884 
taxable years ending after the date of the enactment 
of this Act. 
(b) MATTERS INCLUDED ON EXEMPT STATUS APPLI-
CATION.— 
(1) IN GENERAL.—Section 508 is amended by 
adding at the end the following new subsection: 
‘‘(f) ADDITIONAL PROVISIONS RELATING TO SPON-
SORING ORGANIZATIONS.—A sponsoring organization (as 
defined in section 4966(d)(1)) shall give notice to the Sec-
retary (in such manner as the Secretary may provide) 
whether such organization maintains or intends to main-
tain donor advised funds (as defined in section 
4966(d)(2)) and the manner in which such organization 
plans to operate such funds.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by this subsection shall apply to organizations apply-
ing for tax-exempt status after the date of the enact-
ment of this Act. 
PART 3—IMPROVED ACCOUNTABILITY OF 
SUPPORTING ORGANIZATIONS 
SEC. 1241. REQUIREMENTS FOR SUPPORTING ORGANIZA-
TIONS. 
(a) TYPES OF SUPPORTING ORGANIZATIONS.—Sub-
paragraph (B) of section 509(a)(3) is amended to read 
as follows: 
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‘‘(B) is— 
‘‘(i) operated, supervised, or controlled 
by one or more organizations described in 
paragraph (1) or (2), 
‘‘(ii) supervised or controlled in con-
nection with one or more such organiza-
tions, or 
‘‘(iii) operated in connection with one 
or more such organizations, and’’. 
(b) REQUIREMENTS
FOR SUPPORTING ORGANIZA-
TIONS.—Section 509 (relating to private foundation de-
fined) is amended by adding at the end the following new 
subsection: 
‘‘(f) REQUIREMENTS FOR SUPPORTING ORGANIZA-
TIONS.— 
‘‘(1) TYPE III SUPPORTING ORGANIZATIONS.— 
For purposes of subsection (a)(3)(B)(iii), an organi-
zation shall not be considered to be operated in con-
nection with any organization described in para-
graph (1) or (2) of subsection (a) unless such orga-
nization meets the following requirements: 
‘‘(A) RESPONSIVENESS.—For each taxable 
year beginning after the date of the enactment 
of this subsection, the organization provides to 
each supported organization such information 
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as the Secretary may require to ensure that 
such organization is responsive to the needs or 
demands of the supported organization. 
‘‘(B) FOREIGN
SUPPORTED
ORGANIZA-
TIONS.— 
‘‘(i) IN GENERAL.—The organization 
is not operated in connection with any sup-
ported organization that is not organized 
in the United States. 
‘‘(ii) TRANSITION RULE FOR EXISTING 
ORGANIZATIONS.—If the organization is 
operated in connection with an organiza-
tion that is not organized in the United 
States on the date of the enactment of this 
subsection, clause (i) shall not apply until 
the first day of the third taxable year of 
the organization beginning after the date 
of the enactment of this subsection. 
‘‘(2) ORGANIZATIONS
CONTROLLED
BY
DO-
NORS.— 
‘‘(A) IN GENERAL.—For purposes of sub-
section (a)(3)(B), an organization shall not be 
considered to be— 
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ccoleman on PROD1PC71 with BILLS
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‘‘(i) operated, supervised, or controlled 
by any organization described in paragraph 
(1) or (2) of subsection (a), or 
‘‘(ii) operated in connection with any 
organization described in paragraph (1) or 
(2) of subsection (a), 
if such organization accepts any gift or con-
tribution from any person described in subpara-
graph (B). 
‘‘(B) PERSON
DESCRIBED.—A person is 
described in this subparagraph if, with respect 
to a supported organization of an organization 
described in subparagraph (A), such person 
is— 
‘‘(i) a person (other than an organiza-
tion described in paragraph (1), (2), or (4) 
of section 509(a)) who directly or indi-
rectly controls, either alone or together 
with persons described in clauses (ii) and 
(iii), the governing body of such supported 
organization, 
‘‘(ii) a member of the family (deter-
mined under section 4958(f)(4)) of an in-
dividual described in clause (i), or 
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‘‘(iii) a 35-percent controlled entity 
(as defined in section 4958(f)(3) by sub-
stituting ‘persons described in clause (i) or 
(ii) of section 509(f)(2)(B)’ for ‘persons 
described in subparagraph (A) or (B) of 
paragraph (1)’ in subparagraph (A)(i) 
thereof). 
‘‘(3) SUPPORTED
ORGANIZATION.—For pur-
poses of this subsection, the term ‘supported organi-
zation’ means, with respect to an organization de-
scribed in subsection (a)(3), an organization de-
scribed in paragraph (1) or (2) of subsection (a)— 
‘‘(A) for whose benefit the organization de-
scribed in subsection (a)(3) is organized and 
operated, or 
‘‘(B) with respect to which the organiza-
tion performs the functions of, or carries out 
the purposes of.’’. 
(c) CHARITABLE TRUSTS WHICH ARE TYPE III SUP-
PORTING
ORGANIZATIONS.—For purposes of section 
509(a)(3)(B)(iii) of the Internal Revenue Code of 1986, 
an organization which is a trust shall not be considered 
to be operated in connection with any organization de-
scribed in paragraph (1) or (2) of section 509(a) of such 
Code solely because— 
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(1) it is a charitable trust under State law, 
(2) the supported organization (as defined in 
section 509(f)(3) of such Code) is a beneficiary of 
such trust, and 
(3) the supported organization (as so defined) 
has the power to enforce the trust and compel an ac-
counting. 
(d) PAYOUT REQUIREMENTS
FOR TYPE III SUP-
PORTING ORGANIZATIONS.— 
(1) IN GENERAL.—The Secretary of the Treas-
ury shall promulgate new regulations under section 
509 of the Internal Revenue Code of 1986 on pay-
ments required by type III supporting organizations 
which are not functionally integrated type III sup-
porting organizations. Such regulations shall require 
such organizations to make distributions of a per-
centage of either income or assets to supported orga-
nizations (as defined in section 509(f)(3) of such 
Code) in order to ensure that a significant amount 
is paid to such organizations. 
(2) TYPE
III
SUPPORTING
ORGANIZATION; 
FUNCTIONALLY INTEGRATED TYPE III SUPPORTING 
ORGANIZATION.—For purposes of paragraph (1), the 
terms ‘‘type III supporting organization’’ and ‘‘func-
tionally integrated type III supporting organization’’ 
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have the meanings given such terms under subpara-
graphs (A) and (B) section 4943(f)(5) of the Inter-
nal Revenue Code of 1986 (as added by this Act), 
respectively. 
(e) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by 
subsections (a) and (b) shall take effect on the date 
of the enactment of this Act. 
(2) CHARITABLE TRUSTS WHICH ARE TYPE III 
SUPPORTING ORGANIZATIONS.—Subsection (c) shall 
take effect— 
(A) in the case of trusts operated in con-
nection with an organization described in para-
graph (1) or (2) of section 509(a) of the Inter-
nal Revenue Code of 1986 on the date of the 
enactment of this Act, on the date that is one 
year after the date of the enactment of this Act, 
and 
(B) in the case of any other trust, on the 
date of the enactment of this Act. 
SEC. 1242. EXCESS BENEFIT TRANSACTIONS INVOLVING 
SUPPORTING ORGANIZATIONS. 
(a) DISQUALIFIED PERSONS.—Paragraph (1) of sec-
tion 4958(f), as amended by this Act, is amended by re-
designating subparagraphs (D) and (E) as subparagraphs 
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(E) and (F), respectively, and by adding after subpara-
graph (C) the following new subparagraph: 
‘‘(D) any person who is described in sub-
paragraph (A), (B), or (C) with respect to an 
organization described in section 509(a)(3) and 
organized and operated exclusively for the ben-
efit of, to perform the functions of, or to carry 
out the purposes of the applicable tax-exempt 
organization.’’. 
(b) CERTAIN TRANSACTIONS TREATED AS EXCESS 
BENEFIT TRANSACTIONS.—Section 4958(c), as amended 
by this Act, is amended by redesignating paragraph (3) 
as paragraph (4) and by inserting after paragraph (2) the 
following new paragraph: 
‘‘(3) SPECIAL RULES FOR SUPPORTING ORGANI-
ZATIONS.— 
‘‘(A) IN GENERAL.—In the case of any or-
ganization described in section 509(a)(3)— 
‘‘(i) the term ‘excess benefit trans-
action’ includes— 
‘‘(I) any grant, loan, compensa-
tion, or other similar payment pro-
vided by such organization to a person 
described in subparagraph (B), and 
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‘‘(II) any loan provided by such 
organization to a disqualified person 
(other than an organization described 
in paragraph (1), (2), or (4) of section 
509(a)), and 
‘‘(ii) the term ‘excess benefit’ includes, 
with respect to any transaction described 
in clause (i), the amount of any such 
grant, loan, compensation, or other similar 
payment. 
‘‘(B) PERSON
DESCRIBED.—A person is 
described in this subparagraph if such person 
is— 
‘‘(i) a substantial contributor to such 
organization, 
‘‘(ii) a member of the family (deter-
mined under section 4958(f)(4)) of an in-
dividual described in clause (i), or 
‘‘(iii) a 35-percent controlled entity 
(as defined in section 4958(f)(3) by sub-
stituting ‘persons described in clause (i) or 
(ii) of section 4958(c)(3)(B)’ for ‘persons 
described in subparagraph (A) or (B) of 
paragraph (1)’ in subparagraph (A)(i) 
thereof). 
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‘‘(C) SUBSTANTIAL
CONTRIBUTOR.—For 
purposes of this paragraph— 
‘‘(i) IN
GENERAL.—The term ‘sub-
stantial contributor’ means any person who 
contributed or bequeathed an aggregate 
amount of more than $5,000 to the organi-
zation, if such amount is more than 2 per-
cent of the total contributions and be-
quests received by the organization before 
the close of the taxable year of the organi-
zation in which the contribution or bequest 
is received by the organization from such 
person. In the case of a trust, such term 
also means the creator of the trust. Rules 
similar to the rules of subparagraphs (B) 
and (C) of section 507(d)(2) shall apply 
for purposes of this subparagraph. 
‘‘(ii) EXCEPTION.—Such term shall 
not include any organization described in 
paragraph (1), (2), or (4) of section 
509(a).’’. 
(c) EFFECTIVE DATES.— 
(1) SUBSECTION (a).—The amendments made 
by subsection (a) shall apply to transactions occur-
ring after the date of the enactment of this Act. 
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(2) SUBSECTION (b).—The amendments made 
by subsection (a) shall apply to transactions occur-
ring after July 25, 2006. 
SEC. 1243. EXCESS BUSINESS HOLDINGS OF SUPPORTING 
ORGANIZATIONS. 
(a) IN GENERAL.—Section 4943, as amended by this 
Act, is amended by adding at the end the following new 
subsection: 
‘‘(f) APPLICATION OF TAX TO SUPPORTING ORGANI-
ZATIONS.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, an organization which is described in para-
graph (3) shall be treated as a private foundation. 
‘‘(2) EXCEPTION.—The Secretary may exempt 
the excess business holdings of any organization 
from the application of this subsection if the Sec-
retary determines that such holdings are consistent 
with the purpose or function constituting the basis 
for its exemption under section 501. 
‘‘(3) ORGANIZATIONS DESCRIBED.—An organi-
zation is described in this paragraph if such organi-
zation is— 
‘‘(A) a type III supporting organization 
(other than a functionally integrated type III 
supporting organization), or 
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‘‘(B) an organization which meets the re-
quirements of subparagraphs (A) and (C) of 
section 509(a)(3) and which is supervised or 
controlled in connection with or one or more or-
ganizations described in paragraph (1) or (2) of 
section 509(a), but only if such organization ac-
cepts any gift or contribution from any person 
described in section 509(f)(2)(B). 
‘‘(4) DISQUALIFIED PERSON.— 
‘‘(A) IN GENERAL.—In applying this sec-
tion to any organization described in paragraph 
(3), the term ‘disqualified person’ means, with 
respect to the organization— 
‘‘(i) any person who was, at any time 
during the 5-year period ending on the 
date described in subsection (a)(2)(A), in a 
position to exercise substantial influence 
over the affairs of the organization, 
‘‘(ii) any member of the family (deter-
mined under section 4958(f)(4)) of an in-
dividual described in clause (i), 
‘‘(iii) any 35-percent controlled entity 
(as defined in section 4958(f)(3) by sub-
stituting ‘persons described in clause (i) or 
(ii) of section 4943(f)(4)(A)’ for ‘persons 
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described in subparagraph (A) or (B) of 
paragraph (1)’ in subparagraph (A)(i) 
thereof), 
‘‘(iv) any person described in section 
4958(c)(3)(B), and 
‘‘(v) any organization— 
‘‘(I) which is effectively con-
trolled (directly or indirectly) by the 
same person or persons who control 
the organization in question, or 
‘‘(II) substantially all of the con-
tributions to which were made (di-
rectly or indirectly) by the same per-
son or persons described in subpara-
graph (B) or a member of the family 
(within 
the 
meaning 
of 
section 
4946(d)) of such a person. 
‘‘(B) PERSONS DESCRIBED.—A person is 
described in this subparagraph if such person 
is— 
‘‘(i) a substantial contributor to the 
organization 
(as 
defined 
in 
section 
4958(c)(3)(C)), 
‘‘(ii) an officer, director, or trustee of 
the organization (or an individual having 
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