What Is a Supporting Organization According to the IRS?

A supporting organization is a specific type of public charity structured to support other charitable organizations, which are typically public charities themselves. This structure allows an organization to gain the favorable status of a public charity without needing to solicit funds broadly from the general public. The Internal Revenue Service (IRS) grants this classification based on a close and formal relationship between the supporting entity and the organization it benefits. This connection ensures the supported organization has a degree of oversight over the supporting organization’s operations, which is what the IRS scrutinizes for qualification.

Public Charity Status and Its Significance

The primary motivation for an organization to seek this status is to be classified as a public charity rather than a private foundation. When a new nonprofit applies for 501(c)(3) tax-exempt status, the IRS presumes it is a private foundation by default. The organization must prove it qualifies for public charity status, and classification as a supporting organization under section 509(a)(3) is one way to do this.

Private foundations face more restrictive regulations, such as an excise tax on their net investment income, which public charities do not pay. Private foundations must also adhere to strict rules regarding annual distributions, requiring them to pay out at least 5% of their asset value each year. Furthermore, the rules governing “self-dealing” are far more stringent for private foundations. Donors also receive more favorable tax deductions for contributions to public charities, which can make fundraising easier.

The Three Types of Supporting Organizations

The IRS categorizes supporting organizations into three types based on the nature of their relationship with the public charities they support. This classification system is outlined in the Internal Revenue Code and dictates the level of control required between the entities.

Type I: Operated, Supervised, or Controlled By

A Type I supporting organization has the most direct relationship, defined as being “operated, supervised, or controlled by” the supported organization. The structure is often compared to a parent-subsidiary relationship. This control is established by giving the supported public charity the power to appoint or elect a majority of the directors on the supporting organization’s governing board. The organizational documents must reflect this power dynamic.

Type II: Supervised or Controlled in Common With

A Type II supporting organization operates under a “supervised or controlled in connection with” relationship, analogous to a “brother-sister” relationship. This structure exists where the same individuals control or manage both the supporting and supported organizations. For a Type II relationship to be valid, a majority of the individuals on the supporting organization’s board must also make up a majority of the board of the supported charity.

Type III: Operated in Connection With

The Type III supporting organization is the most complex category, defined as being “operated in connection with” one or more public charities. Because this relationship does not rely on direct control, Type III organizations must meet demanding tests to prove they are responsive to and involved in the operations of the charities they support. This involves satisfying both a Responsiveness Test and an Integral Part Test.

The Responsiveness Test demonstrates that it is attentive to the needs of the charity it supports. This is achieved by having at least one officer or director of the supported organization also serve on the supporting organization’s board, or by establishing a close working relationship that gives the supported organization a significant voice. The Integral Part Test requires the supporting organization to show it is essential to the supported charity’s mission.

Functionally Integrated (FI)

A Type III FI organization is deeply involved in the supported charity’s programs, performing functions that the supported organization would otherwise have to carry out itself. To meet the Integral Part Test, an FI must demonstrate that the supported charity’s work depends on the supporting organization’s activities.

Non-Functionally Integrated (NFI)

A Type III NFI organization primarily provides financial support through grants. Because its operational involvement is less direct, it is subject to stricter rules. To satisfy the Integral Part Test, an NFI must meet specific annual payout and attentiveness requirements.

IRS Qualification Tests and Requirements

To qualify, a supporting organization must satisfy four IRS tests. The organizational and operational tests require that the entity’s governing documents and activities exist exclusively for the benefit of its supported charities. The relationship test, which defines the organization as Type I, II, or III, was detailed above. The final requirement is the control test.

The Control Test

The control test prohibits the organization from being controlled, directly or indirectly, by one or more “disqualified persons.” Disqualified persons are defined as substantial contributors, their family members, or entities they control. However, foundation managers and the supported public charities themselves are not considered disqualified persons for this test.

The IRS defines control as the practical ability to require the organization to perform any act that significantly affects its operations or to prevent such an act. Control can be established through voting power of more than 50%, veto rights, or a facts-and-circumstances analysis.

Annual Filing and Reporting Obligations

Supporting organizations must fulfill specific annual reporting duties to maintain their status with the IRS. These obligations are met by filing Form 990, Return of Organization Exempt From Income Tax, and its accompanying Schedule A. On Schedule A, the organization must formally attest to its compliance with the supporting organization rules each year.

In Part I, the organization must check the box that corresponds to its specific classification: Type I, Type II, Type III Functionally Integrated, or Type III Non-Functionally Integrated. Part IV of Schedule A is dedicated entirely to supporting organizations. Here, the organization must provide the name, address, and employer identification number (EIN) of each of its supported organizations. It must also certify that it continues to meet the control test and attest that it satisfies the specific requirements for its type.