Overview

The Pension Protection Act (PPA) was signed into law by President Bush on August 17, 2006. The PPA was designed to improve pension plan funding requirements of employers, as well as 401(k), IRA and other retirement plans. The PPA also included numerous provisions that affect charitable giving.

The Council’s PPA resources are designed to help grantmakers stay in compliance with the law’s requirements. The Council’s summaries of the rules and IRS guidance are based on our continuing analysis. Due to the complexity of the law, limited IRS guidance, and the new issues that the PPA raises, our analysis and recommendations are subject to change, and should not be relied on to avoid any penalties that may be imposed under the Internal Revenue Code. Please check this site and the IRS web site (www.irs.gov) regularly for updates.

For additional insight on the PPA, review the technical explanation prepared by the Joint Committee on Taxation. Note: The explanation of charitable giving provisions starts on page 263.

Council on Foundations Members may continue to send their legal questions about the PPA’s charitable provisions to legal@cof.org for assistance from Council attorneys.

Disclaimer

The information provided in this resource is based on our continuing analysis of the Pension Protection Act. Every effort has been made to ensure the accuracy of this information. Due to the complexity of the PPA and the fact that many of these provisions introduce issues that are new to the Internal Revenue Code, this information is subject to change. Please check back here and on the IRS website (www.irs.gov) for updates. This information is not a substitute for expert legal, tax, or other professional advice and we strongly encourage grantmakers and donors to work with their counsel to determine the impact of the PPA and related guidance on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

Donor Advised Funds

The Pension Protection Act of 2006 includes a number of provisions that impact charitable giving for private foundations, supporting organizations, scholarship funds and donor advised funds. The information provided below is based on the Council’s continuing analysis of the Act. Please check back here and on the IRS website (www.irs.gov) for updates.

Disclaimer

The information provided in this resource is based on our continuing analysis of the Pension Protection Act. Every effort has been made to ensure the accuracy of this information. Due to the complexity of the PPA and the fact that many of these provisions introduce issues that are new to the Internal Revenue Code, this information is subject to change. Please check back here and on the IRS website (www.irs.gov) for updates. This information is not a substitute for expert legal, tax, or other professional advice and we strongly encourage grantmakers and donors to work with their counsel to determine the impact of the PPA and related guidance on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

Scholarship Funds

The Pension Protection Act of 2006 includes a number of provisions that impact charitable giving for private foundations, supporting organizations, scholarship funds and donor advised funds. The information provided below is based on the Council’s continuing analysis of the Act. Please check back here and on the IRS website (www.irs.gov) for updates.

Operating Scholarship Funds

The PPA prohibits grants to individuals from funds that meet the fairly broad definition of donor-advised funds. Community foundations that award scholarships and other grants to individuals from funds with donor involvement should be sure these funds comply with the requirements of the Pension Protection Act of 2006 and do not fall within the definition of donor advised fund, even inadvertently.

Learn More About Scholarship Funds and PPA Compliance

Be sure your scholarship fund does not fall within the definition of a donor-advised fund under the PPA.

Under Section 4966 of the Tax Code, a fund will not be considered a donor-advised fund if all the following are true:

Sample Documents for Scholarship Funds

These sample documents are designed to help foundations meet the third prong of the above test. You’ll also find section-by-section guidance explaining the procedures.

The guidance and suggested language is based on the Council’s ongoing analysis of the law. Because additional clarifying guidance to address the PPA is still needed from Treasury and the IRS, further modifications or clarifications to the following sample procedures may be necessary in the future. Please check back for any updates.

Share your sample documents by sending them to Emily Watkins at Emily.Watkins@cof.org.

Disclaimer

The information provided in this resource is based on our continuing analysis of the Pension Protection Act. Every effort has been made to ensure the accuracy of this information. Due to the complexity of the PPA and the fact that many of these provisions introduce issues that are new to the Internal Revenue Code, this information is subject to change. Please check back here and on the IRS website (www.irs.gov) for updates. This information is not a substitute for expert legal, tax, or other professional advice and we strongly encourage grantmakers and donors to work with their counsel to determine the impact of the PPA and related guidance on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

Supporting Organizations

The Pension Protection Act of 2006 includes a number of provisions that impact charitable giving for private foundations, supporting organizations, scholarship funds and donor advised funds. The information provided below is based on the Council’s continuing analysis of the Act. Please check back here and on the IRS website (www.irs.gov) for updates.

PPA Compliance for Supporting Organizations

Section 1241 of the Pension Protection Act of 2006 (PPA) modifies some of the requirements for how an organization can qualify as a supporting organization. These requirements have altered grantmaking in a major way. For decades, grantmakers enjoyed the ability to make grants to 501(c)(3) public charities without having to take additional legal steps. As a result of the PPA, grants to certain public charities known as supporting organizations may subject grantmakers, particularly those with private foundations or donor advised funds, to additional rules. The PPA restrictions make it critical for certain grantmakers to know the exact tax status of their public charity grantees prior to issuing grants.

A supporting organization qualifies as a public charity because it has a close relationship with another publicly supported section 501(c)(3) organization. Based on the relationship of the supporting organization to the public charity it supports, a supporting organization will either be classified under the Tax Code as a Type I, II or III entity. If a Type III, it will be important to know whether the supporting organization is considered functionally integrated.

What is a Supporting Organization?
Learn more about supporting organizations and how they are defined.

Learn more about PPA Provisions Affecting Supporting Organizations
Find the portions of the PPA relevant to supporting organizations, all in one place.

Intermediate Sanctions for Supporting Organizations (Types I, II and III)
Description of provisions that, in part, prohibit certain payments to substantial contributors and loans to disqualified persons.

In December 2012, the Treasury Department and IRS issued final and temporary regulations applicable to Type III supporting organizations. Read the Council’s summary of the regulations.

Determination of Supporting Organization Status
Understanding a supporting organization’s tax status can be a complex undertaking. Find out what sources grantmakers can rely on. Access IRS guidance on determining supporting organization status and read the related Council summary of the IRS guidance.

Supporting Organizations - Tax Reporting
Do supporting organizations have to file a 990? Find out what the reporting requirements are for supporting organizations under the PPA.

Grants to certain supporting organizations will require the use of expenditure responsibility
Learn how to conduct this process to ensure grants are used charitably by supporting organization grantees.

Disclaimer

The information provided in this resource is based on our continuing analysis of the Pension Protection Act. Every effort has been made to ensure the accuracy of this information. Due to the complexity of the PPA and the fact that many of these provisions introduce issues that are new to the Internal Revenue Code, this information is subject to change. Please check back here and on the IRS website (www.irs.gov) for updates. This information is not a substitute for expert legal, tax, or other professional advice and we strongly encourage grantmakers and donors to work with their counsel to determine the impact of the PPA and related guidance on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

Private Foundations

The Pension Protection Act of 2006 includes a number of provisions that impact charitable giving for private foundations, supporting organizations, scholarship funds and donor advised funds. The information provided below is based on the Council’s continuing analysis of the Act. Please check back here and on the IRS website (www.irs.gov) for updates.

PPA Compliance for Private Foundations

To comply with the PPA, private foundations will need to have special procedures in place for any grants to certain kinds of supporting organizations. While the number of grants actually affected by these rules is small, private foundations should review and update their grantmaking policies and procedures to meet the requirements and avoid potential IRS penalty taxes. Such a review and update of policies is necessary even for private foundations that only make grants to section 501(c)(3) organizations. Simply checking a potential grantee’s section 501(c)(3) status alone is not sufficient to comply with the law.

Grants from Private Foundations to Supporting Organizations
Can private foundations make grants to supporting organizations? Find out the answer to this and more as we delve into requirements under the Pension Protection Act of 2006.

Establishing a Fund at a Community Foundation
Legal concerns when giving through community foundations.

Expenditure Responsibility Chart for Private Foundations
A tool to help private foundations determine when to use expenditure responsibility for grants to public charities.

What is a Supporting Organization?
Supporting organizations are a type of public charity. Learn what distinguishes this entity from other public charities.

Determining Supporting Organization Status.
Foundations must know the exact type of supporting organization a grantee is before making the grant.

What is Expenditure Responsibility?
Get the basics on this five-step process for making grants that avoid penalty taxes.

Disclaimer

The information provided in this resource is based on our continuing analysis of the Pension Protection Act. Every effort has been made to ensure the accuracy of this information. Due to the complexity of the PPA and the fact that many of these provisions introduce issues that are new to the Internal Revenue Code, this information is subject to change. Please check back here and on the IRS website (www.irs.gov) for updates. This information is not a substitute for expert legal, tax, or other professional advice and we strongly encourage grantmakers and donors to work with their counsel to determine the impact of the PPA and related guidance on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

IRA Charitable Rollover

The Pension Protection Act of 2006 includes a number of provisions that impact private foundations, supporting organizations, scholarship funds and donor advised funds. The information provided here is based on the Council’s continuing analysis of the Act. Please check back here and on the IRS website (www.irs.gov) for updates.

IRA Charitable Rollover - Description of the PPA’s charitable rollover provision and its impact on donors.

Read the Council on Foundation’s Issue Paper on Expanding and Extending the IRA Charitable Rollover.

Disclaimer

The information provided in this resource is based on our continuing analysis of the Pension Protection Act. Every effort has been made to ensure the accuracy of this information. Due to the complexity of the PPA and the fact that many of these provisions introduce issues that are new to the Internal Revenue Code, this information is subject to change. Please check back here and on the IRS website (www.irs.gov) for updates. This information is not a substitute for expert legal, tax, or other professional advice and we strongly encourage grantmakers and donors to work with their counsel to determine the impact of the PPA and related guidance on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

Other Charitable Giving

The Pension Protection Act of 2006 includes a number of provisions that impact various aspects of charitable giving. The information provided is based on the Council’s continuing analysis of the Act. Please check back here and on the IRS website (www.irs.gov) for updates.

Disclaimer

The information provided in this resource is based on our continuing analysis of the Pension Protection Act. Every effort has been made to ensure the accuracy of this information. Due to the complexity of the PPA and the fact that many of these provisions introduce issues that are new to the Internal Revenue Code, this information is subject to change. Please check back here and on the IRS website (www.irs.gov) for updates. This information is not a substitute for expert legal, tax, or other professional advice and we strongly encourage grantmakers and donors to work with their counsel to determine the impact of the PPA and related guidance on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

Tax Reporting

The Pension Protection Act of 2006 includes a number of provisions that impact various aspects of charitable giving. The information provided is based on the Council’s continuing analysis of the Act. Please check back here and on the IRS website (www.irs.gov) for updates.

Disclaimer

The information provided in this resource is based on our continuing analysis of the Pension Protection Act. Every effort has been made to ensure the accuracy of this information. Due to the complexity of the PPA and the fact that many of these provisions introduce issues that are new to the Internal Revenue Code, this information is subject to change. Please check back here and on the IRS website (www.irs.gov) for updates. This information is not a substitute for expert legal, tax, or other professional advice and we strongly encourage grantmakers and donors to work with their counsel to determine the impact of the PPA and related guidance on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

PPA Updates

The following resources include updates to the PPA in the form of IRS proposed and official guidance.  The Council on Foundations’ comments, summary and analysis of the guidance is also included for your reference. 

Donor Advised Funds

Supporting Organizations

Public Disclosure, Reporting & Recordkeeping

Other Issues for Charitable Organizations

Council Requests for Relief

The Pension Protection Act of 2006 changed the legal landscape of charitable giving. Grantmakers must become familiar with the Pension Protection Act and stay up to date with the latest changes or guidance from the IRS.

The information provided is based on the Council’s continuing analysis of the Act. Official guidance from the IRS helps clarify what the provisions mean and how grantmakers should proceed in light of the many changes and issues that can be tough to resolve.

Donor Advised Funds

Donor-Advised Fund Reports

U.S. Department of Treasury Report
In Notice 2007-21, the Treasury Department and IRS requested comments on issues relating to the organization and operation of donor advised funds and supporting organizations, to be included in a study of these organizations.  The resulting report includes detailed discussion of the legal requirements for supporting organizations and donor advised funds, an analysis of available statistical information about DAFs and SOs, and more.
December 5, 2011
Treasury Report on Donor-Advised Funds and Supporting Organizations
Council Summary  
Council Comments to IRS

Congressional Research Service Report
CRS Report examines charitable giving and donor-advised funds.  Using data from Form 990, the report updates to 2008 some of the statistical information about donor-advised funds that was included in the 2011 Treasury report. However, the CRS report takes strong issue with several of the Treasury report’s findings.
View the CRS report.
View Council summary of the CRS report.

Determining Supporting Organization Status

Includes guidance on how to determine supporting organization status.
IRS Notice 2006-109
December 4, 2006
IRS Interim Guidance
Council Summary   
Council Comments to IRS 

Determining Functionally Integrated Status

Includes steps for determining supporting organization status (type I, type II, type III) including whether the organization is “functionally integrated.”
IRS Notice 2006-109
December 4, 2006
IRS Interim Guidance
Council Summary   
Council Comments to IRS

Employer-Connected Disaster Relief Funds

Exempts certain employer-connected disaster relief funds from the definition of donor-advised fund.
IRS Notice 2006-109
December 4, 2006
IRS Interim Guidance
Council Summary   
Council Comments to IRS 

Supporting Organizations

Report on Supporting Organizations

U.S. Department of Treasury Report
In Notice 2007-21, the Treasury Department and IRS requested comments on issues relating to the organization and operation of donor advised funds and supporting organizations, to be included in a study of these organizations.  The resulting report includes detailed discussion of the legal requirements for supporting organizations and donor advised funds, an analysis of available statistical information about DAFs and SOs, and more.
December 5, 2011
Treasury Report on Donor-Advised Funds and Supporting Organizations
Council Summary  
Council Comments to IRS

Determining Supporting Organization Status

Includes guidance on determining whether a private foundation disqualified person or a donor/advisor controls an organization that the supporting organization supports and how to determine supporting organization status including whether the organization is “functionally integrated.”
IRS Notice 2006-109
December 4, 2006
IRS Interim Guidance
Council Summary   
Council Comments to IRS  

Determining Functionally Integrated Status

Includes guidance on determining whether a private foundation disqualified person or a donor/advisor controls an organization that the supporting organization supports and how to determine supporting organization status including whether the organization is “functionally integrated.”
IRS Notice 2006-109
December 4, 2006
IRS Interim Guidance
Council Summary   
Council Comments to IRS  

Type III Supporting Organizations

Type III supporting organizations are public charities that operate with the greatest degree of independence from the organization they support. The IRS proposed several requirements that would impact Type III’s, including filing an annual notice, meeting a functional integration test, and making a 5 percent annual payout in 2009. In December 2012, the IRS issued final and temporary regulations on this subject significantly modifying the proposed payout requirement.
September 23, 2009
IRS Proposed Regulations
Council Summary
Council Comments to IRS

December 28, 2102
Final and Temporary Regulations Council Summary

Converting Supporting Organization to Public Charity

IRS explains the process for supporting organizations seeking reclassification as public charities.
IRS Announcement 2006-93
November 7, 2006
IRS Guidance
Council Encourages Eligible Supporting Organizations to Reclassify

Public Disclosure, Reporting & Recordkeeping

Public Disclosure - 990

Form 990-T Public Disclosure Requirements
Learn about the PPA’s public disclosure requirements for Form 990-T
Interim Guidance  (May 29, 2007), IRS Notice 2007-45
Additional Interim Guidance  (May 19, 2008), IRS Notice 2008-49

990-N annual filing requirement for small charities
April 3, 2007
IRS FAQs

Exempt Organization Public Disclosure and Availability Requirements

IRS FAQs About Public Disclosure Requirements

Reporting & Recordkeeping - Pension Protection Act

Acquisitions of Interests on Insurance Contracts
Information for reporting on acquisitions of interests on insurance contracts in which certain tax-exempt organizations hold an interest
February 23, 2007
IRS Notice 2007-24

Charitable Contributions by Payroll Deductions
December 1, 2006
IRS Notice 2006-110

Other Issues for Charitable Organizations

Transitional Guidance on Requirements for Qualified Appraisals
October 19, 2006
IRS Notice 2006-96

Council Requests for Relief under PPA

Council on Foundations and Independent Sector Memo to IRS on PPA Provisions that Require Immediate Guidance and Effect Date Relief
October 18, 2006

Council Request to Treasury for Transition Relief for Scholarship Funds
October 17, 2006

Council Follow-up Letter To Treasury Offering Draft Notice for Interim Guidance
September 26, 2006

Council Request to Treasury for Clarification PPA Provisions
August 16, 2006