The IRS and the US Department of the Treasury issued final regulations on October 13, 2023, that prohibit certain contributions to Type I and Type III supporting organizations from persons or entities that control a supported organization of those supporting organizations.
The final regulations state that control of a supported organization occurs if a person or entity holds more than 50% of the voting power of the governing body or can exercise veto power over the actions of the governing body. Even if the control test isn’t met, a person or entity can also be treated as controlling the governing body of the supported organization based on facts and circumstances.
The final regulations also provide other additional rules for Type III supporting organizations, including:
- Requirements to meet the responsiveness test for all Type III supporting organizations
- Rules on how an organization qualifies as a functionally integrated Type III supporting organization
- Rules on required annual distributions for a non-functionally integrated Type III supporting organization
The final regulations adopt the proposed regulations issued in 2016 with some modifications. The final regulations apply to tax years beginning on or after October 16, 2023, but taxpayers may choose to apply them to tax years beginning on or after February 19, 2016, as long as they apply them in their entirety and in a consistent manner.
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For more information on these final regulations, contact your Moss Adams professional.