Exempt Organizations Advisory - IRS Provides Procedures for Trusts Qualifying as Supporting Organizations

Catherine W. Wilkinson (cwilkinson@steptoe.com)
Suzanne Ross McDowell (smcdowell@steptoe.com)  

In Notice 2010-19, the IRS provides ruling and refund procedures for charitable trusts that meet the requirements to be classified as Type III supporting organizations under Proposed Regulations which were published on September 24, 2009, but paid private foundation excise taxes on investment income because they erroneously believed that they were classified as private foundations under changes made by the Pension Protection Act of 2006 (“PPA”). 

To qualify as a Type III supporting organization, a section 501(c)(3) organization must, among other things, meet a responsiveness test. The PPA eliminated the special responsiveness test under which charitable trusts could qualify as supporting organizations. Now, charitable trusts must satisfy the “significant voice test” of Treas. Reg. § 1.509(a)-4(i)(2)(iii) in order to meet the responsiveness test and be considered a Type III supporting organization. In Notice 2008-6 the IRS provided that any charitable trust that no longer met the requirements for classification as a supporting organization because of the changes made by the PPA would not be required to file a Form 990-PF and pay excise taxes as a private foundation until tax years starting in 2008. 

On September 24, 2009, the IRS published proposed regulations for Type III supporting organizations based on the changes made by the PPA, and provided additional guidance on the application of the significant voice test to charitable trusts. These regulations included examples illustrating how charitable trusts could meet the requirements. Based on this guidance, many charitable trusts that had believed that they would be treated as private foundations found that they could still satisfy the requirements for classification as Type III supporting organizations. 

Notice 2010-19 provides these trusts with procedures for requesting: (1) rulings stating that they are Type III supporting organizations and (2) refunds for private foundation excise taxes paid in 2008. A trust that receives a ruling that it satisfies the requirements for classification as a Type III supporting organization must file a Form 990 for tax year 2008 within 120 days of receiving the ruling. The Notice also provides procedures for these charitable trusts that became private foundations after the enactment of the PPA because they thought they no longer met the requirements for supporting organization status to terminate their private foundation status by operating as Type III supporting organizations.