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

May our foundation give grants to supporting organizations?

Supporting Organizations Overview

Supporting organizations are 501(c)(3) public charities with a subclassification of 509(a)(3). They are formed to support one or more other public charities, known as the “supported” organizations. Examples include foundations supporting universities, hospitals, libraries, schools, or specific charities.

Types of Supporting Organizations

Supporting organizations are divided into three types based on their control by the supported organizations:

  • Type I
  • Type II
  • Type III

Type III organizations are further classified into:

  • Functionally Integrated
  • Non-functionally Integrated

Grant Eligibility for Private Foundations

Private foundations can make grants to certain supporting organizations:

  • Type I, Type II, or Type III (Functionally Integrated): Eligible for grants with no extra due diligence.
  • Type III (Non-functionally Integrated): Requires “expenditure responsibility” to avoid taxable expenditure. These grants do not count toward the foundation’s distribution requirement.

Grantmaking Tip

If your foundation wants to fund a supporting organization, consider these options:

  1. Fund the Supported Organization Directly
    This is a simple alternative to funding the supporting organization.
  2. Verify the Supporting Organization Type
    If you prefer to make a grant to the supporting organization, ask if they have a letter from an attorney clarifying their type. If not, encourage them to obtain one. This letter will help with 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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