Page 17 - TaxAdviser_Jan_Apr23_Neat

Law with the supported organization’s trustees did not maintain a close, con-
Under Regs. Sec. 1.509(a)-4(b)(1), to officers, directors, or trustees (Regs. tinuous working relationship with their
qualify as a supporting organization, Sec. 1.509(a)-4(i)(3)(ii)). counterparts in the supported organiza-
a Sec. 509(a)(3) organization must Finally, for a Type III supporting tion; and the supported organization
be both organized and operated exclu- organization to meet the responsiveness did not have a significant voice in the
sively “for the benefit of, to perform the test, the officers, directors, or trustees of entity’s investment policies or grant-
functions of, or carry out the purposes the supported organization must “have making activities. The IRS explained
of … one or more specified publicly a significant voice in the investment that the organization was not operated
supported organizations.” policies of the supporting organiza- exclusively for charitable purposes be-
Further, a Type III supporting tion, the timing of grants, the manner cause its activities were more social than
organization that is operated in con- of making grants, and the selection of charitable in nature. In fact, the IRS
nection with (as opposed to a Type I grant recipients by [the] supporting suggested that the organization should
or II supporting organization that is organization, and in otherwise direct- consider applying for IRS recognition of
supervised or controlled by, or in con- ing the use of the income or assets of exemption as a Sec. 501(c)(7) social club.
nection with) one or more supported the supporting organization” (Regs.
organizations must satisfy the require- Sec. 1.509(a)-4(i)(3)(iii)). Implications
ments of the “responsiveness test” under The revocation notice in this case sheds
Regs. Sec. 1.509(a)-4(i)(3) by being IRS conclusion some light on the IRS’s review process
responsive to the needs or demands of The IRS revoked the supporting orga- for determining qualification as a sup-
its supported organization(s). A sup- nization’s Sec. 501(c)(3) and Sec. 509(a) porting organization under Sec. 509(a)
porting organization can satisfy this (3) tax-exempt supporting organization (3). For instance, the IRS analyzed
requirement only if (1) at least one of status because it did not satisfy the Type whether this organization met the
its officers, directors, or trustees was III supporting organization responsive- Type III responsiveness test but did not
elected or appointed by the supported ness test and did not operate exclusively include an analysis in the letter regard-
PHOTO BY KASTO80/GETTY IMAGES member of the supported organization’s because none of its officers, directors, organization requirements. Rather, the
for charitable purposes. The organiza-
ing whether or how it met the Type III
organization’s officers, directors, trust-
integral-part test or other supporting
tion failed the responsiveness test
ees, or membership; (2) at least one
or trustees were elected or appointed
IRS suggested in the revocation letter
governing body is an officer, director,
by the supported organization; the two
that this organization would be more
trustee, or other important individual in
likely to qualify under Sec. 501(c)(7) as
the supporting organization; or (3) its
organizations had no officers, directors,
a social club — that is, a club organized
officers, directors, or trustees maintain a
or trustees in common; the supporting
close, continuous working relationship
January 2023 15
www.thetaxadviser.com organization’s officers, directors, and and operated exclusively “for pleasure,