So What Type of Supporting Organization Are You?

February 21, 2011

All 501(c)(3) charities are classified as either a public charity or a private foundation.  Classification as a public charity is more beneficial from a tax perspective than classification as a private foundation.  You can read the disadvantages of a private foundation as presented by the IRS on their website.

In general, supporting organizations fall into one of three categories – Types I, II, or III – depending on the nature of the relationship between the supporting organization and the charities being supported.  Unfortunately, IRS determination letters do not indicate whether an organization qualifies as a Type I, II, or III supporting organization.  Determining the type of supporting organization will require a review of governing documents and knowledge of the specific requirements for Types I, II or III supporting organizations.

So what type of supporting organization are you?

Type I organizations are often described as a parent-subsidiary relationship and generally involves a supported charity’s officers, directors, trustees or members having the right to appoint a majority of the officers, directors, or trustees of the supporting organization.

Type II organizations usually have an overlapping board relationship where at least a majority of the members of the supporting organization’s governing board are also members of a supporting charity’s governing board.

Type III organizations may have no, or minimal, board overlap.  Accordingly, it operates with a greater degree of independence from the organization or organizations it supports, but it is required to have procedures designed to ensure that the supporting organization is responsive to the supported organization or organizations.   There is a new sub-category for Type III for those organizations that are “functionally integrated” with their supported organization.  This means that the organization performs the functions of, or carries out the purposes of, a supported organization.

The “Simplified Example of Governance and Structure of Type I, II, and III Supporting Organizations,” prepared by the United States General Accounting Office, provides additional insight into the different types of organizations.

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