I dealt with Public v. Private Foundations last year. Lately I’ve begun to learn about something called a “supporting organization.”

Yesterday I met with Doug Johnson, president of a relatively new community fund here in the Denver metro area that is called, simply, The Charitable Fund or TCF.

As with other community foundations, TCF offers Donor-Advised Funds (or DAFs) . . . and these supporting organizations (SO’s)–specifically Type I SO’s.

So what is a supporting organization? What, more specifically, is a Type I SO? And why should you care?

For legal purposes, supporting organizations are public charities . . . but with two significant differences.

1. All other public charities have to receive broad-based public support. A supporting organization can receive financial support from many people, but such support is not required. In other words, all of the supporting organization’s money can come from one individual.
2. Traditional public charities are allowed to engage in a wide and changing range of activities as long as the activities are authorized by the charity’s organizational documents and fall within the limits of activities permitted to charities under the Internal Revenue Code. A supporting organization, by contrast, must be organized and operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more specific public charities.

   Put another way, a supporting organization is created in behalf of a charity (or charities) and, as long as it remains in existence, it remains completely tied to the charity (or charities) for whose support it was created.

It turns out there are three “types” of supporting organizations.

According to Esperti, Peterson & Tanner’s Giving: Philanthropy for Everyone, p. 322,

• Type I supporting organizations are directly controlled by charitable organizations they support. They are almost like subsidiaries of their supported charities.
• Type II supporting organizations are controlled by those who control the supported charities themselves.
• Type III supporting organizations are controlled by individuals who are named by the founders of the supporting organizations and are operated in cooperation with their supported charities.

TCF says it works solely with Type I supporting organizations. If that’s true, I find it interesting.

In one of the documents that Mr. Johnson gave me, it says that, while the “Supporting Organization board has complete control over investments and grantmaking, . . . TCF and [the] donor work together to select [the] board.” –If that’s not a Type III supporting organization, then the difference between the two types of SO’s (Type I and Type III) appears virtually indistinguishable.

I am wondering if TCF’s document has an error in it.

So why would you want to donate to an SO as opposed, say, to a DAF or a Private Foundation?

Charles W. Collier says,

[I]f you want to benefit [a particular charity], participate in the investment decisions, and involve your children in the philanthropic process, you can create a [Type I] supporting organization. . . .

Family members may sit on the organization’s board, but they must represent less than 50% of its directors. For example, the board could consist of the donor, the donor’s son or daughter, and three . . .officers [from the recipient charity].

Supporting organizations are free of all the rules governing private foundations, avoid the distribution and excise tax requirements, and allow more generous deductibility limitations for charitable gifts. In fact, gifts of appreciated stock are income tax deductible at fair market value.

–Charles W. Collier, Wealth in Families, p. 112.

I think it’s exciting how many opportunities our government provides for tax-effective philanthropy!

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This entry was posted on Friday, August 8th, 2008 at 10:44 am and is filed under charity, corporate forms, structures. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.