Recently issued Proposed Regulations provide guidance on how a Type III Supporting Organization can be "responsive" to each of its supported organizations.

In general, for a Type III Supporting Organization to meet the responsiveness test, its supported organization must be adequately represented in the Type III Supporting Organization's governing body and the supported organization must have a significant voice in how the Type III Supporting Organization manages its assets.

Adequate representation is usually accomplished by having the supported organization appoint at least one officer or director of the Type III Supporting Organization or by having at least one officer or director of the Type III Supporting Organization serve as an officer or director of the supported organization.  Adequate representation may also be established by showing that the officers and directors of the Type III Supporting Organization and the officers and directors of the supported organization maintain a close and continuous working relationship.

A supported organization has a significant voice in how the Type III Supporting Organization manages its assets if officers or directors of the two organizations meet with one another on at least a quarterly basis and communicate regularly with one another regarding the Type III Supporting Organization's investments and grant-making activities.

Absent the new Proposed Regulations, Type III Supporting Organizations that served multiple supported organizations were left with the administrative burden of satisfying the responsiveness test for each supported organization.

While the Proposed Regulations continue to require that a Type III Supporting Organization be responsive to each of its supported organizations, the Proposed Regulations do provide some guidance on how the task can be accomplished without creating an administrative nightmare.

The Proposed Regulations reflect that a Type III Supporting Organization will meet the responsiveness test in regards to multiple supported organizations under the following facts:

  • Z is a Type III Supporting Organization that supports ten different organizations.
  • One of the directors of S (one of the supported organizations) is a voting member of Z's board of directors and participates in Z's regular board meetings.
  • Officers of Z hold regular meetings (either in person or by phone) during the year and invite the officers of all the supported organizations.
  • Prior to the meetings, Z sends the supported organizations up-to-date information about its activities, including its assets and liabilities, receipts and distributions and investment policies and returns.
  • In the meetings, officers of each of the supported organizations have an opportunity to ask questions and discuss with Z's officers each organization's projected needs, as well as Z's investment and grant-making policies and practices.
  • Z provides the contact information of one of its officers to each of the supported organizations and encourages each supported organization to contact that officer if it has questions, or if it wishes to schedule additional meetings.

Notably, the Proposed Regulations reflect that Z's meetings with its supported organizations may be held jointly or separately.

So, while a Type III Supporting Organization must satisfy the responsiveness test in regards to each of its supported organizations, the Proposed Regulations attempt to provide some short cuts and potential economies of scale. These measures should help ensure that a Type III Supporting Organization will not be harnessed by administrative considerations that would prevent the organization from serving several supported organizations simultaneously.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.