A “Type III Supporting Organization” is an organization that is “operated in connection with” an IRS-approved supported organization.
By virtue of its connection with the Supported Organization, the IRS treats the Type III Supporting Organization as a Public Charity.
Therefore, a Type III is a Supporting Organization that often looks and feels like a Private Foundation, but maintains all of the benefits of a Public Charity.
How is this blessed state achieved?
Ah, there’s the rub!
Technical Requirements for Achieving Supporting Organization Status
In order to qualify for Supporting Organization status, an organization must go through an elaborate gauntlet of technical and regulatory requirements that are almost as Byzantine as the rules for Private Foundations themselves.
As the U.S. Tax Court itself famously observed:
“The IRS has drafted fantastically intricate and detailed regulations to thwart the fantastically intricate and detailed efforts of taxpayers to obtain private benefits from foundations while evading the imposition of taxes.”
– Windsor Foundation v. United States, 77-2 U.S.T.C. 9709 (E.D. Va. 1977)
The IRS has designed a battery of tests to ensure that the Type III Supporting Organization is not a vehicle for many of the abuses perceived in the Private Foundation arena.
Such tests include:
- the Relationship Test
- the Responsiveness Test
- the Integral Part Test
- the Operational Test, and
- the Control Test
just to name a few.
So why would any Donor willingly subject himself to complying with this barrage of compliance rules?
Let’s examine some of the key Advantages of a Type III Supporting Organization.