The Internal Revenue Service has issued guidance on how a charity classified as a Section 509(a)(3) supporting organization can receive an expedited change in classification to the more favorable public charity status of either 509(a)(1) or (2) without paying a user fee.

Public charities qualifying under Section 509(a)(3) are not eligible recipients of the IRA rollover provisions enacted in the Pension Protection Act on August 17, 2006. In addition, Publication 78 does not differentiate between the four different types of supporting organizations. All supporting organizations are coded as 17 in Publication 78. Private foundations desiring to make grants to one of the three types of supporting organizations on which the Pension Protection Act does not require expenditure responsibility oversight and allows to count towards the five percent minimum distribution requirement, cannot rely on self-assertion by the grantee as to what type of supporting organization it is. Therefore many private foundations have taken the conservative approach on not making grants to any supporting organization until the grantee can provide documentation from the IRS indicating that it qualifies as a Type I, II or functionally integrated Type III organization. The IRS has promised publication of guidance on what private foundations can rely on for making grants to supporting organizations.

For organizations that are exempt under 509(a)(3) and that meet the public support test requirements of either 509(a)(1) or (2), Announcement 2006-93 provides for a no fee expedited ruling from the IRS by following the procedures outlined in Revenue Procedure 2006-4 (2006-1 IRB 135):

1. The organization should prepare and file a one page ruling request highlighting at the top of the page, “Section 509(a)(3) Pension Protection Act”. The request should provide the name, address, EIN, and a statement requesting a new determination letter re-classifying the organization as either a Section 509(a)(1) or (2) public charity.

2. Provide details demonstrating public support revenue sufficient for the IRS to make a determination as to whether the organization qualifies as either a Section 509(a)(1) or (2) organization. This can include either:

1. Page 1 of the organization’s most recently filed Form 990 or 990EZ as well as Schedule A, Pages 2 and 3 (Parts IV and IV-A) if the public support schedule is completed; or,

2. If the organization checked box 13 on Part IV as a supporting organization and did not complete the public support schedule on Schedule A, Part IV-A there will be insufficient information for making a determination. In that case, the organization should complete and file Form 8734, Support Schedule for Advance Ruling Period.

3. File the request with complete revenue information with the IRS:

Via Mail:
                  IRS-TEGE
                  Attn: Adjustments Unit, Room 4024
                  P.O. Box 2508
                  Cincinnati, OH 45201
                       
Or
                       
Via Fax:
                  IRS-TEGE
                  Attn: Adjustments Unit Room 4024
                  Fax number (513) 263 - 3522

The IRS is processing these ruling requests separately from other exemption ruling requests. Organizations can expect a fairly quick response (weeks) to a request that contains all of the information the IRS needs to make a determination.

This article was prepared by Jane M. Searing, CPA, M.S. Taxation for the AICPA EO Technical Resource Panel.