rp-09-32.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

Reliance Criteria for Private Foundations and Sponsoring Organizations

Rev. Proc. 2009-32

SECTION 1. PURPOSE
This Revenue Procedure provides reliance criteria for private foundations and
sponsoring organizations that maintain donor advised funds in determining whether a
potential grantee is an organization described in section 509(a)(1), (2) or (3) of the
Internal Revenue Code (Code).
SECTION 2. BACKGROUND
The Pension Protection Act of 2006, Pub. L. No. 109-208, 120 Stat. 780 (2006)
(PPA) enacted new rules regarding grants by private foundations to certain types of
supporting organizations. Under section 4942(g)(4) of the Code, as added by the PPA,
the term “qualifying distribution” does not include any amount paid by a private
nonoperating foundation to either (1) a Type III supporting organization (as defined in §
4943(f)(5)(A)) that is not functionally integrated, or (2) a Type I, Type II, or functionally
integrated Type III supporting organization if a disqualified person of the private
foundation directly or indirectly controls such supporting organization or a supported
organization of the supporting organization. In addition, under § 4945(d)(4)(A), as
amended by the PPA, a private foundation grant to a supporting organization described
in either (1) or (2) is a taxable expenditure under § 4945, unless the private foundation
exercises expenditure responsibility with respect to the grant in accordance with §
4945(h).

1

The PPA also added § 4966 to the Code, which imposes an excise tax on a
sponsoring organization (as defined in § 4966(d)(1)) for taxable distributions (as defined
in § 4966(c)). Section 4966(c)(1) defines the term “taxable distribution” to include any
distribution from a donor advised fund (as defined in § 4966(d)(2)) to a disqualified
supporting organization, unless the sponsoring organization exercises expenditure
responsibility with respect to the distribution in accordance with § 4945(h). Section
4966(d)(4) defines the term “disqualified supporting organization” as: (1) a Type III
supporting organization that is not functionally integrated, and (2) a Type I, Type II, or
functionally integrated Type III supporting organization if the donor, donor advisor, or
related parties of the donor or donor advisor directly or indirectly controls a supported
organization of the supporting organization.
On December 18, 2006 , the Treasury Department and the Internal Revenue
Service (IRS) issued Notice 2006-109, 2006-2 C.B. 1121, to provide interim guidance
regarding certain of the new rules enacted by the PPA that affect supporting
organizations, donor advised funds, and private foundations that make grants to
supporting organizations. In particular, section 3.01 of Notice 2006-109 provides
reliance criteria for private foundations and sponsoring organizations that maintain
donor advised funds in determining whether a grantee is a public charity under §
509(a)(1), (2) or (3) and whether a grantee is a Type I, Type II, or functionally integrated
Type III supporting organization. With respect to the determination of whether a grantee
is a public charity under § 509(a)(1), (2), or (3) for purposes of §§ 4942, 4945 and 4966,
as applicable, section 3.01 of Notice 2006-109 provides that a private foundation or a
sponsoring organization that maintains a donor advised fund, acting in good faith, may

2

rely on either (1) information from the IRS Business Master File (“BMF”), or (2) the
grantee’s current IRS letter recognizing the grantee as exempt from federal income tax
and indicating the grantee’s public charity classification.
The BMF is updated monthly and, due to its large size, is available as
compressed ASCII Text or Excel spreadsheet files. The files must be downloaded and
uncompressed before viewing. The BMF and its corresponding instructions are
available for download directly from the IRS web site. Currently, the BMF does not
provide information as to whether an organization described in § 509(a)(3) is a Type I,
Type II, or Type III supporting organization, nor whether a Type III supporting
organization is functionally integrated.
Subsequent to the issuance of Notice 2006-109, the IRS posted a document
titled “Reliance on BMF Information – Certain Determinations of Public Charity Status”
on its website at http://www.irs.gov/charities/charitable/article/0,,id=168531,00.html
,
clarifying how a grantor may access BMF data for purposes of satisfying the
requirements of section 3.01 of Notice 2006-109 to determine whether a grantee is a
public charity under section 509(a)(1), (2) or (3). The document provides that in lieu of
downloading the BMF directly from the IRS website, a private foundation or a
sponsoring organization that maintains a donor advised fund may use a third party to
obtain the BMF information, so long as the third party provides the BMF information in a
report that includes: (1) the grantee’s name, Employer Identification Number, and
public charity classification under § 509(a)(1), (2), or (3); (2) a statement that the
information is from the most-currently available IRS monthly update to the BMF, along

3

with the IRS BMF revision date; and (3) the date and time of the grantor's search. The
report must also be in a form that the grantor can store in hard copy or electronically.

SECTION 3. SCOPE
This Revenue Procedure applies to grantor determinations of public charity
status under of the Code 509(a)(1), (2) or (3) for purposes of the excise taxes imposed
on grants to certain supporting organizations under sections 4942, 4945, and 4966.

SECTION 4. PROCEDURE
In determining whether a public charity is classified under 509(a)(1), (2), or (3) of
the Code, a private foundation or a sponsoring organization that maintains a donor
advised fund, acting in good faith, may rely on either:
(1) the grantee’s current IRS letter recognizing the grantee as exempt from
federal income tax and indicating the grantee’s public charity classification under §
509(a)(1), (2), or (3); or
(2) information from the BMF. A grantor may download the BMF directly from the
IRS website and store the relevant information in hard copy or electronically. A grantor
may also obtain the BMF information from a third party, so long as the following
requirements are met:
(i) The third party provides a report to the grantor that includes: (A) the
grantee’s name, Employer Identification Number, and public charity classification
under § 509(a)(1), (2), or (3); (B) a statement that the information is from the

4

5
most current update of the BMF and the BMF revision date; and (C) the date and
time the information was provided to the grantor; and
(ii) The report is in a form that the grantor can store in hard copy or
electronically.
EFFECT ON OTHER DOCUMENTS
This Revenue Procedure supersedes the portions of section 3.01 of Notice 2006-
109 that relate to reliance for purposes of determining whether a grantee is a public
charity under section 509(a)(1), (2) or (3) of the Code. All other parts of Notice 2006-
109 remain unchanged and in effect, including the separate requirements for grantors to
determine whether a grantee is a Type I, Type II, or functionally integrated Type III
supporting organization.
DRAFTING INFORMATION
The principal author of this revenue procedure is Patricia Thomas of the Exempt
Organizations, Tax Exempt and Government Entities Division. For further information
regarding this revenue procedure, please contact Virginia Richardson at (202) 283-8938
(not a toll-free call).