School-support group reclassified as publicly supported

Plain-English summary

A volunteer organization supported a public school community through teacher grants, school events, family assistance, and improvement projects. It had been classified as a Type III non-functionally integrated supporting organization, but the IRS found that it did not qualify under any of the three supporting-organization relationship tests. The school did not appoint the organization’s leaders, share control, or have a significant voice in its finances and grant decisions, and the organization also failed applicable notification, responsiveness, distribution, and attentiveness requirements. Its gifts, grants, and public contributions nevertheless exceeded one-third of its total support. The IRS therefore reclassified it as a publicly supported charity under sections 509(a)(1) and 170(b)(1)(A)(vi), while leaving its section 501(c)(3) exemption intact.

Ruling snapshot

• Question: Should the organization be reclassified from a Type III non-functionally integrated supporting organization to a publicly supported charity?
• Outcome: approved
• Key authorities: IRC §§ 170(b)(1)(A)(vi), 501(c)(3), 509(a)(1), 509(a)(3); Treas. Reg. §§ 1.170A-9(e), 1.509(a)-4

Full text (IRS public release)

                                                                               Date:   10/27/2023


                                                                               Taxpayer ID number (last 4 digits):


                                                                               Form:
  Release Number: 202404007
  Release Date: 1/26/2024                                                      Tax periods ended:

  UIL Code: 501.03-00
                                                                               Person to contact:
                                                                                Name:
                                                                                ID number:
                                                                                Telephone:
                                                                                Fax:

                                                                               Last day to file petition with United States
                                                                               Tax Court: 1/25/2024
   CERTIFIED MAIL - Return Receipt Requested
Dear                                                    :
This is a final determination regarding your foundation classification. This modifies our letter dated            ,
     , in which we determined that you were an organization described in Internal Revenue Code (IRC) Section
501(c)(3) as a Type III Supporting organization. This letter modifies your foundation status to that o f a public
charity described in IRC Sections 501(c)(3) and 170(b)(l)(A)(vi), effective        ,     .

Your tax exempt status under IRC Section 501(c)(3) o f the Code is not affected. Grantors and contributors may
rely on this determination, unless the Internal Revenue Service publishes a notice to the contrary. Because this
letter could help resolve any questions about your private foundation status, please keep it with your permanent
records.

We previously provided you a report o f examination explaining the proposed modification o f your tax-exempt
status. At that time, we informed you o f your right to contact the Taxpayer Advocate, as well as your appeal
rights. On              ,      , you signed Form 6018, Consent to Proposed Action - Section 7428, in which
you agreed to the modification o f your foundation classification to 170(b)(l)(A)(vi) and described in
501(c)(3). This is a final determination letter with regards to your federal tax-exempt status under Section
501(a).

You are required to file Form 990, Return o f Organization Exempt from Income Tax. Form 990 must be filed by
the 15th day o f the fifth month after the end o f your annual accounting periods. A penalty o f $20 a day is
charged when a return is filed late, unless there is a reasonable cause for the delay; however, the maximum
penalty charged cannot exceed $10,000 or 5 percent o f your gross receipts for the year whichever is less, In
addition, organizations with gross receipts exceeding $1,000,000 for any year will be charged a penalty o f $100
a day when a return is filed late; however, the maximum penalty charged cannot exceed $50,000. These
penalties may also be charged if a return is not complete, so be sure your return is complete before you file it.

If you are subject to the tax on unrelated business income under IRC Section 511, you must also file an income
tax return on Form 990-T, Exempt Organization Business Income Tax Return.

If you decide to contest this determination, you may file an action for declaratory judgment under the
provisions o f IRC Section 7428 in one o f the following three venues: 1) United States Tax Court, 2) the United
States Court o f Federal Claims, or 3) the United States District Court for the District o f Columbia. A petition or
complaint in one o f these three courts must be filed within 90 days from the date this determination was mailed
to you. Please contact the clerk o f the appropriate court for rules and the appropriate forms for filing petitions
for declaratory judgment by referring to the enclosed Publication 892. You may write to the courts at the
following addresses:
                                         United States Tax Court
                                         400 Second Street, NW
                                         Washington, DC 20217
                                         ustaxcourt.gov

                                         US Court of Federal Claims
                                         717 Madison Place, NW
                                         Washington, DC 20005
                                         uscfc.uscourts.gov

                                         US District Court for the District of Columbia
                                         333 Constitution Avenue, NW
                                         Washington, DC 20001
                                         dcd.uscourts.gov

You may also be eligible for help from the Taxpayer Advocate Service (TAS). TAS is an independent
organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax
problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If
you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit
www.taxpayeradvocate.irs.gov or call 877-777-4778.

Taxpayer Advocate assistance can’t be used as substitute for established IRS procedures, formal appeals
processes, etc. The Taxpayer Advocate is not able to reverse legal or technically correct tax determination,
nor extend the time fixed by law that you have to file a petition in Court. The Taxpayer Advocate can,
however, see that a tax matter that may not have been resolved through normal channels gets prompt and
proper handling.

You can get any of the forms or publications mentioned in this letter by calling 800-TAX- FORM
(800-829-3676) or visiting our website at www.irs.gov/forms-pubs.

If you have any questions about this letter, please contact the person whose name and telephone number are
shown in the heading of this letter.

                                                         Sincerely,


                                                         Lynn A. Brinkley
                                                         Director, Exempt Organizations Examinations

Enclosures:
Publication 892
          Department of the Treasury Internal                                     Date:
          Revenue Service                                                         February 10, 2023
                                                                                  Taxpayer ID number:


                                                                                  Form:


                                                                                  Tax periods ended:


                                                                                  Person to contact:
                                                                                  Name:
                                                                                  ID number:
                                                                                  Telephone:
                                                                                  Fax:
                                                                                  Hours:
                                                                                  Address:


                                                                                  Manager's contact information:
                                                                                  Name:
                                                                                  ID number:
                                                                                   Telephone:
                                                                                  Response due date:
                                                                                   March 10, 2023
CERTIFIED MAIL – Return Receipt Requested
Dear                                                                          :
Why you’re receiving this letter
We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to
modify your organization’s foundation status under Internal Revenue Code (IRC) Section 509(a).
Your exempt status under IRC Section 501(c)(3) is still in effect.
If you agree
If you haven’t already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the
contact person shown at the top of this letter. We'll issue a final letter modifying your foundation status.
If you disagree
                1. Request a meeting or telephone conference with the manager shown at the top of this letter.
                2. Send any information you want us to consider.
                3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional
       information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after
       the meeting or after we consider the information.
       The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes
       informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of
       limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For
       your protest to be valid, it must contain certain specific information, including a statement of the facts,
       applicable law, and arguments in support of your position. For specific information needed for a valid protest,
       refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

       Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn’t
       apply now that we’ve issued this letter.
                                                                                                Letter 3620 (Rev. 8-2019)
                                                                                                Catalog Number 34811R
   4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government
      Entities) if you feel the issue hasn’t been addressed in published precedent or has been treated
      inconsistently by the IRS.

      If you’re considering requesting technical advice, contact the person shown at the top of this letter. If you
      disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as
      explained above. A decision made in a technical advice memorandum, however, generally is final and
      binding on Appeals.
If we don’t hear from you
If you don't respond to this proposal within 30 calendar days from the date of this letter, we’ll issue a final letter
modifying your foundation status.

Contacting the Taxpayer Advocate Office is a taxpayer right
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your
taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't
been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS
will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.
Additional information
You can get any of the forms and publications mentioned in this letter by visiting our website at
www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676).
If you have questions, you can contact the person shown at the top of this letter.


                                                           Sincerely,
                                                           Denise Gonzalez for

                                                           Lynn A. Brinkley
                                                           Director, Exempt Organizations Examinations
Enclosures:
Form 886-A
Form 6018
Form 4621-A
Publication 892
Publication 3498




                                                                                            Letter 3620 (Rev. 8-2019)
                                                                                            Catalog Number 34811R
                                  Department of the Treasury – Internal Revenue Service                Schedule number
      Form 886-A                                                                                       or exhibit
       (May 2017)                     Explanations of Items
  Name of taxpayer                                         Tax Identification Number (last 4 digits)   Year/Period ended




 ISSUE:

                    1. Whether                                                 (hereafter EO) should be reclassified
        from a Type III non-functionally integrated supporting organization to a publicly supported
        organization described in sections 509(a)(1) and 170(b)(1)(A)(vi) of the Internal Revenue
        Code.

 FACTS:

The EO was incorporated under the                                        with an effective date of
        ,      , which was founded for educational purposes within the meanings of
                      and 501(c)(3) of the United States Internal Revenue Code, to provide
assistance to the community of the                                                                     ,
and to the school itself, and to advise and consult with those running that school at all levels, with
respect to matters of policy and implementation.

On        ,     , the Internal Revenue Service sent Letter 1312, with a due date of         ,
requesting additional information and a Section 509(a)(3) questionnaire to establish that it is a Type
III supporting organization under section 509(a)(3) that needed to be completed before issuing a
final determination of the foundation status. The EO response was incomplete.

Since the Internal Revenue Service did not receive the requested information by          ,    , on
          ,      the Internal Revenue Service sent Letter 1314 stating the application cannot be
processed because they failed to show they met all legal requirements necessary to make a
determination of their tax-exempt status, and their case was being closed. The EO responded to the
request for additional information on               ,    . The EO was issued a final determination
on                  as an organization exempt under section 509(a)(3).

The EO has not received an initial determination classifying them as a Type, I, II or III supporting
organization.

On            ,      , the EO sent in a Letter to the Internal Revenue Service regarding a name
change request and requested documentation to show the name change from
                                            to                                      . The EO received
an affirmation letter dated         ,     which states:

Exhibit A
“In                  we issued a determination letter that recognized your organization as exempt
from federal income tax. Our records indicate that your organization is currently exempt under
section 501(c)(3) of the Internal Revenue Code.

Based on information subsequently submitted, we classified your organization as one that is not a
private foundation within the meaning of section 509(a)(1) and 170(b)(1)(A)(vi).”

Catalog Number 20810W                   Page    1                 www.irs.gov                     Form 886-A (Rev. 5-2017)
                                  Department of the Treasury – Internal Revenue Service                 Schedule number
      Form 886-A                                                                                        or exhibit
       (May 2017)                     Explanations of Items
  Name of taxpayer                                         Tax Identification Number (last 4 digits)    Year/Period ended




On            ,      , the EO sent a letter to the Internal Revenue Service displaying an
amendment to their Articles of Incorporation filed with the State of              to update the
name of the EO from                                           to the
                 The EO received an affirmation letter dated           ,     , which states:

Exhibit B
“In                  we issued a determination letter that recognized your organization as exempt
from federal income tax. Our records indicate that your organization is currently exempt under
section 501(c)(3) of the Internal Revenue Code.

Our records indicate that you are also classified as a public charity under section 509(a)(3) of the
Internal Revenue Code.”

The form 990-EZ Short form Return of Organization Exempt from Income Tax filed by the EO for the
year beginning     ,      , through       ,      , described the EO’s primary exempt purpose
as:
                                                                                    .

In their response to Information Document Request #1 dated                                   ,         , The EO
provided the following as to the activities conducted by the EO.

 “The                                                (      ) is an organization established for the
 purpose of supporting, and which continues to support, the community of the
        , a public school within the                                  .
 The location of the school has changed, and as the school has become more established and
 evolved, so has the activity of the organization. However, the essential purpose remains the
 same - to support the teachers, staff, and broader community of the school through a variety of
 means.

 The school has a diverse student body from                       to     Grade, with the school having a
 project-based learning focus, within the                          curriculum. This includes field trips and
 classroom-based projects, which is part of what the                  was established to support.

 The          is composed of volunteers from the caregiver community, with regular meetings
 open to all. Officers are elected from the volunteers and serve a term of one school year, unless
 they need to resign due to exceptional circumstances. Officers may seek re-election. The
 officers lead and guide the ongoing activity of the      , including the activity listed below as
 well as from an administrative perspective such as budgeting and compliance. Members of staff
 from the school attend meetings to provide input from the school and staff perspective. Meetings
 are advised in advance to allow additional members of the community to attend, and minutes are
 subsequently posted to the website.



Catalog Number 20810W                   Page    2                 www.irs.gov                     Form 886-A (Rev. 5-2017)
                                  Department of the Treasury – Internal Revenue Service                Schedule number
      Form 886-A                                                                                       or exhibit
       (May 2017)                     Explanations of Items
  Name of taxpayer                                         Tax Identification Number (last 4 digits)   Year/Period ended




In terms of specific current activity, this includes:

    - Providing grants to teachers in order to buy materials for the classrooms such as books,
 games and other supplies;
    - Providing meals and gift cards as a sign of appreciation to staff members;
    - Organizing school-wide community events such as coffee/hot chocolate meet ups and
 themed activity events including                 and            .
    - Providing grocery store gift cards to support families in need of additional support over
school breaks/Thanksgiving;
- Providing support for field trips, projects and school events, whether school-wide or
within specific grades, such as assisting with fundraising, wish list coordination or
purchasing supplies;
- Coordinating school improvement projects such as painting, repairs and decorating;
- Organizing fundraising to support other activities, such as bake sales and                 , as well
as soliciting donations from the school community.”

The EO indicated it is a Type III non-functionally integrated supporting organization on Schedule A
of Form 990-EZ for fiscal year ended           ,       .


LAW
IRC Section 509(a) defines the term “private foundation” to mean any domestic or foreign
organization described in section 501(c)(3) other than an organization described in section
509(a)(1), (2), (3) or (4). Organizations which fall into the categories excluded from the definition of
“private foundation” are generally those which either have broad public support or actively function
in a supporting relationship to such organizations. Organizations which test for public safety are also
excluded.

IRC Section 509(a)(1) excludes from the definition of private foundation organizations described in
section 170(b)(1)(A).

IRC Section 170(b)(1)(A)(vi) of the code describes organizations that normally receive a substantial
part of their support from governmental units and/or from direct or indirect contributions from the
general public.

IRC Section 1.170A-9(e) of the regulations further states that an organization will be treated as
being ‘public supported’ if it meets one of the following requirements:

(1) the organization's total amount of support which the organization normally receives from
governmental units, from contributions made directly or indirectly by the general public, or from a
combination of these sources, equals at least 33 1/3 percent of the total support normally received
by the organization, or



Catalog Number 20810W                   Page    3                 www.irs.gov                     Form 886-A (Rev. 5-2017)
                                  Department of the Treasury – Internal Revenue Service                Schedule number
      Form 886-A                                                                                       or exhibit
       (May 2017)                     Explanations of Items
  Name of taxpayer                                         Tax Identification Number (last 4 digits)   Year/Period ended




(2) the organization is ‘publicly supported’ based upon an analysis of all pertinent facts and
circumstances if the organization's total amount of support which the organization normally receives
from governmental units, from contributions made directly or indirectly by the general public, or from
a combination of these sources equals at least 10 percent of the total support, and the organization
is organized and operated as to attract new and additional public or governmental support on a
continuous basis.

IRC Section 509(a)(3) provides that an organization which is organized and at all times operated for
the benefit of, to perform the function of, or to carry out the purposes of one or more organization
describes in IRC 509(a)(1) and (2); and it is operated, supervised, or controlled by, or in connection
with, or operated in connection with one or more organizations described in 509(a)(1) and (2); and
isn’t controlled directly or indirectly by one or more disqualified person isn’t a private foundation.

Treas. Reg. 1.509(a)-4(g)(1)(i) states that the “operated, supervised, or controlled by” relationship is
established if the majority of the officers, directors, or trustees of the supporting organization are
appointed or elected by the governing body, members of the governing body, officers acting in their
official capacity, or the membership of one or more publicly supported organizations. A Type I
supporting organization must be operated, supervised or controlled by its supported organization(s),
typically by giving the supported organization(s) the power to regularly appoint or elect a majority of
the directors or trustees of the supporting organization. The relationship between the supported
organization(s) and the supporting organization is sometimes described as a parent-subsidiary
relationship.

Treas. Reg. 1.509(a)-4(h)(1) gives the definition of “supervised or controlled in connection with”.
These are referred to as Type II supporting organization. For a supporting organization to be
“supervised or controlled in connection with” one or more publicly supported organizations, there
must be common supervision or control by the persons supervising or controlling both the
supporting organization and the publicly supported organizations to ensure that the supporting
organization will be responsive to the needs and requirements of the publicly supported
organizations. To meet such requirement, the control or management of the supporting organization
must be vested in the same persons that control or manage the publicly supported organizations.

Treas. Reg. 1.509(a)-4(h)(2) provides that an organization won’t meet the definition of “supervised
or controlled in connection with” if it merely makes payments (mandatory or discretionary) to one or
more named publicly supported organizations even if the obligation to make the payments is
enforceable under state law and the supporting organization’s government instrument requires a set
amount be paid out. It states such arrangements don’t provide a sufficient “connection” between the
supporting organization and the needs and requirements of the publicly supported organization to
constitute supervisions or control in connection with such organization.

Treas. Reg. 1.509(a)-4(i) gives the requirements to meet the meaning of “operated in connection
with”. This is referred to as a Type III supporting organization. To meet this type the organization
must satisfy the notification requirement, the responsiveness test, and the integral part test.

Catalog Number 20810W                   Page    4                 www.irs.gov                     Form 886-A (Rev. 5-2017)
                                  Department of the Treasury – Internal Revenue Service                Schedule number
      Form 886-A                                                                                       or exhibit
       (May 2017)                     Explanations of Items
  Name of taxpayer                                         Tax Identification Number (last 4 digits)   Year/Period ended




   The notification requirement as stated in Treas. Reg. 1.509(a)-4(i)(2), applies to both FISOs and
non-FISOs that requires supporting organization give the supported organization(s) a written notice
describing the type and amount of all the support it had provided in the previous year, a copy of its
Form 990-EZ Short Form Return of Organization Exemption from Income Tax, and a copy of its
governing documents.

    The responsiveness test as stated in Treas. Reg. 1.509(a)-4(i)(3)(ii) requires that the supporting
organization elects one or more officers, directors, or trustees of the supporting organization are
elected or appointed by the board members of the supported organization, or; one or more board
members of the governing body of the supported organization are also officers, directors, or
trustees of, or hold other important officers in the supporting organization, or; the supporting
organization's officers, directors, or trustees maintain a close and continuous working relationship
with the officers, directors, or trustees of the supported organization, and that the supported
organization has a significant voice in the investment policies of the supporting organization, the
timing of grants, the manner of making grants, and the selection of the grant recipients.

    The integral part test can be met by being functionally integrated or non-functionally integrated.
Both the notification requirement and the responsiveness test are the same for Functionally
integrated type III supporting organization (FISOs) and Non- functionally Integrated type III
supporting organization (Non-FISOs), the integral part test is different for FISOs and non-FISOs as
provided in Treas. Regs. 1.509(a)-4(i)(1)(iii).

Functionally Integrated means the supporting organization engages in activities substantially all of
which directly further the exempt purposes of one or more supported organization, or the supporting
organization is the parent of the supported organizations, or the supporting organization is
supporting a governmentally supported organization. Treas. Regs. 1.509(a)-4(i)(4) states to meet
the requirement of engaging in activities that directly further the exempt purposes of the supported
organization the supporting organization must perform the functions of or carry out the purposed of
the supported organization(s) and but for the involvement of the supporting organization the
supported organization would normally be performing the activity.

Non- Functionally Integrated test requires the supporting organization to satisfy either the
distribution requirement or the attentiveness requirement. The distribution requirement is that the
supporting organization gives an amount that equals or exceeds distributable amount-85% of the
supporting organization’s adjusted net income for the prior year or the “minimum asset amount” (as
defined in Treas. Reg. Section 1.509(a)-4 (i)(5)(ii)(C)), which equals 3.5 percent of the excess of the
aggregate fair market value of the supporting organization’s non-exempt-use assets in the taxable
year immediately before the taxable year of the required distribution, over the acquisition
indebtedness for the non-exempt-use assets, with certain adjustments.

The attentiveness requirement is that the supporting organization distributes 1/3 or more of its
distributable amount to 1 or more supported organizations. The supported organization must be

Catalog Number 20810W                   Page    5                 www.irs.gov                     Form 886-A (Rev. 5-2017)
                                   Department of the Treasury – Internal Revenue Service                Schedule number
      Form 886-A                                                                                        or exhibit
       (May 2017)                      Explanations of Items
  Name of taxpayer                                          Tax Identification Number (last 4 digits)   Year/Period ended




attentive to the supporting organization. It is attentive if at least one of the following requirements is
satisfied:(1) supporting organization gives to the supported organization amounts that equal or
exceed 10% of the supporting organization’s total support, (2) the amount is necessary for the
supported organization to carry on its activity without interruption (has to be a substantial activity), or
(3) based on the consideration of all of the facts and circumstances, including number or supported
organizations, the length and nature of the relationship between the supported and supporting
organization, and the purpose to which the funds are put, the amount of support, etc.

TAXPAYER’S POSITION


The EO feels that it meets the requirements under IRC Section 509(a)(1) and 170(b)(1)(A)(vi). Its
arguments are provided that reads as follows:


“Both before and during the process of the recent examination of our organization,
                                                     , we have been reviewing whether the current
IRS classification of the organization was the most appropriate fit. As discussed during our
interview, it appears that the current classification was assigned to the organization as a
result of the prior classification no longer being in use, so for various reasons it seems
appropriate to review.
While the current classification of being a Supporting Organization largely fits how we are
organized and operate, as we are indeed primarily organized in support of
        , part of the                                        , there are aspects of it which do not feel
as good a match. For example, we support the broader school community, and the
additional reporting requirements for this category feel more onerous than makes sense for
an organization that has a relatively low income and expenditure and is run solely by
volunteers.
As such, we believe a change in classification to a more general non-profit classification
would be a more appropriate fit. We are funded almost exclusively by individual donations
from the public, and have completed the Section A, Part 2 form to show this. This
classification is in line with other similar organizations that we are familiar with as well.
We look forward to hearing the result of the review.”




Catalog Number 20810W                    Page    6                 www.irs.gov                     Form 886-A (Rev. 5-2017)
                                   Department of the Treasury – Internal Revenue Service                Schedule number
      Form 886-A                                                                                        or exhibit
       (May 2017)                      Explanations of Items
  Name of taxpayer                                          Tax Identification Number (last 4 digits)   Year/Period ended




GOVERNMENT’S POSITION-

The                                                 doesn’t meet the definition of a supporting
organization in Treas. Reg. 1.509(a)-4. There are three types of supporting organization: I)
operated, supervised, or controlled by, II) supervised or controlled in connection with, and III)
operated in connection with, one or more publicly supported organizations. A supported
organization is expected to have a say in the operation of the supporting organization as to the
investment policies and how the grants are made; to who to and amounts.

Type I is defined in Treas. Reg. 1.509(a)-4(g)- The relationship required under any one of these
terms is comparable to that of a parent and subsidiary, where the subsidiary is under the direction
of, and accountable or responsible to, the parent organization. This relationship is established by
the fact that a majority of the officers, directors, or trustees of the supporting organization are
appointed or elected by the governing body, members of the governing body, officers acting in their
official capacity, or the members of one or more publicly supported organization.

Type II is defined in Treas. Reg. 1.509(a)-4(h). It requires common supervision or control by the
persons supervising or controlling both the supporting organization and the publicly supported
organization. The last sentence of paragraph (h)(1) says, “Therefore, in order to meet such
requirement, the control or management of the supporting organization must be vested in the same
persons that control or manage the publicly supported organizations”.
Type III is defined in Treas. Reg. 1.509(a)-4(i)- It requires that it meet the notification requirement,
the responsiveness test, and the integral part test.
The first step to determine if an organization qualifies under IRC Section 509(a)(3) is to see if it
meets the definition of type I, II, or III. On Form 990-EZ the EO selected on Schedule A that they are
a type III non-functionally integrated supporting organization.
To qualify as a Type I supporting organization supported organization the officers, directors, or
trustees of the supporting organization are appointed or elected by the governing body, members of
the governing body, officers acting in their official capacity, or the membership of one or more
publicly supported organizations. The EO does not have board member on the board of the
supported organization.
To qualify as a Type II supporting organization the supported and supporting organizations must be
controlled or managed by the same persons. Treas. Reg. 1.509(a)-4(h)(1) specifically states that in
order to meet the requirements of “supervised or controlled in connection with” the control or
management of the supporting organization must be vested in the same persons that control or
manage the publicly supported organizations.
In the case of a Type I or Type II supporting organization, the supported organization(s) are in
control of the supporting organization. Type I because the supporting organization is a subsidiary of
the supported. Type II because the same persons control or manage the supporting and the
supported organizations. By being in control the supported organizations are determining the


Catalog Number 20810W                    Page    7                 www.irs.gov                     Form 886-A (Rev. 5-2017)
                                 Department of the Treasury – Internal Revenue Service                Schedule number
      Form 886-A                                                                                      or exhibit
       (May 2017)                    Explanations of Items
  Name of taxpayer                                        Tax Identification Number (last 4 digits)   Year/Period ended




investment policies and the amounts given and who given to; therefore, the supporting organization
can’t decide to give to a different organization unless the supported organization allows it. This
section doesn’t mean that if an organization gives to more than one organization that it meets the
definition of a type II. To be a type II supporting organization there must be common supervision
and/or control of both the supported and the supporting organizations. The EO doesn’t have
common supervision or control with the supported organizations therefore, it doesn’t meet the
definition of a Type II supporting organization.
Type III supporting organizations as defined in Treas. Reg. 1.509(a)(4)(i) require that the supported
organizations have a significant voice in the investment policy, grants being made-who to and the
amounts, and when the grants are paid. To meet the definition of a type III supporting organization
and an organization must meet the notification requirement, the responsiveness test, and the
integral part test.
To meet the notification requirement the supporting organization must provide a written notice to a
principal officer of the supporting organization describing the type and amount of all support it
provided during the preceding year, a copy of the Form 990 for the previous year, and a copy of the
most recent governing documents. The EO only provide copies of the Form 990 but failed to provide
the supported organization with copies of its governing documents and written notice to a principal
officer of the supporting organization.
The responsiveness test has two parts: relationship of the officers and significant voice. The
relationship test requires that one or more officers, directors, or trustees of the supporting
organization are elected or appointed by the supported organization or one or more of the governing
body of the supported organization also hold important offices in the supporting organization, or the
board of the supporting organization maintains a close and continuous working relationship with the
board of the supported organization, and the supported organization must have a significant voice in
the investment policies of the supporting organization, the timing of grants, the manner of making
grants, and the selection of grant recipients, and the use of the income and assets of the supporting
organization.
In this case none of the supported organizations elect or appoint persons to
                                           and not of them know of the financials of the EO or the
decision-making process on the grants. Therefore, the EO doesn’t meet the responsiveness test.
The integral part test can be met by being functionally integrated or non-functionally integrated. To
be functionally integrated the supporting organization engages in activities that directly further the
exempt purposes of one or more supported organizations or that the supporting organization is the
parent of the supported. Engaging in activities that further the supported organization’s exempt
purpose means carrying out the functions of the supported organization and without the supporting
organization doing those activities wouldn’t be done. The EO engage in activities for the supported
organizations such as providing grants to teachers in order to buy materials for the classrooms such
as books, games, and other supplies. The EO also performs appreciation activity that the EO did
unprompted for the supported organization such as Teacher Appreciation lunches. Therefore, it isn’t
functionally integrated.


Catalog Number 20810W                  Page    8                 www.irs.gov                     Form 886-A (Rev. 5-2017)
                                  Department of the Treasury – Internal Revenue Service                Schedule number
      Form 886-A                                                                                       or exhibit
       (May 2017)                     Explanations of Items
  Name of taxpayer                                         Tax Identification Number (last 4 digits)   Year/Period ended




On Form 990-EZ the EO stated on Schedule A they were a Type III non-functionally integrated
supporting organization that distributed . % of its net income for the prior year to the
                                                             . The non-functionally integrated test
requires that the supporting meets the distribution requirement or the attentiveness requirement. To
meet the distribution requirement the supporting organization, need to distribute 85% of its adjusted
net income for the prior year to one or more supported organizations. The attentiveness
requirement is to ensure that the supported organization is attentive to the supporting organization.
To meet the attentiveness requirement the supporting organization has to give an amount to the
supported organization that exceeds 10% of the total support of the supported organization or the
amount given is enough to carry on an activity without interruption.
                                                 doesn’t meet the definition of a Type III Supporting
Organization because it doesn’t meet the notification requirement or the responsiveness test. It
hasn’t established if it meets the integral part test; the amounts received by the supported
organization is less than 85% of its distributable amount and less than 10% of their total support.
The EO states it meets the requirements under IRC Section 509(a)(1) and 170(b)(1)(A)(vi). The EO
provided Schedule A Public Charity Status and Public Support Part II Support Schedule for
Organizations Described in Sections 170(b)(1)(A)(vi) and 170(b)(1)(A)(vi) which shows the
computation of the Public Support Percentage for the 4-year period immediately preceding the year
under examination. Computation of the Public Support Percentage for the tax year ending             ,
     , is %. The EO meet the required support percentage of 33 1/3 percent or more and is
described as an organization describes in IRC 170(b)(1)(A)(vi) and receives a substantial part of its
support from gifts, grants, and contributions from the general public.

CONCLUSION

The                                                 did not satisfy the attentiveness and distribution
requirements therefore is not classified Type III Non-functionally integrated Supporting
Organization. However, the EO will be classified as a public charity described in section 509(a)(1)
and 170(b)(1)(A)(vi). Therefore,                                                  cannot qualify for the
“operated, supervised or controlled by” (Type 1) relationship test, “supervised or controlled in
connection with” (Type II) relationship test and (Type III) “operated in connection with” relationship
test.

                                                 meets the requirements of a Public Charity as
describes in IRC Section 509(a)(1) and 170(b)(1)(A)(vi).
The EO’s tax exempt status under IRC Section 501(c)(3) remains in effect. The effective date of this
classification is    ,     .

If you agree to this conclusion, please sign the attached Form 6018.

If you disagree, please submit a statement of your position.



Catalog Number 20810W                   Page    9                 www.irs.gov                     Form 886-A (Rev. 5-2017)