Supporting Organization Options

Philanthropists often desire to be intimately involved in significant giving and thus desire to establish their own private foundation. However, some disadvantages exist to establishing a private foundation, including administrative and reporting burdens as well as excise taxes and payout requirements. By establishing a supporting organization of Central Carolina Community Foundation, a donor can retain significant involvement in grantmaking and investment decisions while avoiding the disadvantages and administrative burdens of operating a private foundation.

What is a supporting organization?
A supporting organization is a 501(c)(3) charity that is classified as a public charity rather than a private foundation. This is because it "supports" a public charity such as a community foundation. A supporting organization can be classified as a public charity, even if there is only one donor, or one family of donors.

A supporting organization is a separate tax entity from Central Carolina Community Foundation, has its own board of directors, makes its own decisions and has its own 501(c)(3) tax-exempt status from the Internal Revenue Service. However, a supporting organization operates in conjunction with the Community Foundation. A supporting organization is not treated as a private foundation because it does not, on its own, qualify as a public charity or charities, so that the requisite degree of public control and involvement is considered present.

Advantages to establishing a supporting organization
There are multiple advantages to establishing a supporting organization rather than a private foundation:

1. A supporting organization files an IRS Form 990 which is less complicated than the Form 990-PF filed by a private foundation.
2. The supporting organization is exempt from all private foundation excise tax and administrative requirements. This allows many benefits to the donor who might want to use closely held stock or other assets prohibited in a private foundation.
3. A donor can claim the more generous tax benefits of contributing to a public charity.
4. There are great economies of scale through operating a supporting organization, especially in conjunction with a community foundation.
5. Directors of a supporting organization have access to the full range of technical assistance and services available from the Community Foundation.

Benefits of supporting organization status
Each supporting organization has a separate name and identity within the nonprofit community and allows the donor an active role in managing the organization. Each supporting organization has its own board of directors on which the donor and relatives may serve. All supporting organizations of Central Carolina Community Foundation uphold our statement of purpose and have access to our professional advice, staffing and support services.

Supporting organization status (detailed in Internal Revenue Code Section 509 (a)(3) and the related regulations) gives an organization many of the advantages of private foundation status with few of its disadvantages. The favorable tax status granted to the Foundation's supporting organizations results from the relationship between each supporting organization and the Community Foundation, a public charity. It is also possible for a private foundation with $5 million in assets, or the potential of reaching $5 million in the future, to become a supporting organization of the Community Foundation.

Supporting Organizations at Central Carolina Community Foundation
The following entities have supporting organizations with the Community Foundation:

Columbia Jewish Foundation
New Morning Foundation

There are a plethora of ways outlined in the Treasury Regulations to define a relationship between your supporting organization and the Community Foundation. We would be happy to work with you and your attorney to form a supporting organization in a manner that meets your charitable goals and the IRS requirements. 

Steps to Terminate a Private Foundation and Transfer Assets to a Fund at the Community Foundation
It is a fairly simple process to terminate a private foundation and create a fund at Central Carolina Community Foundation. A private foundation will be terminated if it distributes all of its net assets to a Community Foundation fund. There is no need to notify the IRS in advance. However, there is a final income tax return that the private foundation must file. The transfer must be of all rights, title and interest to all of its net assets.

If the private foundation is liable for any taxes, the liability carries over to the Community Foundation. While the contribution to the Community Foundation cannot have any material restrictions, it is not a material restriction for the Community Foundation to pay these taxes. (see section 507 of the Internal Revenue code and related Treasury Regulations). Consequently, the fund at the Community Foundation established with the transfer of the private foundation's net assets can be charged with any taxes or other obligations associated with the private foundation.

For more information contact J. Larry Snipes, at 803.254.5601 x. 322 or  larry@yourfoundation.org.