New Reporting Disclosures for Supporting Organizations

A common way for an exempt organization to avoid private foundation status is by qualifying as a “supporting organization” under Code Sec. 509(a).

How to Qualify as a "Supporting Organization":

1. An organizational test,
2. An operation test,
3. A relationship test, and
4. A disqualified person control test

The organizational and operational tests require that the supporting organization be organized and operate exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more specified supported organizations.

In the past, Form 990, Schedule A required very little in the way of disclosures for supporting organizations.  It basically inquired as to what type of supporting organization was claimed and whether or not a written determination was received from the Internal Revenue Service (Service).  Most exempt organizations have answered the questions the same for many years without much thought.

Reflecting recently released regulations, the 2014 Form 990, Schedule A has changed significantly for supporting organizations.  It still includes the basic questions: what type of supporting organization and whether a determination letter was received.  In addition, the Service has added two new parts specifically for supporting organizations. 

The first part asks a total of 20 basic questions, many with additional follow-up questions based on your original answer.  Not all of the questions will need to be answered by all organizations, but it is safe to say that supporting organizations are going to need to learn a lot more about their interaction and relationships with the organizations they support.

The second new part is specific to non-functionally integrated supporting organizations.   These organizations generally must satisfy a distribution requirement along with an attentiveness requirement.  The new part conducts a series of complex calculations to determine if these requirements have been met.  Organizations failing these requirements will not be considered public charities.

The new disclosures are in effect for supporting organizations with years beginning on or after January 1, 2014.  If you are involved with a supporting organization or an organization that is supported by another, now is the time to gather the information necessary to accurately complete the new disclosures.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.