With tighter restrictions on grants to supporting organizations after the PPA, reclassifying into a public charity with fewer restrictions is an option worth considering.
Supporting organizations that meets the public support test can be reclassified as a public charity under section 509(a)(1) or (a)(2), rather than the more heavily regulated section 509(a)(3).
Learn more about the IRS Reclassification Process for Supporting Organizations.
This option will be of particular concern to community foundations with affiliate funds that are structured as supporting organizations and currently classified as such under section 509(a)(3). The Council strongly urges these foundations to seek reclassification for their 509(a)(3) affiliates (and for any other supporting organization that receives public support) because it will clarify that the affiliate can accept IRA Rollover gifts directly and will make it easier to get grants from private foundations. For affiliates that are Type III supporting organizations, reclassification will also permit the affiliate to continue to hold donor-advised funds. It is not necessary to change the affiliate's organizing documents -- it can continue to be a supporting organization for all other purposes.
The reclassification process is straightforward and requires only submission of evidence that the affiliate meets the public support test. Please note that this option does not apply to affiliates that are not separate corporate entities or to affiliates already classified as section 509(a)(1) public charities.
Janne G. Gallagher
Vice President and General Counsel