An Introduction to Supporting Organizations

A nonprofit organization that is organized and operated exclusively for charitable purposes may be deemed a public charity (and not a private foundation) under section 501(c)(3) of the Internal Revenue Code (IRC) in one of three principal ways.

  1. It meets certain requirements based on the nature of its activities.
  2. It qualifies as a "publicly supported charity" based on a mathematical public support test.
  3. It is a "supporting organization" to another public charity. 

In previous posts, we briefly addressed organizations of the first and second categories. Here we will discuss supporting organizations and the tests and requirements that determine whether an organization qualifies as one under IRC section 509(a)(3).

 A supporting organization is a nonprofit organization that is deemed a public charity by virtue of its relationship with one or more affiliated public charities ("supported organization(s)"). Unlike organizations in categories 1 and 2 above, supporting organizations are classified on the basis of their relationship with another public charity. Nonetheless, they do need to be both organized and operated exclusively for charitable purposes.

Supporting organizations can gain their status through their support of other types of organizations — those defined under IRC sections 501(c)(4), 501(c)(5), and 501(c)(6), for example. However, our discussion here is limited to the more common situation in which the supported organizations are U.S. public charities, exempt under section 501(c)(3).

The 509(a)(3) Supporting Organization Tests

To qualify as a supporting organization, in addition to being organized and operated exclusively for charitable purposes, an organization must satisfy all four of the following tests.

  1. A relationship test: The supporting organization must be operated, supervised, or controlled by or in connection with one or more supported organizations. IRC §509(a)(3)(B).
  2. An organizational test: The supporting organization must be organized exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more supported organizations. IRC §509(a)(3)(A).
  3. An operational test: The supporting organization must be operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more supported organizations. IRC §509(a)(3)(A).
  4. A control test: The supporting organization must not be controlled directly or indirectly by one or more disqualified persons. IRC §509(f)(2).

Supporting organizations are categorized into three subtypes under IRC section 509(a)(3), depending on the relationship they have with their supported organization(s): Type I, Type II, and Type III. 

Type I Supporting Organizations

To satisfy the relationship test, a Type I supporting organization must be operated, supervised, or controlled by its supported organization(s). This relationship is equivalent to a parent-subsidiary relationship. It is typically evidenced where the supported organization has the power to appoint or elect a majority of the directors or trustees of the supporting organization.

The organizational test is met for a Type I supporting organization if its governing documents

  • Name the supported organization(s) on whose behalf it is operated, either by name or by relationship
  • State that it is organized exclusively for the benefit of, to perform the functions of, or to carry out the purposes of the supported organization(s)
  • Limit it to the aforementioned activities

The operational test is met for a Type I supporting organization if it is clear that the supporting organization is supporting the public charity. For example, it could be making grants or payments to or for the use of the public charity or fundraising for it.

Finally, the supporting organization must show that it is not directly or indirectly controlled by disqualified persons.

Type II Supporting Organizations

To satisfy the relationship test, a Type II supporting organization must be supervised or controlled in connection with its supported organization(s). This relationship is equivalent to a brother-sister relationship. It is typically evidenced where the same people control both the supporting and the supported organization. For example, a majority of the directors or trustees of the supported organization(s) could also serve as a majority of the directors or trustees of the supporting organization.

The organizational, operational, and control tests for Type II supporting organizations are the same as for Type I organizations.

Type III Supporting Organizations

To satisfy the relationship test, a Type III supporting organization must be operated in connection with its supported organization(s). A Type III supporting organization has a more attenuated relationship with its supported organization. It therefore must satisfy an additional responsiveness test and an integral part test. If it does, it is deemed "functionally integrated" and subject to the same rules as other supporting organizations.

If an organization does not meet these two tests, it will be deemed a Type III non–functionally integrated supporting organization. As such, it will be subject to additional restrictions that resemble the requirements imposed on private foundations that make grants to noncharitable organizations (such as expenditure responsibility). Type III supporting organizations are relatively uncommon and are complicated. We therefore will not go into further detail in this post. For more information, visit the IRS website

What If an Organization Fails One of the Tests?

If a nonprofit organization does not qualify as a supporting organization, it still might qualify as a public charity. For example, if the organization is organized and operated for charitable purposes but cannot meet all four tests described above, it might be able to qualify if it passes the public support tests. If an organization does not qualify as a public charity but is otherwise organized and operated for charitable purposes, it will likely be classified as a private foundation. 

Can a Non-U.S.-Based Organization Qualify for Equivalency Determination as a Supporting Organization?

In short, yes! To qualify as a supporting organization, a non-U.S.-based organization must be able to clearly show that it meets the requirements of a Type I, Type II, or Type III functionally integrated supporting organization. If the organization demonstrates that it meets these requirements, NGOsource will certify the organization as the equivalent of a 509(a)(3) supporting organization. U.S.-based grantmakers will then be able to treat the organization in that way. 

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