n-08-06.pdf

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Part III – Administrative, Procedural, and Miscellaneous

Transitional Relief and Filing Procedures for Certain Charitable Trusts that Fail
the Responsiveness Test for Type III Supporting Organizations

Notice 2008-6

PURPOSE

This notice provides transitional relief and filing procedures for certain
charitable trusts that fail the responsiveness test for Type III supporting
organizations.
These procedures are intended for:
• charitable trusts that received a determination recognizing their tax-
exempt status under section 501(c)(3) and that met the requirements of
section 509(a)(3) until August 17, 2007, and
• non-exempt charitable trusts described in section 4947(a)(1), that are
treated for certain purposes as organizations described in section
501(c)(3), and that met the requirements of section 509(a)(3) until August
17, 2007. See Rev. Proc. 72-50, 1972-2 C.B. 830.

BACKGROUND

Section 1.509(a)-4(i) of the Income Tax Regulations sets forth the
requirements for organizations to qualify as section 509(a)(3) supporting
organizations that are “operated in connection with” one or more publicly
supported organizations (hereafter, “Type III” supporting organizations). Type III
supporting organizations are required to meet a “responsiveness test” to show
that they are responsive to the needs of the organizations they support. See
section 1.509(a)-4(i)(1), (i)(2).
Prior to passage of the Pension Protection Act of 2006, Pub. L. No. 109-
280, 120 Stat. 708 (2006) (PPA), there were two alternative ways for Type III
supporting organizations to meet the responsiveness test.
• The significant voice test. Section 1.509(a)-4(i)(2)(ii) generally
provides that an organization meets the responsiveness test if the
officers, directors, or trustees of the publicly supported organization have
a significant voice in the investment policies and grant-making of the
supporting organization, and in otherwise directing the use of its income
or assets.
• The charitable trust test. Section 1.509(a)-4(i)(2)(iii) provides that
certain charitable trusts meet the responsiveness test requirement of
section 1.509(a)-4(i)(2) if they are charitable trusts under state law, each
publicly supported organization is a named beneficiary under the trust’s
governing instrument, and each beneficiary organization has the power to
enforce the trust and compel an accounting under state law.

Section 1241(c) of the PPA eliminated the charitable trust test, effective
August 17, 2007. Consequently, as of August 17, 2007, trusts previously
classified as Type III supporting organizations may be classified as private
foundations as a result of the PPA. A trust will continue to qualify as a section
509(a)(3) supporting organization if it meets the significant voice test for Type III
supporting organizations or if it is able to establish that it meets the requirements
of a Type I or Type II supporting organization under section 1.509(a)-4(g) or (h).

DISCUSSION

Transitional Relief for Charitable Trusts

Because of the need for affected charitable trusts to adjust record-keeping
systems to reflect private foundation status, and the administrative difficulties in
processing returns reflecting a mid-year change of status, trusts that became
private foundations during 2007 by virtue of section 1241(c) of the PPA may
continue to file Form 990, Return of Organization Exempt from Income Tax, for
taxable years beginning before January 1, 2008. An organization that is
classified as a private foundation by virtue of section 1241(c) of the PPA will not
be required to file an information return on Form 990-PF or pay excise taxes on
investment income under section 4940 until its first taxable year beginning on or
after January 1, 2008.

Filing Procedures for Charitable Trusts that Became Private Foundations

Taxable years beginning before January 1, 2008:

• Charitable trusts that became private foundations by virtue of
section 1241(c) of the PPA should file Form 990 for taxable years
beginning before January 1, 2008.
• Normal due dates and submission rules for filing Form 990 apply.
Taxable years beginning on or after January 1, 2008

• Charitable trusts that became private foundations by virtue of
section 1241(c) of the PPA must file Form 990-PF, Return of Private
Foundation, for taxable years beginning on or after January 1, 2008.
• For the first taxable year beginning on or after January 1, 2008, file
paper Form 990-PF. Write “Notice 2008-6 status change” at the top of
Form 990-PF.
• Normal due dates and submission rules for filing Form 990-PF
otherwise apply.
Filing Procedures for Charitable Trusts that Did Not Become Private Foundations

A charitable trust that meets the significant voice test for Type III supporting
organizations (section 1.509(a)-4(i)(2)(ii)), or that can establish that it meets the
requirements of a Type I or Type II supporting organization under section
1.509(a)-4(g) or (h), should continue to file Form 990 under currently applicable
procedures for taxable years beginning on or after January 1, 2008. Such a trust
should not file Form 990-PF.

DRAFTING INFORMATION

The principal author of this notice is Robert Fontenrose of the Exempt
Organizations, Tax Exempt and Government Entities Division. For further
information regarding this notice, contact Mr. Ronald Shoemaker at (202) 283-
9475 (not a toll-free call).