Daily Tax Update - February 18, 2016: Supporting Organization Proposed Rules Released

Supporting Organization Proposed Rules Released:  Today the IRS and the Treasury Department released proposed regulations regarding the prohibition on certain contributions to Type I and Type III supporting organizations and the requirements for Type III supporting organizations.  The regulations reflect changes to the law made by the Pension Protection Act of 2006.  

Specifically, the proposed regulations define the term “control” for purposes of section 509(f)(2), which prohibits a Type I supporting organization or a Type III supporting organization from accepting contributions from persons who control the governing body of its supporting organization(s).  The proposed regulations also set forth additional rules on the requirements for Type III supporting organizations, including (i) additional requirements to meet the responsiveness test for all Type III supporting organizations; (ii) additional rules regarding the qualification of an organization as a functionally integrated Type III supporting organization under Treas. Reg. § 1.509(a)-4(i)(4), including provisions for supporting organizations that support governmental entities; and (iii) additional rules regarding the required annual distributions under Treas. Reg. § 1.509(a)-4(i)(5) by a NFI Type III supporting organization.  
 
Eleventh Circuit Rejects Challenges to Affordable Care Act:  Today the US Court of Appeals for the Eleventh Circuit ruled against plaintiffs challenging the regulations implementing the Affordable Care Act.  Specifically, the plaintiffs argued that the regulations’ accommodation for nonprofit organizations with a religious objection to providing contraceptive coverage violates the Religious Freedom Restoration Act.  The Eleventh Circuit concluded that the regulations do not substantially burden plaintiffs’ religious exercise and further stated that (i) the government has compelling interests to justify the accommodation, and (ii) the accommodation is the least restrictive means of furthering those interests.  The Eleventh Circuit also rejected the plaintiffs’ First Amendment challenges.