IRS Issues Interim Guidance for Type III Functionally Integrated Supporting Organizations

In Notice 2014-4, the IRS provided guidance regarding how a Type III supporting organization can qualify as functionally integrated (the more favorable classification for this type of supporting organization under a variety of applicable tax rules) by supporting a governmental supported organization.  More specifically, the notice provides that until final regulations are published or two or so years have passed (whichever occurs earlier), a Type III supporting organization will be treated as functionally integrated if it:

(1) Supports at least one supported organization that is a governmental entity to which the supporting organization is responsive within the meaning of § 1.509(a)–4(i)(3); and

(2) Engages in activities for or on behalf of the governmental supported organization described in paragraph (1) that perform the functions of, or carry out the purposes of, that governmental supported organization and that, but for the involvement of the supporting organization, would normally be engaged in by the governmental supported organization itself.

This guidance once again highlights the complexity of the supporting organization rules, which are also illustrated by the now out-dated flow chart provided above that the IRS prepared before the 2006 amendment of the relavent statutory provisions.

Lloyd Mayer