# Bulletin No. 2023–44

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A29696419620c4bd7

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

HIGHLIGHTS
OF THIS ISSUE




Bulletin No. 2023–44
October 30, 2023

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

ADMINISTRATIVE

INCOME TAX

REG-127391-16, page 1214.

REG-117614-14, page 1193.

This notice of proposed rulemaking modernizes regulations
regarding the sale of a taxpayer’s property that the IRS seizes
by levy. The proposed amendments would allow the IRS to
maximize sale proceeds for the benefit of the taxpayer whose
property the IRS has seized and the public fisc and would
affect all sales of property the IRS seizes by levy.

EXEMPT ORGANIZATIONS
T.D.9981, page 1174.

These final regulations under section 509(a)(3) address the
requirements for section 501(c)(3) organizations to qualify
as public charities when they are operated, supervised or
controlled by one or more supported organizations (Type I
Supporting Organizations) and when they are operated in
connection with one or more supported organizations (Type
III Supporting Organizations). These final regulations provide
rules for qualifying as functionally integrated and non-functionally integrated Type III Supporting Organizations. These final
regulations also provide rules for the prohibition on certain
contributions to Type I and Type III supporting organizations.

Finding Lists begin on page ii.

Treasury Regulation §1.367(b)-10 requires corporations
that acquire parent stock or securities in exchange for
property in connection with certain triangular reorganizations to make adjustments that have the effect of a distribution of property. The proposed regulations set forth
additional rules that apply to a subsequent inbound nonrecognition transaction in cases where those adjustments
are not made.

SPECIAL ANNOUNCEMENT
Notice 2023-71, page 1191.

This notice grants relief under § 7508A of the Internal Revenue
Code to taxpayers affected by the October 7, 2023 terrorist
attacks in the State of Israel. The notice postpones deadlines
for certain time-sensitive taxpayer and government acts for
affected taxpayers for a full year, until October 7, 2024. The
covered area receiving relief under this notice includes the
State of Israel, the West Bank and Gaza. The notice also identifies categories of affected taxpayers and provides a non-exhaustive list of the acts postponed.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all.

Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

October 30, 2023 

Bulletin No. 2023–44

Part I
26 CFR 1.509(a)-4: Supporting Organizations

T.D. 9981
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 53
Requirements for Type I
and Type III Supporting
Organizations
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations providing guidance on
the prohibition on certain gifts or contributions to Type I and Type III supporting
organizations from persons who control
a supported organization and on certain
other requirements for Type III supporting organizations. The regulations reflect
changes to the law made by the Pension
Protection Act of 2006. The regulations
affect certain Type I and Type III supporting organizations and their supported
organizations.
DATES: Effective date: These regulations
are effective on October 16, 2023.
Applicability date: For dates of applicability, see §1.509(a)-4(I).
FOR FURTHER INFORMATION
CONTACT: Michael Gruccio at (202)
317-4541 or Don Spellmann at (202)
317-4086.
SUPPLEMENTARY INFORMATION:
Background
I. Overview
This document amends the Income Tax
Regulations (26 CFR part 1) by adding
final regulations under section 509(a) of
the Internal Revenue Code (Code). These

October 30, 2023

final regulations amend §1.509(a)-4 to provide guidance on amendments to the Code
enacted by section 1241 of the Pension
Protection Act of 2006 (PPA), Public Law
109-280, 120 Stat. 780 (August 17, 2006).
An organization described in section
501(c)(3) of the Code is classified as either
a private foundation or a public charity. To
be classified as a public charity, an organization must be described in section 509(a)
(1), (2), or (3). Organizations described in
section 509(a)(3) are known as “supporting organizations.” Supporting organizations achieve their public charity status by
providing support to one or more organizations described in section 509(a)(1) or
(2), which, in this context, are referred to
as “supported organizations.”
To be described in section 509(a)(3),
an organization must satisfy (1) an organ­
izational test, (2) an operational test, (3)
a relationship test, and (4) a disqualified
person control 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 relationship test requires a supporting organization to establish one of three types of
relationships with one or more supported
organizations. A supporting organization
that is operated, supervised, or controlled
by one or more supported organizations is
known as a “Type I” supporting organization. The relationship of a Type I supporting organization with its supported
organization(s) is comparable to that of a
corporate parent-subsidiary relationship.
A supporting organization that is supervised or controlled in connection with one
or more supported organizations is known
as a “Type II” supporting organization.
The relationship of a Type II supporting
organization with its supported organization(s) involves common supervision
or control by the persons supervising or
controlling both the supporting organization and the supported organization(s). A
supporting organization that is operated
in connection with one or more supported
organizations is known as a “Type III”
supporting organization and is discussed
further in the remainder of this preamble.

1174

Finally, the disqualified person control test
requires that a supporting organization not
be controlled directly or indirectly by certain disqualified persons.
Sections 1241 through 1243 of the PPA
revised the requirements for supporting
organizations. These final regulations
under §1.509(a)-4 address section 1241’s
five changes to the requirements an organization must satisfy to qualify as a Type
III supporting organization.
II. PPA Changes to Type III supporting
organizations.
The PPA made the following five
changes to the requirements an organization must satisfy to qualify as a Type III
supporting organization:
(1) Section 1241(c) of the PPA removed
the ability of a charitable trust to rely on
the special rule under §1.509(a)-4(i)(2)
(iii) as then in effect, which allowed a trust
to satisfy the attentiveness requirement of
the integral part test for non-functionally
integrated Type III supporting organizations if the supported organization was
a beneficiary of the trust and state law
allowed the beneficiary to enforce the trust
and compel an accounting of the trust;
(2) Section 1241(d) of the PPA directed
the Secretary of the Treasury or her delegate (Secretary) to promulgate regulations
under section 509 that establish a new distribution requirement for Type III supporting organizations that are not “functionally
integrated” (a non-functionally integrated
(NFI) Type III supporting organization) to
ensure that a “significant amount” is paid
to supported organizations; for this purpose, the term “functionally integrated”
means a Type III supporting organization
that is not required under regulations to
make payments to supported organizations, because the supporting organization
engages in activities that relate to performing the functions of, or carrying out the
purposes of, its supported organization(s);
(3) Section 1241(b) of the PPA required
a Type III supporting organization to provide annually to each of its supported
organizations the information required by
the Department of the Treasury (Treasury
Department) and the IRS (referred to
in §1.509(a)-4(i)(2) as the notification

Bulletin No. 2023–44

requirement) to ensure that the supporting
organization is responsive to the needs or
demands of its supported organization(s);
(4) Section 1241(b) of the PPA also
prohibited a Type III supporting organization from supporting any supported
organization not organized in the United
States; and
(5) Section 1241(b) of the PPA additionally prohibited a Type I or Type III
supporting organization from accepting
any gift or contribution from a person
who, alone or together with certain related
persons, directly or indirectly controls the
governing body of a supported organization of the Type I or Type III supporting
organization.
III. Prior Rulemaking
On August 2, 2007, the Treasury
Department and the IRS published in
the Federal Register (72 FR 42335) an
advanced notice of proposed rulemaking
(ANPRM) (REG-155929-06) in response
to the PPA. The ANPRM described proposed rules to implement the changes
made by the PPA to the Type III supporting organization requirements and solicited comments regarding those proposed
rules.
On September 24, 2009, the Treasury
Department and the IRS published a
notice of proposed rulemaking (REG155929-06) in the Federal Register (74
FR 48672) proposing regulations regarding certain requirements to qualify as a
Type III supporting organization under
the PPA (2009 proposed regulations). The
2009 proposed regulations set forth those
proposed requirements in §1.509(a)-4(i).
On December 28, 2012, the Treasury
Department and the IRS published a
Treasury Decision (TD 9605) in the
Federal Register (77 FR 76382) containing final and temporary regulations under
§1.509(a)-4 regarding the requirements
to qualify as a Type III supporting organization (2012 TD). Also on December
28, 2012, the Treasury Department and
the IRS published a notice of proposed
rulemaking (REG-155929-06) in the
Federal Register (77 FR 76426) containing proposed regulations that incorporated
the text of the temporary regulations in
the 2012 TD by cross-reference. The temporary regulations in the 2012 TD made

Bulletin No. 2023–44

significant changes to the distribution
requirement for NFI Type III supporting
organizations. The 2012 TD adopted other
aspects of the 2009 proposed regulations
with some changes in response to comments and provided transition relief for
Type III supporting organizations in existence on December 28, 2012, that met and
continued to meet the test under former
§1.509(a)-4(i)(3)(ii), known as the “but
for” test, as in effect prior to December 28,
2012, treating them as functionally integrated until the first day of their second
taxable year beginning after December
28, 2012. Upon expiration of this relief
period, the 2012 TD requires these organizations to meet the same rules as all other
supporting organizations to be considered
functionally integrated. The preamble
to the 2012 TD also identified issues for
possible future rulemaking and requested
comments.
On January 6, 2014, the Treasury
Department and the IRS published Notice
2014-4, 2014-2 I.R.B. 274, to provide
additional transition relief for any Type III
supporting organization (1) supporting at
least one supported organization that is
a governmental entity to which the supporting organization is responsive (within
the meaning of §1.509(a)-4(i)(3)) and (2)
engaging in activities for or on behalf of
the governmental supported organization
that perform the functions of, or carry out
the purposes of, the governmental supported organization and that, but for the
involvement of the supporting organization, would normally be engaged in by
the governmental supported organization
itself. Notice 2014-4 stated that such an
organization will be treated as a functionally integrated Type III supporting organization until the earlier of the date final
regulations under §1.509(a)-4(i)(4)(iv) are
published in the Federal Register or the
first day of the organization’s third taxable
year beginning after December 31, 2013.
On December 23, 2015, the Treasury
Department and the IRS published a
Treasury Decision (TD 9746) in the
Federal Register (80 FR 79684) containing final regulations under §1.509(a)-4(i)
regarding the distribution requirement for
NFI Type III supporting organizations,
finalizing the rule in the 2012 proposed
and temporary regulations with very
minor changes (2015 final regulations).

1175

The preamble to the 2015 final regulations indicated that additional proposed
regulations would be forthcoming to provide additional guidance for Type III supporting organizations, including specific
rules under §1.509(a)-4(i)(4)(iv) for Type
III supporting organizations that support
governmental supported organizations;
the 2012 TD had reserved §1.509(a)-4(i)
(4)(iv). In addition, the preamble to the
2015 final regulations indicated that supporting organizations that support a governmental supported organization could
continue to rely on Notice 2014-4 until the
date of publication of the new proposed
regulations.
On February 19, 2016, the Treasury
Department and the IRS published a
notice of proposed rulemaking (REG118867-10) in the Federal Register (81
FR 8446) containing proposed regulations
under §1.509(a)-4(f) and (i) regarding
the prohibition on certain contributions
to Type I and Type III supporting organizations and the requirements for Type III
supporting organizations (2016 proposed
regulations). The 2016 proposed regulations addressed issues identified in the
preamble to the 2012 TD as well as the
comments (six in total) on the 2012 TD
and Notice 2014-4.
The Treasury Department and the IRS
received six comments in response to the
2016 proposed regulations. The comments are available for public inspection
at https://www.regulations.gov or upon
request. No public hearing was requested.
After considering the comments received,
the Treasury Department and the IRS
adopt the 2016 proposed regulations
in these final regulations with certain
revisions described in the Summary of
Comments and Explanation of Revisions.
Summary of Comments and
Explanation of Revisions
I. Overview
This Summary of Comments and
Explanation of Revisions addresses the
comments that the Treasury Department
and the IRS received in response to the
2016 proposed regulations and describes
the revisions adopted in these final regulations. As described in this Summary
of Comments and Explanation of

October 30, 2023

Revisions, these final regulations define
the term “control” for purposes of section 509(f)(2), which prohibits a Type I
or Type III supporting organization
from accepting any gift or contribution
from any person who controls the governing body of the supported organization(s). These final regulations also set
forth additional rules and requirements
for Type III supporting organizations,
including (1) additional requirements to
meet the responsiveness test for all Type
III supporting organizations; (2) additional rules regarding the qualification
of an organization as a functionally integrated Type III supporting organization
under §1.509(a)-4(i)(4), including specific rules for supporting organizations
that support governmental supported
organizations; and (3) additional rules
regarding the required annual distributions under §1.509(a)-4(i)(5) by an NFI
Type III supporting organization.
II. Contributions from Controlling
Donors – Meaning of Control
Section 509(f)(2) and §1.509(a)-4(f)
(5) prohibit Type I and Type III supporting organizations from accepting
any gift or contribution from any person
(other than an organization described in
section 509(a)(1), (2), or (4)) who, alone
or together with certain related persons
(as described in §1.509(a)-4(f)(5)(i)(B)
or (C)), directly or indirectly controls
the governing body of a supported organization of the Type I or Type III supporting organization, or from persons
related to a person possessing such control. Section 509(f)(2) does not define
“directly or indirectly controls.” The
2012 TD reserved §1.509(a)-4(f)(5)(ii),
titled “Meaning of control,” for future
proposed regulations.
The 2016 proposed regulations
proposed defining “control” consistently with the definition of control in
§1.509(a)-4(j), which relates to control
by disqualified persons for purposes of
the disqualified person control test in
section 509(a)(3)(C) and §1.509(a)-4(a)
(4). In general, under the 2016 proposed
regulations, the governing body of a supported organization is considered “controlled” by a person if that person, alone
or by aggregating his or her votes or

October 30, 2023

positions of authority with certain related
persons described in §1.509(a)-4(f)(5)
(i)(B) or (C), may require the governing
body of the supported organization to
perform any act that significantly affects
its operations or may prevent the governing body of the supported organization
from performing any such act.
These final regulations adopt the definition of “control” proposed in the 2016
proposed regulations with minor changes
to add clarity. These final regulations make
clear that control exists if one or more persons described in §1.509(a)-4(f)(5)(i)(A),
(B), or (C) hold 50 percent or more of the
total voting power of the governing body
or have the right to exercise veto power
over the actions of the governing body.
These final regulations also incorporate
language from §1.509(a)-4(j)(1) to make
clear that even if persons do not have control by virtue of having 50 percent or more
of the voting power or a veto power, all
pertinent facts and circumstances will be
taken into consideration in determining
whether such persons do in fact directly or
indirectly control the governing body of a
supported organization.
One commenter stated that if a parent
supporting organization controls a supported organization, section 509(f)(2)
would prohibit Type I and Type III supporting organizations of that controlled
supported organization from accepting
any gift or contribution from the parent
supporting organization. To allow these
contributions, the commenter recommended excluding from the definition of
control the control a parent supporting
organization exercises over its supported
organizations.
Section 509(f)(2) only excepts gifts
or contributions from organizations
described in section 509(a)(1), (2), and
(4). Congress did not provide an exception for section 509(a)(3) organizations.
For this reason, the commenter’s recommendation is not consistent with section
509(f)(2), and these final regulations do
not adopt it.
III. Type III Supporting Organization
Relationship Test
Section 1.509(a)-4(i)(1) provides that,
for each taxable year, a Type III supporting
organization must satisfy (i) a notification

1176

requirement, (ii) a responsiveness test,
and (iii) an integral part test provided in
the regulations. The 2016 proposed regulations proposed additional rules regarding each of these requirements. These
final regulations adopt the 2016 proposed
rules with the modifications described in
this part III.
A. Notification Requirement
Section 509(f)(1)(A) provides that
an organization will not be considered a
Type III supporting organization unless
the organization provides to each supported organization, for each taxable
year, such information as the Secretary
may require to ensure that the organization is responsive to the needs or
demands of the supported organizations.
To satisfy this notification requirement,
§1.509(a)–4(i)(2) requires a Type III
supporting organization to provide to
each of its supported organizations for
each taxable year: (1) A written notice
addressed to a principal officer of the
supported organization describing the
type and amount of all of the support it
provided to the supported organization
during the supporting organization’s preceding taxable year; (2) a copy of the
supporting organization’s most recently
filed Form 990, Return of Organization
Exempt from Income Tax, or other annual
information return required to be filed
under section 6033; and (3) a copy of
the supporting organization’s governing
documents, including any amendments
(unless previously provided and not subsequently amended). The 2016 proposed
regulations proposed clarifying that for
NFI Type III supporting organizations
the description of support in the written
notice must include all of the distributions described in §1.509(a)–4(i)(6) to
the supported organization. These final
regulations adopt this clarification.
Section 1.509(a)–4(i)(2)(iii) requires
that the notification be transmitted by the
last day of the fifth calendar month following the close of “that taxable year.”
Due to the lack of clarity regarding the
reference to “that taxable year,” the 2016
proposed regulations proposed amending §1.509(a)-4(i)(2) to clarify that a
supporting organization must deliver
the required documents to each of its

Bulletin No. 2023–44

supported organizations by the last day
of the fifth month of the supporting organization’s taxable year after the taxable
year in which it provided the support it is
reporting. The preamble to the 2016 proposed regulations stated that the proposed
change is intended to reduce confusion
but does not substantively change the due
date or the content of the required notification. The preamble also stated that the
date of delivery is determined by applying the general principles of section 7502.
The final regulations adopt this proposed
amendment without change.
One commenter requested clarification that the annual written notice may
summarize all the programs and services
a supporting organization performs for
its supported organization. The Treasury
Department and the IRS agree that a supporting organization may summarize its
activities directly furthering the exempt
purpose of the supported organization as
long as that summary provides sufficient
notice to the supported organization on
the character of the activity and its related
costs. The report must include a brief narrative description of the support provided
and sufficient financial detail for the recipient to identify the types and amounts of
support being reported.
B. Responsiveness Test
Section 1.509(a)-4(i)(3)(i) provides
that a supporting organization meets the
responsiveness test if it is “responsive
to the needs or demands of a supported
organization.” To meet this responsiveness test, an organization must satisfy two elements—the “relationship
requirement” and the “significant voice
requirement.” Under the relationship
requirement, described in §1.509(a)-4(i)
(3)(ii), the officers, directors, or trustees
of the organization must have one of three
specified relationships with the officers,
directors, or trustees (and in some cases
the members) of the supported organization. Under the significant voice requirement, described in §1.509(a)-4(i)(3)(iii),
the officers, directors, or trustees of the
supported organization, by reason of their
relationships described in §1.509(a)-4(i)
(3)(ii), must have a significant voice in
the investment policies of the supporting
organization, the timing of grants, the

Bulletin No. 2023–44

manner of making grants, and the selection of grant recipients by the supporting
organization, and in otherwise directing
the use of the income or assets of the supporting organization.
The preamble to the 2012 TD stated
that, in determining the appropriate distribution amount for NFI Type III supporting
organizations, the Treasury Department
and the IRS considered the required relationship between a supporting organization and its supported organizations, and
that the Treasury Department and the IRS
intended to issue proposed regulations in
the future that would amend the responsiveness test by requiring a Type III supporting organization to be responsive to
all of its supported organizations.
In response to this proposal in the preamble to the 2012 TD, one commenter
stated that a supporting organization
should not be required to be responsive to
all of its supported organizations because
the resulting administrative burden would
effectively limit the total number of organizations a supporting organization could
support. The commenter suggested alternatives under which a supporting organization would be responsive to only a
subset of its supported organizations that
would vary from year to year.
As stated in the preamble to the 2016
proposed regulations, the distinguishing characteristic of Type III supporting
organizations, and the basis for their public charity classification, is that they are
responsive to and significantly involved
in the operations of their publicly supported organizations. See §1.509(a)-4(f)
(4). Unless a Type III supporting organization is responsive to each of its supported
organizations, the supported organizations cannot exercise the requisite level
of oversight of and engagement with
the supporting organization. Limiting
the responsiveness requirement to fewer
than all of the supported organizations
may result in the necessary oversight and
accountability being present for less than
all of a supporting organization’s operations. Consistent with this view, the 2016
proposed regulations proposed revising
§1.509(a)-4(i)(3)(i) to require a supporting organization to be responsive to the
needs and demands of each of its supported organizations to meet the responsiveness test.

1177

In addition, to illustrate how concerns about potential administrative burdens may be addressed consistent with
the revised responsiveness test, the 2016
proposed regulations proposed a new
Example 3 in §1.509(a)-4(i)(3)(iv) to
demonstrate one way in which a Type III
supporting organization that supports
multiple organizations may satisfy the
responsiveness test in a manner that can
be cost-effective. The Example shows that
a supporting organization can meet the
relationship requirement in §1.509(a)-4(i)
(3)(ii) in different ways with respect to
each of its supported organizations. The
Example also shows how a supporting
organization can organize and hold regular meetings, provide information, and
encourage communication to help ensure
that its supported organizations have a
significant voice in the operations of the
supporting organization.
As noted in the preamble to the 2016
proposed regulations, another commenter in response to the preamble of the
2012 TD requested additional guidance
regarding the ability of trusts to satisfy
the significant voice requirement of the
responsiveness test. The new Example
3 in the 2016 proposed regulations provides further illustration of how Type III
supporting organizations, including charitable trusts, might satisfy the significant
voice requirement of the responsiveness
test. The Treasury Department and the
IRS note that although the examples in
the regulations relating to the responsiveness test may involve a Type III
supporting organization that is organized as either a corporation or a trust,
the applicable law and relevant regulatory provisions, as modified by the final
regulations, are applicable to all Type
III supporting organizations in the same
manner, whether they are organized as
corporations or trusts.
As the preamble to the 2016 proposed regulations stated, the Treasury
Department and the IRS anticipate that
Type III supporting organizations may be
able to demonstrate that they satisfy the
responsiveness test in a variety of ways,
and that the determination will be based
on all the facts and circumstances.
As a result of the proposed changes
to the responsiveness test, the 2016 proposed regulations also include conforming

October 30, 2023

changes to examples and other regulatory
provisions, specifically, removing references to “supported organizations to
which the supporting organization is
responsive” since the supporting organization is to be responsive to each supported organization.
Two commenters to the 2016 proposed
regulations address the responsiveness
test, agreeing with the proposed amendments to §1.509(a)-4(i)(3)(i) and the new
example in §1.509(a)-4(i)(3)(iv). Thus,
these final regulations adopt these proposed amendments without change.
C. Integral Part Test – Functionally
Integrated Type III Supporting
Organizations
Section 1.509(a)-4(i)(1)(iii) provides
that, for each taxable year, a Type III
supporting organization must satisfy the
integral part test. The integral part test
under §1.509(a)-4(i)(1)(iii) is satisfied by
maintaining significant involvement in
the operations of one or more supported
organizations and providing support on
which the supported organizations are
dependent. To satisfy this test, a Type III
supporting organization must meet the
requirements either for a functionally integrated Type III supporting organization or
for an NFI Type III supporting organization, as set forth in §1.509(a)-4(i)(4) or
(5), respectively.
One commenter to the 2016 proposed
regulations stated that the cross reference
in §1.509(a)-4(d)(4)(i)(C) to the integral
part test should be corrected to conform
to the amendments made by the 2012 TD.
The final regulations adopt this recommendation and revise §1.509(a)-4(d)(4)
(i)(C) to reference the requirements of the
integral part test set forth in §1.509(a)-4(i)
(1)(iii).
A Type III supporting organization is functionally integrated under
§1.509(a)-4(i)(4) if it (1) engages in activities substantially all of which directly
further the exempt purposes of one or
more supported organizations and otherwise meets the requirements described in
paragraph (i)(4)(ii) of that section, (2) is
the parent of each of its supported organizations as described in paragraph (i)
(4)(iii) of that section, or (3) supports a
governmental supported organization and

October 30, 2023

otherwise meets the requirements of paragraph (i)(4)(iv) of that section.
1. “Substantially All” Test
Section 1.509(a)-4(i)(4)(ii)(B) provides that all pertinent facts and circumstances will be taken into consideration
in determining whether substantially all
of a supporting organization’s activities
directly further the exempt purposes of
its supported organization(s). One commenter to the 2016 proposed regulations
requested that supporting organizations
be given the option of meeting the “substantially all” test on average over a threeor five-year period. The commenter also
recommended that transition relief be
provided if an organization does not meet
the test over the most recent three or five
years before the promulgation of final
regulations.
The 2012 TD adopted the substantially all test in §1.509(a)-4(i)(4)(ii).
The 2012 TD also provided transition
relief in §1.509(a)-4(i)(11)(ii) for existing organizations to adjust to the new
rules. The 2016 proposed regulations did
not include any substantive changes to
§1.509(a)-4(i)(4)(ii). Furthermore, the
substantially all test in §1.509(a)-4(i)(4)
(ii)(B) takes into consideration all pertinent facts and circumstances, which
allows for some consideration of yearto-year changes in activities. Finally, the
Treasury Department and the IRS note
that the commenter’s proposed multi-year
averaging test would be complex, create
uncertainty about a supporting organization’s functionally integrated status at the
close of each taxable year, and would be
difficult to administer. For these reasons,
the final regulations do not adopt this
recommendation.
2. Parent of Each Supported Organization
Under §1.509(a)-4(i)(4)(iii), a supporting organization is the parent of a supported organization, and thus is deemed
to be functionally integrated, if the supporting organization exercises a substantial degree of direction over the policies,
programs, and activities of the supported
organization and a majority of the officers, directors, or trustees of the supported
organization is appointed or elected,

1178

directly or indirectly, by the governing
body, members of the governing body, or
officers (acting in their official capacities)
of the supporting organization.
As the 2009 proposed regulations
noted, the classification of a parent organization as functionally integrated was
intended to “apply to supporting organizations that oversee or facilitate the
operation of an integrated system, such
as hospital systems.” To more fully
accomplish this objective, the 2016 proposed regulations proposed a revision to
§1.509(a)-4(i)(4)(iii) clarifying that for a
supporting organization to qualify as the
parent of each of its supported organizations, the supporting organization and its
supported organizations must be part of
an integrated system (such as a hospital
system), and the supporting organization
must engage in activities typical of the
parent of an integrated system. The 2016
proposed regulations stated that examples
of these activities include (but are not limited to) coordinating the activities of the
supported organizations and engaging in
overall planning, policy development,
budgeting, and resource allocation for the
supported organizations.
One commenter requested that the final
regulations provide additional examples
of integrated systems, such as private
schools and universities, continuing care
retirement communities, and residential
rehabilitation facilities. The parenthetical
in the 2016 proposed regulations—such as
a hospital system—is stated as only one
example and is not exclusive. This section of the regulations applies to any type
of integrated system of which the parent
organization and its supported organizations are a part. The test is whether
the structure is that of an integrated system and whether the requirements of
§1.509(a)-4(i)(4)(iii) are satisfied, not
whether the system is in a particular
industry. The Treasury Department and
the IRS conclude that it is unnecessary to
add other examples of industries that may
have integrated systems; doing so at this
time may indicate that any industries not
specifically mentioned in the final regulations are excluded. Accordingly, the final
regulations do not adopt the commenter’s
request to provide additional examples.
Nevertheless, in response to the comment
and to make clear that a hospital system is

Bulletin No. 2023–44

just one example of an integrated system,
the final regulations revise the parenthetical in the 2016 proposed regulations to
read as follows: (such as, for example, a
hospital system).
The commenter also recommended
including additional examples of activities
that are typical of a parent of an integrated
system and suggested that the examples
might include financial planning and forecasting, legal services, human resources,
information management, billing and collection services, marketing, and community outreach and education. The Treasury
Department and the IRS note that the list
of activities in the 2016 proposed regulations was only illustrative of how a parent
directs the overall policies, programs, and
activities of the supported organizations
within the integrated system and was not
exclusive. Thus, the absence of any particular activity, such as financial planning,
from this list is not determinative. The
final regulations clarify that a parent of
an integrated system of supported organizations must direct the overall policies,
programs, and activities of the supported
organizations (such as, for example, coordinating the activities of the supported
organizations and engaging in overall
planning, policy development, budgeting,
and resource allocation). The Treasury
Department and the IRS note that a parent
of an integrated system may also perform
system-wide administrative services, such
as the examples provided by the commenter, in conjunction with directing the
overall policies, programs, and activities
of the supported organizations. For clarity, these final regulations omit the defined
term “activities typical of a parent” in
proposed §1.509(a)-4(i)(4)(iii). The 2016
proposed regulations proposed to retain
the requirement in §1.509(a)-4(i)(4)(iii)
that the governing body, members of the
governing body, or officers of a parent
supporting organization must appoint or
elect a majority of the officers, directors,
or trustees of the supported organization.
The preamble to the 2016 proposed regulations stated that the use of the phrase
“appointed or elected, directly or indirectly” means the supporting organization
could qualify as a parent of a second-tier
(or lower) subsidiary. Thus, for example,
if the directors of supporting organization A appoint a majority of the directors

Bulletin No. 2023–44

of supported organization B, which in
turn appoints a majority of the directors
of supported organization C, the directors of supporting organization A will be
treated as appointing the majority of the
directors of both supported organization B
and supported organization C. One commenter agreed with this interpretation and
requested that it be addressed in the final
regulations. These final regulations adopt
this recommendation.
As stated in the preamble to the 2016
proposed regulations, the Treasury
Department and the IRS interpret the
existing requirement under §1.509(a)-4(i)
(4)(iii) that the parent organization have
the power to appoint or elect a majority
of the officers, directors, or trustees of
each supported organization to include the
requirement that the parent organization
also have the power to remove and replace
such officers, directors, or trustees, or otherwise have an ongoing power to appoint
or elect with reasonable frequency. One
commenter requested that language
reflecting this interpretation be specifically added to §1.509(a)-4(i)(4)(iii). The
final regulations adopt this commenter’s
recommendation.
3. Supporting a Governmental Supported
Organization
The 2012 TD reserved §1.509(a)-4(i)
(4)(iv) for future guidance on how a
Type III supporting organization can
qualify as functionally integrated by supporting a governmental entity. As interim
guidance, Notice 2014-4 provided that a
Type III supporting organization will be
treated as functionally integrated if it (i)
supports a supported organization that is
a governmental entity to which the supporting organization is responsive; and
(ii) engages in activities for or on behalf
of that governmental supported organization that perform the functions of, or
carry out the purposes of, that governmental supported organization and that,
but for the involvement of the supporting
organization, would normally be engaged
in by the governmental supported organization itself. This interim guidance was
subsequently extended by the 2015 final
regulations. The 2016 proposed regulations proposed new rules under which a
Type III supporting organization would

1179

qualify as functionally integrated by supporting governmental supported organizations. These final regulations adopt the
proposed §1.509(a)-4(i)(4)(iv), with the
modifications discussed in the following
paragraphs.
The 2016 proposed regulations proposed that a supporting organization that
only supports governmental supported
organizations would be considered functionally integrated if a substantial part
of its total activities directly further the
exempt purposes of its governmental supported organizations and, if the supporting
organization supports more than one governmental supported organization, all of
its governmental supported organizations
either: (1) Operate within the same geographic region (defined as a city, county,
or metropolitan area); or (2) work in close
coordination or collaboration with each
other to conduct a service, program, or
activity that the supporting organization
supports. The 2016 proposed regulations
proposed defining a governmental supported organization as a governmental
unit described in section 170(c)(1), or an
organization described in section 170(c)
(2) and (b)(1)(A) (other than in clauses
(vii) and (viii)) that is an instrumentality of
one or more governmental units described
in section 170(c)(1). To satisfy the close
coordination or collaboration requirement, the proposed regulations proposed
requiring a supporting organization to
maintain on file a letter from each of the
governmental supported organizations (or
a joint letter from all of them) describing
their coordination or collaboration efforts
with respect to the particular service,
program, or activity. The 2016 proposed
regulations proposed an exception to this
rule for certain pre-existing organizations
that support no more than one non-governmental supported organization along
with one or more governmental supported
organizations, as well as a transition rule
for pre-existing organizations that continue to meet the requirements of Notice
2014-4.
Two commenters recommended that
Type III functionally integrated supporting
organizations should not be limited to only
supporting governmental supported organizations. One commenter proposed that
a supporting organization which supports
both governmental and non-governmental

October 30, 2023

supported organizations should qualify as
functionally integrated if the supporting
organization (i) conducts activities that
perform the functions of or carry out the
purposes of its governmental supported
organization(s), (ii) its non-governmental supported organizations operate in the
same geographic region or work in close
coordination or collaboration with the
governmental supported organization(s),
and (iii) substantially all of the supporting
organization’s activities directly further
the exempt purposes of its governmental
supported organization(s).
The other commenter recommended
replacing the requirement that all supported organizations be governmental supported organizations with a new
requirement that substantially all the
activities of the supporting organization
either (i) directly further the purposes of
the governmental supported organizations, or (ii) consist of grantmaking, fundraising, or investing for governmental
supported organizations that meet either
the same geographic region or close coordination and collaboration requirements in
the 2016 proposed regulations.
A third commenter requested that,
when a supporting organization supports
more than one governmental supported
organization, the governmental supported
organizations should only be required to
work in close coordination or collaboration. The commenter requested deleting
the requirement that the governmental
supported organizations conduct a service, program, or activity that the supporting organization supports.
The 2016 proposed regulations proposed allowing certain Type III supporting
organizations that support governmental
supported organizations to be classified
as functionally integrated on the basis
that the involvement of the governmental
supported organizations in the supporting
organization’s activities would minimize
the potential for abuse. As stated in the
preamble to the 2016 proposed regulations, requiring close cooperation and collaboration on a common service, program,
or activity that the supporting organization
supports helps ensure that the governmental supported organizations will provide
sufficient input to and oversight of the
supporting organization. Moreover, the
coordination and collaboration between

October 30, 2023

the governmental supported organizations would be greatly diminished if they
engaged in different services, programs,
or activities. Furthermore, governmental
input and oversight would be diluted if
the definition of functionally integrated
were expanded to permit these supporting
organizations to support and be responsive to non-governmental supported organizations as well. Additionally, for the
reasons discussed later in this preamble,
the Treasury Department and the IRS utilize the substantial part test for supporting
governmental supported organizations
(instead of the substantially all test) but
specifically exclude grant making and
other financial activities from the definition of activities that directly further the
exempt purposes of the governmental
supported organizations. Accordingly,
these final regulations do not adopt these
recommendations. For clarity, these final
regulations omit the defined term “geographic region” contained in proposed
§1.509(a)-4(i)(4)(iv)(C).
As noted previously in this preamble,
the 2016 proposed regulations proposed
that, for simplicity and administrability,
the term “governmental supported organization” be defined using an existing
Code definition of governmental unit.
Three commenters stated their support for
this definition. Thus, the final regulations
adopt the definition in the 2016 proposed
regulations with the clarification described
in the following paragraph.
The preamble to the 2016 proposed
regulations noted that, because a governmental unit described in section 170(c)(1)
includes all of the agencies, departments,
and divisions of that governmental unit,
all such agencies, departments, and divisions will be treated as one governmental supported organization for purposes
of §1.509(a)-4(i)(4)(iv). One commenter
stated its support for this position and
requested that it be specifically written
into the regulations. These final regulations adopt this commenter’s recommendation. The final regulations specifically
state that a governmental unit includes
all of its agencies, departments, and divisions, and that they will be treated as one
governmental supported organization for
these purposes.
One commenter on the 2016 proposed regulations requested that an

1180

instrumentality of a governmental supported organization and the governmental supported organization with respect
to which it is an instrumentality should
be treated as one governmental supported
organization. The final regulations do
not adopt this recommendation because,
unlike an agency, department, or division
of a governmental unit, an instrumentality
described in §1.509(a)-4(i)(4)(iv)(B)(2) is
a separate legal entity.
The 2016 proposed regulations also
proposed that supporting organizations
that support only governmental supported
organizations may qualify as functionally
integrated only if a “substantial part” of
their activities directly furthers the exempt
purposes of their governmental supported
organization(s). The 2016 proposed regulations proposed using the same definition of “directly further” contained in
§1.509(a)-4(i)(4)(ii)(C), the integral part
test for functionally integrated Type III
supporting organizations, as promulgated
in the 2012 TD. This definition provides
that fundraising, making grants, and
investing and managing non-exempt-use
assets are not activities that directly further the exempt purposes of the supported
organization.
One commenter recommended that
fundraising, making grants, and investing and managing non-exempt-use assets
should be considered activities that directly
further the exempt purposes of a governmental supported organization. The
Treasury Department and the IRS determined that a Type III supporting organization should qualify as functionally
integrated only if the supporting organization itself conducts activities that perform
the functions of or carry out the purposes
of its supported organization (as distinguished from providing financial support for the activities carried out by the
supported organization). As the 2012 TD
stated, fundraising, making grants, and
investing and managing non-exempt-use
assets relate to producing and distributing
income to finance the charitable activities
directly carried out by the supported organization. The 2016 proposed regulations
did not adopt comments seeking to apply
a different definition of ‘‘directly further’’
to supporting organizations that support
governmental supported organizations.
These final regulations do not adopt the

Bulletin No. 2023–44

commenter’s proposal because using a
different definition of “directly further”
for governmental supported organizations
would undermine a fundamental distinction that §1.509(a)-4(i)(4) makes between
functionally integrated and NFI Type III
supporting organizations, i.e., directly conducting charitable activities versus financing charitable activities. The Treasury
Department and the IRS also note the
complexity and administrative difficulty of
applying different definitions of “directly
further” under the integral part test.
These final regulations adopt the
requirement in the 2016 proposed regulations that a substantial part of the supporting organization’s total activities must
directly further the exempt purposes of its
governmental supported organizations.
These final regulations also add a new
example to clarify that a supporting organization can meet this requirement and
still make grants to one of its governmental supported organizations as a substantial part of its activities. As the preamble to
the 2016 proposed regulations stated, the
“substantial part” test in §1.509(a)-4(i)(4)
(iv) allows these supporting organizations
to conduct more fundraising and other
financial activities, if certain requirements
are met, than is permitted under the “substantially all” test of §1.509(a)-4(i)(4)(ii)
that applies generally to be a functionally
integrated Type III supporting organization. One commenter requested confirmation concerning the identity of these
certain requirements that must be met.
Under §1.509(a)-4(i)(4) as promulgated
by the 2012 TD and amplified by these
final regulations in providing the rules
for supporting governmental supported
organizations, the organization must meet
the annual notification requirement in
§1.509(a)-4(i)(2) and the responsiveness
test in §1.509(a)-4(i)(3), in addition to the
specific requirements in §1.509(a)-4(i)
(4)(iv), in order to be a functionally integrated Type III supporting organization by
virtue of supporting governmental supported organizations.
One commenter recommended providing a clear definition of what constitutes
a substantial part of a supporting organization’s total activities for purposes of
meeting §1.509(a)-4(i)(4)(iv). Another
commenter recommended not adopting a
bright line rule to measure the quantity of

Bulletin No. 2023–44

activities that equal a substantial part, but
requested a statement in the final regulations that all pertinent facts and circumstances will be taken into account. This
commenter also requested more examples of activities that directly further the
exempt purpose of the governmental supported organization and clarification in
the regulations to require that a substantial
part of a supporting organization’s activities directly further the exempt purposes
of “at least one” (as opposed to all) of its
governmental supported organizations
when the governmental supported organizations share a common geographic
region.
In response to these comments,
the final regulations revise proposed
§1.509(a)-4(i)(4)(iv) to provide that, in
determining whether a substantial part of
a supporting organization’s total activities
directly further the exempt purposes of its
governmental supported organization(s),
all pertinent facts and circumstances
will be taken into consideration. This
approach is consistent with the approach
in §1.509(a)-4(i)(4)(ii)(B), which determines “substantially all” for the general
test of being functionally integrated by
considering all pertinent facts and circumstances. The final regulations also revise
proposed §1.509(a)-4(i)(4)(iv)(A) and add
a new example in §1.509(a)-4(i)(4)(v) to
make clear that a supporting organization
that supports more than one governmental supported organization as described
in §1.509(a)-4(i)(4)(iv)(A) satisfies the
substantial part test if a substantial part of
its activities directly furthers the exempt
purpose of at least one of its governmental
supported organizations.
One commenter stated that proposed
§1.509(a)-4(i)(4)(iv)(A)(1)(ii), which
uses the phrase “close coordination or
collaboration,” should be made consistent
with proposed §1.509(a)-4(i)(4)(iv)(D),
which uses the phrase “close cooperation
or coordination.” The final regulations
adopt this recommendation and make
the provisions consistent by changing the
phrasing in §1.509(a)-4(i)(4)(iv)(C) of the
final regulations to “close coordination or
collaboration.” No substantive change is
intended by this revision.
The 2016 proposed regulations proposed an exception to the general rule
for supporting organizations that support

1181

governmental supported organizations.
The exception would treat a Type III
supporting organization in existence on
or before February 19, 2016 (the date of
the issuance of the 2016 proposed regulations), as functionally integrated if: (1)
It supports one or more governmental
supported organizations and no more than
one supported organization that is not a
governmental supported organization; (2)
it designated each of its supported organizations as provided in §1.509(a)-4(d)
(4) on or before February 19, 2016; and
(3) a substantial part of its total activities
directly furthers the exempt purposes of its
governmental supported organization(s).
One commenter stated that the proposed
exception would allow it and similar organizations currently to qualify as functionally integrated. The final regulations adopt
the proposed exception without change.
The 2016 proposed regulations also
proposed further extending the transition relief provided in Notice 2014-4 and
extended in the preamble to the 2015 final
regulations. Under the 2016 proposed
regulations, a Type III supporting organization in existence on or before February
19, 2016, that met and continues to meet
the requirements of Notice 2014-4 would
be treated as functionally integrated until
the earlier of the first day of the organization’s first taxable year beginning after
the date final regulations are published
under §1.509(a)-4(i)(4)(iv) or the first
day of the organization’s second taxable
year beginning after February 19, 2016.
The Treasury Department and the IRS
did not receive any comments about the
transition rule or any requests to extend
the transition period in the 2016 proposed
regulations, which now has expired. The
Treasury Department and the IRS therefore conclude supporting organizations
have had sufficient time to adjust to the
new rules and further transition relief is
not necessary. Accordingly, these final
regulations do not provide a further extension of the transition relief proposed in the
2016 proposed regulations.
D. Integral Part Test – Non-Functionally
Integrated Type III Supporting
Organizations
Section 1.509(a)-4(i)(5) provides
that a supporting organization meets the

October 30, 2023

integral part test to be an NFI Type III
supporting organization if it satisfies the
distribution requirement of §1.509(a)-4(i)
(5)(ii) and the attentiveness requirement
of §1.509(a)-4(i)(5)(iii), or the pre-November 2, 1970, trust requirements of
§1.509(a)-4(i)(9). Section 1.509(a)-4(i)
(5)(ii) provides that, with respect to each
taxable year, a supporting organization
must distribute to or for the use of one or
more supported organizations an amount
equaling or exceeding its “distributable
amount.” Section 1.509(a)-4(i)(6) provides the amount of a distribution made to
a supported organization is the amount of
cash or the fair market value of the property distributed.
The 2016 proposed regulations proposed
revising
§1.509(a)-4(i)(5)(ii)
to state that a supporting organization
must make distributions as described in
§1.509(a)-4(i)(6) in a total amount equaling or exceeding the supporting organization’s distributable amount to satisfy the
distribution requirement, and proposed
revising §1.509(a)-4(i)(6) to describe in
detail what distributions count toward
satisfying the distribution requirement.
These final regulations adopt these proposed revisions, explained as follows,
without change.
1. No Reduction of Distributable Amount
for Taxes Subtitle A Imposes
Section 1.509(a)-4(i)(5)(ii)(B) provides that the distributable amount is
equal to the greater of 85 percent of an
organization’s adjusted net income for
the immediately preceding taxable year
(as determined by applying the principles of section 4942(f) of the Code and
§53.4942(a)-2(d)) or its minimum asset
amount for the immediately preceding
taxable year, reduced by the amount of
taxes imposed on the supporting organization under subtitle A of the Code (subtitle
A) during the immediately preceding taxable year.
Because the taxes under subtitle A are
imposed on a supporting organization’s
unrelated business taxable income (pursuant to section 511 of the Code) and
the activity that produces the unrelated
business taxable income does not further
the supported organization’s exempt purposes, the preamble to the 2016 proposed

October 30, 2023

regulations stated that these taxes should
not be treated as the functional equivalent
of an amount distributed to a supported
organization. The 2016 proposed regulations, therefore, proposed removing the
provision in §1.509(a)-4(i)(5)(ii)(B) that
reduces the distributable amount by the
amount of taxes subtitle A imposed on a
supporting organization during the immediately preceding taxable year.
One commenter stated that the distributable amount should be reduced by the
amount of taxes imposed on the supporting
organization’s unrelated business income,
as section 4942(d) provides for private
foundations. In advocating to retain the
reduction in the distributable amount, the
commenter suggested that only the supporting organization’s after-tax income
from unrelated business activities should
be considered available for distribution to
its supported organizations.
A supporting organization’s adjusted
net income under §1.509(a)-4(i)(5)(ii)(B)
includes gross income from all sources,
including investment income that is not
subject to tax under section 511. The 2012
TD and the 2015 final regulations, therefore, stated it was necessary to revise the
distribution requirement to ensure that
NFI Type III supporting organizations
distribute significant amounts to their supported organizations, as Congress directed
in the PPA. As stated in the 2015 final
regulations, the 85 percent of adjusted
net income test makes it more likely that
supported organizations will timely benefit from higher returns received by their
supported organizations. Reducing the
distributable amount by any taxes on the
income would be counter to this objective.
The Treasury Department and the IRS
further note that section 4942(d) only
applies to private non-operating foundations. As the preamble to the 2012 TD
recounted, a number of commenters to
the 2009 proposed regulations stated that
NFI Type III supporting organizations
should not be subject to the higher payout for private non-operating foundations
because they are distinguishable from
them. These commenters stated that NFI
Type III supporting organizations are
more similar to private operating foundations and medical research organizations
and therefore should be subject to their
lower payout requirements. The 2012 TD

1182

and the 2015 final regulations adopted
this recommendation, providing lower
payout requirements for NFI Type III
supporting organizations than for private
non-operating foundations. Private operating foundations and medical research
organizations are not able to reduce their
payout requirements by the taxes imposed
by subtitle A. See §1.170A-9(d)(2)(v)
(B); §53.4942(b)-1(a)(1)(ii). The Treasury
Department and the IRS conclude for the
foregoing reasons that it would be inconsistent to apply a different rule to NFI Type
III supporting organizations. Therefore,
these final regulations adopt the 2016 proposed revision to §1.509(a)-4(i)(5)(ii)(B)
without change.
2. Distributions that Count toward
Distribution Requirement
Section 1.509(a)-4(i)(6) provides
details on the distributions by a supporting organization that count toward satisfying the distribution requirement imposed
in §1.509(a)-4(i)(5)(ii). The regulations
provide that distributions include but are
not limited to: (1) Any amount paid to a
supported organization to accomplish
the supported organization’s exempt purposes; (2) any amount paid by the supporting organization to perform an activity
that directly furthers the exempt purposes
of the supported organization within the
meaning of §1.509(a)-4(i)(4)(ii), but
only to the extent such amount exceeds
any income derived by the supporting
organization from the activity; (3) any
reasonable and necessary administrative
expenses paid to accomplish the exempt
purposes of the supported organization(s),
which do not include expenses incurred in
the production of investment income; (4)
any amount paid to acquire an exempt-use
asset described in §1.509(a)-4(i)(8)(ii);
and (5) any amount set aside for a specific
project that accomplishes the exempt purposes of a supported organization to which
the supporting organization is responsive.
The list in §1.509(a)-4(i)(6) is not
exhaustive and other distributions may
count towards the distribution requirement. As stated in the preamble to the
2016 proposed regulations, the use of
a non-exclusive list creates uncertainty
for supporting organizations and the IRS
about what counts toward the distribution

Bulletin No. 2023–44

requirement. Therefore, the 2016 proposed regulations proposed revising and
clarifying the list in §1.509(a)-4(i)(6)
of what counts toward the distribution
requirement and making it an exclusive
list.
a. Reasonable and necessary
administrative expenses
Under §1.509(a)-4(i)(6), reasonable
and necessary administrative expenses
paid to accomplish the exempt purposes of supported organizations, but not
expenses incurred in the production of
investment income, count toward the distribution requirement. For example, if a
supporting organization conducts exempt
activities that are for the benefit of, perform the functions of, or carry out the purposes of its supported organization(s) and
also conducts nonexempt activities (such
as investment activities or unrelated business activities), then the supporting organization’s administrative expenses (such
as salaries, rent, utilities and other overhead expenses) must be allocated between
the exempt and nonexempt activities on a
reasonable and consistently-applied basis.
The supporting organization’s administrative expenses attributable to the exempt
activities are treated as distributions to its
supported organization(s) if such expenses
are reasonable and necessary. Conversely,
the administrative expenses and operating costs attributable to the nonexempt
activities are not treated as distributions to
the supported organization(s). The 2016
proposed regulations proposed retaining
this provision, with additional guidance
regarding fundraising expenses.
b. Fundraising expenses
Section 1.509(a)-4(i)(6) does not specifically address whether fundraising
expenses count toward the distribution
requirement. The 2016 proposed regulations addressed the issue, specifying that
reasonable and necessary administrative
expenses paid to accomplish the exempt
purposes of a supported organization generally do not include fundraising expenses
the supporting organization incurs. For
example, when a supporting organization
conducts a fundraising event for its supported organization(s) and distributes the

Bulletin No. 2023–44

proceeds of the event, net of its fundraising
expenses, to its supported organization(s),
only the amount that the supporting organization actually distributes to its supported organization(s) counts towards the
distribution requirement. Thus, under the
2016 proposed regulations, the supporting organization’s fundraising expenses
do not count towards the distribution
requirement.
If a supporting organization conducts
a fundraising event at which the supporting organization instructs donors to make
contributions directly to the supported
organization, the 2016 proposed regulations proposed that those contributions
would not count as a distribution from the
supporting organization to its supported
organization. However, in this situation
the supporting organization could count
towards the distribution requirement
the reasonable and necessary expenses
it incurs to solicit the contributions the
donors pay directly to its supported organization: (1) to the extent that the amount
of these solicitation expenses does not
exceed the amount of contributions the
supported organization actually receives;
and (2) if the supporting organization can
substantiate (as discussed later in this
preamble) that those contributions were
received as a result of the supporting organization’s solicitation activities. The 2016
proposed regulations proposed this rule
to provide consistency with the treatment
of contributions that supporting organizations receive directly and then distribute
to their supported organizations (net of
the supporting organization’s solicitation
expenses).
While commenters were generally supportive of the proposal to count as distributions the fundraising expenses incurred
to solicit contributions directly to the
supported organization, one commenter
recommended deleting the requirement
that contributions be received directly by
the supported organization for the fundraising expenses to count. Alternatively,
the commenter requested this special rule
for fundraising expenses also apply if the
contributions were received directly by an
agent of the supported organization.
Another commenter proposed that
contributions the supporting organization
received directly from the fundraising
solicitation as a matter of convenience

1183

should be treated as contributions the supported organization received directly if the
supporting organization is contractually
obligated to remit the contributions to the
supported organization and the supporting
organization actually distributes the contributions to the supported organization
within a reasonable time period. The commenter also proposed that the supporting
organization be allowed to count its fundraising solicitation expenses in the year
it incurred them so long as the supported
organization received the corresponding
contributions within a reasonable time
period following the end of that year.
In response to these comments, these
final regulations adopt the proposed rules
with certain modifications and clarifications. These final regulations provide
that expenses the supporting organization incurs to solicit contributions count
towards the distribution requirement
when the resulting contributions are
received directly by a supported organization, but only to the extent that the supporting organization’s expenses for each
solicitation do not exceed the amount of
contributions a supported organization
actually receives, and only if the supporting organization substantiates that those
contributions were received as a result of
the supporting organization’s solicitation
activities. This limitation is applied on a
solicitation-by-solicitation basis; the supporting organization may not aggregate
its expenses, or the contributions a supported organization receives, from more
than one solicitation to determine the
amount of solicitation expenses that count
towards its distribution requirement. The
Treasury Department and the IRS intend
that contributions are received directly by
the supported organization when donors
make their checks, credit card or other
payments payable to the supported organization. The Treasury Department and
the IRS also intend that when a supporting
organization receives checks or processes
credit card or other transactions that are
payable to its supported organization,
the supporting organization may count
as distributions the expenses it incurs for
soliciting those checks or credit card or
other payments, but only up to the amount
of contributions received directly by or
paid directly to the supported organization and substantiated by the supported

October 30, 2023

organization. Thus, for purposes of meeting its distribution requirement, the supporting organization may not count as
distributions from the supporting organization to the supported organization
the amount of the check and credit card
or other contributions the donors make
payable to the supported organization.
Contributions made payable to the supporting organization that are transferred
to the supported organization, however,
may be counted as distributions from the
supporting organization to the supported
organization at the time that the funds are
given by the supporting organization to
the supported organization. These final
regulations do not adopt a rule permitting
payments that are first deposited with the
supporting organization to count as contributions received directly by the supported
organization (for purposes of permitting
additional solicitation expenses related to
those contributions to count as distributions). Preventing the supporting organization from counting those amounts twice
toward satisfying the supporting organization’s annual distribution requirements
and accounting for those funds in the supporting organization’s account would be
administratively difficult.
c. Joint fundraising expenses
One commenter also requested guidance on how to allocate contributions
when the supporting organization and the
supported organization share the costs
of a solicitation event. The Treasury
Department and the IRS do not intend for
the rule for fundraising expenses to apply
with respect to a solicitation event if the
supported organization incurs more than
de minimis costs related to the same solicitation event. Section 1.509(a)-4(i)(6)(i)
permits supporting organizations to count
any amount they pay to their supported
organization as a distribution for purposes of satisfying the annual distribution
requirement described in §1.509(a)-4(i)
(5)(ii). A supporting organization can,
therefore, share the costs of a fundraiser
by distributing to the supported organization an amount equal to the supporting
organization’s share of the joint fundraising expenses. Section 1.509(a)-4(i)(6)(i)
would permit the supporting organization
to count this payment as a distribution for

October 30, 2023

purposes of §1.509(a)-4(i)(5)(ii), negating the need for a special rule in proposed
§1.509(a)-4(i)(6)(iii)(B). The Treasury
Department and the IRS note that it would
be very difficult to determine and substantiate what portion of the contributions a
supported organization receives are attributable to the supporting organization’s
expenditures. Thus, expanding the rule
to cover joint solicitation efforts as the
commenter suggests would increase the
compliance burden on supporting organizations and supported organizations and
would be difficult for the IRS to administer. These final regulations, therefore, do
not adopt this recommendation.
d. Taxable year to which fundraising
expenses are attributable
One commenter requested a clarification that contributions made to a
supported organization in response to a
supporting organization’s end-of-the-year
fundraiser that the supported organization
does not receive until the following year
may be used to determine the portion of
reasonable and necessary fundraising
expenses the supporting organization may
treat as a distribution for the year in which
the fundraiser occurred. This commenter
recommended a 90-day window in the
second year for counting such contributions. These final regulations clarify that,
for purposes of applying the limitation on
the supporting organization’s solicitation
expenses for each taxable year that count
toward its distribution requirement, any
contributions the supported organization
receives directly from donors that are
attributable to a solicitation the supporting organization conducted in a particular
taxable year includes any contributions
the supported organization receives and
substantiates in writing on or before the
due date (without regard to extensions)
of the supporting organization’s Form
990 for the year in which it conducted the
solicitation.
For example, assume a supporting organization makes a solicitation
on December 15, 2024. The supported
organization receives contributions from
donors of $1x on December 26, 2024, and
$2x on March 15, 2025, that are attributable to the solicitation made on December
15, 2024. The supported organization

1184

substantiates the total contributions of $3x
in writing prior to May 15, 2025 (the due
date without extensions of the supporting
organization’s Form 990 for 2024). The
written substantiation indicates that these
contributions were attributable to the
December 15, 2024 solicitation. Under
§1.509(a)-4(i)(6)(iii)(B), the supporting
organization may treat up to $3x of any
reasonable and necessary expenses it
incurred for the December 15, 2024 solicitation toward its distribution requirement.
A supporting organization may not take
into account the same contributions in
computing the fundraising expense limitation in more than one year or with respect
to more than one solicitation. Thus, in the
preceding example, the $2x contribution
the supported organization received on
March 15, 2025, may only be used by
the supporting organization to determine
its fundraising expense limitation for the
December 15, 2024, solicitation. The supporting organization may not use the $2x
again to determine its 2025 fundraising
expense limitation.
e. Written substantiation from supported
organization
The 2016 proposed regulations proposed requiring a supporting organization
to obtain written substantiation from the
supported organization of the amount of
contributions the supported organization
actually receives as a result of each of the
supporting organization’s solicitations.
One commenter requested that the permitted written substantiation include an email
from the supported organization that the
supporting organization maintains in its
electronic records. These final regulations
adopt this recommendation, stating that
the written substantiation may be provided by electronic media.
Another commenter requested that
a supported organization be allowed to
aggregate into a single annual written
report the substantiation of all the contributions it received from the supporting organization’s fundraising activities.
The commenter also requested that the
supported organization should only be
responsible for reporting the amount of
the contributions it received and not be
responsible for calculating the supporting
organization’s fundraising activities.

Bulletin No. 2023–44

These final regulations clarify that the
supporting organization may substantiate
the contributions provided to the supported organization by a single annual
statement in writing from the supported
organization, provided that the amount
of contributions, if any, received by the
supported organization as a result of each
solicitation is separately identified. To
satisfy §1.509(a)-4(i)(6)(iii)(B), the written substantiation must be postmarked or
electronically transmitted to the supporting organization no later than the due date
(without regard to extensions) of the supporting organization’s Form 990 for the
year of the solicitation. In addition, written
substantiation relied on by the supporting
organization (whether provided in one or
multiple reports) must separately state the
amount of contributions, if any, received
directly by the supported organization
allocable to each solicitation made by the
supporting organization that is covered in
the report. The supporting organization is
responsible for determining its solicitation expenses. The written substantiation
the supporting organization is required to
receive from the supported organization
need only provide information relevant to
the amount of contributions the supported
organization received; it does not need
to address the supporting organization’s
expenses.

foundations. Furthermore, other provisions relating to the distribution requirement, such as the availability of set-asides
and the potential for carry-forwards of
excess distributions, provide significant
flexibility for supporting organizations to
meet the current and future needs of their
supported organizations. For these reasons, these final regulations do not adopt
this recommendation.

f. Program-related investments not taken
into account

Special Analyses

Finally, one commenter requested
that program-related investments (PRIs)
count toward the distribution requirement. The preamble to the 2016 proposed
regulations stated that, for purposes of
meeting the integral part test, PRIs are
not treated as distributions to the supported organizations. As the preamble
to the 2016 proposed regulations stated,
the Treasury Department and the IRS
recognize that private foundations may
use PRIs in a variety of ways to accomplish their exempt purposes and that
PRIs thus are treated as qualifying distributions under section 4942. However,
because supporting organizations must
be operated exclusively for the benefit of, to perform the functions of, or to
carry out the purposes of their supported
organizations, they differ from private

Bulletin No. 2023–44

IV. Technical Corrections
This Treasury Decision conforms the
paragraphs throughout §1.509(a)-4 to the
Code of Federal Regulations by making
non-substantive changes, including capitalizing letters of fourth level paragraphs.
This Treasury Decision also modifies
§53.4947-1 to correct certain cross-references to §1.509(a)-4.
V. Applicability Date
These final regulations are applicable
to taxable years beginning on or after
October 16, 2023. Taxpayers may choose
to apply these final regulations to taxable
years beginning on or after February 19,
2016, and before October 16, 2023, so
long as the taxpayer applies the provisions
of these final regulations in their entirety
and in a consistent manner.

I. Regulatory Planning and Review
Pursuant to the Memorandum
of Agreement, Review of Treasury
Regulations under Executive Order 12866
(June 9, 2023), tax regulatory actions
issued by the IRS are not subject to the
requirements of section 6(b) of Executive
Order 12866, as amended. Therefore,
a regulatory impact assessment is not
required.
II. Paperwork Reduction Act
The collection of information contained in these regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control
number 1545-2271.

1185

The collection of information in these
regulations is in §1.509(a)-4(i)(4)(iv)(C)
(written record of close coordination or
collaboration by certain governmental supported organizations) and §1.509(a)-4(i)
(6)(iii)(B) (written record of contributions
received by certain supported organizations). Requiring a supporting organization to collect (1) written records of its
governmental supported organizations’
close coordination or collaboration with
each other and (2) written records of the
contributions its supported organizations
directly received from donors in response
to solicitations by the supporting organization helps the IRS determine whether
the supporting organization is a functionally integrated or non-functionally integrated Type III supporting organization.
The record keepers are certain Type III
supporting organizations.
Estimated number of recordkeepers:
6,089.
Estimated average annual burden hours
per recordkeeper: 2 hours.
Estimated total annual recordkeeping
burden: 12,178 hours.
Estimated frequency of collection of
such information: Annual.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it displays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
return information are confidential, as
required by 26 U.S.C. 6103.
III. Regulatory Flexibility Act
In connection with the requirements of
the Regulatory Flexibility Act (5 U.S.C.
chapter 6), it is hereby certified that these
final regulations will not have a significant
economic impact on a substantial number
of small entities. This certification is based
on the fact that these final regulations will
not impact a substantial number of small
entities.
Based on IRS Statistics of Income data
for 2019, there are 1,365,744 active nonprofit charitable organizations recognized
by the IRS under section 501(c)(3), of

October 30, 2023

which only 6,089 organizations self-identified as Type III supporting organizations.
The universe of organizations that would
be affected by §1.509(a)-4(i)(4)(iv)(C)
and §1.509(a)-4(i)(6)(iii)(B) is a subset
of all Type III supporting organizations,
because those provisions apply either to
organizations seeking to qualify as functionally integrated based on support of
two or more governmental supported
organizations or to non-functionally
integrated organizations that solicit contributions that are received directly by
a supported organization (rather than
by the supporting organization). Thus,
the number of organizations that will be
affected by the collection of information
under §1.509(a)-4(i)(4)(iv)(C) and (i)(6)
(iii)(B) will not be substantial. Moreover,
the time to complete the recordkeeping
requirements is expected to be no more
than 2 hours for each organization, thus
the regulations will not have a significant
economic impact. The requirements under
§1.509(a)-4(i)(4)(iv)(C) and (i)(6)(iii)(B),
therefore, will not have a significant economic impact.
Pursuant to section 7805(f) of the
Code, this regulation was submitted to the
Chief Counsel for the Office of Advocacy
of the Small Business Administration for
comment on its impact on small business
and no comments were received.

any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and
local governments, and is not required
by statute, or preempts State law, unless
the agency meets the consultation and
funding requirements of section 6 of the
Executive order. The regulations do not
have federalism implications, impose
substantial direct compliance costs on
State and local governments, or preempt State law within the meaning of the
Executive order.

IV. Unfunded Mandates Reform Act

Drafting Information

Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated
costs and benefits and take certain other
actions before issuing a final rule that
includes any Federal mandate that may
result in expenditures in any one year
by a State, local, or tribal government,
in the aggregate, or by the private sector, of $100 million in 1995 dollars,
updated annually for inflation. The
regulations do not include any Federal
mandate that may result in expenditures
by State, local, or tribal governments,
or by the private sector in excess of that
threshold.

The principal authors of these regulations are Jonathan Carter and Don
Spellmann, Office of Associate Chief
Counsel (Employee Benefits, Exempt
Organizations, and Employment Taxes).
However, other personnel from the
Treasury Department and the IRS participated in their development.

V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing

October 30, 2023

VI. Congressional Review Act
Pursuant to the Congressional Review
Act (5 U.S.C. 801 et seq.), the Office
of Management and Budget’s Office of
Information and Regulatory Affairs designated this rule as not a “major rule,” as
defined by 5 U.S.C. 804(2).
Statement of Availability of IRS
Documents
Notice 2014-4 is published in the
Internal Revenue Bulletin and is available
from the Superintendent of Documents,
U.S. Government Printing Office,
Washington, DC 20402, or by visiting
the IRS website at: https://www.irs.gov/
irb/2014-02_IRB#NOT-2014-4.

List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 53
Excise taxes, Foundations, Investments,
Lobbying, Reporting and recordkeeping
requirements.

1186

Amendments to the Regulations
Accordingly, the Treasury Department
and the IRS amend 26 CFR parts 1 and 53
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.509(a)-4 is amended by:
1. In paragraph (d)(2)(i) introductory
text, removing “subdivision (iv) of this
subparagraph” and “subparagraph (1) of
this paragraph” and adding “paragraph
(d)(2)(iv) of this section” and “paragraph
(d)(1) of this section” in their places,
respectively.
2. Redesignating paragraphs (d)(2)(i)
(a) and (b) as paragraphs (d)(2)(i)(A) and
(B), respectively.
3. In newly redesignated paragraph (d)
(2)(i)(B)(1), removing “(a) of this subdivision” and adding “paragraph (d)(2)(i)
(A) of this section” in its place.
4. In newly redesignated paragraph (d)
(2)(i)(B)(2), removing “subdivision (i)(a)
or this subparagraph” and adding “paragraph (d)(2)(i)(A) of this section or this
paragraph (d)(2)(i)(B)(2)” in its place.
5. In paragraph (d)(2)(ii), removing
“subdivision (i)(a) or this subparagraph”,
“subparagraph (1) of this paragraph” and
“subparagraphs (3) (i), (ii), and (iii) and
(4)(i) (a) and (b) of this paragraph” and
adding “paragraph (d)(2)(i)(A) of this section”, “paragraph (d)(1) of this section”,
and “paragraphs (d)(3)(i) through (iii) and
(d)(4)(i)(A) and (B) of this section” in
their places, respectively.
6. In paragraph (d)(2)(iii) introductory
text, removing “subparagraph” and adding “paragraph (d)(2)” in its place.
7. Designating Examples 1 and 2 of
paragraph (d)(2)(iii) as paragraphs (d)(2)
(iii)(A) and (B), respectively.
8. In paragraph (d)(2)(iv) introductory
text, removing “subparagraph (1) of this
paragraph” and adding “paragraph (d)(1)
of this section” in its place.
9. Redesignating paragraphs (d)(2)(iv)
(a) and (b) as paragraphs (d)(2)(iv)(A)
and (B), respectively.
10. In newly redesignated paragraph
(d)(2)(iv)(A), removing “, and” and adding “; and” in its place.

Bulletin No. 2023–44

11. In paragraph (d)(3) introductory
text, removing “subparagraph (2)(i) (a) of
this paragraph” and adding “paragraph (d)
(2)(i)(A) of this section” in its place.
12. In paragraph (d)(4)(i) introductory
text, removing “subparagraph (2)(iv) of
this paragraph” and “this subparagraph”
and adding “paragraph (d)(2)(iv) of this
section” and “this paragraph (d)(4)” in
their places, respectively.
13. Redesignating paragraphs (d)(4)(i)
(a) through (c) as paragraphs (d)(4)(i)(A)
through (C), respectively.
14. Revising newly redesignated paragraph (d)(4)(i)(C).
15. In paragraph (d)(4)(ii), removing
“subdivision (i)(b) of this subparagraph”
and “subdivision (i)(b)” and adding “paragraph (d)(4)(i)(B) of this section” and
“paragraph (d)(4)(i)(B)” in their places,
respectively.
16. In paragraph (d)(4)(iii) introductory text, removing “subparagraph” and
adding “paragraph (d)(4)” in its place.
17. Designating the Example in paragraph (d)(4)(iii) as paragraph (d)(4)(iii)
(A) and adding reserved paragraph (d)(4)
(iii)(B).
18. In paragraph (e)(3) introductory
text, removing “paragraph” and adding
“paragraph (e)” in its place.
19. Designating Examples 1 through 5
of paragraph (e)(3) as paragraphs (e)(3)(i)
through (v), respectively.
20. Revising paragraph (f)(5)(ii).
21. In paragraph (g)(2) introductory
text, removing “paragraph” and adding
“paragraph (g)” in its place.
22. Designating Examples 1 through 3
of paragraph (g)(2) as paragraphs (g)(2)(i)
through (iii), respectively.
23. In newly redesignated paragraph
(g)(2)(iii), removing “subparagraph (1)(ii)
of this paragraph” and adding “paragraph
(g)(1)(ii) of this section” in its place.
24. In paragraph (h)(3) introductory
text, removing “paragraph” and adding
“paragraph (h)” in its place.
25. Designating Examples 1 through 3
of paragraph (h)(3) as paragraphs (h)(3)(i)
through (iii), respectively.
26. Revising paragraphs (i)(2)(i) introductory text, (i)(2)(i)(A), (i)(2)(iii), and (i)
(3)(i).
27. Designating Examples 1 and 2 of
paragraph (i)(3)(iv) as paragraphs (i)(3)
(iv)(A) and (B), respectively.

Bulletin No. 2023–44

28. Adding paragraph (i)(3)(iv)(C).
29. Revising paragraphs (i)(4)(ii)(A)
(1), (i)(4)(ii)(B), and (i)(4)(iii) and (iv).
30. Designating Examples 1 through 5
of paragraph (i)(4)(v) as paragraphs (i)(4)
(v)(A) through (E), respectively.
31. Adding paragraph (i)(4)(v)(F).
32. Revising paragraphs (i)(5)(ii)(A)
and (B) and (i)(5)(iii)(A).
33. Designating Examples 1 through 4
of paragraph (i)(5)(iii)(D) as paragraphs
(i)(5)(iii)(D)(1) through (4), respectively.
34. Revising newly designated paragraph (i)(5)(iii)(D)(4), the third sentence
of paragraph (i)(6) introductory text, and
paragraphs (i)(6)(iii) and (v) introductory
text.
35. In paragraph (k)(2) introductory
text, removing “paragraph” and adding
“paragraph (k)” in its place.
36. Designating the Example in paragraph (k)(2) as paragraph (k)(2)(i) and
adding reserved paragraph (k)(2)(ii).
37. Revising paragraph (l).
The revisions and additions read as
follows:
§1.509(a)-4 Supporting organizations.
*****
(d) * * *
(4) * * *
(i) * * *
(C) Permit the supporting organization
to vary the amount of its support between
different designated organizations, so long
as it meets the requirements of the integral
part test set forth in paragraph (i)(1)(iii)
of this section with respect to at least one
beneficiary organization.
*****
(f) * * *
(5) * * *
(ii) Meaning of control. For purposes
of paragraph (f)(5)(i) of this section, the
governing body of a supported organization will be considered controlled by
a person described in paragraph (f)(5)(i)
(A) of this section if that person, alone or
by aggregating the person’s votes or positions of authority with persons described
in paragraph (f)(5)(i)(B) or (C) of this section, may require the governing body of
the supported organization to perform any
act that significantly affects its operations
or may prevent the governing body of the
supported organization from performing

1187

any such act. The governing body of a
supported organization will be considered
to be controlled directly or indirectly by
one or more persons described in paragraph (f)(5)(i)(A), (B), or (C) of this section if the voting power of such persons
is 50 percent or more of the total voting
power of such governing body or if one
or more of such persons have the right
to exercise veto power over the actions
of the governing body of the supported
organization. Thus, if the governing body
of a supported organization is composed
of five members, none of whom has a
veto power over the actions of the supported organization, and no more than
two members are at any time described in
paragraph (f)(5)(i)(A), (B), or (C) of this
section, such supported organization will
not be considered to be controlled directly
or indirectly by such persons by reason
of this fact alone. However, all pertinent
facts and circumstances will be taken into
consideration in determining whether one
or more persons do in fact directly or indirectly control the governing body of a supported organization.
*****
(i) * * *
(2) * * *
(i) Annual notification. For each taxable year (Reporting Year), a Type III
supporting organization must provide the
following documents to each of its supported organizations:
(A) A written notice addressed to a
principal officer of the supported organization describing the type and amount of
all of the support (including all of the distributions described in paragraph (i)(6) of
this section, if applicable) the supporting
organization provided to the supported
organization during the supporting organization’s taxable year immediately preceding the Reporting Year (and during any
other taxable year of the supporting organization ending after December 28, 2012,
for which such support information has
not previously been provided), including
a brief narrative description of the support
provided and sufficient financial detail
for the recipient to identify the types and
amounts of support being reported;
*****
(iii) Due date. The notification documents required by this paragraph (i)
(2) must be delivered or electronically

October 30, 2023

transmitted by the last day of the fifth calendar month of the Reporting Year.
*****
(3) * * *
(i) General rule. A supporting organization meets the responsiveness test only
if it is responsive to the needs or demands
of each of its supported organizations.
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
(iii) of this section with respect to each of
its supported organizations.
*****
(iv) * * *

(C) Example 3. Z is described in section 501(c)
(3). Z’s organizational documents provide that it
supports ten different organizations, each of which
is described in section 509(a)(1). 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 regularly scheduled face-to-face or telephonic meetings during the year, to which officers
of all the supported organizations are invited. Z’s
meetings with the supported organizations may be
held jointly or separately. Prior to the meetings,
Z makes available to the supported organizations
(including by email) 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 officers of Z
the projected needs of their organizations, as well
as Z’s investment and grant making policies and
practices. In addition to holding these meetings
with the supported organizations, Z provides the
contact information of one of its officers to each of
the supported organizations and encourages them
to contact that officer if they have questions, or if
they wish to schedule additional meetings to discuss the projected needs of their organization and
how Z should distribute its income and invest its
assets. Z provides the information required under
paragraph (i)(2) of this section and a copy of its
annual audited financial statements to the principal officers of the supported organizations. Z
meets the relationship requirement of paragraph
(i)(3)(ii)(B) or (C) of this section with respect
to each of its supported organizations. Based on
these facts, Z also satisfies the significant voice
requirement of paragraph (i)(3)(iii) of this section,
and therefore meets the responsiveness test of this
paragraph (i)(3) with respect to each of its ten supported organizations.

*****
(4) * * *
(ii) * * *
(A) * * *
(1) Directly further the exempt purposes of one or more supported organizations by performing the functions of,

October 30, 2023

or carrying out the purposes of, such supported organization(s); and
*****
(B) Meaning of substantially all. For
purposes of paragraph (i)(4)(ii)(A) of this
section, in determining whether substantially all of a supporting organization’s
activities directly further the exempt
purposes of one or more supported organization(s), all pertinent facts and circumstances will be taken into consideration.
*****
(iii) Parent of supported organization(s)—(A) In general. For purposes
of paragraph (i)(4)(i)(B) of this section,
in order for a supporting organization to
qualify as the parent of each of its supported organizations—
(1) The supporting organization and its
supported organizations must be part of an
integrated system (such as, for example, a
hospital system);
(2) The supporting organization must
direct the overall policies, programs, and
activities of the supported organizations
(such as, for example, coordinating the
activities of the supported organizations
and engaging in overall planning, policy
development, budgeting, and resource
allocation); and
(3) The supporting organization’s
governing body, members of the governing body, or officers (acting in their
official capacities) must appoint or elect,
directly or indirectly, a majority of the
officers, directors, or trustees of each supported organization and have the power
to remove and replace such directors,
officers, or trustees, or otherwise have an
ongoing power to appoint or elect such
directors, officers or trustees with reasonable frequency.
(B) Subsidiary organizations. A supporting organization may meet the requirements of paragraph (i)(4)(iii)(A)(3) of
this section with respect to a second-tier
(or lower) subsidiary provided that the
supporting organization, by control of
its first-tier subsidiary, has the power to
appoint or elect (as described in paragraph
(i)(4)(iii)(A)(3) of this section) a majority
of the officers, directors, or trustees of the
lower-tier subsidiary. For example, if the
board of directors of supporting organization A elects a majority of the directors of
supported organization B, and the board
of directors of B, in turn elect, by a simple

1188

majority vote, a majority of the directors
of supported organization C, the directors of supporting organization A will be
treated as electing a majority of the directors of both supported organization B and
supported organization C.
(iv) Supporting a governmental supported organization—(A) In general.
A supporting organization satisfies the
requirements of this paragraph (i)(4)(iv)
if—
(1) The supporting organization only
supports one or more governmental supported organizations;
(2) In any case in which the supporting
organization supports more than one governmental supported organization, all of
the governmental supported organizations
either—
(i) Operate within the same city, county,
or metropolitan area; or
(ii) Work in close coordination or collaboration with one another to conduct a
service, program, or activity that the supporting organization supports; and
(3) A substantial part of the supporting
organization’s total activities are activities that directly further, as defined by
paragraph (i)(4)(ii)(C) of this section, the
exempt purposes of at least one governmental supported organization.
(B) Governmental supported organization defined. For purposes of paragraph
(i)(4)(iv)(A) of this section, the term governmental supported organization means
a supported organization that is:
(1) A governmental unit described
in section 170(c)(1), including all of its
agencies, departments, and divisions (all
of which will be treated as one governmental supported organization for purposes of this paragraph (i)(4)(iv)); or
(2) An organization described in section 170(c)(2) and (b)(1)(A) (other than in
clauses (vii) and (viii)) that is an instrumentality of one or more governmental
units described in section 170(c)(1).
(C) Close coordination or collaboration. To satisfy the close coordination or
collaboration requirement of paragraph (i)
(4)(iv)(A)(2) of this section, the supporting organization must maintain on file a
letter from each of the governmental supported organizations (or a joint letter from
all of them) describing their coordination
or collaboration efforts with respect to the
particular service, program, or activity.

Bulletin No. 2023–44

(D) Substantial part. For purposes of
paragraph (i)(4)(iv)(A)(3) of this section,
in determining whether a substantial part
of a supporting organization’s activities
directly further the exempt purposes of
one or more governmental supported organization(s), all pertinent facts and circumstances will be taken into consideration.
(E) Exception for organizations supporting a governmental supported organization on or before February 19, 2016. A
Type III supporting organization in existence on or before February 19, 2016, will
be treated as meeting the requirements of
this paragraph (i)(4)(iv) if it met and continues to meet the following requirements:
(1) It supports one or more governmental supported organizations described in
paragraph (i)(4)(iv)(B) of this section and
does not support more than one supported
organization that is not a governmental
supported organization;
(2) Each of the supported organizations
is designated by the supporting organization as provided in paragraph (d)(4) of this
section on or before February 19, 2016;
and
(3) A substantial part (as defined in
paragraph (i)(4)(iv)(D) of this section) of
the supporting organization’s total activities are activities that directly further (as
defined by paragraph (i)(4)(ii)(C) of this
section) the exempt purposes of its governmental supported organization(s).
(F) Transition rule for supporting
organizations in existence on or before
February 19, 2016. Until the first day of
the organization’s second taxable year
beginning after February 19, 2016, a Type
III supporting organization in existence
on or before February 19, 2016, will be
treated as meeting the requirements of
this paragraph (i)(4)(iv) if it continuously
met the following requirements prior to
the first day of the organization’s second
taxable year beginning after February 19,
2016—
(1) It supported at least one supported
organization that was a governmental
entity to which the supporting organization was responsive within the meaning of
paragraph (i)(3) of this section; and
(2) It engaged in activities for or on
behalf of the governmental supported
organization described in paragraph (i)(4)
(iv)(E)(1) of this section that performed

Bulletin No. 2023–44

the functions of, or carried out the purposes of, that governmental supported
organization and that, but for the involvement of the supporting organization,
would normally have been engaged in by
the governmental supported organization
itself.
*****
(v) * * *

(F) Example 6. X, an organization described in
section 501(c)(3), is organized and operated as a
supporting organization to two organizations, City
and Park. X meets the responsiveness test described
in paragraph (i)(3) of this section with respect to
both City and Park. City and Park are both governmental units described in section 170(c)(1).
Park maintains a state park located within the same
county as City. X does not support any other organizations. X supports Park by operating an information center for visitors to Park. The information
center provides educational material and informational sessions to visitors to Park. X’s activities
related to operating the Park information center
constitute a substantial part of X’s activities. X also
makes grants directly to City to fund City’s other
programs. X’s grant making activities constitute
a substantial part of X’s activities. X meets the
requirements of paragraph (i)(4)(iv)(A)(1) of this
section because X only supports City and Park,
both of which are governmental supported organizations described in paragraph (i)(4)(iv)(B) of this
section. X meets the requirements of paragraph (i)
(4)(iv)(A)(2) of this section because City and Park
operate within the same county in accordance with
paragraph (i)(4)(iv)(A)(2)(i) of this section. Finally,
X meets the requirements of paragraph (i)(4)(iv)
(A)(3) of this section because a substantial part of
X’s activities directly further (within the meaning
of paragraph (i)(4)(ii)(C) of this section) Park’s
exempt purposes, even though X’s grants to City
are also a substantial part of X’s activities. Based
on these facts, X qualifies as functionally integrated
under paragraph (i)(4)(iv) of this section.

(5) * * *
(ii) * * *
(A) Annual distribution. With respect
to each taxable year, a supporting organization must make distributions described
in paragraph (i)(6) of this section in a
total amount equaling or exceeding the
supporting organization’s distributable
amount for the taxable year, as defined in
paragraph (i)(5)(ii)(B) of this section, on
or before the last day of the taxable year.
(B) Distributable amount. Except as
provided in paragraphs (i)(5)(ii)(D) and
(E) of this section, the distributable amount
for a taxable year is an amount equal to
the greater of 85 percent of the supporting organization’s adjusted net income (as
determined by applying the principles of
section 4942(f) and §53.4942(a)-2(d) of

1189

this chapter) for the taxable year immediately preceding the taxable year of the
required distribution (immediately preceding taxable year) or its minimum asset
amount (as defined in paragraph (i)(5)(ii)
(C) of this section) for the immediately
preceding taxable year.
*****
(iii) * * *
(A) General rule. With respect to each
taxable year, 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
(within the meaning of paragraph (i)(5)
(iii)(B) of this section).
*****
(D) * * *

(4) Example 4. O is an organization described
in section 501(c)(3). O is organized to support five
private universities, V, W, X, Y, and Z, each of
which is described in section 509(a)(1). O meets the
responsiveness test described in paragraph (i)(3) of
this section with respect to each of its supported
organizations. Each year, O distributes an aggregate amount that equals its distributable amount
described in paragraph (i)(5)(ii)(B) of this section
and distributes an equal amount to each of the five
universities. O distributes annually to each of V and
W an amount that equals more than 10 percent of
each university’s total annual support received in
its most recently completed taxable year. Based on
these facts, O meets the requirements of paragraph
(i)(5)(iii) of this section because it distributes twofifths (more than the required one-third) of its distributable amount to supported organizations that
are attentive to O.

*****
(6) * * * Distributions by the supporting organization that count toward the
distribution requirement imposed in paragraph (i)(5)(ii) of this section are limited
to—
*****
(iii) Any reasonable and necessary—
(A) Administrative expenses paid to
accomplish the exempt purposes of the
supported organization, which do not
include expenses incurred in the production of investment income or expenses
incurred in the conduct of fundraising
activities (except solicitation expenses
described in paragraph (i)(6)(iii)(B) of
this section); and
(B) Expenses incurred to solicit contributions that are received directly by a
supported organization (rather than by the

October 30, 2023

supporting organization), but only to the
extent the amount of the reasonable and
necessary expenses the supporting organization incurs for each solicitation does
not exceed the amount of contributions
that are actually received by the supported
organization directly from donors as a
result of each such solicitation, as substantiated in a written report by the supported
organization to the supporting organization that is postmarked or electronically
transmitted by the due date of the supporting organization’s Form 990 (or successor
form) for the year of the solicitation(s)
(without regard to extensions);
*****
(v) Any amount set aside for a specific
project that accomplishes the exempt purposes of a supported organization, with
such set-aside counting toward the distribution requirement for the taxable year in
which the amount is set aside but not in
the year in which it is actually paid, if at
the time of the set-aside, the supporting
organization—
*****
(l) Applicability dates. (1) Paragraphs
(a)(6), (f)(5), and (i) of this section
are applicable on December 28, 2012,
except—
(i) Paragraphs (i)(4)(ii)(C), (i)(5)(ii)(C)
and (D), (i)(6)(iv), (i)(7)(ii), and (i)(8) of

October 30, 2023

this section are applicable on December
21, 2015; and
(ii) Paragraphs (d)(4)(i)(C), (f)(5)(ii),
(i)(2)(i) and (iii), (i)(3)(i), (i)(3)(iv)(C)
(Example 3), (i)(4)(ii)(A)(1), (i)(4)(ii)(B),
(i)(4)(iii) and (iv), (i)(4)(v)(F) (Example
6), (i)(5)(ii)(A) and (B), (i)(5)(iii)(A), (i)
(5)(iii)(D)(4) (Example 4), (i)(6) introductory text, and (i)(6)(iii) and (v) of this
section are applicable to taxable years
beginning on or after October 16, 2023.
(2) Taxpayers may choose to apply the
paragraphs listed in paragraph (I)(1)(ii)
of this section to taxable years beginning
on or after February 19, 2016, and before
October 16, 2023, provided the taxpayer
applies the provisions listed in paragraph
(l)(1)(ii) of this section in their entirety
and in a consistent manner.
(3) See paragraphs (i)(5)(ii)(B) and
(C) and (i)(8) of §1.509(a)–4T contained in 26 CFR part 1, revised as of
April 1, 2015, for certain rules regarding non-functionally integrated Type III
supporting organizations effective before
December 21, 2015. See paragraphs (i)
(5)(ii)(A) and (B) and (i)(5)(iii)(D) of
§1.509(a)-4 contained in 26 CFR part 1,
revised as of April 1, 2023, for certain
rules regarding non-functionally integrated Type III supporting organizations
effective before October 16, 2023.

1190

PART 53—FOUNDATION AND
SIMILAR EXCISE TAXES
Par. 3. The authority citation for part 53
continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
§53.4947-1 [Amended]
Par. 4. Section 53.4947-1 is amended
in paragraph (b)(3) by removing the language “§§ 1.509(a)–4(d)(2)(iv)(a), and
1.509(a)–4(i)(1) (ii) and (iii)(c)” and “the
regulations under section 507(b)(1)” and
adding in their places “§ 1.509(a)–4(d)(2)
(iv)(A) and (i)(1)(ii) of this chapter” and
“the regulations in this part under section
507(b)(1)”, respectively.
Douglas W. O’Donnell,
Deputy Commissioner for Services and
Enforcement.
Approved: August 20, 2023.
Lily L. Batchelder,
Assistant Secretary of the Treasury (Tax
Policy).
(Filed by the Office of the Federal Register October
13, 2023, 8:45 a.m., and published in the issue of the
Federal Register for October 16, 2023, 88 FR 71287)

Bulletin No. 2023–44

Part III
Relief for Taxpayers
Affected by the Terroristic
Action in the State of Israel
Notice 2023-71
SECTION I. PURPOSE
This notice provides relief under section 7508A of the Internal Revenue Code
(Code)1 for persons that the Secretary of
the Treasury (Secretary) has determined
to be affected by the terroristic action in
the State of Israel beginning on October
7, 2023. The Department of the Treasury
and the Internal Revenue Service (IRS)
may provide additional relief in the
future.
SECTION II. BACKGROUND
Section 7508A(a) provides the
Secretary with authority to postpone the
time (up to one year) for performing certain acts under the internal revenue laws
for a taxpayer determined by the Secretary
to be affected by a terroristic or military
action as defined in section 692(c)(2).
Section 692(c)(2) defines a terroristic
action as “any terroristic activity which a
preponderance of the evidence indicates
was directed against the United States or
any of its allies.”
Section 4.01(1) of Revenue Procedure
2004-26, 2004-1 C.B. 890, provides that
prior to publishing a determination that an
event outside the United States constitutes
a terroristic action within the meaning of
section 692(c)(2), the Secretary will ascertain whether the Department of State and
the Department of Justice believe that a
preponderance of the evidence indicates
that the event resulted from terrorist activity directed against the United States or its
allies. In accordance with the procedures
described in Revenue Procedure 200426, the Secretary has determined that the
terrorist attacks beginning on October 7,
2023, against the State of Israel (October

1

7, 2023 Terrorist Attacks) constitute terroristic action within the meaning of section 692(c)(2).
SECTION III. GRANT OF RELIEF
With respect to taxpayers described
in section III.A of this notice (affected
taxpayers), this notice postpones the due
dates for the actions described in section
III.B of this notice (postponed acts) until
October 7, 2024.
A. Affected Taxpayers
Section 301.7508A-1(d)(1) describes
several types of “affected taxpayers” eligible for relief under section 7508A. The
Secretary has determined that the following types of taxpayers are affected taxpayers with respect to the October 7, 2023
Terrorist Attacks eligible for the relief
provided in this notice:
• Any individual whose principal residence, and any business entity or
sole proprietor whose principal place
of business, is located in the State of
Israel, the West Bank or Gaza (covered area);
• Any individual affiliated with a recognized government or philanthropic
organization and who is assisting
in the covered area, such as a relief
worker;
• Any individual, business entity or sole
proprietor, or estate or trust whose tax
return preparer or records necessary
to meet a deadline for postponed acts
are located in the covered area;
• Any spouse of an affected taxpayer,
solely with regard to a joint return of
two married individuals; and
• Any individual visiting the covered
area who was killed, injured, or taken
hostage as a result of the October 7,
2023 Terrorist Attacks.
The IRS automatically identifies taxpayers whose principal residence or principal
place of business is located in the covered
area based on previously filed returns
and applies relief. Affected taxpayers

whose principal residence or principal
place of business is not located in the
covered area should call the IRS disaster
hotline at (866) 562-5227 to request relief.
Alternatively, international callers may
call (267) 941-1000.
B. Postponement of Due Dates with
Respect to Certain Taxpayer Acts
Affected taxpayers have until October
7, 2024, to file tax returns, make tax payments, and perform certain time-sensitive
acts listed in § 301.7508A-1(c)(1) and
Rev. Proc. 2018-58, 2018-50 I.R.B. 990
(December 10, 2018), that are due to be
performed on or after October 7, 2023,
and before October 7, 2024. Any taxpayer
acts that are due to be performed on or
after October 7, 2023, and before October
7, 2024, are postponed until October 7,
2024. These acts include, but are not limited to:
• Filing any return of income tax, estate
tax, gift tax, generation-skipping
transfer tax, excise tax (other than
firearms tax), harbor maintenance
tax, or employment tax;
• Paying any income tax, estate tax, gift
tax, generation-skipping transfer tax,
excise tax (other than firearms tax),
harbor maintenance tax, or employment tax, or any installment of those
taxes;
• Making contributions to a qualified
retirement plan;
• Filing a petition with the Tax Court;
• Filing a claim for credit or refund of
any tax; and
• Bringing suit upon a claim for credit
or refund of any tax.
This is not an exhaustive list. For further
information, see § 301.7508A-1(c)(1) and
Rev. Proc. 2018-58.
C. Postponement of Due Dates with
Respect to Certain Government Acts
This notice also provides the IRS
with additional time to perform certain
time-sensitive actions with respect to

Unless otherwise specified, all “Section” or “§” references are to sections of the Code or the Procedure and Administration Regulations (26 CFR part 301).

Bulletin No. 2023–44

1191

October 30, 2023

affected taxpayers. Any government acts
described in § 301.7508A-1(c)(2) that are
due to be performed on or after October
7, 2023, and before October 7, 2024, are
postponed until October 7, 2024. These
acts include:
• Assessing any tax;
• Giving or making any notice or
demand for the payment of any tax,

October 30, 2023

•
•

or with respect to any liability to the
United States in respect of any tax;
Collecting by the IRS, by levy or otherwise, of the amount of any liability
in respect of any tax; and
Bringing suit by the United States, or
any officer on its behalf, in respect of
any liability in respect of any tax; and
allowing a credit or refund of any tax.

1192

SECTION IV. DRAFTING
INFORMATION
The principal author of this notice is
the Office of Associate Chief Counsel
(Procedure and Administration). For further information regarding this notice, you
may call (202) 317-3400 (not a toll-free
call).

Bulletin No. 2023–44

Part IV
Notice of Proposed
Rulemaking
Guidance under Section
367(b) Related to
Certain Triangular
Reorganizations and
Inbound Nonrecognition
Transactions
REG-117614-14
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document proposes
regulations announced and described in
Notice 2014-32 and Notice 2016-73, with
modifications. The proposed regulations
relate to the treatment of property used
to acquire parent stock or securities in
connection with certain triangular reorganizations involving one or more foreign
corporations; the consequences to persons that receive parent stock or securities
pursuant to such reorganiza

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A29696419620c4bd7. Public record. Not legal advice.