b)(1). 

Organizations must also attach a 

schedule showing the names and 

addresses and/or total numbers of key 

employees, highly compensated 

employees and independent contractors 

as prescribed by publication, form or 

instructions. 

(h) A schedule showing the 

compensation and other payments made 

to each person whose name is required 

to be listed in paragraph (a)(2)(ii)(g) of 

this section during the calendar year 

ending within the organization’s annual 

accounting period, or during such other 

period as prescribed by publication, 

form or instructions 

(a)(2)(ii)(i) through (j) [Reserved]. For 

further guidance, see § 1.6033–

2(a)(2)(ii)(i) through (j). 

(k) Effective/applicability date—(1) 

Effective date. These regulations are 

effective on September 9, 2008. 

(2) Applicability date. The regulations 

in paragraphs (a)(2)(ii)(g) and 

(a)(2)(ii)(h) of this section shall apply to 

taxable years beginning on or after 

January 1, 2008. 

(3) Expiration date. The applicability 

of this section expires September 8, 

2011. 

■ Par. 10. Section 1.6043–3 is amended 

as follows: 

■ 1. The undesignated text following 

paragraph (b)(8) is designated as 

paragraph (b)(9). 

■ 2. Paragraph (d)(3) is revised. 

■ 3. New paragraph (e) is added. 

The addition and revision read as 

follows: 

§ 1.6043–3 Returns regarding liquidation, 

dissolution, termination, or substantial 

contraction of organizations exempt from 

taxation under section 501(a). 

* * * * * 

(d)(3) For the definition of the term 

‘‘integrated auxiliaries’’ as used in 

paragraph (b)(1) of this section, see 

§ 1.6033–2(h). 

(e) Effective/applicability date. The 

provisions of this section shall apply 

with respect to returns filed for taxable 

years beginning after December 31, 

1969. The applicability of paragraphs 

(b)(8) and (d) of this section shall be 

limited to returns filed for taxable years 

beginning before January 1, 2008. 

■ Par. 11. Section 1.6043–3T is added to 

read as follows: 

§ 1.6043–3T Returns regarding liquidation, 

dissolution, termination, or substantial 

contraction of organizations exempt from 

taxation under section 501(a) (temporary). 

(a) through (b)(7) [Reserved]. For 

further guidance, see § 1.6043–3(a) 

through (b)(7). 

(b)(8) Any organization no longer 

exempt from taxation under section 

501(a) and that during the period of its 

exemption under such section was not 

an organization described in section 

501(c)(3), a corporation described in 

section 501(c)(2) that held title to 

property for an organization described 

in section 501(c)(3), or an organization 

described in such other section as 

prescribed by publication, form or 

instructions. 

(b)(9) and (c) [Reserved]. For further 

guidance, see § 1.6043–3(b)(9) and (c). 

(d) Definitions. (1) For the definition 

of the term ‘‘normally’’ as used in 

paragraph (b)(2) of this section, see 

§ 1.6033–2(g)(3). 

(2) For the definition of the term 

‘‘integrated auxiliaries’’ as used in 

paragraph (b)(1) of this section, see 

§ 1.6033–2(h). 

(e) Effective/applicability date—(1) 

Effective date. The regulations in this 

section are effective on September 9, 

2008. 

(2) Applicability date. Paragraphs 

(b)(8) and (d) of this section shall apply 

to returns filed for taxable years 

beginning on or after January 1, 2008. 

(3) Expiration date. The applicability 

of this section expires on September 8, 

2011. 

PART 602—OMB CONTROL NUMBER 

UNDER THE PAPERWORK 

REDUCTION ACT 

■ Par. 12. The authority citation for part 

602 continues to read as follows: 

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

■ Par. 13. In § 602.101, paragraph (b) is 

amended by adding the following entry 

in numerical order to the table to read 

as follows: 

§ 602.101 OMB Control numbers. 

* * * * * 

(b) * * * 

CFR part or section where 

identified and described 

Current 

OMB control 

No. 

* * * * * 

1.6033–2T ................................. 1545–2117 

* * * * * 

Linda E. Stiff, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: August 21, 2008. 

Eric Solomon, 

Assistant Secretary of the Treasury (Tax 

Policy). 

[FR Doc. E8–20560 Filed 9–8–08; 8:45 am] 

BILLING CODE 4830–01–P 

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