A supporting organization is a specific type of public charity that carries out its exempt purpose by supporting other exempt organizations, usually other public charities.
The key feature of a supporting organization is a strong relationship with an organization it supports. The strong relationship enables the supported organization to oversee the operations of the supporting organization. Therefore, the supporting organization is classified as a public charity, even though it may be funded by a small number of persons in a manner similar to a private foundation.
Why does this classification matter?
The classification is important because it is one way that a charity can avoid being classified as a private foundation, a status that is subject to a much more restrictive regulatory regime.
All 501(c)(3) organizations are considered private foundations unless they qualify as public charities. It can be to a nonprofit’s advantage to be a public charity, as private foundations are more closely scrutinized, regulated, and taxed than public charities. The thinking that underpins this regulatory framework is that the donating public will “discipline” public charities far more efficiently than government oversight can. (For more information on the differences between public charities and private foundations, see Nonprofit Law Basics: What is the Difference Between a Public Charity and a Private Foundation?)
To qualify as a public charity, an organization must pass what is called the “public support test.” While most public charities qualify for this designation by receiving direct support from the public, supporting organizations qualify as public charities because they support either another public charity or the charitable activities of a 501(c)(4), (5), or (6) organization. (The organization that receives the support is referred to as a supported organization.)
There are three types of supporting organizations:
- Type I–a supporting organization that is under direct control of the supported organization
- Type II–a supporting organization that is under common control with the supported organization (also known as “brother/sister” organizations)
- Type III–a supporting organization that is not necessarily related to the supported organization(s)
How Do You Know if a Charity Is a Supporting Organization?
Contact the organization or the IRS to determine if it is a supporting organization. The charity’s letter of determination, which is a public document, will note that it is not a private foundation because it is a section 509(a)(3) organization – a Supporting Organization. You will need to further inquire with the charity or the IRS to determine if the nonprofit is a Type I, Type II, or Type III supporting organization.
Resources
Council on Foundations: Determination of Supporting Organization Status
See the related article Nonprofit News: Supporting Organizations Under Pressure
What is the Difference Between a Public Charity and a Private Foundation?
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