Supporting organizations are 501(c)(3) public charities with a subclassification of 509(a)(3), whose legal structure is formed with a certain relationship with one or more other public charities, the “supported” organization(s). Supporting organizations might be university or hospital foundations; foundations created to support libraries, elementary schools, or other governmental units; or trusts created by individuals to benefit specific public charities.
Supporting organizations are divided into three types (I, II or III) based on how much they are controlled by the organization(s) they support. And, if that’s not enough, Type III supporting organizations are further divided into “functionally integrated” or “non-functionally integrated” supporting organizations.
Private foundations may make grants to some supporting organizations but not others. Supporting organizations that are Type I, Type II, or Type III “functionally integrated” are eligible to receive a grant from the foundation with no additional due diligence. Grants to Type III “non-functionally integrated” supporting organizations require expenditure responsibility to avoid being a taxable expenditure, and, even then, the grant will not count toward a private foundation’s distribution requirement.
If your foundation is interested in making a grant to a supporting organization, one simple solution is to fund the supported organization instead.
If your foundation would prefer to make the grant directly to the supporting organization, ask the organization if it has a letter from an attorney clarifying which type they are. If it doesn’t have such a letter, the foundation should encourage it to have one written because that letter will be useful to the supporting organization with its future grant requests from others.