Supporting organization lost exemption after scholarship activity stopped

Plain-English summary

A tax-exempt supporting organization existed to fund scholarships for students connected with a supported public charity. It had not awarded scholarships or otherwise distributed funds for the supported organization or its students for many years, with the exact period redacted. During that period, its documented activity was limited to managing investments and paying administrative fees. The IRS found that this inactivity failed the operational test and that the organization also failed the Type III notification, responsiveness, and integral part requirements. The supported organization did not elect the supporting organization's trustees, receive compliant annual notices, direct its investment or grant policies, or depend on its distributions. The IRS therefore revoked the organization's section 501(c)(3) exemption.

Ruling snapshot

• Question: Did an inactive scholarship-funding organization continue to qualify under section 501(c)(3) as a section 509(a)(3) supporting organization?
• Outcome: revocation
• Key authorities: IRC §§ 170, 501(c)(3), 509(a)(3), 4946, 7428; Treas. Reg. §§ 1.501(c)(3)-1, 1.509(a)-4; Rev. Rul. 76-208

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service
Tax Exempt and Government Entities November 8, 2023

. IRS Taxpayer ID number (last 4 digits):

Form:

Release Number: 202405012 Tax periods ended:
Release Date: 2/2/2024 .
UIL Code: 501.03-00 Person to contact:

ID number:
Telephone:
Fax:

Last day to file petition with United States
Tax Court:

Tuesday, February 6, 2024
CERTIFIED MAIL - Return Receipt Requested

Dear

Why we are sending you this letter

This is a final determination that you don’t qualify for exemption from federal income tax under Internal

Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3), effective
Your determination letter dated , is revoked.

Our adverse determination as to your exempt status was made for the following reasons: You do not satisfy
qualifications for exemption under IRC Section 501(c)(3) as a supporting organization described in IRC Section
509(a)(3): Type III supporting organization (SO). Under Treasury Regulation (Treas. Reg.) Section 1.509(a)-4
(b)(1) an SO must be both organized and operated exclusively for the benefit of, to perform the functions of, or
to carry out the purposes of one or more specified publicly supported organizations. If an organization fails to
meet either the organizational or the operational test, it cannot qualify as an SO. You did not meet the
operational test because you have not awarded scholarships or engaged in activities to benefit the supported
organization in approximately years. In addition, you have not indicated a remedy to this issue nor
provided plans to award scholarships in the future. Managing investments without intending to award
scholarships is not operating exclusively to the benefit of the supported organization or its individual members.
Thus, to reiterate, you do not meet the operational test. Treas. Reg. Section 1.509(a)-4(i)(1) provides that a Type
III SO is operated in connection with a supported organization only if it satisfies: the notification requirement,

_ the responsiveness test, and the integral part test. In the periods under examination, you did not fulfill the
notification requirements because you did not provide annual written notice to a principal officer at the
supported organization. You did not fulfill the responsiveness test because your trustees are not elected or
appointed by the supported organization. Lastly, your activities do not further the exempt purposes of the
supported organization. Thus, you are not functionally integrated with the supported organization. Therefore, to
reiterate, overall, you do not qualify for exemption under IRC Section 501(c)(3) as an SO within the meaning of
IRC Section 509(a)(3).

Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns
and pay tax, where applicable. For further instructions, forms and information please visit IRS.gov.

Contributions to your organization are no longer deductible under IRC Section 170.
What you must do if you disagree with this determination

If you want to contest our final determination, you have 90 days from the date this determination letter was

mailed to you to file a petition or complaint in one of the three federal courts listed below.

Letter 6337 (Rev. 8-2022)
Catalog Number 74808E

How to file your action for declaratory judgment
If you decide to contest this determination, you can file an action for declaratory judgment under the provisions

of Section 7428 of the Code in either:

* The United States Tax Court,
* The United States Court of Federal Claims, or
* The United States District Court for the District of Columbia

You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this
determination letter to you. You can download a fillable petition or complaint form and get information about
filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one
of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee
with the petition or complaint.

You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available
on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to
do so. You may also file your petition at the address below:

United States Tax Court

400 Second Street, NW

Washington, DC 20217

ustaxcourt.gov

The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain
instructions about how to file your completed complaint electronically. You may also file your complaint at one of
the addresses below:

US Court of Federal Claims

717 Madison Place, NW

Washington, DC 20439

uscfc.uscourts.gov

US District Court for the District of Columbia
333 Constitution Avenue, NW
Washington, DC 20001

dcd.uscourts.gov

Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for
declaratory judgment under IRC Section 7428.

Letter 6337 (Rev. 8-2022)
Catalog Number 74808E

Information about the IRS Taxpayer Advocate Service

The IRS office whose phone number appears at the top of the notice can best address and access your tax
information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate
Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't
working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects
taxpayer rights. Contact your local Taxpayer Advocate Office at:

Internal Revenue Service

Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights,
go to taxpayeradvocate.IRS.gov. Do not send your federal court pleading to the TAS address listed above.
Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time
to file an action for declaratory judgment.

Where you can find more information
Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for

more comprehensive information.

Find tax forms or publications by visiting IRS.gov/forms or calling 800-TAX-FORM (800-829-3676). If you
have questions, you can call the person shown at the top of this letter.

If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best
time to call, and a copy of this letter.

You may fax your documents to the fax number shown above, using either a fax machine or online fax service.
Protect yourself when sending digital data by understanding the fax service's privacy and security policies.

Keep the original letter for your records.
Sincerely,
Lynn A. Brinkley
Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

Letter 6337 (Rev. 8-2022)
Catalog Number 74808E

Department of the Treasury Date:
Internal Revenue Service 06/06/2023
Tax Exempt and Government Entities Taxpayer ID number:

Form:
Tax periods ended:

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

Manager’s contact information:
Name:
ID number:

Telephone:
Response due date:

07/07/2023

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 revoke your tax-exempt status as an organization described in Internal Revenue Code

(IRC) Section 501(c)(3).

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 adverse letter
determining that you aren't an organization described in IRC Section 501(c)(3) for the periods
above.

After we issue the final adverse determination letter, we’ll announce that your organization is no
longer eligible to receive tax deductible contributions under IRC Section 170.

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.

Letter 3618 (Rev. 8-2019)
Catalog Number 34809F

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
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 adverse determination letter.

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. 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.

For 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).

2 Letter 3618 (Rev. 8-2019)
Catalog Number 34809F

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

Enclosures:
Form 886-A
Form 6018
Form 4621-A
Publication 892
Publication 3498

Sincerely,

. For: Lynn A. Brinkley
Director, Exempt Organizations
Examinations

3 Letter 3618 (Rev. 8-2019)
Catalog Number 34809F

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number Year/Period ended
ISSUE
Whether (" continues to qualify

for exemption from Federal income tax under section 501(c)(3) of the Internal Revenue Code (“IRC”) as a
supporting organization within the meaning of IRC 509(a)(3).

FACTS
is an recognized as an exempt supporting organization under IRC 509(a)(3). It was
created in to support an exempt described in

IRC 509(a)(1).

is Its instructs the to
distribute percent of net income to fund a scholarship program for students of
The remaining percent of net income is to be retained to be accumulated and added to
principal.

Scholarship eligibility is limited to students of who reside or work in the
state of The instrument states recipients are to be determined by a
comprised of members: a member of the Board of Directors of the members selected by
and a member selected by the members of the
The instrument states preference is given a descendent of the grantor family. Except
as otherwise provided, any action of the requires the affirmative vote of the majority
of its members.

The instrument provides that anticipates will annually offer the
a list of students who are eligible to receive a scholarship. The
is instructed to select a recipient from the list of names provided.

has not awarded a scholarship, or otherwise distributed funds to or for

or its students since From to present, the funds distributed were administrative fees
paid to its and tax return preparer. During this time, all net income after administrative fees was
retained and accumulated in account.
represents the reason it has not awarded a scholarship in is because
) has not selected members to serve on the and ) does not
provided a list of eligible students for the to select from.
In and mailed to an account statement of its
account activity. The account statement was sent to the general mailing address. It
was not directed to any specific individual or department within the The account statement was
not accompanied by letter or other written correspondence that identified as the
supporting organization. Beyond mailing the account statement, had no documented communication
with the in and

Catalog Number 20810W Page 1 _ www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number Year/Period ended
filed Form 990 returns for and tax periods to report net income of $ and $ ;
respectively and a fund balance of $ and $ , respectively On
of its returns identified itself as a Type III functionally integrated supporting organization.
filed Form 990 returns for years ended and to report
total support of $ and $ , respectively

LAW

IRC 501(c)(3) provides for exemption from Federal income tax of organizations organized and operated
exclusively for “charitable” purposes. An organization described in this section is classified as either a
private foundation or a public charity.

Income Tax Regulations section (“Treas. Reg.”) 1.501(c)(3)-1(d)(2) provides the term “charitable”, is used
in IRC 501(c)(3) in its generally accepted legal sense. Such term includes the advancement of education.

IRC 509(a) provides that public charity status, as opposed to private foundation status, is conferred to —
organizations described in IRC 509(a)(1), (2), or (3). Organizations described in paragraphs (1) and (2) are
considered publicly supported organizations. Organizations described in paragraph (3) are supporting
organizations.

Treas. Reg. 1.509(a)-4(b)(1) provides that supporting organizations must be both organized and operated
exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more
specified publicly supported organizations. If an organization fails to meet either the organizational or the
operational test, it cannot qualify as a supporting organization.

Treas. Reg. 1.509(a)-4(c) provides that an organization is organized exclusively for one or more purposes
specified in IRC 509(a)(3)(A) only if its articles of organization:

(i) Limit the purposes of such organization to one or more of the purposes set forth in IRC 509(a)(3)(A);

(ii) Do not expressly empower the organization to engage in activities which are not i in furtherance of
the purposes in subdivision (i);

(iii) State the specified publicly supported organizations on whose behalf such organization is to be
operated; and

(iv) Do not expressly empower the organization to operate to support or benefit any organization other
than the specified publicly supported organizations in subdivision (iii).

Treas. Reg. 1.509(a)-4(e)(1) provides that supporting organizations are regarded as operated exclusively
to support one or more supported organizations if they engage solely in activities which may include
making payments to or for the use of, or providing services or facilities for, individual members of the
charitable class benefited by the specified publicly supported organization(s).

Catalog Number 20810W Page 2 www.irs.gov Form 886-A (Rev. 5-2017)

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

Treas. Reg. 1.509(a)-4(e)(2) provides that a supporting organization may also be operated exclusively to
support one or more supported organizations by using its income to carry on an independent activity or
program, which supports or benefits the specified publicly supported organization(s).

Treas. Reg. 1.509(a)-4(j) provides that a supporting organization may not be controlled directly or indirectly
by one or more disqualified persons other than foundation managers and other than one or more publicly
supported organizations.

IRC 4946(a)(1) provides that the term “disqualified person” includes, but is not limited to, a substantial
contributor, a family member of a substantial contributor, and a trust in which persons

Treas. Reg. 1.509(a)-4(f)(2) sets forth three different types of relationships, one of which must be met in
order to qualify as a supporting organization. A supporting organization may be:

(i) Operated, supervised, or controlled by,
(ii) Supervised or controlled in connection with, or
(iii) Operated in connection with, one or more publicly supported organizations.

Treas. Reg. 1.509(a)-4(i)(1)(ii) provides that Type III supporting organizations must satisfy the requirements
of the notification requirement, which is set forth in paragraph (i)(2) of this section.

Treas. Reg. 1.509(a)-4(i)(2)(i) provides that Type III supporting organizations must provide annual
notifications to its supported organization(s).

Treas. Reg. 1.509(a)-4(i)(2)(i)(A) provides that a supporting organization must annually provide written
notice addressed to a principal officer of the supported organization(s) describing the type and amount of
all support the supporting organization provided to the supported organization during the preceding taxable
year.

Treas. Reg. 1.509(a)-4(i)(2)(iv) provides that purposes of paragraph (i)(2)(i)(A) of this section, a principal
officer includes, but is not limited to, a person who, regardless of title, has ultimate responsibility for:

(A) Implementing the decisions of the governing body of a supported organization;

(B) Supervising the management, administration, or operation of the supported organization; or

(C) Managing the finances of the supported organization.
Treas. Reg. 1.509(a)-4(i)(2)(i)(A) provides that a supporting organization must annually provide a copy of
its Form 990, “Return of Organization Exempt from Income Tax’ to the supported organization for the

preceding taxable year.

Treas. Reg. 1.509(a)-4(i)(1)(ii) provides that Type III supporting organizations must satisfy the requirements
of the responsiveness test, which is set forth in paragraph (i)(3) of this section.

Catalog Number 20810W Page 3 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 Year/Period ended

Treas. Reg. 1.509(a)-4(i)(3)(i) provides that a Type III supporting organization must be responsive to the
needs or demands of a supported organization. Except as provided in paragraph (i)(3)(v) of this section, in
order to meet this test, a supporting organization must satisfy the requirements of paragraphs (i)(3)(ii) and
(i)(3)(iii) of this section.

Treas. Reg. 1.509(a)-4(i)(3)(ii) provides that a supporting organization satisfies the responsiveness test
only if:

(A) one or more officers, directors, or trustees of the supporting organization are elected or appointed
by the officers, directors, trustees, or membership of the supported organization;

(B) one or more members of the governing body of the supported organization are also officers,
directors, or trustees of, or hold other important offices in, the supporting organization; or

(C) the officers, directors, or trustees of the supporting organization maintain a close and continuous
working relationship with the officers, directors, or trustees of the supported organization.

Treas. Reg. 1.509(a)-4(i)(3)(iii) provides that a supporting organization satisfies the requirements of the
responsiveness test if the officers, directors, or trustees of the supported organization have a significant
voice in the investment policies of the supporting organization, the timing of grants, the manner of making
grants, and the selection of grant recipients by such supporting organization, and in otherwise directing the
use of the income or assets of the supporting organization.

Treas. Reg. 1.509(a)-4(i)(1)(iii) provides that Type III supporting organizations must satisfy the
requirements of the integral part test, which is set forth in paragraph (i)(4) of this section.

Treas. Reg. 1.509(a)-4(i)(4) provides that Type III supporting organizations meet the integral part test and
will be considered functionally integrated if they engage in activities substantially all of which directly further
the exempt purposes of one or more supported organizations.

Treas. Reg. 1.509(a)-4(i)(5) provides that a Type III supporting organization meets the integral part test and
will be considered non-functionally integrated if it satisfies the distribution requirement in paragraph (i)(5)(ii)
and the attentiveness requirement in paragraph (i)(5)(iii).

Treas. Reg. 1.509(a)-4(i)(5)(ii) provides that a Type III non-functionally integrated supporting organization
annually must distribute to a supported organization substantially all its adjusted net income.

Rev. Rul. 76-208, 1976-1 C.B. 161 defines “substantially all” for purposes of the integral part test as at least
85 percent and prohibits counting accumulating income even if it must be paid to the supported
organization.

Treas. Reg. 1.509(a)-4(i)(5)(iii) provides that a non-functionally integrated Type III supporting organization
must distribute one-third or more of its distributable amount to one or more supported organizations that
are attentive to the operations of the supporting organization, and to which the supporting organization is
responsive.

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

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number

(May 2017) Explanations of Items
Schedule number or exhibit

Name of taxpayer Tax Identification Number Year/Period ended

Treas. Reg. 1.509(a)-4(i)(5)(iii)(B) provides that a supported organization is attentive to the operations of
the supporting organization during a taxable year, if at least one of the following requirements is satisfied:

(1) The supporting organization distributes to the supported organization amounts equaling or
exceeding 10 percent of the supported organization’s total support;

(2) The amount of support received from the supporting organization is necessary to avoid the
interruption of the carrying on of a particular function or activity of the supported organization; or

(3) Based on the consideration of all pertinent factors, including the number of supported organizations,
the length and nature of the relationship between the supported organization and supporting
organization, and the purpose to which the funds are put, the amount of support received from the
supporting organization is a sufficient part of a supported organization’s total support to ensure
attentiveness.

TAXPAYER’S POSITION
has not expressed a position on these issues.

GOVERNMENT’S POSITION

does not satisfy the requirements to qualify for exemption from Federal income tax under IRC
501(c)(3) as a supporting organization described in IRC 509(a)(3). Its exempt status should be revoked
effective

An organization described in IRC 501(c)(3) is classified as either a private foundation or a public
charity. To be classified as a public charity, an organization must be described in IRC 509(a)(1), (2), or (3).
Organizations described in IRC 509(a)(1) and (2) are generally known as publicly supported organizations.
Organizations described in IRC 509(a)(3) are known as supporting organizations. Supporting organizations
achieve their public charity status by supporting one or more organizations described in IRC 509(a)(1) or
(2), which in this context are referred to as supported organizations.

To be described in IRC 509(a)(3), an organization must satisfy (1) an organizational test, (2) an
operational test, (3) a control test, and (4) a relationship test. The organizational and operational tests
require that a supporting organization be organized and at all times thereafter operated exclusively for the
benefit of, to perform the functions of, or to carry out the purposes of one or more supported organizations.
The control test requires that a supporting organization not be controlled directly or indirectly by certain
disqualified persons. The relationship test requires a supporting organization to establish one of types
of relationships with one or more supported organizations. Each test is a necessary requirement for an
organization to establish it qualifies as a supporting organization.

ORGANIZATIONAL TEST

Treas. Reg. 1.509(a)-4(c) provides that a supporting organization be organized exclusively to perform
the functions of, or to carry out the purposes of one or more supported organizations. fulfills this
requirement. Its instrument identifies as the organization on whose
behalf it is to be operated. The is recognized as a publicly supported tax-exempt organization.

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

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number Year/Period ended
The instrument limits purpose to supporting the It does not authorize to
engage in activities that do not further this purpose. is permitted to substitute its supported
organization only if the substantially changes its purpose or activities, or if it fails to qualify as an

exempt organization. Should they occur, these events are beyond its control.

OPERATIONAL TEST

Treas. Reg. 1.509(a)-4(b)(1) provides that a supporting organization be operated exclusively for the
benefit of, or to carry out the purposes of one or more supported organizations. Treas. Reg. 1.509(a)-
4(e)(1) and (2) provides that “operated exclusively” means to engage solely in activities which may include
making payments to or for the use of, or providing services or facilities for, the supported organization or its
individual members.

does not satisfy the requirements of the operational test because it does not engage in activities or
make payments to or for the use of or its students. In the preceding
approximately year period starting in has not awarded scholarships or engaged in
activities to benefit the During this period, its only documented activity was managing its
investment portfolio and annually distributing a portion of investment income to its and tax return
preparer. has paid these administrative fees annually despite not having awarded a scholarship since

provided no indication it will remedy the issues at hand or begin to award scholarships in the
Managing investments without intending to award scholarships does not benefit the or
its students. is not operated exclusively to benefit its supported organization or its individual
members.

CONTROL TEST

Treas. Reg. 1.509(a)-4(j) provides that a supporting organization may not be controlled directly or
indirectly by one or more disqualified persons other than foundation managers and other than one or more
publicly supported organizations. As used here, the term “disqualified person” includes, but is not limited to,
a substantial contributor, and family member of a substantial contributor.

meets the requirements of the control test. While its does not identify individual

it does provide for an unrelated it also assigns the task of distributing
funds to a Members of this are instructed to select a member
with preference given to a descendent of the grantor family who may be a disqualified person. However, as
previously described, does not have a Even if such had been
formed and had selected a descendent of the grantor family, that member would not have a controlling
interest of voting power. is not controlled by disqualified persons.

RELATIONSHIP TEST

Treas. Reg. 1.509(a)-4(f)(2) sets forth three different types of relationships, one of which must be met to
qualify as a supporting organization.

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

_ i Schedule number
Form 886-A Department of the Treasury — Internal Revenue Service

(May 2017) Explanations of Items
Schedule number or exhibit

Name of taxpayer Tax Identification Number Year/Period ended

Type I relationships occur where a supporting organization is operated, supervised, or controlled by a
supported organization. To establish this relationship the supported organization must appoint or elect the
governing body of the supporting organization. does not have a Type I relationship because

does not appoint or elect governing body.

Type II relationships occur where a supporting organization is supervised or controlled in connection
with a supported organization. To establish this relationship the persons that control or manage the
supported organization must have vested control or management of the supporting organization. does
not have a Type II relationship because no representatives of have vested
control or management of

Type III relationships occur where a supporting organization is operated in connection with a supported
organization. To establish this relationship the supported organization must have a significant voice in the
operations and handling of assets of the supporting organization, which must perform the functions of and
provide financial support to the supported organization.

Treas. Reg. 1.509(a)-4(i)(1) provides that a Type III supporting organization is operated in connection
with a supported organization only if it satisfies: the notification requirement, the responsiveness test, and
the integral part test.

NOTIFICATION REQUIREMENT

The notification requirement in Treas. Reg. 1.509(a)-4(i)(2) requires that a Type III supporting
organization must annually provide written notice addressed to a principal officer of the supported
organization describing the type and amount of all support the supporting organization provided to the
supported organization during the preceding year. Treas. Reg. 1.509(a)-4(i)(2)(iv) provides that purposes of
this section, a principal officer includes, but is not limited to, a person who, regardless of title, has ultimate

responsibility for:
(A) Implementing the decisions of the governing body of a supported organization;
(B) Supervising the management, administration, or operation of the supported organization; or

(C) Managing the finances of the supported organization.

does not fulfill the notification requirement of Type III supporting organizations. It does not provide

annual written notice to a principal officer of In and the
documented communication had with the was to mail an account statement to the

general mailing address. The account statement was not mailed to a principal officer or any
other specific individual or department within the It was not accompanied by letter or other
documents that identified as a supporting organization. There is no indication anyone with a degree of
responsibility within the received the account statement and considered its meaning.
RESPONSIVENESS TEST

The responsiveness test in Treas. Reg. 1.509(a)-4(i)(3) requires a Type III supporting organization to
be responsive to the needs or demands of the supported organization. The requirements of the

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

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number Year/Period ended
responsiveness test are met if the officers, directors, or of the supported organization have a

significant voice in the policies of the supporting organization and in directing the use of the income and
assets of the supporting organization.

does not fulfill the requirements of the responsiveness test. Its are not elected or

appointed by the members of the governing body of the are or hold other
important offices within Moreover, does not maintain a close and continuous working
relationship with the governing body of the It had documented communication with the

except to annually mail an account statement to no in particular. As evidenced by

the does not have a voice in investment policies, including the timing of

grants, the manner of making grants, and the selection of grant recipients. By no measure does the

direct the use of income or assets.

INTEGRAL PART TEST

The integral part test requires a Type III supporting organization to maintain a significant involvement in
the operations of the supported organization. It also requires the supported organization to be dependent
on the supporting organization. On its Form 990 returns, reports it is functionally integrated with the

by maintaining significant involvement in the through its activities. Treas. Reg.
1.509(a)-4(i)(4) provides that Type III supporting organizations are considered functionally integrated if they
engage in activities that relate to performing the functions of, or carrying out the purposes of, the supported
organization. However, only activities are to maintain its investment portfolio and use such income
to pay administrative fees. These activities do not further the exempt purposes of the is not
functionally integrated with the

Treas. Reg. 1.509(a)-4(i)(5) provides that a Type III supporting organization meets the integral part test
as a non-functionally integrated organization if it satisfies the distribution requirement in paragraph (i)(5)(ii)
and the attentiveness requirement in paragraph (i)(5)(iii).

The distribution requirement in Treas. Reg. 1.509(a)-4(i)(5)(ii) provides that the supporting organization
annually must distribute to the supported organization substantially all its adjusted net income. For
purposes of the integral part test, the term “substantially all” means at least 85 percent and prohibits
counting accumulating income. Accordingly, does not satisfy the distribution requirement of the
integral part test set forth in Treas. Reg. 1.509(a)-4(i)(3)(iii) because it does not distribute any of its income
to or for the use of the

The attentiveness requirement in Treas. Reg. 1.509(a)-4(i)(5)(iii)(A) provides that the supporting
organization must distribute one-third or more of its distributable amount to a supported organization that is
attentive to its operations. Treas. Reg. 1.509(a)-4(i)(5)(iii)(B) provides that a supported organization is
attentive to the operations of the supporting organization if, in a taxable year, of requirements is
satisfied.

The first requirement is for the supporting organization to distribute to the supported organization an
amount equal or greater than percent of the supported organization’s total support. In and
reported total support of $ and $ , respectively. To
equal or exceed the percent threshold for total support, would need to have distributed to the

Catalog Number 20810W Page 8 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service
(May 2017) Explanations of Items
Schedule number or exhibit
Name of taxpayer Tax Identification Number Year/Period ended
$ and $ — , respectively. Since it distributed no funds in years, the
is not attentive to by measure of its distributions.

The second requirement is whether the amount of support received from the supporting organization is
necessary to avoid the interruption of a particular activity of the supported organization. As previously
described, has not provided any support to for approximately the last

years. Despite lacking support during this period, the has continued to operate as
an exempt and to award other scholarships to its students without interruption. The
is not attentive to by this measure.

The requirement considers all pertinent factors, including the number of supported organizations,
the length and nature of the relationship between the supported organization and supporting organization,
and the purpose to which the funds are put, the amount of support received from the supporting
organization is a sufficient part of the supported organization’s total support to ensure attentiveness.

Regarding the aspect of the attentiveness requirement, the is listed
supported organization. The length of the relationship is extensive, as was formed in to support
the However, this relationship has been dormant for approximately the last years. During
this period, has not distributed any funds to the and the has declined to involve
itself with any aspect of A supported organization is not considered to be attentive because it
may have enforceable rights in a In considering the sum of relevant factors, the

is not attentive to the operations of

is not considered a Type III non-functionally integrated supporting organization within the meaning
of Treas. Reg. 1.509(a)-4(i)(5) because it does not meet the distribution requirement and the attentiveness
requirement of the integral part test and the responsiveness test and the notification requirement of the
relationship test. Moreover, it does not qualify as a Type III functionally integrated supporting organization
within the meaning of Treas. Reg. 1.509(a)-4(i)(4) because it does not satisfy the integral part test, the

responsiveness test and the notification requirement of the relationship test. Additionally, does not
qualify to be described as a Type I supporting organization within the meaning of Treas. Reg. 1.509(a)-
4(f)(2)(i) because it is not operated, supervised, or controlled by Likewise,

it does not qualify to be described as a Type II supporting organization within the meaning of Treas. Reg.
1.509(a)-4(f)(2)(ii) because it is not supervised or controlled in connection with the

Furthermore, if did satisfy the relationship test and each of its components, it still would not satisfy

the operational test because it does not engage in activities or make payments to or for the use of
or its students. does not qualify for exemption from Federal income

tax under IRC 501(c)(3) as a supporting organization within the meaning of IRC 509(a)(3). Its exempt
status should be revoked effective the of the exam period.

CONCLUSION

does not continue to qualify for exemption from Federal income tax under IRC 501(c)(3) as a
supporting organization within the meaning of IRC 509(a)(3). Its exempt status should be revoked.

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

Form 886-A

(May 2017)

Department of the Treasury — Internal Revenue Service

Explanations of Items

Schedule number
or exhibit

Name of taxpayer

Tax Identification Number

Year/Period ended

- Income

Investment Income | Gain from Sale of Securities | Total Revenue | Administrative Fees | Net Income | Scholarships/Grants Awarded | Excess Net Assets

Investment Income | Gain from Sale of Securities | Total Revenue | Administrative Fees | Net Income | Scholarships/Grants Awarded | Excess Net Assets

- Fund Balance

Fund Balance Year | Excess Net Assets | Other Changes to Net Assets | Fund Balance End of Year

Fund Balance Year | Excess Net Assets | Other Changes to Net Assets | Fund Balance End of Year

- WALU Total Support

Gifts, grants, contributions, membership fees | Gross income from interest, dividends, similar sources | Net income from unrelated business activities | Support

Gifts, grants, contributions, membership fees | Gross income from interest, dividends, similar sources | Net income from unrelated business activities | Support
Catalog Number 20810W Page 10 www.irs.gov Form 886-A (Rev. 5-2017)