May our foundation give grants to supporting organizations? - Exponent Philanthropy

May our foundation give grants to supporting organizations?

What Are Supporting Organizations?

Supporting organizations are 501(c)(3) public charities classified under 509(a)(3). They are established to support one or more designated public charities (the “supported” organizations), such as universities, hospitals, libraries, schools, or specific nonprofits.

Types of Supporting Organizations

Supporting organizations are categorized based on their relationship with the supported organization:

  • Type I – Operated, supervised, or controlled by the supported organization.
  • Type II – Supervised or controlled in connection with the supported organization.
  • Type III – Operated independently of the supported organization and further divided into:
    • Functionally Integrated
    • Non-Functionally Integrated

Grant Eligibility for Private Foundations

Private foundations can make grants to supporting organizations under specific conditions:

  • Type I, Type II, or Type III (Functionally Integrated): Eligible for grants without additional due diligence.
  • Type III (Non-Functionally Integrated): Requires expenditure responsibility to prevent a taxable expenditure. These grants do not count toward the foundation’s distribution requirement.

Grantmaking Tips

If your foundation is considering funding a supporting organization:

  • Fund the Supported Organization Directly – A simpler alternative to ensure compliance.
  • Verify the Supporting Organization’s Classification – Ask if they have a legal determination letter confirming their type. If not, encourage them to obtain one to streamline future grant requests.
Disclaimer: While we pride ourselves on our advice, please realize Exponent Philanthropy is not a law or accounting firm. This information contained in this Q&A is being provided for informational purposes only and not as part of an attorney-client relationship. The information is not a substitute for expert legal, tax or other professional advice tailored to your specific circumstances, and may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code. It is our advice that you seek independent counsel, for any tax, accounting or legal issues you may have, related to matters that are of a material concern to you or your organization.

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