†
180
HR 4297 EAS
come of the immediately preceding taxable year, the
type III supporting organization may elect to treat
any portion of such distribution as made out of the
undistributed income of a designated prior taxable
year. The election shall be made by the type III sup-
porting organization at such time and in such man-
ner as the Secretary shall by regulations prescribe.
‘‘(g) ADJUSTMENT
OF
DISTRIBUTABLE
AMOUNT
WHERE DISTRIBUTIONS DURING PRIOR YEARS HAVE EX-
CEEDED INCOME.—
‘‘(1) IN GENERAL.—If, for the taxable years in
the adjustment period for which an organization is a
type III supporting organization—
‘‘(A) the aggregate qualifying distributions
treated (under subsection (f)) as made out of the
undistributed income for such taxable years, ex-
ceeds
‘‘(B) the distributable amounts for such tax-
able years (determined without regard to this
subsection),
then, for purposes of this section (other than sub-
section (f)), the distributable amount for the taxable
year shall be reduced by an amount equal to such ex-
cess.
†
181
HR 4297 EAS
‘‘(2) TAXABLE YEARS IN ADJUSTMENT PERIOD.—
For purposes of paragraph (1), with respect to any
taxable year of a type III supporting organization,
the taxable years in the adjustment period are the
taxable years (not exceeding 5) beginning after the
date of the enactment of this section and immediately
preceding the taxable year.
‘‘(h) OTHER DEFINITIONS.—For purposes of this
section—
‘‘(1) TAXABLE PERIOD.—The term ‘taxable pe-
riod’ means, with respect to the undistributed income
for any taxable year, the period beginning with the
first day of the taxable year and ending on the earlier
of—
‘‘(A) the date of mailing of a notice of defi-
ciency with respect to the tax imposed by sub-
section (a) under section 6212, or
‘‘(B) the date on which the tax imposed by
subsection (a) is assessed.
‘‘(2) TYPE III SUPPORTING ORGANIZATION.—The
term ‘type III supporting organization’ means an or-
ganization which meets the requirements of subpara-
graphs (A) and (C) of section 509(a)(3) and which is
operated in connection with one or more organiza-
†
182
HR 4297 EAS
tions described in paragraph (1) or (2) of section
509(a).
‘‘(3) SUPPORTED
ORGANIZATION.—The term
‘supported organization’ has the meaning given such
term under section 509(f)(3).’’.
(b) CONFORMING AMENDMENT.—The table of sections
for subchapter D of chapter 42 is amended by inserting
after the item relating to section 4958 the following new
item:
‘‘Sec. 4959. Taxes on certain supporting organizations failing to meet distribu-
tion requirements.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
SEC. 243. EXCESS BENEFIT TRANSACTIONS.
(a) IN GENERAL.—Section 4958(c), as amended by
this Act, is amended by redesignating paragraph (3) as
paragraph (4) and by inserting after paragraph (2) the fol-
lowing new paragraph:
‘‘(3) SPECIAL RULES FOR SUPPORTING ORGANI-
ZATIONS.—
‘‘(A) IN GENERAL.—In the case of any orga-
nization described in section 509(a)(3)—
‘‘(i) the term ‘excess benefit trans-
action’ includes—
†
183
HR 4297 EAS
‘‘(I) any grant, loan, compensa-
tion, or other payment provided by
such organization to a person described
in subparagraph (B), and
‘‘(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 payment.
‘‘(B) PERSON DESCRIBED.—A person is de-
scribed 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 indi-
vidual described in clause (i), or
‘‘(iii) a 35-percent controlled entity (as
defined in section 4958(f)(3) by substituting
‘persons described in clause (i) or (ii) of sec-
tion 4958(c)(3)(B)’ for ‘persons described in
†
184
HR 4297 EAS
subparagraph (A) or (B) of paragraph (1)’
in subparagraph (A)(i) thereof).
‘‘(C) 
SUBSTANTIAL
CONTRIBUTOR.—For
purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘substan-
tial contributor’ means any person who con-
tributed or bequeathed an aggregate amount
of more than $5,000 to the organization, if
such amount is more than 2 percent of the
total contributions and bequests received by
the organization before the close of the tax-
able year of the organization in which the
contribution or bequest is received by the or-
ganization from such person. In the case of
a trust, such term also means the creator of
the trust.
‘‘(ii) EXCEPTION.—Such term shall not
include any organization described in para-
graph (1), (2), or (4) of section 509(a).’’.
(b) DISQUALIFIED PERSONS.—Paragraph (1) of sec-
tion 4958(f), as amended by this Act, is amended by strik-
ing ‘‘and’’ at the end of subparagraph (D), by striking the
period at the end of subparagraph (E) and inserting ‘‘,
and’’, and by adding after subparagraph (D) the following
new subparagraph:
†
185
HR 4297 EAS
‘‘(E) any person who is described in sub-
paragraph (A), (B), or (C) with respect to an or-
ganization described in section 509(a)(3) which
is 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 or-
ganization.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to transactions occurring after the date
of the enactment of this Act.
SEC. 244. EXCESS BUSINESS HOLDINGS OF SUPPORTING
ORGANIZATIONS.
(a) IN GENERAL.—Section 4943 is amended by adding
at the end the following new subsection:
‘‘(e) APPLICATION OF TAX TO SUPPORTING ORGANIZA-
TIONS.—
‘‘(1) IN GENERAL.—For purposes of this section,
a qualified supporting organization shall be treated
as a private foundation.
‘‘(2) EXCEPTION.—The Secretary may exempt
any qualified supporting organization from the appli-
cation of this subsection if the Secretary determines
that the excess business holdings of such organization
are consistent with the purpose or function consti-
tuting the basis for its exemption under section 501.
†
186
HR 4297 EAS
‘‘(3) QUALIFIED SUPPORTING ORGANIZATION.—
For purposes of this subsection, the term ‘qualified
supporting organization’ means any—
‘‘(A) type III supporting organization (as
defined in section 4959(h)(2)), or
‘‘(B) organization which meets the require-
ments of subparagraphs (A) and (C) of section
509(a)(3) and which is supervised or controlled
in connection with or one or more organizations
described in paragraph (1) or (2) of section
509(a), but only if such organization accepts 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 section
509(a)(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 date de-
scribed in subsection (a)(2)(A), in a posi-
tion to exercise substantial influence over
the affairs of the organization,
†
187
HR 4297 EAS
‘‘(ii) any member of the family (deter-
mined under section 4958(f)(4)) of an indi-
vidual 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(e)(2)(A)’ for ‘persons de-
scribed in subparagraph (A) or (B) of para-
graph (1)’ in subparagraph (A)(i) thereof),
‘‘(iv) any person described in section
4958(c)(3)(B), and
‘‘(v) any organization—
‘‘(I) which is effectively controlled
(directly or indirectly) by the same
person or persons who control the orga-
nization in question, or
‘‘(II) substantially all of the con-
tributions to which were made (di-
rectly or indirectly) by the same person
or persons described in subparagraph
(B) or a member of their family (with-
in the meaning of section 4946(d)) who
made (directly or indirectly) substan-
tially all of the contributions to the or-
ganization in question.
†
188
HR 4297 EAS
‘‘(B) PERSONS
DESCRIBED.—A person is
described in this subparagraph if such person
is—
‘‘(i) a substantial contributor to the or-
ganization 
(as 
defined 
in 
section
4958(c)(3)(C)),
‘‘(ii) an officer, director, or trustee of
the organization (or an individual having
powers or responsibilities similar to those
officers, directors, or trustees of the organi-
zation), or
‘‘(iii) an owner of more than 20 per-
cent of—
‘‘(I) the total combined voting
power of a corporation,
‘‘(II) the profits interest of a part-
nership, or
‘‘(III) the beneficial interest of a
trust or unincorporated enterprise,
which is a substantial contributor (as so de-
fined) to the organization.
‘‘(5) SPECIAL RULE FOR CERTAIN HOLDINGS OF
TYPE III SUPPORTING ORGANIZATIONS.—For purposes
of this subsection, the term ‘excess business holdings’
shall not include any holdings of a type III sup-
†
189
HR 4297 EAS
porting 
organization 
(as 
defined 
in 
section
4959(h)(2)) in any business enterprise if the holdings
are held for the benefit of the community pursuant to
the direction of a State attorney general or a State
official with jurisdiction over the type III supporting
organization.
‘‘(6) PRESENT HOLDINGS.—For purposes of this
subsection, rules similar to the rules of paragraphs
(4), (5), and (6) of subsection (c) shall apply to orga-
nizations described in section 509(a)(3), except that—
‘‘(A) ‘the date of the enactment of this sub-
section’ shall be substituted for ‘May 26, 1969’
each place it appears in paragraphs (4), (5),
and (6), and
‘‘(B) ‘January 1, 2007’ shall be substituted
for ‘January 1, 1970’ in paragraph (4)(E).’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
SEC. 245. TREATMENT OF AMOUNTS PAID TO SUPPORTING
ORGANIZATIONS BY PRIVATE FOUNDATIONS.
(a) QUALIFYING DISTRIBUTIONS.—Paragraph (4) of
section 4942(g) is amended to read as follows:
‘‘(4) LIMITATION ON DISTRIBUTIONS BY NONOP-
ERATING PRIVATE FOUNDATIONS TO SUPPORTING OR-
†
190
HR 4297 EAS
GANIZATIONS.—For purposes of this section, the term
‘qualifying distribution’ shall not include any
amount paid by a private foundation which is not an
operating foundation to an organization described in
section 509(a)(3).’’.
(b) TAXABLE EXPENDITURES.—
(1) IN GENERAL.—Subsection (d) of section 4945
is amended by redesignating paragraphs (4) and (5)
as paragraphs (5) and (6), respectively, and by in-
serting after paragraph (3) the following new para-
graph:
‘‘(4) to an organization described in section
509(a)(3),’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 4945(d)(5), as redesignated by
subparagraph (A), is amended—
(i) by striking ‘‘a grant to an organi-
zation’’ and inserting ‘‘a grant to any other
organization’’, and
(ii) by striking ‘‘paragraph (1), (2), or
(3) of section 509(a)’’ in subparagraph (A)
and inserting ‘‘paragraph (1) or (2) of sec-
tion 509(a)’’.
†
191
HR 4297 EAS
(B) Section 4945(f) is amended by striking
‘‘Subsection (d)(4)’’ in the last sentence thereof
and inserting ‘‘Subsection (d)(5)’’.
(C) Section 4945(h) is amended by striking
‘‘subsection (d)(4)’’ and inserting ‘‘subsection
(d)(5)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to distributions and expenditures after
the date of the enactment of this Act.
SEC. 246. RETURNS OF SUPPORTING ORGANIZATIONS.
(a) REQUIREMENT TO FILE RETURN.—Subparagraph
(B) of section 6033(a)(3), as redesignated by this Act, is
amended by inserting ‘‘(other than an organization de-
scribed in section 509(a)(3))’’ after ‘‘paragraph (1)’’.
(b) MATTERS INCLUDED ON RETURNS.—Section 6033,
as amended by this Act, is amended by redesignating sub-
section (k) as subsection (l) and by inserting after sub-
section (j) the following new subsection:
‘‘(k) ADDITIONAL PROVISIONS RELATING
TO SUP-
PORTING ORGANIZATIONS.—
‘‘(1) IN GENERAL.—Every organization described
in section 509(a)(3) shall, on the return required
under subsection (a)—
†
192
HR 4297 EAS
‘‘(A) list the organizations described in sec-
tion 509(a)(3)(A) with respect to which such or-
ganization provides support,
‘‘(B) indicate whether the organization
meets the requirements of clause (i), (ii), or (iii)
of section 509(a)(3)(B), and
‘‘(C) certify that the organization meets the
requirements of section 509(a)(3)(C).
‘‘(2) TYPE
III
SUPPORTING
ORGANIZATIONS.—
Every type III supporting organization (as defined in
section 4959(h)(2)) shall indicate on the return re-
quired under subsection (a) for the taxable year
whether the organization has received a letter from
each supported organization (as defined in section
509(f)(3)) during the taxable year which—
‘‘(A) acknowledges that the supporting orga-
nization has designated such organization as a
supported organization,
‘‘(B) details the type of support provided by
the supporting organization, and
‘‘(C) explains how such support furthers the
charitable purpose of the supported organiza-
tion.’’.
†
193
HR 4297 EAS
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to returns filed for taxable years ending
after the date of the enactment of this Act.
TITLE III—MISCELLANEOUS
PROVISIONS
SEC. 301. RESTRUCTURING OF NEW YORK LIBERTY ZONE
TAX CREDITS.
(a) IN GENERAL.—Subchapter Y of chapter 1 is
amended by adding at the end the following new section:
‘‘SEC. 1400M. NEW YORK LIBERTY ZONE TAX CREDITS.
‘‘(a) IN GENERAL.—There shall be allowed as a credit
against any taxes imposed by this title (other than by sec-
tion 3111(a), section 3403, or subtitle D) paid or incurred
by any governmental unit of the State of New York and
the City of New York, New York (including any agency or
instrumentality thereof) for any calendar year an amount
equal to the lesser of—
‘‘(1) the total expenditures during such year by
such governmental unit for qualifying projects, or
‘‘(2) the amount allocated to such governmental
unit for such calendar year under subsection (b)(2).
‘‘(b) QUALIFYING PROJECT.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘qualifying project’
means any transportation infrastructure project, in-