Foreign-support charity reclassified as publicly supported

Plain-English summary

A section 501(c)(3) organization had been classified as a Type III functionally integrated supporting organization while supporting an organization formed outside the United States. Treasury regulations prohibit Type III supporting organizations from supporting foreign organizations, so the IRS found that the charity failed the required relationship test and could not retain section 509(a)(3) status. The organization nevertheless remained tax exempt. Its records showed that churches and individual donors supplied enough support to satisfy the public-support test. The IRS therefore reclassified it under sections 509(a)(1) and 170(b)(1)(A)(vi), rather than treating it as a private foundation.

Ruling snapshot

• Question: Could a charity supporting a foreign organization retain Type III supporting-organization status, or did it qualify under a different public-charity classification?
• Outcome: approved
• Key authorities: IRC §§ 170(b)(1)(A)(vi), 501(c)(3), 509(a)(1), 509(a)(3); Treas. Reg. §§ 1.170A-9, 1.509(a)-4(i)(10); Rev. Rul. 78-95

Full text (IRS public release)

Department of the Treasury Date: 10/20/2023
Internal Revenue Service

IRS Tax Exempt and Government Entities Taxpayer ID number (last 4 digits):

Form:

Release Number: 202404009 Tax periods ended:

Release Date: 1/26/2024

UIL Code: 501.03-00 Person to contact:
Name:
ID number:
Telephone:
Fax:

Last day to file petition with United States
Tax Court: 1/18/2024

CERTIFIED MAIL - Return Receipt Requested
Dear ;

This is a final determination regarding your foundation classification. This modifies our letter dated .
, in which we determined that you were an organization described in Internal Revenue Code (IRC) Section

501(c)(3) as a Type II Functionally Integrated Supporting organization (FISO). This letter modifies your

foundation status to that of a public charity described in IRC Sections 501(c)(3) and 170(b)(1)(A)(vi), effective

Your tax-exempt status under IRC Section 501(c)(3) of the Code is not affected. Grantors and contributors may
rely on this determination, unless the Internal Revenue Service publishes a notice to the contrary. Because this
letter could help resolve any questions about your private foundation status, please keep it with your permanent
records.

We previously provided you a report of examination explaining the proposed modification of your tax-exempt
status. Af that time, we informed you of your right to contact the Taxpayer Advocate, as well as your appeal
rights. On , , you signed Form 6018, Consent to Proposed Action — Section 7428, in which you
agreed to the modification of your foundation classification to 170(b)(1)(A)(vi) and described in 501(c)(3).
This is a final determination letter with regards to your federal tax-exempt status under Section 501(a).

You are required to file Form 990, Return of Organization Exempt from Income Tax. Form 990 must be filed by
the 15th day of the fifth month after the end of your annual accounting periods. A penalty of $20 a day is
charged when a return is filed late, unless there is a reasonable cause for the delay; however, the maximum
penalty charged cannot exceed $10,000 or 5 percent of your gross receipts for the year whichever is less. In
addition, organizations with gross receipts exceeding $1,000,000 for any year will be charged a penalty of $100
a day when a return is filed late; however, the maximum penalty charged cannot exceed $50,000. These
penalties may also be charged if a return is not complete, so be sure your return is complete before you file it.

If you are subject to the tax on unrelated business income under IRC Section 511, you must also file an income
tax return on Form 990-T, Exempt Organization Business Income Tax Return.

If you decide to contest this determination, you may file an action for declaratory judgment under the
provisions of IRC Section 7428 in one of the following three venues: 1) United States Tax Court, 2) the United
States Court of Federal Claims, or 3) the United States District Court for the District of Columbia. A petition or
complaint in one of these three courts must be filed within 90 days from the date this determination was mailed
to you. Please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions
for declaratory judgment by referring to the enclosed Publication 892. You may write to the courts at the
following addresses:

United States Tax Court
400 Second Street, NW
Washington, DC 20217
ustaxcourt.gov

US Court of Federal Claims
717 Madison Place, NW
Washington, DC 20005

dcd.uscourts.gov

US District Court for the District of Columbia
333 Constitution Avenue, NW

Washington, DC 20001

dcd.uscourts.gov

You may also be eligible for help from the Taxpayer Advocate Service (TAS). TAS is an independent
organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax
problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If
you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit
www.taxpayeradvocate.irs.gov or call 877-777-4778.

Taxpayer Advocate assistance can’t be used as a substitute for established IRS procedures, formal appeals
processes, etc. The Taxpayer Advocate is not able to reverse legal or technically correct tax determination,
nor extend the time fixed by law that you have to file a petition in Court. The Taxpayer Advocate can,
however, see that a tax matter that may not have been resolved through normal channels gets prompt and
proper handling.

You can get any of the forms or publications mentioned in this letter by calling 800-TAX-FORM
(800-829-3676) or visiting our website at www.irs.gov/forms-pubs.

If you have any questions about this letter, please contact the person whose name and telephone number are
shown in the heading of this letter.

Sincerely,
Lynn A. Brinkley
Director, Exempt Organizations Examinations

Enclosures:
Publication 892

. Date:
Department of the Treasury February 24, 2023
Internal Revenue Service Taxpayer ID number (last 4 digits):

IRS Tax Exempt and Government Entities

Form:

990-EZ Return
Tax periods ended:

Person to contact:
Name:
ID number:
Telephone:
Fax:
Hours:
Address:

Manager’s contact information:
Name:
ID number:
Telephone
Response due date:
March 27, 2023

CERTIFIED MAIL — Return Receipt Requested
Dear

Why you’re receiving this letter
We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we
propose to modify your organization’s foundation status under Internal Revenue Code (IRC)

Section 509(a).
Your exempt status under IRC Section 501(c)(3) is still in effect.

If you agree
If you haven’t already, please sign the enclosed Form 6018, Consent to Proposed Action, and

return it to the contact person shown at the top of this letter. We'll issue a final letter modifying
your foundation status.

If you disagree

1. Request a meeting or telephone conference with the manager shown at the top of this
letter.

2. Send any information you want us to consider.

3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or
send additional information as stated in 1 and 2, above, you'll still be able to file a protest
with IRS Appeals Office after the meeting or after we consider the information.

The IRS Appeals Office is independent of the Exempt Organizations division and
resolves most disputes informally. If you file a protest, the auditing agent may ask you to
sign a consent to extend the period of limitations for assessing tax. This is to allow the

Letter 3620 (Rev. 8-2019)
Catalog Number 34811R

IRS Appeals Office enough time to consider your case. For your protest to be valid, it
must contain certain specific information, including a statement of the facts, applicable
law, and arguments in support of your position. For specific information needed for a
valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-

Exempt Status.

Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process,
generally doesn’t apply now that we’ve issued this letter.

4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt
Government Entities) if you feel the issue hasn’t been addressed in published precedent

or has been treated inconsistently by the IRS.

If you’re considering requesting technical advice, contact the person shown at the top of
this letter. If you disagree with the technical advice decision, you will be able to appeal to
the IRS Appeals Office, as explained above. A decision made in a technical advice
memorandum, however, generally is final and binding on Appeals.

If we don't hear from you
If you don't respond to this proposal within 30 calendar days from the date of this letter, we’ll
issue a final letter modifying your foundation status.

Contacting the Taxpayer Advocate Office is a taxpayer right

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can
help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a
hardship, or you've tried but haven't been able to resolve your problem with the IRS. [f you
qualify for TAS assistance, which is always free, TAS will do everything possible to help you.
Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

Additional information
You can get any of the forms and publications mentioned in this letter by visiting our website at
www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676).

If you have questions, you can contact the person shown at the top of this letter.

Sincerely,

For: Lynn A. Brinkley
Director, Exempt Organizations
Examinations

Enclosures:

Form 886-A

Form 6018

Form 4621-A

Pub 892

Pub 3498

2 Letter 3620 (Rev. 8-2019)
Catalog Number 34811R

Schedule number

t Treasury — Internal Revenue Service mane
Form 886-A Department of the Treasury or exhibit

(May 2017) Explanations of Items
Tax Identification Number (last 4 digits) | Year/Period ended

Name of taxpayer

Issue 1:

Whether _ failed the relationship test
and fails to qualify as a Type III supporting organization.

issue 2:

Whether meets the public support test of IRC
170(b)(1)(A)(vi) and can be to be excluded from private foundation classification.

FACTS:

(hereinafter, EO) is exempt from
taxation under IRC§ 501(c)(3), with a foundation classification 509(a)(3) Operated in connection
with Type III functionally integrated supporting organization. The relevant facts apply the EO
received its exemption on , . On the 1023 application the EO stated it will be supporting
a foreign organization that is not public charities under section 509(a)(1) or (2) or section
501(c)(4), 501(c)(5),or 501(c)(6). The EO is supporting

by providing grants for teaching materials for teachers, room and board and
administrative support for the students and their families.
is operated and located in , and is not organized in the United
States. The EO solicits donations from local Churches and their congregations
located in the United States.

1023 Application:

[illegible embedded Form 1023 and Form 990 schedule excerpts]

Initial Interview question and response from , with
Secretary/Treasurer:

Question:
Is the supported organization a foreign org that was not established in the U.S.?

Answer:
Yes

Catalog Number 20810W — Page _3 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service pliner number
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
LAW:

Treas. Reg. 1.509(a)-4(i) Operated in connection with The third relationship type was revised by
the Pension Protection Act (PPA) of 2006, which made significant changes in Type III
requirements to ensure that supporting organizations are responsive to supported organizations.
(Pension Protection Act of 2006, P.L. 109-280).

There are two types of Type III supporting organizations:

1. Functionally integrated supporting organizations (FISO)

Functionally integrated Type III supporting organizations are described in Treas. Reg.
1.509(a)-4(i)(4), and are characterized by the performance of activities that directly further
the exempt purpose of the supported organization(s).

2. Non-functionally integrated supporting organizations (Non-FISO)

Non-functionally integrated Type III supporting organizations are described in Treas. Reg.
1.509(a)-4(i)(5), and are characterized by making payments, such as grants, to the supported
organization(s). Non-FISOs are also subject to more restrictions and requirements than FISOs.

IRC 509(a) notes that all organizations, foreign and domestic, described in IRC 501(c)(3) are
private foundations except for those described in IRC 509(a)(1), (2),(3), or (4). “Public charity” is
the generic term given to the excepted organizations in the above listed Code sections.

Therefore, all IRC 501(c)(3) organizations are either private foundations or public charities. All IRC
501(c)(3) organizations are presumed to be private foundations unless they are described in IRC
909(a)(1), (2),(3), or (4).

Treas. Reg. 1.509(a)-4(f)(2)(iii) states that the supporting organization must be operated in
connection with, one or more publicly supported organizations.

Section 1.509(a)-4(d)(1) of the regulations provides that in order to meet the requirements of
section 509(a)(3)(A), an organization must be organized and operated exclusively to support
or benefit one or more "specified" publicly supported organizations.

Treas. Reg. 1.509(a)-4(i)(10) states that a supporting organization is not operated in connection
with one or more supported organizations if it supports any supported organization organized
outside of the United States. Type II] supporting organizations, including both FISOs and
non-FISOs, are prohibited from supporting any organization which isn’t organized in the
U.S.

Catalog Number 20810W Page 4 www.irs.gov Form 886-A (Rev. 5-2017)

corm 886-A Department of the Treasury — Internal Revenue Service laren number
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

Foundation Status Under Sections 509(a)(1), 509(a)(2), 509(a)(3) or 509(a)(4)

IRC 509(a)(1) excludes from private foundation classification those organizations described in IRC
170(b)(1)(A)(i)-(vi):

IRC 170(b)(1)(A)i) - Churches

IRC 170(b)(1)(A)(ii) - Schools

IRC 170(b)(1)(A)(iii) - Hospitals

IRC 170(b)(1)(A){iv) - Endowment funds for a state university's library

IRC 170(b)(1)(A)(v) - Governmental entities

IRC 170(b)(1)(A)(vi) - Publicly supported charities, such as, United Way

Note: IRC 509 (a)(1) organizations engage in inherently public activities.

IRC 509 (a)(2) excludes from private foundation classification those publicly supported
organizations that receive more than one-third of their support from gifts, grants, contributions,
membership fees, and certain gross receipts but not more than one-third from gross investment
income and net unrelated business taxable income (UBI). Note: IRC 509 (a)(2) organizations are
supported primarily by exempt function income. Exempt function income comes from an activity
that is not an unrelated trade or business.

IRC 509(a)(3) excludes from private foundation classification those organizations that, in general,
support organizations described in IRC 509(a)(1) or (2), although they themselves are not publicly
supported.

Section 1.509(a)-4(d)(1) of the regulations provides that in order to meet the requirements of
section 509(a)(3)(A), an organization must be organized and operated exclusively to support
or benefit one or more "specified" publicly supported organizations.

Treas. Reg. 1.509(a)-4(i)(10) states that a supporting organization is not operated in connection
with one or more supported organizations if it supports any supported organization organized
outside of the United States. Type III supporting organizations, including both FISOs and
non-FISOs, are prohibited from supporting any organization which isn’t organized in the
U.S.

Rev. Rul. 78-95 (IRS RRU), 1978-1 C.B. 71, 1978 WL 42293- An organization, exempt from
Federal income tax under section 501(c)(3) of the Code and described in section 170(c)(2), is
primarily supported by contributions from Individual churches.

The two percent limitation prescribed by section 1.170A-9(e)(6)(i) of the regulations does not apply
to the support received by an exempt organization described in section 170(c)(2) of the Code from
individual churches described in section 170(b)(1)(A)(i) that are publicly supported and entitled to
section 170(b)(1)(A)(vi) status.

Catalog Number 20810W Page 5 www.irs.gov Form 886-A (Rev. 5-2017)

Schedule number

Form 886- A Department of the Treasury — Internal Revenue Service or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
GOVERNMENT’S POSITION:
issue 1:
Whether failed the relationship test

and fails to qualify as a Type III supporting organization.

The EO applied for exemption and stated on the 1023 application, that the supported organization
will be is operated and located in

. The EO is exempt from taxation under IRC§ 501(c)(3), with a foundation classification
509(a)(3) Operated in connection with Type III functionally integrated supporting
organization. Per Treas. Reg. 1.509(a)-4(i) Operated in connection with the third relationship type
was revised by the Pension Protection Act (PPA) of 2006, which made significant changes in Type
Ili requirements to ensure that supporting organizations are responsive to supported
organizations. (Pension Protection Act of 2006, P.L. 109-280). There are two types of Type III
supporting organizations:

1. Functionally integrated supporting organizations (FISO)
2. Non-functionally integrated supporting organizations (Non-FISO)

Treas. Reg. 1.509(a)-4(i)(10) states that a supporting organization is not operated in connection
with one or more supported organizations if it supports any supported organization organized
outside of the United States. Type III supporting organizations, including both FISOs and non-
FISOs, are prohibited from supporting any organization which isn’t organized in the U.S. The
schedule A filed with form 990 for year ending , , the EO answered Yes to the
question 4a was any supported organization not organized in the United States. During the initial
interview conducted with the Secretary/Treasurer of the EO, he answered yes to
the question is the supported organization a foreign org that was not organized in the U.S. Per the
law the EO failed the relationship test and is not operated in connection with the supported org
and the EO is not qualified as supporting organization foundation classification under IRC
509(a)(3).

ISSUE 2:

Whether meets the public support test of IRC
170(b)(1)(A)(vi) and can be to be excluded from private foundation classification.

Since the EO is still exempt under IRC 501(c)(3) but is not qualified under 509(a)(3) foundation
status, IRC 509(a) states that all organizations, foreign and domestic, described in IRC 501(c)(3)
are private foundations except for those described in IRC 509(a)(1), (2),(3), or (4). The EO can't
qualify under IRC 509(a)(4) because it is not organized and operated for the purpose of testing
products for public safety. To be excluded as a private foundation the EO must pass the public

Catalog Number 20810W Page 6 www.irs.gov Form 886-A (Rev. 5-2017)

Department of the Treasury — Internal Revenue Service Schedule number
Form 886-A . or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

support test under IRC 509(a)(1) or 509(a)(2). The public support test is satisfied by meeting
either a 33 1/3 percent test or a facts and circumstances 10 percent test.

The foundation status of an organization is based on the type of organization and how it receives its
support. IRC 509(a)(1) excludes from private foundation classification those organizations

described in IRC 170(b)(1)(A)(i)-(vi):

IRC 170(b)(1)(A){i) - Churches

IRC 170(b)(1)(A)(ii) - Schools

IRC 170(b)(1)(A)(iii) - Hospitals

IRC 170(b)(1)(A)(iv) - Endowment funds for a state university's library
IRC 170(b)(1)(A)(v) - Governmental entities

IRC 170(b)(1)(A)(vi) - Publicly supported charities

The EO is not a Church, School, Hospital, endowment fund for state university library or a
Governmental entity, then it could be considered a publicly supported charity under IRC
170(b)(1)(A)(vi). Organizations described in sections 509(a)(1) and 170(b)(1)(A)(vi) of the Code
are publicly supported organizations that receive substantial financial support from contributions
made by other publicly supported organizations, governmental units, the general public or a
combination of such sources. The EO solicits donations from churches and also
thru the members of the church congregations. Per the books and records the EO provided a list
of contributors for year ending ; confirms that the EO received its support from
Churches (publicly supported organizations) and Individuals (general public) only. The schedule B
filed with the 990 return reflects the same type of support from churches and
Individuals. Rev. Rul. 78-95 (IRS RRU), 1978-1 C.B. 71, 1978 WL 42293- An organization,
exempt from Federal income tax under section 501 (c)(3) of the Code and described in section
170(c)(2), is primarily supported by contributions from Individual churches. The two percent
limitation prescribed by section 1.170A-9(e)(6)(i) of the regulations does not apply to the support
received by an exempt organization described in section 170(c)(2) of the Code from individual
churches described in section 170(b)(1)(A)(i) that are publicly supported and entitled to section
170(b)(1)(A)(vi) status. Treas. Reg. 1.170A-9(e)(4)(i) notes normally, the organization meets the
support computation test for the aggregate of the four taxable years before the year under audit
and the current and next taxable year. The EO being operated since doesn't provide a full 5
years to run the test for the rolling time frame the test calls for, the test will be based on the two
years. Over the Two years the EO received support from publicly supported organizations and
Individuals and had a % Public support percentage for the ; tax year.

Catalog Number 20810W Page 7 www.irs.gov Form 886-A (Rev. 5-2017)

_ i Schedule number
Form 886-A Department of the Treasury Internal Revenue Service or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
[illegible public support computation table]

TAXPAYER’S POSITION:

The EO disclosed that the supported organization is located and based in a foreign country on the
Form 1023 application, and stated they were unaware that this was a problem.

CONCLUSION:

Issue 1:

Whether failed the relationship test
and fails to qualify as a Type III supporting organization.

supported a foreign organization
that was not organized in the United States. The law clearly states that a supporting organization
is not operated in connection with one or more supported organizations if it supports any
supported organization organized outside of the United States. Type III supporting organizations,
including both FISOs and non-FISOs, are prohibited from supporting any organization which isn't
organized in the U.S. per Treas. Reg. 1.509(a)-4(i)(10). The EO failed the relationship test and

Catalog Number 20810W Page _8 www.irs.gov Form 886-A (Rev. 5-2017)

Schedule number

Department of the Treasury — Internal Revenue Service :
Form 886-A . or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

doesn’t qualify as 509 (a)(3) Type III supporting organization for Foundation Classification. The
EO will need to be classified as a Private Foundation if it can’t pass the public support test.

ISSUE 2:

Whether meets the public support test of IRC
170(b)(1)(A)(vi) and can be to be excluded from private foundation classification.

sources of support are from
publicly supported organizations ( Church’s) and the general public. Organizations
described in sections 509(a)(1) and 170(b)(1)(A)(vi) of the Code are publicly supported
organizations that receive substantial financial support from contributions made by other publicly
supported organizations, governmental units, the general public or a combination of such sources.
Rev. Rul. 78-95 (IRS RRU), 1978-1 C.B. 71, 1978 WL 42293- An organization, exempt from
Federal income tax under section 501(c)(3) of the Code and described in section 170(c)(2), is
primarily supported by contributions from Individual churches are entitled to section
170(b)(1)(A)(vi) status. The EO support from through exceeds 33 1/3 percent test or a
facts and circumstances 10 percent test. The EO passed the public support test under sections
509(a)(1) and 170(b)(1)(A)(vi) and the Foundation status needs to be changed to 170(b)(1)(A)(vi).

NOTE: If the agrees with
reclassifying the foundation status from 509(a)(3) Operated in connection with Type III
functionally integrated supporting organization to 509(a)(1) and 170(b)(1)(A)(vi) sign F6018.

Catalog Number 20810W Page 9 www.irs.gov Form 886-A (Rev. 5-2017)