[Federal Register Volume 76, Number 174 (Thursday, September 8, 2011)]
[Rules and Regulations]
[Pages 55746-55772]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-22614]



[[Page 55745]]

Vol. 76

Thursday,

No. 174

September 8, 2011

Part II





Department of the Treasury





-----------------------------------------------------------------------





Internal Revenue Service





-----------------------------------------------------------------------





26 CFR Parts 1 and 602





Implementation of Form 990; Final Rule

  Federal Register / Vol. 76 , No. 174 / Thursday, September 8, 2011 / 
Rules and Regulations  

[[Page 55746]]


-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9549]
RIN 1545-BH28


Implementation of Form 990

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains final regulations necessary to 
implement the redesigned Form 990, ``Return of Organization Exempt From 
Income Tax.'' These final regulations make revisions to the regulations 
to allow for new threshold amounts for reporting compensation, to 
require that compensation be reported on a calendar year basis, and to 
modify the scope of organizations subject to information reporting 
requirements upon a substantial contraction. The final regulations also 
eliminate the advance ruling process for new organizations, change the 
public support computation period for publicly supported organizations 
to five years, consistent with the revised Form 990, and clarify that 
support must be reported using the organization's overall method of 
accounting. All tax-exempt organizations required to file annual 
information returns are affected by these regulations.

DATES: Effective Date: These regulations are effective on September 8, 
2011.
    Applicability Date: For dates of applicability, see Sec. Sec.  
1.170A-9(k), 1.507-2(f), 1.509(a)-3(o), 1.6033-2(k), and 1.6043-3(e).

FOR FURTHER INFORMATION CONTACT: Terri Harris at (202) 622-6070 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-2117. The estimated annual burden 
per recordkeeper will vary, depending on individual circumstances. The 
collection of information in this final regulation is in Sec.  1.6033-
2. The information collected under Sec.  1.6033-2 relates to 
compensation reporting by tax-exempt organizations. The information 
that is required to be collected for purposes of Sec.  1.6033-2 is 
required to be submitted on Form 990, ``Return of Organization Exempt 
From Income Tax.'' For further information concerning this collection 
of information and the burden associated with the Form 990, or where to 
submit comments on this collection of information and the accuracy of 
the estimated burden, please refer to the instructions of the Form 990. 
The total annual reporting burden associated with this document is one 
hour.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

Form 990

    Under section 6033 of the Internal Revenue Code (Code), 
organizations that are exempt from Federal income tax under section 
501(a) are generally required to file an annual information return 
reporting gross income, receipts, disbursements, and such other 
information as the IRS requires. Certain exceptions to this filing 
requirement apply. For example, churches are not required to file 
annual information returns. The Treasury regulations direct that the 
annual information return shall be filed on Form 990, ``Return of 
Organization Exempt From Income Tax'' or Form 990-PF, ``Return of 
Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust 
Treated as a Private Foundation.'' The regulations further specify 
certain information to be reported on the return.
    The IRS revises forms and instructions on an annual basis to 
reflect changes in the law and evolving tax administration needs. On 
December 20, 2007, the IRS released a redesigned Form 990. The Form 990 
had not been significantly revised since 1979, and both the IRS and 
stakeholders regarded the form as needing major revision to keep pace 
with changes in the law and with the increasing size, diversity, and 
complexity of the exempt sector. With the exception of certain smaller 
organizations for which there is a graduated transition period, 
organizations began using the new form for the 2008 tax year (returns 
filed in 2009).
    On September 9, 2008, the IRS and the Treasury Department issued 
final and temporary regulations under sections 170(b), 507, 509(a), 
6033, and 6043 necessary to implement the redesigned Form 990, ``Return 
of Organization Exempt from Income Tax,'' (TD 9423) in the Federal 
Register (73 FR 52528). Also on September 9, 2008, the IRS and the 
Treasury Department issued a notice of proposed rulemaking cross-
referencing those Temporary Regulations and inviting public comment and 
requests for a public hearing (REG-142333-07) in the Federal Register 
(73 FR 52218).
    The IRS did not receive any requests for a public hearing. The IRS 
received one written comment responding to this notice. After 
consideration of the comment, the proposed regulations are revised and 
published in final form substantially as proposed. The major areas of 
comment and revision are discussed in the following Explanation of 
Provisions.

Summary of Comments and Explanation of Provisions

Private Foundation Status and Advance Rulings

    In its application for recognition of tax-exempt status (Form 1023, 
``Application for Recognition of Exemption Under Section 501(c)(3) of 
the Internal Revenue Code''), a section 501(c)(3) organization also 
requests a determination of its private foundation status or public 
charity status, that is, whether it is a private foundation and, if 
not, the Code provision excepting it from private foundation 
classification. Under the current statute and prior regulations, an 
organization could request either an advance ruling or a definitive 
ruling addressing the organization's exemption under section 501(c)(3) 
and its private foundation status under section 509(a). The proposed 
regulations eliminated the advance ruling process and provided instead 
that an organization would be a publicly supported organization (thus 
qualifying for public charity status) in its first five years if it 
could show, in its application for exemption, that it could reasonably 
be expected to receive the requisite public support during such period.
    The comment suggested that the final regulations clarify the 
process for requesting an updated ruling or determination letter as to 
public charity status under Sec. Sec.  1.170A-9(f)(5) and 1.509(a)-
3(e). This process is now explained in Rev. Proc. 2011-10, 2011-

[[Page 55747]]

2 IRB 294 and its successors. Thus, the final regulations do not 
incorporate this suggestion.

Computation Period for Public Support

    The proposed regulations changed the computation period for public 
support from a four-year period comprised of the four years prior to 
the taxable year being tested to a five-year period ending with the 
taxable year being tested. An organization that meets a public support 
test for a taxable year is treated as publicly supported for that 
taxable year and the immediately succeeding taxable year. An 
organization that does not meet a public support test for a taxable 
year may be at risk of being classified as a private foundation as of 
the first day of the succeeding taxable year if the organization also 
fails to meet a public support test for that succeeding taxable year. 
Because the IRS and the Treasury Department recognized that an 
organization will not be able to compute its public support for a 
taxable year under the changed computation period until the subsequent 
taxable year, the notice of proposed rulemaking requested comments on 
specific situations that might warrant relief from the imposition of 
Chapter 42 excise taxes. In addition, organizations that believed that 
it would be unfair or inequitable to impose the private foundation 
excise taxes or penalties against them for all or part of the first 
year in which they were reclassified as private foundations were 
invited to contact the IRS, Exempt Organizations, Rulings and 
Agreements, Washington, DC. No organizations contacted the IRS.
    The comment suggested that the final regulations should treat 
organizations that fail a public support test for two consecutive years 
as private foundations as of the beginning of the second test year only 
for purposes of section 507 (termination of private foundation status) 
and section 4940 (excise tax on investment income), and that such an 
organization should not be treated as a private foundation for all 
other purposes until the beginning of the third consecutive taxable 
year. The commenter suggested that such a rule was necessary because 
organizations cannot always predict the amount of support they receive 
from year-to-year. The comment analogized this suggestion to the rule 
that previously applied when a new organization reached the end of its 
five-year advance ruling period. Under the prior regulations, an 
organization generally was treated as publicly supported until 90 days 
after the end of the advance ruling period, or, if Form 8734, ``Support 
Schedule for Advance Ruling Period,'' was timely submitted, until the 
IRS made a final determination of its status. If an organization failed 
to qualify as a publicly supported organization, only the section 4940 
investment income tax and section 507 termination tax applied for the 
five-year advance ruling period that had already ended. The 
reclassified organization and its disqualified persons would be subject 
to all the Chapter 42 excise taxes applicable to private foundations 
and disqualified persons only after the end of the 90-day period or 
when the IRS made a final determination.
    In response to the comment, the final regulations provide that an 
organization that fails a public support test for two consecutive 
taxable years will be treated as a private foundation as of the 
beginning of the second year of failure only for purposes of sections 
507, 4940, and 6033. An organization will be treated as a private 
foundation for all purposes beginning the first day of the third 
consecutive taxable year.
    The comment also suggested adding examples applying the ``facts and 
circumstances test'' under Sec.  1.170(A)-9T(f)(3) or issuing other 
guidance providing examples of the application of this test. The 
proposed regulations contained numerous examples reflecting the five-
year computation period in Sec. Sec.  1.170A-9T(f)(9), 1.509(a)-
3T(c)(6), and 1.509(a)-3T(e)(3), including several examples 
illustrating the application of the facts and circumstances test in 
Sec.  1.170A-9(f)(9). The final regulations retain the examples in the 
proposed regulations but do not include additional examples, as it was 
not clear what additional clarification was needed.

Method of Accounting

    Previously, when a section 501(c)(3) organization computed its 
public support, it was required to use the cash method of accounting to 
report the amount of public support it received on Schedule A, ``Public 
Charity Status and Public Support,'' even if the organization used the 
accrual method of accounting to keep its books under section 446, and 
otherwise report on Form 990. Under the proposed regulations, when a 
section 501(c)(3) organization computed its public support and reported 
the information on Schedule A, it was required to use the same 
accounting method that it uses to keep its books under section 446 and 
that it otherwise uses to report on its Form 990.
    The comment observed that an organization using the accrual method 
of accounting to keep its books and to calculate its public support 
will need to include the present value of a multi-year grant as support 
in the year in which the grant commitment is received. The commenter 
suggested that this could deter private foundations from making 
substantial multi-year grants to an organization due to a concern that 
the grant could cause the organization to fail the public support test 
and be reclassified as a private foundation. The comment suggested that 
the unusual grant rules in the final regulations be expanded to add a 
new factor giving favorable consideration to certain types of multi-
year private foundation grants. Alternatively, the comment suggested 
that the regulations should permit organizations to elect, for purposes 
of the public support test, to accrue multi-year grants ratably over 
the period to which they relate.
    The final regulations do not incorporate these suggestions. While 
the requirement to compute public support in accordance with an 
organization's normal method of accounting generally is advantageous 
and less cumbersome for most organizations, the IRS and the Treasury 
Department recognize that some accrual-method organizations receiving 
substantial multi-year grants from private foundations and individuals 
may be concerned that the requirement to account for those multi-year 
grants on an accrual-method may adversely affect their public charity 
status. However, the longer, five-year testing period in the proposed 
and final regulations should mitigate the impact of recognizing a 
larger amount of support from one source in a single year.
    In addition, one of the goals of the redesign of the Form 990 was 
to implement consistent reporting throughout each organization's Form 
990 and financial records in order to reduce an organization's 
recordkeeping burden and to increase transparency of an organization's 
activities to the general public. In general, use of an organization's 
normal method of accounting for calculation of its public support 
reduces the recordkeeping and reporting burden on accrual-method 
taxpayers, as they no longer must maintain separate cash method records 
solely for reporting public support on Schedule A. The revised Form 
990, Schedule A, sets forth easier-to-follow rules for calculating 
public support and captures the information necessary for the 
organization and the general public to monitor an organization's 
compliance with the public support tests. Consistent financial 
reporting on the basis of an organization's normal accounting method 
throughout the organization's Form 990, including the support test in

[[Page 55748]]

Schedule A, facilitates reconciliation of the Form 990 reporting with 
an organization's audited financial statements, increasing the ability 
of the general public to rely on an organization's Form 990 as an 
accurate reflection of the organization's financial circumstances. 
Consistent reporting thus assists in the oversight of the charitable 
community by the general public, as well as by the IRS. Given these 
considerations, the IRS and the Treasury Department have determined not 
to adopt the suggested elective change to the accounting method for 
multi-year grants.
    The IRS and the Treasury Department also decline to adopt the 
suggestion that the unusual grant rules be expanded to include multi-
year grants. The public support test is designed to ensure that an 
organization is not funded by a small number of large donors, and IRS 
and the Treasury Department do not believe it should exclude a large 
contribution from a single donor simply because it is paid out over a 
number of years. The fact that a grant is a multi-year grant has 
historically been taken into consideration in determining whether a 
particular grant constitutes an unusual grant, at times to the benefit 
and at times to the detriment of the recipient organization. The 
unusual grant exclusion generally applies to substantial contributions 
or bequests that (1) Are attracted by the publicly supported nature of 
the organization, (2) are unusual or unexpected in their amount, and 
(3) would adversely affect the organization's public charity status 
because of their amount. The final regulations in Sec. Sec.  1.170A-
9(f)(6)(ii)(B) and 1.509(a)-3(c)(3)(iii) provide that all pertinent 
facts and circumstances continue to be taken into consideration when 
determining whether a particular contribution will be excluded from the 
support calculation under the unusual grant exclusion, with no single 
factor being determinative.
    If an accrual basis organization receives a substantial multi-year 
grant from a private foundation or individual that, taken along with 
all other facts and circumstances, would satisfy the standards in 
Sec. Sec.  1.170A-9(f)(6) and 1.509(a)-3(c)(3) for treatment as an 
unusual grant, such a grant generally would be excluded from the 
computation of public support. An organization may request a private 
letter ruling pursuant to Sec. Sec.  1.170A-9(f)(6)(iv) and 1.509(a)-
3(c)(5) that a multi-year grant constitutes an unusual grant under 
Sec. Sec.  1.170A-9(f)(6)(ii) and 1.509(a)-3(c)(3), based on all the 
facts and circumstances. See also Rev. Proc 2011-4 (2011-1 IRB 123) and 
its successors. Additionally, Rev. Proc. 81-7 (1981-1 CB 621), provides 
guidelines regarding grants and contributions, including multi-year 
grants to finance capital items, that will be considered unusual grants 
under Sec. Sec.  1.170A-9(f)(6)(ii) and 1.509(a)-3(c)(3) and related 
provisions without a private letter ruling from the IRS.

Reliance

    The proposed regulations provided that donors may rely on an 
organization's ruling that the organization is described in sections 
170(b)(1)(A)(vi) and 509(a)(1) or in section 509(a)(2) until notice of 
a change in status is provided to the public (such as by publication in 
the Internal Revenue Bulletin), unless the donor was responsible for, 
or aware of, the act or failure to act that results in the 
organization's loss of public charity status. The proposed regulations 
further provided that donors may rely on advance rulings that expire on 
or after June 9, 2008, until notice of a change in status is provided 
to the public (such as by publication in the Internal Revenue 
Bulletin).
    The comment suggested that the final regulations should incorporate 
a safe harbor under which a grantor or contributor will not be 
considered responsible for, or aware of, an act or failure to act that 
will result in loss of public charity status, such as those set forth 
in Rev. Proc. 89-23 (1989-1 CB 844) and Rev. Proc. 81-6 (1981-1 CB 
620). The IRS and the Treasury Department agree that grantor reliance 
safe harbors, such as those noted, are still appropriate, but believe 
that this guidance is more appropriately provided in non-regulatory 
form, such as revenue procedures. Therefore, the final regulations do 
not incorporate this suggestion.
    However, the final regulations do restore, in Sec. Sec.  1.170A-
9(f)(5)(iii) and 1.509-3(e)(2)(ii), language that was inadvertently 
deleted from the proposed regulations giving limited grantor and donor 
reliance based on a written statement from the grantee organization.
    Section 4966 imposes an excise tax on a sponsoring organization of 
a donor advised fund (DAF) for each taxable distribution it makes from 
a DAF. Under section 4966(c), a taxable distribution generally is any 
distribution from a DAF to any natural person, or to any other person 
if (i) The distribution is for any purpose other than one specified in 
section 170(c)(2)(B), or (ii) the sponsoring organization maintaining 
the DAF does not exercise expenditure responsibility with respect to 
such distribution in accordance with section 4945(h). Among other 
things, a taxable distribution does not include a distribution from a 
DAF to any organization described in section 170(b)(1)(A) (other than a 
disqualified supporting organization).
    Notice 2006-109 (2006-2 C.B. 1121) requested comments on the 
application of the Pension Protection Act of 2006, Public Law 109-280 
(120 Stat. 780 (2006)) (PPA) to DAFs and supporting organizations. 
Several comments were received requesting that sponsoring organizations 
of DAFs be allowed to rely on an IRS ruling or determination of an 
organization's public charity status for various purposes, including 
for purposes of determining whether a distribution to an organization 
would be a taxable distribution under section 4966. The IRS and the 
Treasury Department agree that reliance relief for sponsoring 
organizations of DAFs is appropriate. Accordingly, the final 
regulations provide that, for purposes of section 4966, sponsoring 
organizations of DAFs may rely on an IRS determination letter or ruling 
that the organization is described in sections 170(b)(1)(A)(vi) and 
509(a)(1) or in section 509(a)(2) to the same extent as other grantors 
and contributors. The final regulations also allow sponsoring 
organizations of DAFs to rely on a favorable determination issued to a 
grantee that a grant is an unusual grant.

Private Foundation Termination

    Section 1.507-2 addresses private foundation terminations under 
section 507(b). The proposed regulations revised Sec.  1.507-2 to 
delete references to the four-year computation period and the 
transition rules related to 12-month terminations that are obsolete. 
Section 507(b)(1)(B) allows an organization to terminate its private 
foundation status by meeting the requirements of section 509(a)(1), 
(a)(2), or (a)(3) (and thus operating as a public charity) for a 
continuous period of 60 months, provided the organization (1) Prior to 
commencement of the 60-month period, notifies the Secretary in the 
manner prescribed by regulations that it is terminating private 
foundation status, and (2) later establishes to the satisfaction of the 
Secretary in a manner prescribed by regulations that it operated as a 
public charity during the 60-month period. The proposed regulations 
continued to provide that a terminating private foundation could 
request an advance ruling regarding its public charity status under 
Sec.  1.507-2T(d). The proposed regulations also retained the provision 
requiring terminating private foundations to provide sufficient 
information to the IRS

[[Page 55749]]

within 90 days of the end of the 60-month period to allow the IRS to 
make a determination on public charity status.
    The comment suggested that the final regulations should simplify 
the process of terminating private foundation status under Sec.  1.507-
2 by eliminating the requirement that an organization file certain 
information with the IRS within 90 days after completing the 60-month 
termination period. The comment observed that the IRS eliminated the 
Form 8734 filing requirement for newly-formed organizations with 
advance rulings, choosing instead to rely on the information reported 
on Schedule A to monitor public support.
    The final regulations do not incorporate this suggestion. In 
eliminating the advance ruling period and liberalizing the procedures 
for new organizations, the IRS took into consideration the experiential 
data indicating the high incidence of qualification for public charity 
status at the end of the advance ruling period. As stated in the notice 
of proposed rulemaking, approximately 95 percent of the organizations 
that received advance rulings later received definitive rulings that 
they were public charities. The IRS does not have analogous 
experiential data relating to organizations attempting to terminate 
private foundation status under section 507(b)(1)(B) to support a 
similar change in these procedures.
    In addition, if the organization fails to qualify as a public 
charity for the entire 60-month period, it will continue to be treated 
as a private foundation for the entire 60-month period. Thus, unlike a 
new organization that had an advance ruling as a public charity, an 
organization terminating its private foundation status continues to be 
classified as a terminating private foundation during the 60-month 
period and continues as such until the IRS receives and makes a 
determination on the organization's 90-day submission of information 
following the end of its advance ruling period.

Substantial Contributor

    The term ``substantial contributor,'' for purposes of Chapter 42, 
is defined under section 507(d)(2) and Sec.  1.507-6. The comment 
suggested that, given that a new organization that fails to qualify as 
publicly supported after its first five years of existence will not be 
treated as a private foundation for any purpose during its first five 
years, the final regulations should clarify whether, for purposes of 
Chapter 42, the identity of substantial contributors to the 
organization will be determined by taking into account contributions 
received while the organization was a public charity, or only 
contributions received after the date the organization is reclassified 
as a private foundation.
    Because section 1.507-6 is not within the scope of these final 
regulations, the final regulations do not incorporate this suggestion.

Miscellaneous

    In Sec.  1.170A-9(f), changes were made in the proposed regulation 
to clarify that the facts and circumstances test described in paragraph 
(f)(3) takes into account all pertinent facts and circumstances, and 
not just those listed in paragraph (f)(3)(iii); additional conforming 
changes were made in the final regulations. In Sec.  1.507-2, language 
inadvertently added to the proposed regulation when clarifying the 
factors for determining whether a grantee organization has an 
independent governing body was deleted. In addition, the final 
regulations include language conforming Sec.  1.6033-2(g) to the 
changes made to section 6033(a)(3)(B) of the Code under the PPA. Since 
the date of enactment of the PPA, August 17, 2006, the Commissioner's 
discretionary authority to relieve organizations from the annual filing 
requirement under section 6033(a) has not applied to supporting 
organizations described in section 509(a)(3) of the Code. Section 
1.6033-2(g)(6), which provides the general statement of the 
Commissioner's discretionary authority to relieve organizations from 
the annual filing requirement under section 6033(a), has been corrected 
to include the modifying language provided by the PPA in section 
6033(a)(3)(B). Sections 1.6033-2(g)(1)(iii) and 1.6033-2(g)(1)(iv) have 
been amended to include conforming changes. Several other incidental 
changes were made throughout the final regulations in order to increase 
clarity and consistency, none of which modify the substance of the 
proposed regulations.
    Additionally, the final regulations include a correction in Sec.  
1.6033-2(i) to the place to which an organization's change of operation 
notifications is sent.

Effective/Applicability Date and Transition Rules

    These final regulations generally are effective on September 8, 
2011, and generally apply to taxable years beginning on or after 
January 1, 2008. All organizations, including organizations that 
received a definitive ruling prior to the effective date of these 
regulations, must use the new five-year computation period to calculate 
public support for their first taxable year beginning on or after 
January 1, 2008, and for all subsequent taxable years.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13565. Therefore, a regulatory 
assessment is not required. It has also been determined that section 
553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does 
not apply. It is hereby certified that the collection of information in 
this regulation will not have a significant economic impact on a 
substantial number of small entities. This certification is based on 
the fact that burden on tax-exempt entities will be reduced by (1) 
Eliminating the separate advance ruling process and the additional 
process for subsequently seeking a definitive ruling, (2) clarifying 
rules regarding the method of accounting and period for reporting 
certain items, and (3) providing discretion for the IRS to narrow or 
clarify circumstances under which reporting is required. Accordingly, a 
Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 
U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the 
Code, these regulations have been submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

Statement of Availability for Documents Published in the Internal 
Revenue Bulletin

    For copies of recently issued revenue procedures, revenue rulings, 
notices and other guidance published in the Internal Revenue Bulletin 
or Cumulative Bulletin please visit the IRS Web site at http://www.irs.gov.

Drafting Information

    The principal author of this regulation is Terri Harris, Office of 
Associate Chief Counsel (Tax Exempt and Government Entities). However, 
other personnel from the IRS and the Treasury Department participated 
in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

[[Page 55750]]

Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section1.170A-9 is amended by revising paragraphs (f) and (k) 
to read as follows:


Sec.  1.170A-9  Definition of section 170(b)(1)(A) organization.

* * * * *
    (f) Definition of section 170(b)(1)(A)(vi) organization--(1) In 
general. An organization is described in section 170(b)(1)(A)(vi) if 
it--
    (i) Is referred to in section 170(c)(2) (other than an organization 
specifically described in paragraphs (b) through (e) of this section); 
and
    (ii) Normally receives a substantial part of its support from a 
governmental unit referred to in section 170(c)(1) or from direct or 
indirect contributions from the general public (``publicly 
supported''). For purposes of this paragraph (f), an organization is 
publicly supported if it meets the requirements of either paragraph 
(f)(2) of this section (33\1/3\ percent support test) or paragraph 
(f)(3) of this section (facts and circumstances test). Paragraph (f)(4) 
of this section defines ``normally'' for purposes of the 33\1/3\ 
percent support test and the facts and circumstances test, and for new 
organizations in the first five years of the organization's existence 
as a section 501(c)(3) organization. Paragraph (f)(5) of this section 
provides for determinations of foundation classification and rules for 
reliance by donors and contributors. Paragraphs (f)(6), (f)(7), and 
(f)(8) of this section list the items that are included and excluded 
from the term support. Paragraph (f)(9) of this section provides 
examples of the application of this paragraph. Types of organizations 
that, subject to the provisions of this paragraph (f), generally 
qualify under section 170(b)(1)(A)(vi) as ``publicly supported'' are 
publicly or governmentally supported museums of history, art, or 
science, libraries, community centers to promote the arts, 
organizations providing facilities for the support of an opera, 
symphony orchestra, ballet, or repertory drama or for some other direct 
service to the general public.
    (2) Determination whether an organization is ``publicly 
supported''; 33\1/3\ percent support test. An organization is publicly 
supported if the total amount of support (see paragraphs (f)(6), 
(f)(7), and (f)(8) of this section) that the organization normally (see 
paragraph (f)(4)(i) of this section) receives from governmental units 
referred to in section 170(c)(1), from contributions made directly or 
indirectly by the general public, or from a combination of these 
sources, equals at least 33\1/3\ percent of the total support normally 
received by the organization. See paragraph (f)(9), Example 1 of this 
section.
    (3) Determination whether an organization is ``publicly 
supported''; facts and circumstances test. Even if an organization 
fails to meet the 33\1/3\ percent support test described in paragraph 
(f)(2) of this section, it is publicly supported if it normally (see 
paragraph (f)(4)(i) of this section) receives a substantial part of its 
support from governmental units, from contributions made directly or 
indirectly by the general public, or from a combination of these 
sources, and meets the other requirements of this paragraph (f)(3). In 
order to satisfy the facts and circumstances test, an organization must 
meet the requirements of paragraphs (f)(3)(i) and (f)(3)(ii) of this 
section. In addition, the organization must be in the nature of an 
organization that is publicly supported, taking into account all 
pertinent facts and circumstances, including the factors listed in 
paragraphs (f)(3)(iii)(A) through (f)(3)(iii)(E) of this section.
    (i) Ten-percent support limitation. The percentage of support (see 
paragraphs (f)(6), (f)(7) and (f)(8) of this section) normally received 
by an organization from governmental units, from contributions made 
directly or indirectly by the general public, or from a combination of 
these sources, must be substantial. For purposes of this paragraph 
(f)(3), an organization will not be treated as normally receiving a 
substantial amount of governmental or public support unless the total 
amount of governmental and public support normally received equals at 
least 10 percent of the total support normally received by such 
organization.
    (ii) Attraction of public support. An organization must be so 
organized and operated as to attract new and additional public or 
governmental support on a continuous basis. An organization will be 
considered to meet this requirement if it maintains a continuous and 
bona fide program for solicitation of funds from the general public, 
community, or membership group involved, or if it carries on activities 
designed to attract support from governmental units or other 
organizations described in section 170(b)(1)(A)(i) through 
(b)(1)(A)(vi). In determining whether an organization maintains a 
continuous and bona fide program for solicitation of funds from the 
general public or community, consideration will be given to whether the 
scope of its fundraising activities is reasonable in light of its 
charitable activities. Consideration will also be given to the fact 
that an organization, in its early years of existence, may limit the 
scope of its solicitation to persons deemed most likely to provide seed 
money in an amount sufficient to enable it to commence its charitable 
activities and expand its solicitation program.
    (iii) In addition to the requirements set forth in paragraphs 
(f)(3)(i) and (f)(3)(ii) of this section that must be satisfied, all 
pertinent facts and circumstances, including the following factors, 
will be taken into consideration in determining whether an organization 
is ``publicly supported'' within the meaning of paragraph (f)(1) of 
this section. However, an organization is not generally required to 
satisfy all of the factors in paragraphs (f)(3)(iii)(A) through 
(f)(3)(iii)(E) of this section. The factors relevant to each case and 
the weight accorded to any one of them may differ depending upon the 
nature and purpose of the organization and the length of time it has 
been in existence.
    (A) Percentage of financial support. The percentage of support 
received by an organization from public or governmental sources will be 
taken into consideration in determining whether an organization is 
``publicly supported.'' The higher the percentage of support above the 
10 percent requirement of paragraph (f)(3)(i) of this section from 
public or governmental sources, the lesser will be the burden of 
establishing the publicly supported nature of the organization through 
other factors, including those described in this paragraph (f)(3), 
while the lower the percentage, the greater will be the burden. If the 
percentage of the organization's support from public or governmental 
sources is low because it receives a high percentage of its total 
support from investment income on its endowment funds, such fact will 
be treated as evidence of an organization being ``publicly supported'' 
if such endowment funds were originally contributed by a governmental 
unit or by the general public. However, if such endowment funds were 
originally contributed by a few individuals or members of their 
families, such fact will increase the burden on the organization of 
establishing that it is ``publicly supported'' taking into account all 
pertinent facts and circumstances,

[[Page 55751]]

including the other factors described in paragraph (f)(3)(iii) of this 
section.
    (B) Sources of support. The fact that an organization meets the 
requirement of paragraph (f)(3)(i) of this section through support from 
governmental units or directly or indirectly from a representative 
number of persons, rather than receiving almost all of its support from 
the members of a single family, will be considered evidence of an 
organization being ``publicly supported.'' In determining what is a 
``representative number of persons,'' consideration will be given to 
the type of organization involved, the length of time it has been in 
existence, and whether it limits its activities to a particular 
community or region or to a special field which can be expected to 
appeal to a limited number of persons.
    (C) Representative governing body. The fact that an organization 
has a governing body which represents the broad interests of the 
public, rather than the personal or private interests of a limited 
number of donors (or persons standing in a relationship to such donors 
which is described in section 4946(a)(1)(C) through (a)(1)(G)), will be 
considered evidence of an organization being ``publicly supported.'' An 
organization will be treated as having a representative governing body 
if it has a governing body (whether designated in the organization's 
governing instrument or bylaws as a Board of Directors, Board of 
Trustees, or similar governing body) which is comprised of public 
officials acting in their capacities as such; of individuals selected 
by public officials acting in their capacities as such; of persons 
having special knowledge or expertise in the particular field or 
discipline in which the organization is operating; of community 
leaders, such as elected or appointed officials, clergymen, educators, 
civic leaders, or other such persons representing a broad cross-section 
of the views and interests of the community; or, in the case of a 
membership organization, of individuals elected pursuant to the 
organization's governing instrument or bylaws by a broadly based 
membership.
    (D) Availability of public facilities or services; public 
participation in programs or policies. (1) The fact that an 
organization generally provides facilities or services directly for the 
benefit of the general public on a continuing basis (such as a museum 
or library which holds open its building or facilities to the public, a 
symphony orchestra which gives public performances, a conservation 
organization which provides educational services to the public through 
the distribution of educational materials, or an old age home which 
provides domiciliary or nursing services for members of the general 
public) will be considered evidence that such organization is 
``publicly supported.''
    (2) The fact that an organization is an educational or research 
institution which regularly publishes scholarly studies that are widely 
used by colleges and universities or by members of the general public 
will also be considered evidence that such organization is ``publicly 
supported.''
    (3) The following factors will also be considered evidence that an 
organization is ``publicly supported'':
    (i) The participation in, or sponsorship of, the programs of the 
organization by members of the public having special knowledge or 
expertise, public officials, or civic or community leaders.
    (ii) The maintenance of a definitive program by an organization to 
accomplish its charitable work in the community, such as combating 
community deterioration in an economically depressed area that has 
suffered a major loss of population and jobs.
    (iii) The receipt of a significant part of its funds from a public 
charity or governmental agency to which it is in some way held 
accountable as a condition of the grant, contract, or contribution.
    (E) Additional factors pertinent to membership organizations. The 
following are additional factors to be considered in determining 
whether a membership organization is ``publicly supported'':
    (1) Whether the solicitation for dues-paying members is designed to 
enroll a substantial number of persons in the community or area, or in 
a particular profession or field of special interest (taking into 
account the size of the area and the nature of the organization's 
activities).
    (2) Whether membership dues for individual (rather than 
institutional) members have been fixed at rates designed to make 
membership available to a broad cross section of the interested public, 
rather than to restrict membership to a limited number of persons.
    (3) Whether the activities of the organization will be likely to 
appeal to persons having some broad common interest or purpose, such as 
educational activities in the case of alumni associations, musical 
activities in the case of symphony societies, or civic affairs in the 
case of parent-teacher associations. See Example 2 through Example 5 
contained in paragraph (f)(9) of this section for illustrations of this 
paragraph (f)(3).
    (4) Definition of normally; general rule--(i) Normally; 33\1/3\ 
percent support test. An organization ``normally'' receives the 
requisite amount of public support and meets the 33\1/3\ percent 
support test for a taxable year and the taxable year immediately 
succeeding that year, if, for the taxable year being tested and the 
four taxable years immediately preceding that taxable year, the 
organization meets the 33\1/3\ percent support test on an aggregate 
basis.
    (ii) Normally; facts and circumstances test. An organization 
``normally'' receives the requisite amount of public support and meets 
the facts and circumstances test of paragraph (f)(3) for a taxable year 
and the taxable year immediately succeeding that year, if, for the 
taxable year being tested and the four taxable years immediately 
preceding that taxable year, the organization meets the facts and 
circumstances test on an aggregate basis. In the case of paragraphs 
(f)(3)(iii)(A) and (f)(3)(iii)(B) of this section, facts pertinent to 
years preceding the five-year period may also be taken into 
consideration. The combination of factors set forth in paragraphs 
(f)(3)(iii)(A) through (f)(3)(iii)(E) of this section that an 
organization normally must meet does not have to be the same for each 
five-year period so long as there exists a sufficient combination of 
factors to show compliance with the facts and circumstances test.
    (iii) Special rule. The fact that an organization has normally met 
the requirements of the 33\1/3\ percent support test for a current 
taxable year, but is unable normally to meet such requirements for a 
succeeding taxable year, will not in itself prevent such organization 
from meeting the facts and circumstances test for such succeeding 
taxable year.

    (iv) Example. The application of paragraphs (f)(4)(i), (f)(4)(ii), 
and (f)(4)(iii) of this section may be illustrated by the following 
example:

    Example. (i) X is recognized as an organization described in 
section 501(c)(3). On the basis of support received during taxable 
years 2008, 2009, 2010, 2011, and 2012, in the aggregate, X receives 
at least 33\1/3\ percent of its support from governmental units 
referred to in section 170(c)(1), from contributions made directly 
or indirectly by the general public, or from a combination of these 
sources. Consequently, X meets the 33\1/3\ percent support test for 
taxable year 2012 (the current taxable year). X also meets the 33\1/
3\ support test for 2013, as the immediately succeeding taxable 
year.

[[Page 55752]]

    (ii) In taxable years 2009, 2010, 2011, 2012, and 2013, in the 
aggregate, X does not receive at least 33\1/3\ percent of its 
support from governmental units referred to in section 170(c)(1), 
from contributions made directly or indirectly by the general 
public, or from a combination of these sources. However, X still 
meets the 33\1/3\ percent support test for taxable year 2013 based 
on the aggregate support received for taxable years 2008 through 
2012.
    (iii) In taxable years 2010, 2011, 2012, 2013, and 2014, in the 
aggregate, X does not receive at least 33\1/3\ percent of its 
support from governmental units referred to in section 170(c)(1), 
from contributions made directly or indirectly by the general 
public, or from a combination of these sources. X does not meet the 
33\1/3\ percent support test for taxable year 2014.
    (iv) X meets the facts and circumstances test for taxable year 
2013 and for taxable year 2014 (the immediately succeeding taxable 
year) based on the aggregate support X receives, X's fundraising 
program, and consideration of other factors, including those listed 
in paragraphs (f)(3)(iii)(A) through (f)(3)(iii)(E) of this section, 
during taxable years 2009, 2010, 2011, 2012, and 2013. Therefore, 
even though X does not meet the 33\1/3\ percent support test for 
taxable year 2014, X is still an organization described in section 
170(b)(1)(A)(vi) for that year.

    (v) Normally; first five years of an organization's existence. (A) 
An organization ``normally'' receives the requisite amount of public 
support and meets the 33\1/3\ percent public support test or the facts 
and circumstances test during its first five taxable years as a section 
501(c)(3) organization if the organization can reasonably be expected 
to meet the requirements of the 33\1/3\ percent support test or the 
facts and circumstances test during that period. With respect to such 
organization's sixth taxable year, the general definition of normally 
set forth in paragraphs (f)(4)(i), (f)(4)(ii), and (f)(4)(iii) of this 
section apply. Alternatively, the organization shall be treated as 
``normally'' meeting the 33\1/3\ percent support test or the facts and 
circumstances test for its sixth taxable year (but not its seventh 
taxable year) if it meets the 33\1/3\ percent support test or the facts 
and circumstances test under the definition of normally set forth in 
paragraphs (f)(4)(i), (f)(4)(ii), and (f)(4)(iii) of this section for 
its fifth taxable year (based on support received in its first through 
fifth taxable years).
    (B) Basic consideration. In determining whether an organization can 
reasonably be expected (within the meaning of paragraph (f)(4)(v)(A) of 
this section) to meet the requirements of the 33\1/3\ percent support 
test or the facts and circumstances test during its first five taxable 
years, the basic consideration is whether its organizational structure, 
current or proposed programs or activities, and actual or intended 
method of operation are such as can reasonably be expected to attract 
the type of broadly based support from the general public, public 
charities, and governmental units that is necessary to meet such tests. 
The factors that are relevant to this determination, and the weight 
accorded to each of them, may differ from case to case, depending on 
the nature and functions of the organization. The information to be 
considered for this purpose shall consist of all pertinent facts and 
circumstances, including the factors set forth in paragraph (f)(3) of 
this section.

    (vi) Example. The application of paragraph (f)(4)(v) of this 
section may be illustrated by the following example:

    Example. (i) Organization Y was formed in January 2008, and uses 
a taxable year ending December 31. After September 9, 2008, and 
before December 31, 2008, Organization Y filed Form 1023 requesting 
recognition of exemption as an organization described in section 
501(c)(3) and in sections 170(b)(1)(A)(vi) and 509(a)(1). In its 
application, Organization Y established that it can reasonably be 
expected to operate as a publicly supported organization under 
paragraph (f)(2) or (f)(3) and paragraph (f)(4)(v) of this section. 
Subsequently, Organization Y received a ruling or determination 
letter that it is an organization described in section 501(c)(3) and 
sections 170(b)(1)(A)(vi) and 509(a)(1) effective as of the date of 
its formation.
    (ii) Organization Y is described in sections 170(b)(1)(A)(vi) 
and 509(a)(1) for its first five taxable years (the taxable years 
ending December 31, 2008, through December 31, 2012).
    (iii) Organization Y can qualify as a publicly supported 
organization for the taxable year ending December 31, 2013, if 
Organization Y can meet the requirements of either paragraph (f)(2) 
or paragraph (f)(3) of this section or Sec.  1.509(a)-3(a) and Sec.  
1.509(a)-(3)(b) for the taxable years ending December 31, 2009, 
through December 31, 2013, or for the taxable years ending December 
31, 2008, through December 31, 2012.

    (vii) Organizations reclassified as private foundations. (A) New 
publicly supported organizations. If a new publicly supported 
organization described under section 170(b)(1)(A)(vi) cannot meet the 
requirements of the 33\1/3\ percent test of paragraph (f)(2) or the 
facts and circumstances test of paragraph (f)(3) for its sixth taxable 
year under the general definition of normally set forth in paragraphs 
(f)(4)(i), (f)(4)(ii), and (f)(4)(iii) of this section or under the 
alternate rule set forth in paragraph (f)(4)(v) of this section 
(effectively failing to meet a public support test for both its fifth 
and sixth taxable years), it will be treated as a private foundation as 
of the first day of its sixth taxable year only for purposes of 
sections 507, 4940, and 6033. Such an organization must file a Form 
990-PF, ``Return of Private Foundation or Section 4947(a)(1) Nonexempt 
Charitable Trust Treated as a Private Foundation,'' and will be liable 
for the net investment tax imposed by section 4940 and, if applicable, 
the private foundation termination tax imposed by section 507(c), for 
its sixth taxable year. For succeeding taxable years, the organization 
will be treated as a private foundation for all purposes.
    (B) Other publicly supported organizations. A publicly supported 
organization described in section 170(b)(1)(A)(vi) (other than a new 
publicly supported organization described in paragraph (f)(4)(vii)(A) 
of this section) that has failed to meet both the 33\1/3\ percent 
support test and the facts and circumstances test for any two 
consecutive taxable years will be treated as a private foundation as of 
the first day of the second consecutive taxable year only for purposes 
of sections 507, 4940, and 6033. Such an organization must file a Form 
990-PF, ``Return of Private Foundation or Section 4947(a)(1) Nonexempt 
Charitable Trust Treated as a Private Foundation,'' and will be liable 
for the net investment tax imposed by section 4940 and, if applicable, 
the private foundation termination tax imposed by section 507(c), for 
the second consecutive failed taxable year. For succeeding taxable 
years, the organization will be treated as a private foundation for all 
purposes.
    (5) Determinations of foundation classification and reliance. (i) A 
ruling or determination letter that an organization is described in 
section 170(b)(1)(A)(vi) may be issued to an organization. Such 
determination may be made in conjunction with the recognition of the 
organization's tax-exempt status or at such other time as the 
organization believes it is described in section 170(b)(1)(A)(vi). The 
ruling or determination letter that the organization is described in 
section 170(b)(1)(A)(vi) may be revoked if, upon examination, the 
organization has not met the requirements of paragraph (f) of this 
section. The ruling or determination letter that the organization is 
described in section 170(b)(1)(A)(vi) also may be revoked if the 
organization's application for a ruling or determination contained one 
or more material misstatements or omissions of fact or if such 
application was part of a scheme or plan to avoid or evade any 
provision of the Internal Revenue Code. The revocation of the 
determination that an organization is described in section 
170(b)(1)(A)(vi) does not preclude revocation of the

[[Page 55753]]

determination that the organization is described in section 501(c)(3).
    (ii) Status of grantors or contributors. For purposes of sections 
170, 507, 545(b)(2), 642(c), 4942, 4945, 4966, 2055, 2106(a)(2), and 
2522, grantors or contributors may rely upon a determination letter or 
ruling that an organization is described in section 170(b)(1)(A)(vi) 
until the IRS publishes notice of a change of status (for example, in 
the Internal Revenue Bulletin or Publication 78, ``Cumulative List of 
Organizations described in Section 170(c) of the Internal Revenue Code 
of 1986,'' which can be searched at http://www.irs.gov.) For this 
purpose, grantors or contributors also may rely on an advance ruling 
that expires on or after June 9, 2008. However, a grantor or 
contributor may not rely on such an advance ruling or any determination 
letter or ruling if the grantor or contributor was responsible for, or 
aware of, the act or failure to act that resulted in the organization's 
loss of classification under section 170(b)(1)(A)(vi) or acquired 
knowledge that the IRS had given notice to such organization that it 
would be deleted from such classification.
    (iii) Reliance by grantors or contributors. A grantor or 
contributor, other than one of the organization's founders, creators, 
or foundation managers (within the meaning of section 4946(b)), will 
not be considered to be responsible for, or aware of, the act or 
failure to act that resulted in the loss of the organization's 
``publicly supported'' classification under section 170(b)(1)(A)(vi), 
if such grantor or contributor has made such grant or contribution in 
reliance upon a written statement by the grantee organization that such 
grant or contribution will not result in the loss of such 
organization's classification as a publicly supported organization as 
described in section 170(b)(1)(A)(vi). Such statement must be signed by 
a responsible officer of the grantee organization and must set forth 
sufficient information, including a summary of the pertinent financial 
data for the five taxable years immediately preceding the current 
taxable year, to assure a reasonably prudent person that his grant or 
contribution will not result in the loss of the grantee organization's 
classification as a publicly supported organization as described in 
section 170(b)(1)(A)(vi). If a reasonable doubt exists as to the effect 
of such grant or contribution, or if the grantor or contributor is one 
of the organization's founders, creators, or foundation managers, the 
procedure set forth in paragraph (f)(6)(iv) of this section for 
requesting a determination from the IRS may be followed by the grantee 
organization for the protection of the grantor or contributor.
    (6) Definition of support; meaning of general public--(i) In 
general. In determining whether the 33\1/2\ percent support test or the 
10 percent support limitation described in paragraph (f)(3)(i) of this 
section is met, contributions by an individual, trust, or corporation 
shall be taken into account as support from direct or indirect 
contributions from the general public only to the extent that the total 
amount of the contributions by any such individual, trust, or 
corporation during the period described in paragraph (f)(4)(i) or 
paragraph (f)(4)(ii) of this section does not exceed two percent of the 
organization's total support for such period, except as provided in 
paragraph (f)(6)(ii) of this section. Therefore, for example, any 
contribution by one individual will be included in full in the 
denominator of the fraction determining the 33\1/2\ percent support or 
the 10 percent support limitation, but will be includible in the 
numerator of such fraction only to the extent that such amount does not 
exceed two percent of the denominator. In applying the two percent 
limitation, all contributions made by a donor and by any person or 
persons standing in a relationship to the donor that is described in 
section 4946(a)(1)(C) through (a)(1)(G) and the related regulations 
shall be treated as made by one person. The two percent limitation 
shall not apply to support received from governmental units referred to 
in section 170(c)(1) or to contributions from organizations described 
in section 170(b)(1)(A)(vi), except as provided in paragraph (f)(6)(v) 
of this section. For purposes of paragraphs (f)(2), (f)(3)(i), and 
(f)(7)(iii)(A)(2) of this section, the term indirect contributions from 
the general public includes contributions received by the organization 
from organizations (such as section 170(b)(1)(A)(vi) organizations) 
that normally receive a substantial part of their support from direct 
contributions from the general public, except as provided in paragraph 
(f)(6)(v) of this section. See the examples in paragraph (f)(9) of this 
section for the application of this paragraph (f)(6)(i). For purposes 
of this paragraph (f), the term contributions includes qualified 
sponsorship payments (as defined in Sec.  1.513-4) in the form of money 
or property (but not services).
    (ii) Exclusion of unusual grants. (A) For purposes of applying the 
two percent limitation described in paragraph (f)(6)(i) of this section 
to determine whether the 33\1/3\ percent support test or the 10 percent 
support limitation in paragraph (f)(3)(i) of this section is satisfied, 
one or more contributions may be excluded from both the numerator and 
the denominator of the applicable support fraction if such 
contributions meet the requirements of paragraph (f)(6)(iii) of this 
section. The exclusion provided by this paragraph (f)(6)(ii) is 
generally intended to apply to substantial contributions or bequests 
from disinterested parties, which contributions or bequests--
    (1) Are attracted by reason of the publicly supported nature of the 
organization;
    (2) Are unusual or unexpected with respect to the amount thereof; 
and
    (3) Would, by reason of their size, adversely affect the status of 
the organization as normally being publicly supported for the 
applicable period described in paragraph (f)(4) of this section.
    (B) In the case of a grant (as defined in Sec.  1.509(a)-3(g)) that 
meets the requirements of this paragraph (f)(6)(ii), if the terms of 
the granting instrument require that the funds be paid to the recipient 
organization over a period of years, the grant amounts received by the 
organization may be excluded for such year or years in which they would 
otherwise be includible in computing support under the method of 
accounting on the basis of which the organization regularly computes 
its income in keeping its books under section 446. However, no item of 
gross investment income may be excluded under this paragraph (f)(6). 
The provisions of this paragraph (f)(6) shall apply to exclude unusual 
grants made during any of the applicable periods described in paragraph 
(f)(4) or paragraph (f)(6) of this section. See paragraph (f)(6)(iv) of 
this section as to reliance by a grantee organization upon an unusual 
grant ruling under this paragraph (f)(6).
    (iii) Determining factors. In determining whether a particular 
contribution may be excluded under paragraph (f)(6)(ii) of this 
section, all pertinent facts and circumstances will be taken into 
consideration. No single factor will necessarily be determinative. For 
some of the factors similar to the factors to be considered, see Sec.  
1.509(a)-3(c)(4).
    (iv) Grantors and contributors. Prior to the making of any grant or 
contribution that will allegedly meet the requirements for exclusion 
under paragraph (f)(6)(ii) of this section, a potential grantee 
organization may request a determination whether such grant or 
contribution may be so excluded. Requests for such

[[Page 55754]]

determination may be filed by the grantee organization in the time and 
manner specified by revenue procedure or other guidance published in 
the Internal Revenue Bulletin. The issuance of such determination will 
be at the sole discretion of the Commissioner. The organization must 
submit all information necessary to make a determination on the factors 
referred to in paragraph (f)(6)(iii) of this section. If a favorable 
determination is issued, such determination may be relied upon by the 
grantor or contributor of the particular contribution in question for 
purposes of sections 170, 507, 545(b)(2), 642(c), 4942, 4945, 4966, 
2055, 2106(a)(2), and 2522 and by the grantee organization for purposes 
of paragraph (f)(6)(ii) of this section.
    (v) Grants from public charities. Pursuant to paragraph (f)(6)(i) 
of this section, contributions received from a governmental unit or 
from a section 170(b)(1)(A)(vi) organization are not subject to the two 
percent limitation described in paragraph (f)(6)(i) of this section 
unless such contributions represent amounts which have been expressly 
or impliedly earmarked by a donor to such governmental unit or section 
170(b)(1)(A)(vi) organization as being for, or for the benefit of, the 
particular organization claiming section 170(b)(1)(A)(vi) status. See 
Sec.  1.509(a)-3(j)(3) for examples illustrating the rules of this 
paragraph (f)(6)(v).
    (7) Definition of support; special rules and meaning of terms--(i) 
Definition of support. For purposes of this paragraph (f), the term 
``support'' shall be as defined in section 509(d) (without regard to 
section 509(d)(2)). The term ``support'' does not include--
    (A) Any amounts received from the exercise or performance by an 
organization of its charitable, educational, or other purpose or 
function constituting the basis for its exemption under section 501(a). 
In general, such amounts include amounts received from any activity the 
conduct of which is substantially related to the furtherance of such 
purpose or function (other than through the production of income); or
    (B) Contributions of services for which a deduction is not 
allowable.
    (ii) For purposes of the 33\1/3\ percent support test and the 10 
percent support limitation in paragraph (f)(3)(i) of this section, all 
amounts received that are described in paragraph (f)(7)(i)(A) or 
paragraph (f)(7)(i)(B) of this section are to be excluded from both the 
numerator and the denominator of the fractions determining compliance 
with such tests, except as provided in paragraph (f)(7)(iii) of this 
section.
    (iii) Organizations dependent primarily on gross receipts from 
related activities. (A) Notwithstanding the provisions of paragraph 
(f)(7)(i) of this section, an organization will not be treated as 
satisfying the 33\1/3\ percent support test or the 10 percent support 
limitation in paragraph (f)(3)(i) of this section if it receives--
    (1) Almost all of its support (as defined in section 509(d)) from 
gross receipts from related activities; and
    (2) An insignificant amount of its support from governmental units 
(without regard to amounts referred to in paragraph (f)(7)(i)(A) of 
this section) and contributions made directly or indirectly by the 
general public.
    (B) Example. The application of this paragraph (f)(7)(iii) may be 
illustrated by the following example:

    Example. Z, an organization described in section 501(c)(3), is 
controlled by A, its president. Z received $500,000 during the 
period consisting of the current taxable year and the four 
immediately preceding taxable years under a contract with the 
Department of Transportation, pursuant to which Z has engaged in 
research to improve a particular vehicle used primarily by the 
Federal government. During this same period, the only other support 
received by Z consisted of $5,000 in small contributions primarily 
from Z's employees and business associates. The $500,000 amount 
constitutes support under sections 509(d)(2) and 509(a)(2)(A). Under 
these circumstances, Z meets the conditions of paragraphs 
(f)(7)(iii)(A)(1) and (f)(7)(iii)(A)(2) of this section and will not 
be treated as meeting the requirements of either the 33\1/3\ percent 
support test or the facts and circumstances test. As to the rules 
applicable to organizations that fail to qualify under section 
170(b)(1)(A)(vi) because of the provisions of this paragraph 
(f)(7)(iii), see section 509(a)(2) and the related regulations. For 
the distinction between gross receipts (as referred to in section 
509(d)(2)) and gross investment income (as referred to in section 
509(d)(4)), see Sec.  1.509(a)-3(m).

    (iv) Membership fees. For purposes of this paragraph (f)(7), the 
term support shall include ``membership fees'' within the meaning of 
Sec.  1.509(a)-3(h) (that is, if the basic purpose for making a payment 
is to provide support for the organization rather than to purchase 
admissions, merchandise, services, or the use of facilities).
    (8) Support from a governmental unit. (i) For purposes of the 33\1/
3\ percent support test and the 10 percent support limitation described 
in paragraph (f)(3)(i) of this section, the term support from a 
governmental unit includes any amounts received from a governmental 
unit, including donations or contributions and amounts received in 
connection with a contract entered into with a governmental unit for 
the performance of services or in connection with a government research 
grant. However, such amounts will not constitute support from a 
governmental unit for such purposes if they constitute amounts received 
from the exercise or performance of the organization's exempt functions 
as provided in paragraph (f)(7)(i)(A) of this section.
    (ii) For purposes of paragraph (f)(8)(i) of this section, any 
amount paid by a governmental unit to an organization is not to be 
treated as received from the exercise or performance of its charitable, 
educational, or other purpose or function constituting the basis for 
its exemption under section 501(a) (within the meaning of paragraph 
(f)(7)(i)(A) of this section) if the purpose of the payment is 
primarily to enable the organization to provide a service to, or 
maintain a facility for, the direct benefit of the public (regardless 
of whether part of the expense of providing such service or facility is 
paid for by the public), rather than to serve the direct and immediate 
needs of the payor. For example--
    (A) Amounts paid for the maintenance of library facilities which 
are open to the public;
    (B) Amounts paid under government programs to nursing homes or 
homes for the aged in order to provide health care or domiciliary 
services to residents of such facilities; and
    (C) Amounts paid to child placement or child guidance organizations 
under government programs for services rendered to children in the 
community, are considered payments the purpose of which is primarily to 
enable the recipient organization to provide a service or maintain a 
facility for the direct benefit of the public, rather than to serve the 
direct and immediate needs of the payor. Furthermore, any amount 
received from a governmental unit under circumstances such that the 
amount would be treated as a ``grant'' within the meaning of Sec.  
1.509(a)-3(g) will generally constitute ``support from a governmental 
unit'' described in this paragraph (f)(8), rather than an amount 
described in paragraph (f)(7)(i)(A) of this section.
    (9) Examples. The application of paragraphs (f)(1) through (f)(8) 
of this section may be illustrated by the following examples:

    Example 1. (i) M is recognized as an organization described in 
section 501(c)(3). For the years 2008 through 2012 (the applicable 
period with respect to the taxable year 2012 under paragraph (f)(4) 
of this section), M received support (as defined in paragraphs 
(f)(6) through (8) of this section) of $600,000 from the following 
sources:

[[Page 55755]]



Investment income............................................   $300,000
City R (a governmental unit described in section 170(c)(1))..     40,000
United Fund (an organization described in section                 40,000
 170(b)(1)(A)(vi))...........................................
Contributions (including six contributions in excess of the      220,000
 two-percent limit, totaling $170,000).......................
                                                              ----------
    Total support............................................    600,000
 

    (ii) With respect to the taxable year 2012, M's public support is 
computed as follows:

Support from a governmental unit described in section            $40,000
 170(c)(1)...................................................
Indirect contributions from the general public (United Fund).     40,000
Contributions by various donors that were not in excess of        50,000
 $12,000, or two percent of total support....................
Six contributions that were each in excess of $12,000, or two     72,000
 percent of total support, up to the two-percent limitation,
 6 x $12,000.................................................
                                                              ----------
    Total support............................................    202,000
 

    (iii) M's support from governmental units referred to in section 
170(c)(1) and from direct and indirect contributions from the general 
public (as defined in paragraph (f)(6) of this section) with respect to 
the taxable year 2012 normally exceeds 33\1/3\ percent of M's total 
support ($202,000/$600,000 = 33.67 percent) for the applicable period 
(2008 through 2012). M meets the 33\1/3\ percent support test with 
respect to 2012 and is therefore publicly supported for the taxable 
years 2012 and 2013.

    Example 2. (i) N is recognized as an organization described in 
section 501(c)(3). It was created to maintain public gardens 
containing botanical specimens and displaying statuary and other art 
objects. The facilities, works of art, and a large endowment were 
all contributed by a single contributor. The members of the 
governing body of the organization are unrelated to its creator. The 
gardens are open to the public without charge and attract a 
substantial number of visitors each year. For the current taxable 
year and the four taxable years immediately preceding the current 
taxable year, 95 percent of the organization's total support was 
received from investment income from its original endowment. N also 
maintains a membership society that is supported by members of the 
general public who wish to contribute to the upkeep of the gardens 
by paying a small annual membership fee. Over the five-year period 
in question, these fees from the general public constituted the 
remaining five percent of the organization's total support for such 
period.
    (ii) Under these circumstances, N does not meet the 33\1/3\ 
percent support test for its current taxable year. Furthermore, 
because only five percent of its total support is, with respect to 
the current taxable year, normally received from the general public, 
N does not satisfy the 10 percent support limitation described in 
paragraph (f)(3)(i) of this section and therefore does not qualify 
as publicly supported under the facts and circumstances test. 
Because N has failed to satisfy the 10 percent support limitation 
under paragraph (f)(3)(i) of this section, none of the other 
requirements or factors set forth in paragraphs (f)(3)(iii)(A) 
through (f)(3)(iii)(E) of this section can be considered in 
determining whether N qualifies as a publicly supported 
organization. For its current taxable year, therefore, N is not an 
organization described in section 170(b)(1)(A)(vi).
    Example 3. (i) O, an art museum, is recognized as an 
organization described in section 501(c)(3). In 1930, O was founded 
in S City by the members of a single family to collect, preserve, 
interpret, and display to the public important works of art. O is 
governed by a Board of Trustees that originally consisted almost 
entirely of members of the founding family. However, since 1945, 
members of the founding family or persons standing in a relationship 
to the members of such family described in section 4946(a)(1)(C) 
through (G) have annually constituted less than one-fifth of the 
Board of Trustees. The remaining board members are citizens of S 
City from a variety of professions and occupations who represent the 
interests and views of the people of S City in the activities 
carried on by the organization rather than the personal or private 
interests of the founding family. O solicits contributions from the 
general public and, for the current taxable year and each of the 
four taxable years immediately preceding the current taxable year, O 
has received total contributions (in small sums of less than $100, 
none of which exceeds two percent of O's total support for such 
period) in excess of $10,000. These contributions from the general 
public (as defined in paragraph (f)(6) of this section) represent 25 
percent of the organization's total support for such five-year 
period. For this same period, investment income from several large 
endowment funds has constituted 75 percent of O's total support. O 
expends substantially all of its annual income for its exempt 
purposes and thus depends upon the funds it annually solicits from 
the public as well as its investment income in order to carry out 
its activities on a normal and continuing basis and to acquire new 
works of art. O has, for the entire period of its existence, been 
open to the public and more than 300,000 people (from S City and 
elsewhere) have visited the museum in each of the current taxable 
year and the four immediately preceding taxable years.
    (ii) Under these circumstances, O does not meet the 33\1/3\ 
percent support test for its current year because it has received 
only 25 percent of its total support for the applicable five-year 
period from the general public. However, under the facts set forth 
above, O meets the 10 percent support limitation under paragraph 
(f)(3)(i) of this section, as well as the requirements of paragraph 
(f)(3)(ii) of this section. Under all of the facts set forth in this 
example, O is considered as meeting the requirements of the facts 
and circumstances test on the basis of satisfying paragraphs 
(f)(3)(i) and (f)(3)(ii) of this section and the factors set forth 
in paragraphs (f)(3)(iii)(A) through (f)(3)(iii)(D) of this section. 
O is therefore publicly supported for its current taxable year and 
the immediately succeeding taxable year.
    Example 4. (i) In 1960, the P Philharmonic Orchestra was 
organized in T City through the combined efforts of a local music 
society and a local women's club to present to the public a wide 
variety of musical programs intended to foster music appreciation in 
the community. P is recognized as an organization described in 
section 501(c)(3). The orchestra is composed of professional 
musicians who are paid by the association. Twelve performances open 
to the public are scheduled each year. A small admission fee is 
charged for each of these performances. In addition, several 
performances are staged annually without charge. During the current 
taxable year and the four taxable years immediately preceding the 
current taxable year, P has received separate contributions of 
$200,000 each from A and B (not members of a single family) and 
support of $120,000 from the T Community Chest, a public federated 
fundraising organization operating in T City. P depends on these 
funds in order to carry out its activities and will continue to 
depend on contributions of this type to be made in the future. P has 
also begun a fundraising campaign in an attempt to expand its 
activities for the coming years. P is governed by a Board of 
Directors comprised of five individuals. A faculty member of a local 
college, the president of a local music society, the head of a local 
banking institution, a prominent doctor, and a member of the 
governing body of the local chamber of commerce currently serve on 
P's Board and represent the interests and views

[[Page 55756]]

of the community in the activities carried on by P.
    (ii) With respect to P's current taxable year, P's sources of 
support are computed on the basis of the current taxable year and 
the four taxable years immediately preceding the current taxable 
year, as follows:


Contributions................................................   $520,000
Receipts from performances...................................    100,000
                                                              ----------
    Total support............................................    620,000
Less:
Receipts from performances (excluded under paragraph             100,000
 (f)(7)(i)(A) of this section)...............................
                                                              ----------
    Total support for purposes of paragraphs (f)(2) and          520,000
     (f)(3)(i) of this section...............................
 

    (iii) For purposes of paragraphs (f)(2) and (f)(3)(i) of this 
section, P's public support is computed as follows:

T Community Chest (indirect support from the general public).    120,000
Two contributions from A & B (each in excess of $10,400--2        20,800
 percent of total support) 2 x $10,400.......................
                                                              ----------
    Total....................................................    140,800
 

    (iv) Under these circumstances, P does not meet the 33\1/3\ percent 
support test for its current year because it has received only 27 
percent of its total support ($140,800/$520,000) for the applicable 
five-year period from the general public. However, under the facts set 
forth above, P meets the 10 percent support limitation under paragraph 
(f)(3)(i) of this section, as well as the requirements of paragraph 
(f)(3)(ii) of this section. Under all of the facts set forth in this 
example, P is considered as meeting the requirements of the facts and 
circumstances test on the basis of satisfying paragraphs (f)(3)(i) and 
(f)(3)(ii) of this section and the factors set forth in paragraphs 
(f)(3)(iii)(A) through (f)(3)(iii)(D) of this section. P is therefore 
publicly supported for its current taxable year and the immediately 
succeeding taxable year.

    Example 5. (i) Q is recognized as an organization described in 
section 501(c)(3). It is a philanthropic organization founded in 
1965 by C for the purpose of making annual contributions to worthy 
charities. C created Q as a charitable trust by the transfer of 
appreciated securities worth $500,000 to Q. Pursuant to the trust 
agreement, C and two other members of his family are the sole 
trustees of Q and are vested with the right to appoint successor 
trustees. In each of the current taxable year and the four taxable 
years immediately preceding the current taxable year, Q received 
$12,000 in investment income from its original endowment. Each year 
Q makes a solicitation for funds by operating a charity ball at C's 
residence. Guests are invited and requested to make contributions of 
$100 per couple. During the five-year period at issue, $15,000 was 
received from the proceeds of these events. C and his family have 
also made contributions to Q of $25,000 over the five-year period at 
issue. Q makes disbursements each year of substantially all of its 
net income to the public charities chosen by the trustees.

    (ii) Q's sources of support for the current taxable year and the 
four taxable years immediately preceding the current taxable year as 
follows:

Investment income............................................    $60,000
Contributions................................................     40,000
                                                              ----------
    Total support............................................    100,000
 

     (iii) For purposes of paragraphs (f)(2) and (f)(3)(i) of this 
section, Q's public support is computed as follows:

Contributions from the general public........................   $ 15,000
C's contribution (in excess of $ 2,000--2 percent of total         2,000
 support) 1 x $2,000.........................................
                                                              ----------
    Total....................................................     17,000
 

     (iv) Under these circumstances, Q does not meet the 33\1/3\ 
percent support test for its current year because it has received only 
17 percent of its total support ($17,000/$100,000) for the applicable 
five-year period from the general public. Thus, Q's classification as a 
``publicly supported'' organization depends on whether it meets the 
requirements of the facts and circumstances test. Even though it 
satisfies the 10 percent support limitation under paragraph (f)(3)(i) 
of this section, its method of solicitation makes it questionable 
whether Q satisfies the requirements of paragraph (f)(3)(ii) of this 
section. Because of its method of operating, Q also has a greater 
burden of establishing its publicly supported nature under paragraph 
(f)(3)(iii)(A) of this section. Based upon the foregoing facts and 
circumstances, including Q's failure to receive favorable consideration 
under the factors set forth in paragraphs (f)(3)(iii)(B), 
(f)(3)(iii)(C), and (f)(3)(iii)(D) of this section, Q does not satisfy 
the facts and circumstances test.
    (10) Community trust; introduction. Community trusts have often 
been established to attract large contributions of a capital or 
endowment nature for the benefit of a particular community or area, and 
often such contributions have come initially from a small number of 
donors. While the community trust generally has a governing body 
comprised of representatives of the particular community or area, its 
contributions are often received and maintained in the form of separate 
trusts or funds, which are subject to varying

[[Page 55757]]

degrees of control by the governing body. To qualify as a ``publicly 
supported'' organization, a community trust must meet the 33\1/3\ 
percent support test, or, if it cannot meet that test, be organized and 
operated so as to attract new and additional public or governmental 
support on a continuous basis sufficient to meet the facts and 
circumstances test. Such facts and circumstances test includes a 
requirement of attraction of public support in paragraph (f)(3)(ii) of 
this section which, as applied to community trusts, generally will be 
satisfied if they seek gifts and bequests from a wide range of 
potential donors in the community or area served, through banks or 
trust companies, through attorneys or other professional persons, or in 
other appropriate ways that call attention to the community trust as a 
potential recipient of gifts and bequests made for the benefit of the 
community or area served. A community trust is not required to engage 
in periodic, community-wide, fundraising campaigns directed toward 
attracting a large number of small contributions in a manner similar to 
campaigns conducted by a community chest or united fund. Paragraph 
(f)(11) of this section provides rules for determining the extent to 
which separate trusts or funds may be treated as component parts of a 
community trust, fund, or foundation (herein collectively referred to 
as a ``community trust,'' and sometimes referred to as an 
``organization'') for purposes of meeting the requirements of this 
paragraph for classification as a publicly supported organization. 
Paragraph (f)(12) of this section contains rules for trusts or funds 
that are prevented from qualifying as component parts of a community 
trust by paragraph (f)(11) of this section.
    (11) Community trusts; requirements for treatment as a single 
entity--(i) General rule. For purposes of sections 170, 501, 507, 508, 
509, and Chapter 42, any organization that meets the requirements 
contained in paragraphs (f)(11)(iii) through (f)(11)(vi) of this 
section will be treated as a single entity, rather than as an 
aggregation of separate funds, and except as otherwise provided, all 
funds associated with such organization (whether a trust, not-for-
profit corporation, unincorporated association, or a combination 
thereof) which meet the requirements of paragraph (f)(11)(ii) of this 
section will be treated as component parts of such organization.
    (ii) Component part of a community trust. In order to be treated as 
a component part of a community trust referred to in this paragraph 
(f)(11) (rather than as a separate trust or not-for-profit corporation 
or association), a trust or fund:
    (A) Must be created by a gift, bequest, legacy, devise, or other 
transfer to a community trust which is treated as a single entity under 
this paragraph (f)(11); and
    (B) May not be directly or indirectly subjected by the transferor 
to any material restriction or condition (within the meaning of Sec.  
1.507-2(a)(7)) with respect to the transferred assets. For purposes of 
this paragraph (f)(11)(ii)(B), if the transferor is not a private 
foundation, the provisions of Sec.  1.507-2(a)(7) shall be applied to 
the trust or fund as if the transferor were a private foundation 
established and funded by the person establishing the trust or fund and 
such foundation transferred all its assets to the trust or fund. Any 
transfer made to a fund or trust which is treated as a component part 
of a community trust under this paragraph (f)(11)(ii) will be treated 
as a transfer made ``to'' a ``publicly supported'' community trust for 
purposes of sections 170(b)(1)(A) and 507(b)(1)(A) if such community 
trust meets the requirements of section 170(b)(1)(A)(vi) as a 
``publicly supported'' organization at the time of the transfer, except 
as provided in paragraph (f)(5)(ii) of this section or Sec. Sec.  
1.508-1(b)(4) and 1.508-1(b)(6) (relating, generally, to reliance by 
grantors and contributors). See also paragraphs (f)(12)(ii) and 
(f)(12)(iii) of this section for special provisions relating to split-
interest trusts and certain private foundations described in section 
170(b)(1)(F)(iii).
    (iii) Name. The organization must be commonly known as a community 
trust, fund, foundation, or other similar name conveying the concept of 
a capital or endowment fund to support charitable activities (within 
the meaning of section 170(c)(1) or section 170(c)(2)(B)) in the 
community or area it serves.
    (iv) Common instrument. All funds of the organization must be 
subject to a common governing instrument or a master trust or agency 
agreement (herein referred to as the ``governing instrument''), which 
may be embodied in a single document or several documents containing 
common language. Language in an instrument of transfer to the community 
trust making a fund subject to the community trust's governing 
instrument or master trust or agency agreement will satisfy the 
requirements of this paragraph (f)(11)(iv). In addition, if a community 
trust adopts a new governing instrument (or creates a corporation) to 
put into effect new provisions (applying to future transfers to the 
community trust), the adoption of such new governing instrument (or 
creation of a corporation with a governing instrument) which contains 
common language with the existing governing instrument shall not 
preclude the community trust from meeting the requirements of this 
paragraph (f)(11)(iv).
    (v) Common governing body. (A) The organization must have a common 
governing body or distribution committee (herein referred to as the 
``governing body'') which either directs or, in the case of a fund 
designated for specified beneficiaries, monitors the distribution of 
all of the funds exclusively for charitable purposes (within the 
meaning of section 170(c)(1) or section 170(c)(2)(B)). For purposes of 
this paragraph (f)(11)(v), a fund is designated for specified 
beneficiaries only if no person is left with the discretion to direct 
the distribution of the fund.
    (B) Powers of modification and removal. The fact that the exercise 
of any power described in this paragraph (f)(11)(v)(B) is reviewable by 
an appropriate State authority will not preclude the community trust 
from meeting the requirements of this paragraph (f)(11)(v)(B). Except 
as provided in paragraph (f)(11)(v)(C) of this section, the governing 
body must have the power in the governing instrument, the instrument of 
transfer, the resolutions or by-laws of the governing body, a written 
agreement, or otherwise--
    (1) To modify any restriction or condition on the distribution of 
funds for any specified charitable purposes or to specified 
organizations if in the sole judgment of the governing body (without 
the necessity of the approval of any participating trustee, custodian, 
or agent), such restriction or condition becomes, in effect, 
unnecessary, incapable of fulfillment, or inconsistent with the 
charitable needs of the community or area served;
    (2) To replace any participating trustee, custodian, or agent for 
breach of fiduciary duty under State law; and
    (3) To replace any participating trustee, custodian, or agent for 
failure to produce a reasonable (as determined by the governing body) 
return of net income (within the meaning of paragraph (f)(11)(v)(F) of 
this section) over a reasonable period of time (as determined by the 
governing body).
    (C) Transitional rule--(1) Notwithstanding paragraph (f)(11)(v)(B) 
of this section, if a community trust meets the requirements of 
paragraph (f)(11)(v)(C)(3) of this section, then in the case of any 
instrument of transfer which is executed before July 19, 1977,

[[Page 55758]]

and is not revoked or amended thereafter (with respect to any 
dispositive provision affecting the transfer to the community trust), 
and in the case of any instrument of transfer which is irrevocable on 
January 19, 1982, the governing body must have the power to cause 
proceedings to be instituted (by request to the appropriate State 
authority)--
    (i) To modify any restriction or condition on the distribution of 
funds for any specified charitable purposes or to specified 
organizations if in the judgment of the governing body such restriction 
or condition becomes, in effect, unnecessary, incapable of fulfillment, 
or inconsistent with the charitable needs of the community or area 
served; and
    (ii) To remove any participating trustee, custodian, or agent for 
breach of fiduciary duty under State law.
    (2) The necessity for the governing body to obtain the approval of 
a participating trustee to exercise the powers described in paragraph 
(f)(11)(v)(C)(1) of this section shall be treated as not preventing the 
governing body from having such power, unless (and until) such approval 
has been (or is) requested by the governing body and has been (or is) 
denied.
    (3) Paragraph (f)(11)(v)(C)(1) of this section shall not apply 
unless the community trust meets the requirements of paragraph 
(f)(11)(v)(B) of this section, with respect to funds other than those 
under instruments of transfer described in the first sentence of such 
paragraph (f)(11)(v)(C)(1) of this section, by January 19, 1978, or 
such later date as the Commissioner may provide for such community 
trust, and unless the community trust does not, once it so complies, 
thereafter solicit for funds that will not qualify under the 
requirements of paragraph (f)(11)(v)(B) of this section.
    (D) Inconsistent State law--(1) For purposes of paragraphs 
(f)(11)(v)(B)(1), (f)(11)(v)(B)(2), (f)(11)(v)(B)(3), 
(f)(11)(v)(C)(1)(i), (f)(11)(v)(C)(1)(ii), and (f)(11)(v)(E) of this 
section, if a power described in such a provision is inconsistent with 
State law even if such power were expressly granted to the governing 
body by the governing instrument and were accepted without limitation 
under an instrument of transfer, then the community trust will be 
treated as meeting the requirements of such a provision if it meets 
such requirements to the fullest extent possible consistent with State 
law (if such power is or had been so expressly granted).
    (2) For example, if, under the conditions of paragraph 
(f)(11)(v)(D)(1) of this section, the power to modify is inconsistent 
with State law, but the power to institute proceedings to modify, if so 
expressly granted, would be consistent with State law, the community 
trust will be treated as meeting such requirements to the fullest 
extent possible if the governing body has the power (in the governing 
instrument or otherwise) to institute proceedings to modify a condition 
or restriction. On the other hand, if in such a case the community 
trust has only the power to cause proceedings to be instituted to 
modify a condition or restriction, it will not be treated as meeting 
such requirements to the fullest extent possible.
    (3) In addition, if, for example, under the conditions of paragraph 
(f)(11)(v)(D)(1) of this section, the power to modify and the power to 
institute proceedings to modify a condition or restriction is 
inconsistent with State law, but the power to cause such proceedings to 
be instituted would be consistent with State law, if it were expressly 
granted in the governing instrument and if the approval of the State 
Attorney General were obtained, then the community trust will be 
treated as meeting such requirements to the fullest extent possible if 
it has the power (in the governing instrument or otherwise) to cause 
such proceedings to be instituted, even if such proceedings can be 
instituted only with the approval of the State Attorney General.
    (E) Exercise of powers. The governing body shall (by resolution or 
otherwise) commit itself to exercise the powers described in paragraphs 
(f)(11)(v)(B), (f)(11)(v)(C), and (f)(11)(v)(D) of this section in the 
best interests of the community trust. The governing body will be 
considered not to be so committed where it has grounds to exercise such 
a power and fails to exercise it by taking appropriate action. Such 
appropriate action may include, for example, consulting with the 
appropriate State authority prior to taking action to replace a 
participating trustee.
    (F) Reasonable return. In addition to the requirements of 
paragraphs (f)(11)(v)(B), (f)(11)(v)(C), (f)(11)(v)(D), or 
(f)(11)(v)(E) of this section, the governing body shall (by resolution 
or otherwise) commit itself to obtain information and take other 
appropriate steps with the view to seeing that each participating 
trustee, custodian, or agent, with respect to each restricted trust or 
fund that is, and with respect to the aggregate of the unrestricted 
trusts or funds that are, a component part of the community trust, 
administers such trust or fund in accordance with the terms of its 
governing instrument and accepted standards of fiduciary conduct to 
produce a reasonable return of net income (or appreciation where not 
inconsistent with the community trust's need for current income), with 
due regard to safety of principal, in furtherance of the exempt 
purposes of the community trust (except for assets held for the active 
conduct of the community trust's exempt activities). In the case of a 
low return of net income (and, where appropriate, appreciation), the 
IRS will examine carefully whether the governing body has, in fact, 
committed itself to take the appropriate steps. For purposes of this 
paragraph (f)(11)(v)(F), any income that has been designated by the 
donor of the gift or bequest to which such income is attributable as 
being available only for the use or benefit of a broad charitable 
purpose, such as the encouragement of higher education or the promotion 
of better health care in the community, will be treated as 
unrestricted. However, any income that has been designated for the use 
or benefit of a named charitable organization or agency or for the use 
or benefit of a particular class of charitable organizations or 
agencies, the members of which are readily ascertainable and are less 
than five in number, will be treated as restricted.
    (vi) Common reports. The organization must prepare periodic 
financial reports treating all of the funds which are held by the 
community trust, either directly or in component parts, as funds of the 
organization.
    (12) Community trusts; treatment of trusts and not-for-profit 
corporations and associations not included as components. (i) For 
purposes of sections 170, 501, 507, 508, 509, and Chapter 42, any trust 
or not-for-profit corporation or association that is alleged to be a 
component part of a community trust, but that fails to meet the 
requirements of paragraph (f)(11)(ii) of this section, shall not be 
treated as a component part of a community trust and, if a trust, shall 
be treated as a separate trust and be subject to the provisions of 
section 501, section 4947(a)(1), or section 4947(a)(2), as the case may 
be. If such organization is a not-for-profit corporation or 
association, it will be treated as a separate entity, and, if it is 
described in section 501(c)(3), it will be treated as a private 
foundation unless it is described in section 509(a)(1), section 
509(a)(2), section 509(a)(3), or section 509(a)(4). In the case of a 
fund that is ultimately treated as not being a component part of a 
community trust pursuant to this paragraph (f)(12), if the Forms 990 
filed annually by the community trust included financial

[[Page 55759]]

information with respect to such fund and treated such fund in the same 
manner as other component parts thereof, such returns filed by the 
community trust prior to the taxable year in which the Commissioner 
notifies such fund that it will not be treated as a component part will 
be treated as its separate return for purpose of Subchapter A of 
Chapter 61 of Subtitle F, and the first such return filed by the 
community trust will be treated as the notification required of the 
separate entity for purposes of section 508(a).
    (ii) If a transfer is made in trust to a community trust to make 
income or other payments for a period of a life or lives in being or a 
term of years to any individual or for any noncharitable purpose, 
followed by payments to or for the use of the community trust (such as 
in the case of a charitable remainder annuity trust or a charitable 
remainder unitrust described in section 664 or a pooled income fund 
described in section 642(c)(5)), such trust will be treated as a 
component part of the community trust upon the termination of all 
intervening noncharitable interests and rights to the actual possession 
or enjoyment of the property if such trust satisfies the requirements 
of paragraph (f)(11) of this section at such time. Until such time, the 
trust will be treated as a separate trust. If a transfer is made in 
trust to a community trust to make income or other payments to or for 
the use of the community trust, followed by payments to any individual 
or for any noncharitable purpose, such trust will be treated as a 
separate trust rather than as a component part of the community trust. 
See section 4947(a)(2) and the related regulations for the treatment of 
such split-interest trusts. The provisions of this paragraph 
(f)(12)(ii) provide rules only for determining when a charitable 
remainder trust or pooled income fund may be treated as a component 
part of a community trust and are not intended to preclude a community 
trust from maintaining a charitable remainder trust or pooled income 
fund. For purposes of grantors and contributors, a pooled income fund 
of a publicly supported community trust shall be treated no differently 
than a pooled income fund of any other publicly supported organization.
    (iii) An organization described in section 170(b)(1)(F)(iii) will 
not ordinarily satisfy the requirements of paragraph (f)(11)(ii) of 
this section because of the unqualified right of the donor to designate 
the recipients of the income and principal of the trust. Such 
organization will therefore ordinarily be treated as other than a 
component part of a community trust under paragraph (f)(12)(i) of this 
section. However, see section 170(b)(1)(F)(iii) and the related 
regulations with respect to the treatment of contributions to such 
organizations.
    (13) Method of accounting. For purposes of section 
170(b)(1)(A)(vi), an organization's support will be determined under 
the method of accounting on the basis of which the organization 
regularly computes its income in keeping its books under section 446. 
For example, if a grantor makes a grant to an organization payable over 
a term of years, such grant will be includible in the support fraction 
of the grantee organization under the method of accounting on the basis 
of which the grantee organization regularly computes its income in 
keeping its books under section 446.
    (14) Transition rules. (i) An organization that received an advance 
ruling, that expires on or after June 9, 2008, that it will be treated 
as an organization described in sections 170(b)(1)(A)(vi) and 509(a)(1) 
will be treated as meeting the requirements of paragraph (f)(2) or 
paragraph (f)(3) of this section for the first five taxable years of 
its existence as a section 501(c)(3) organization unless the IRS issued 
to the organization a proposed determination prior to September 9, 
2008, that the organization is not described in sections 
170(b)(1)(A)(vi) and 509(a)(1) or in section 509(a)(2).
    (ii) Paragraph (f)(4)(v) of this section shall not apply with 
respect to an organization that received an advance ruling that expired 
prior to June 9, 2008, and that did not timely file with the Internal 
Revenue Service the required information to establish that it is an 
organization described in sections 170(b)(1)(A)(vi) and 509(a)(1) or in 
section 509(a)(2).
    (iii) An organization that fails to meet a public support test for 
its first taxable year beginning on or after January 1, 2008, under the 
regulations in this section may use the prior tests set forth in Sec.  
1.170A-9(e)(2) or Sec.  1.170A-9(e)(3), or in Sec. Sec.  1.509(a)-
3(a)(2) and 1.509(a)-3(a)(3), as in effect before September 9, 2008 (as 
contained in 26 CFR part 1 revised April 1, 2008), to determine whether 
the organization was publicly supported for its 2008 taxable year based 
on its satisfaction of a public support test for taxable year 2007, 
computed over the period 2003 through 2006.
    (iv) Examples. The application of this paragraph (f)(14) may be 
illustrated by the following examples:

    Example 1. (i) Organization X was formed in January 2004 and 
uses a taxable year ending June 30. Organization X received an 
advance ruling letter that it is recognized as an organization 
described in section 501(c)(3) effective as of the date of its 
formation and that it is treated as a publicly supported 
organization under sections 170(b)(1)(A)(vi) and 509(a)(1) during 
the five-year advance ruling period that will end on June 30, 2008. 
This date is on or after June 9, 2008.
    (ii) Under the transition rule, Organization X is a publicly 
supported organization described in sections 170(b)(1)(A)(vi) and 
509(a)(1) for the taxable years ending June 30, 2004, through June 
30, 2008. Organization X does not need to establish within 90 days 
after June 30, 2008, that it met a public support test under Sec.  
1.170A-9(e) or Sec.  1.509(a)-3, as in effect prior to September 9, 
2008, (as contained in 26 CFR part 1 revised April 1, 2008), for its 
advance ruling period.
    (iii) Organization X can qualify as a publicly supported 
organization for the taxable year ending June 30, 2009, if 
Organization X can meet the requirements of paragraph (f)(2) or 
(f)(3) of this section or Sec. Sec.  1.509(a)-3(a)(2) and 1.509(a)-
3(a)(3) for the taxable years ending June 30, 2005, through June 30, 
2009, or for the taxable years ending June 30, 2004, through June 
30, 2008. In addition, for its taxable year ending June 30, 2009, 
Organization X may qualify as a publicly supported organization by 
availing itself of the transition rule contained in paragraph 
(f)(14)(iii) of this section, which looks to support received by X 
in the taxable years ending June 30, 2004, through June 30, 2007.
    Example 2. (i) Organization Y was formed in January 2000, and 
uses a taxable year ending December 31. Organization Y received a 
final determination that it was recognized as tax-exempt under 
section 501(c)(3) and as a publicly supported organization prior to 
September 9, 2008.
    (ii) For taxable year 2008, Organization Y will qualify as 
publicly supported if it meets the requirements under either 
paragraph (f)(2) or (f)(3) of this section or Sec. Sec.  1.509(a)-
3(a)(2) or 1.509(a)-3(a)(3) for the five-year period January 1, 
2004, through December 31, 2008. Organization Y will also qualify as 
publicly supported for taxable year 2008 if it meets the 
requirements under Sec.  1.170A-9(e)(2) or Sec.  1.170A-9(e)(3), or 
under Sec. Sec.  1.509(a)-3(a)(2) and 1.509(a)-3(a)(3), as in effect 
prior to September 9, 2008, (as contained in 26 CFR part 1 revised 
April 1, 2008) for taxable year 2007, using the four-year period 
from January 1, 2003, through December 31, 2006.
* * * * *
    (k) Effective/applicability date--(1) In general. These regulations 
shall apply to taxable years beginning after December 31, 1969.
    (2) Applicability date. The regulations in paragraph (f) of this 
section shall apply to taxable years beginning on or after January 1, 
2008. For tax years beginning after December 31, 1969, and beginning 
before January 1, 2008, see Sec.  1.170A-9(e) (as contained in 26 CFR 
part 1 revised April 1, 2008).


Sec.  1.170A-9T  [Removed]

0
Par. 3. Section 1.170A-9T is removed.

[[Page 55760]]

0
Par. 4. Section 1.507-2 is revised to read as follows:


Sec.  1.507-2  Special rules; transfer to, or operation as, public 
charity.

    (a) Transfer to public charities--(1) General rule. Under section 
507(b)(1)(A) a private foundation, with respect to which there have not 
been either willful repeated acts (or failures to act) or a willful and 
flagrant act (or failure to act) giving rise to liability for tax under 
Chapter 42, may terminate its private foundation status by distributing 
all of its net assets to one or more organizations described in section 
170(b)(1)(A) (other than in clauses (vii) and (viii)) each of which has 
been in existence and so described for a continuous period of at least 
60 calendar months immediately preceding such distribution. Because 
section 507(a) does not apply to such a termination, a private 
foundation which makes such a termination is not required to give the 
notification described in section 507(a)(1). A private foundation that 
terminates its private foundation status under section 507(b)(1)(A) 
does not incur tax under section 507(c) and, therefore, no abatement of 
such tax under section 507(g) is required.
    (2) Effect of current ruling. A private foundation seeking to 
terminate its private foundation status pursuant to section 
507(b)(1)(A) may rely on a ruling or determination letter issued to a 
potential distributee organization that such distributee organization 
is an organization described in section 170(b)(1)(A)(i), 
170(b)(1)(A)(ii), 170(b)(1)(A)(iii), 170(b)(1)(A)(iv), 170(b)(1)(A)(v), 
or 170(b)(1)(A)(vi) in accordance with the provisions of Sec.  
1.509(a)-7.
    (3) Organizations described in more than one clause of section 
170(b)(1)(A). For purposes of this paragraph and section 507(b)(1)(A), 
the parenthetical term ``other than in clauses (vii) and (viii)'' shall 
refer only to an organization that is described only in section 
170(b)(1)(A)(vii) or section 170(b)(1)(A) (viii). Thus, an organization 
described in section 170(b)(1)(A)(i), 170(b)(1)(A)(ii), 
170(b)(1)(A)(iii), 170(b)(1)(A)(iv), 170(b)(1)(A)(v), or 
170(b)(1)(A)(vi) will not be precluded from being a distributee 
described in section 507(b)(1)(A) merely because it also appears to 
meet the description of an organization described in section 
170(b)(1)(A)(vii) or section 170(b)(1)(A)(viii).
    (4) Applicability of Chapter 42 to foundations terminating under 
section 507(b)(1)(A). An organization that terminates its private 
foundation status pursuant to section 507(b)(1)(A) will remain subject 
to the provisions of Chapter 42 until the distribution of all of its 
net assets to distributee organizations described in section 
507(b)(1)(A) has been completed.
    (5) Return required from organizations terminating private 
foundation status under section 507(b)(1)(A)--(i) An organization that 
terminates its private foundation status under section 507(b)(1)(A) is 
required to file a return under the provisions of section 6043(b).
    (ii) An organization that terminates its private foundation status 
under section 507(b)(1)(A) is not required to comply with section 
6104(d) for the taxable year in which such termination occurs.
    (6) Distribution of net assets. A private foundation will meet the 
requirement to ``distribute all of its net assets'' within the meaning 
of section 507(b)(1)(A) only if it transfers all of its right, title, 
and interest in and to all of its net assets to one or more 
organizations referred to in section 507(b)(1)(A).
    (7) Effect of restrictions and conditions upon distributions of net 
assets--(i) In general. In order to effectuate a transfer of ``all of 
its right, title, and interest in and to all of its net assets'' within 
the meaning of paragraph (a)(6) of this section, a transferor private 
foundation may not impose any material restriction or condition that 
prevents the transferee organization referred to in section 
507(b)(1)(A) (herein sometimes referred to as the ``public charity'') 
from freely and effectively employing the transferred assets, or the 
income derived therefrom, in furtherance of its exempt purposes. 
Whether or not a particular condition or restriction imposed upon a 
transfer of assets is material (within the meaning of this paragraph 
(a)(7)) must be determined from all of the facts and circumstances of 
the transfer. Some of the more significant facts and circumstances to 
be considered in making such a determination are--
    (A) Whether the public charity (including a participating trustee, 
custodian, or agent in the case of a community trust) is the owner in 
fee of the assets it receives from the private foundation;
    (B) Whether such assets are to be held and administered by the 
public charity in a manner consistent with one or more of its exempt 
purposes;
    (C) Whether the governing body of the public charity has the 
ultimate authority and control over such assets, and the income derived 
therefrom; and
    (D) Whether, and to what extent, the governing body of the public 
charity is organized and operated so as to be independent from the 
transferor.
    (ii) Independent governing body. As provided in paragraph 
(a)(7)(i)(D) of this section, one of the more significant facts and 
circumstances to be considered in making the determination whether a 
particular condition or restriction imposed upon a transfer of assets 
is material within the meaning of this paragraph (a)(7) is whether, and 
the extent to which, the governing body is organized and operated so as 
to be independent from the transferor. In turn, the determination as to 
such factor must be determined from all of the facts and circumstances. 
Some of the more significant facts and circumstances to be considered 
in making such a determination are--
    (A) Whether, and to what extent, members of the governing body are 
comprised of persons selected by the transferor private foundation or 
disqualified persons with respect thereto or are themselves such 
disqualified persons;
    (B) Whether, and to what extent, members of the governing body are 
selected by public officials acting in their capacities as such; and
    (C) How long a period of time each member of the governing body may 
serve in such capacity. In the case of a transfer that is to a 
community trust, the community trust shall meet this paragraph 
(a)(7)(ii)(C) if--
    (1) Its governing body is comprised of members who may serve a 
period of not more than ten consecutive years; and
    (2) Upon completion of a period of service (beginning before or 
after the date of transfer), no member may serve again within a period 
consisting of the lesser of five years or the number of consecutive 
years the member has immediately completed serving.
    (iii) Factors not adversely affecting determination. The presence 
of some or all of the following factors will not be considered as 
preventing the transferee ``from freely and effectively employing the 
transferred assets, or the income derived therefrom, in furtherance of 
its exempt purposes'' (within the meaning of paragraph (a)(7)(i) of 
this section):
    (A) Name. The fund is given a name or other designation which is 
the same as or similar to that of the transferor private foundation or 
otherwise memorializes the creator of the foundation or his family.
    (B) Purpose. The income and assets of the fund are to be used for a 
designated purpose or for one or more particular section 509(a)(1), 
section 509(a)(2), or section 509(a)(3) organization, and such use is 
consistent with the charitable, educational, or other basis for the

[[Page 55761]]

exempt status of the public charity under section 501(c)(3).
    (C) Administration. The transferred assets are administered in an 
identifiable or separate fund, some or all of the principal of which is 
not to be distributed for a specified period, if the public charity 
(including a participating trustee, custodian, or agent in the case of 
a community trust) is the legal and equitable owner of the fund and the 
governing body exercises ultimate and direct authority and control over 
such fund, as, for example, a fund to endow a chair at a university or 
a medical research fund at a hospital. In the case of a community 
trust, the transferred assets must be administered in or as a component 
part of the community trust within the meaning of Sec.  1.170A-
9(f)(11).
    (D) Restrictions on disposition. The transferor private foundation 
transfers property the continued retention of which by the transferee 
is required by the transferor if such retention is important to the 
achievement of charitable or other similar purposes in the community 
because of the peculiar features of such property, as, for example, 
where a private foundation transfers a woodland preserve which is to be 
maintained by the public charity as an arboretum for the benefit of the 
community. Such a restriction does not include a restriction on the 
disposition of an investment asset or the distribution of income.
    (iv) Adverse factors. The presence of any of the following factors 
will be considered as preventing the transferee ``from freely and 
effectively employing the transferred assets, or the income derived 
therefrom, in furtherance of its exempt purposes'' (within the meaning 
of paragraph (a)(7)(i) of this section):
    (A) Distributions. (1) With respect to distributions made after 
April 19, 1977, the transferor private foundation, a disqualified 
person with respect thereto, or any person or committee designated by, 
or pursuant to the terms of an agreement with, such a person 
(hereinafter referred to as donor), reserves the right, directly or 
indirectly, to name (other than by designation in the instrument of 
transfer of particular section 509(a)(1), section 509(a)(2), or section 
509(a)(3) organizations) the persons to which the transferee public 
charity must distribute, or to direct the timing of such distributions 
(other than by direction in the instrument of transfer that some or all 
of the principal, as opposed to specific assets, not be distributed for 
a specified period) as, for example, by a power of appointment. The IRS 
will examine carefully whether the seeking of advice by the transferee 
from, or the giving of advice by, any donor after the assets have been 
transferred to the transferee constitutes an indirect reservation of a 
right to direct such distributions. In any such case, the reservation 
of such a right will be considered to exist where the only criterion 
considered by the public charity in making a distribution of income or 
principal from a donor's fund is advice offered by the donor. Whether 
there is a reservation of such a right will be determined from all of 
the facts and circumstances, including, but not limited to, the factors 
contained in paragraphs (a)(7)(iv)(A)(2) and (a)(7)(iv)(A)(3) of this 
section.
    (2) The presence of some or all of the following factors will 
indicate that the reservation of a right to direct distributions does 
not exist:
    (i) There has been an independent investigation by the staff of the 
public charity evaluating whether the donor's advice is consistent with 
specific charitable needs most deserving of support by the public 
charity (as determined by the public charity).
    (ii) The public charity has promulgated guidelines enumerating 
specific charitable needs consistent with the charitable purposes of 
the public charity and the donor's advice is consistent with such 
guidelines.
    (iii) The public charity has instituted an educational program 
publicizing to donors and other persons the guidelines enumerating 
specific charitable needs consistent with the charitable purposes of 
the public charity.
    (iv) The public charity distributes funds in excess of amounts 
distributed from the donor's fund to the same or similar types of 
organizations or charitable needs as those recommended by the donor.
    (v) The public charity's solicitations (written or oral) for funds 
specifically state that such public charity will not be bound by advice 
offered by the donor.
    (3) The presence of some or all of the following factors will 
indicate the reservation of a right to direct distributions does exist:
    (i) The solicitations (written or oral) of funds by the public 
charity state or imply, or a pattern of conduct on the part of the 
public charity creates an expectation, that the donor's advice will be 
followed.
    (ii) The advice of a donor (whether or not restricted to a 
distribution of income or principal from the donor's trust or fund) is 
limited to distributions of amounts from the donor's fund, and the 
factors described in paragraph (a)(7)(iv)(A)(2)(i) or paragraph 
(a)(7)(iv)(A)(2)(ii) of this section are not present.
    (iii) Only the advice of the donor as to distributions of such 
donor's fund is solicited by the public charity and no procedure is 
provided for considering advice from persons other than the donor with 
respect to such fund.
    (iv) For the taxable year and all prior taxable years the public 
charity follows the advice of all donors with respect to their funds 
substantially all of the time.
    (B) Other action or withholding of action. The terms of the 
transfer agreement, or any expressed or implied understanding, required 
the public charity to take or withhold action with respect to the 
transferred assets which is not designed to further one or more of the 
exempt purposes of the public charity, and such action or withholding 
of action would, if performed by the transferor private foundation with 
respect to such assets, have subjected the transferor to tax under 
Chapter 42 (other than with respect to the minimum investment return 
requirement of section 4942(e)).
    (C) Assumption of leases, contractual obligations, or liabilities. 
The public charity assumes leases, contractual obligations, or 
liabilities of the transferor private foundation, or takes the assets 
thereof subject to such liabilities (including obligations under 
commitments or pledges to donees of the transferor private foundation), 
for purposes inconsistent with the purposes or best interests of the 
public charity, other than the payment of the transferor's Chapter 42 
taxes incurred prior to the transfer to the public charity to the 
extent of the value of the assets transferred.
    (D) Retention of investment assets. The transferee public charity 
is required by any restriction or agreement (other than a restriction 
or agreement imposed or required by law or regulatory authority), 
express or implied, to retain any securities or other investment assets 
transferred to it by the private foundation. In a case where such 
transferred assets consistently produce a low annual return of income, 
the IRS will examine carefully whether the transferee is required by 
any such restriction or agreement to retain such assets.
    (E) Right of first refusal. An agreement is entered into in 
connection with the transfer of securities or other property which 
grants directly or indirectly to the transferor private foundation or 
any disqualified person with respect thereto a right of first refusal 
with respect to the transferred securities or other property when and 
if disposed of by the public charity, unless such securities or other 
property was acquired by the transferor

[[Page 55762]]

private foundation subject to such right of first refusal prior to 
October 9, 1969.
    (F) Relationships. An agreement is entered into between the 
transferor private foundation and the transferee public charity which 
establishes irrevocable relationships with respect to the maintenance 
or management of assets transferred to the public charity, such as 
continuing relationships with banks, brokerage firms, investment 
counselors, or other advisors with regard to the investments or other 
property transferred to the public charity (other than a relationship 
with a trustee, custodian, or agent for a community trust acting as 
such). The transfer of property to a public charity subject to 
contractual obligations which were established prior to November 11, 
1976, between the transferor private foundation and persons other than 
disqualified persons with respect to such foundation will not be 
treated as prohibited under the preceding sentence, but only if such 
contractual obligations were not entered into pursuant to a plan to 
terminate the private foundation status of the transferor under section 
507(b)(1)(A) and if the continuation of such contractual obligations is 
in the best interests of the public charity.
    (G) Other conditions. Any other condition is imposed on action by 
the public charity which prevents it from exercising ultimate control 
over the assets received from the transferor private foundation for 
purposes consistent with its exempt purposes.
    (v) Examples. The provisions of this paragraph (a)(7) may be 
illustrated by the following examples:

    Example 1. The M Private Foundation transferred all of its net 
assets to the V Cancer Institute, a public charity described in 
section 170(b)(1)(A)(iii). Prior to the transfer, M's activities 
consisted of making grants to hospitals and universities to further 
research into the causes of cancer. Under the terms of the transfer, 
V is required to keep M's assets in a separate fund and use the 
income and principal to further cancer research. Although the assets 
may be used only for a limited purpose, this purpose is consistent 
with and in furtherance of V's exempt purposes, and does not prevent 
the transfer from being a distribution for purposes of section 
507(b)(1)(A).
    Example 2. The N Private Foundation transferred all of its net 
assets to W University, a public charity described in section 
170(b)(1)(A)(ii). Under the terms of the transfer, W is required to 
use the income and principal to endow a chair at the university to 
be known as the ``John J. Doe Memorial Professorship,'' named after 
N's creator. Although the transferred assets are to be used for a 
specified purpose by W, this purpose is in furtherance of W's exempt 
educational purposes, and there are no conditions on investment or 
reinvestment of the principal or income. The use of the name of the 
foundation's creator for the chair is not a restriction which would 
prevent the transfer from being a distribution for purposes of 
section 507(b)(1)(A).
    Example 3. The O Private Foundation transferred all of its net 
assets to X Bank as trustee for the Q Community Trust, a community 
trust that is a public charity described in section 
170(b)(1)(A)(vi). Under the terms of the transfer, X is to hold the 
assets in trust for Q and is directed to distribute the income 
annually to the Y Church, a public charity described in section 
170(b)(1)(A)(i). The distribution of income to Y Church is 
consistent with Q's exempt purposes. If the trust created by this 
transfer otherwise meets the requirements of Sec.  1.170A-9(f)(11) 
as a component part of the Q Community Trust, the assets transferred 
by O to X will be treated as distributed to one or more public 
charities within the meaning of section 507(b)(1)(A). The direction 
to distribute the income to Y Church meets the conditions of 
paragraph (a)(7)(iii)(B) of this section and will therefore not 
disqualify the transfer under section 507(b)(1)(A).
    Example 4. (i) The P Private Foundation transferred all of its 
net assets to Z Bank as trustee for the R Community Trust, a 
community trust that is a public charity described in section 
170(b)(1)(A)(vi). Under the terms of the transfer, Z is to hold the 
assets in trust for R and distribute the income to those public 
charities described in section 170(b)(1)(A)(i) through (b)(1)(A)(vi) 
that are designated by B, the creator of P. R's governing body has 
no authority during B's lifetime to vary B's direction. Under the 
terms of the transfer, it is intended that Z retain the transferred 
assets in their present form for a period of 20 years, or until the 
date of B's death if it occurs before the expiration of such period. 
Upon the death of B, R will have the power to distribute the income 
to such public charities as it selects and may dispose of the corpus 
as it sees fit.
    (ii) Under paragraph (a)(7)(iv)(A) or paragraph (a)(7)(iv)(D) of 
this section, as a result of the restrictions imposed with respect 
to the transferred assets, there has been no distribution of all P's 
net assets within the meaning of section 507(b)(1)(A) at the time of 
the transfer. In addition, P has not transferred its net assets to a 
component part of R Community Trust, but rather to a separate trust 
described in Sec.  1.170A-9(f)(12).

    (b) Operation as a public charity--(1) In general. Under section 
507(b)(1)(B), an organization can terminate its private foundation 
status if the organization--
    (i) Meets the requirements of section 509(a)(1), section 509(a)(2) 
or section 509(a)(3) for a continuous period of 60 calendar months 
beginning with the first day of any taxable year that begins after 
December 31, 1969;
    (ii) In compliance with section 507(b)(1)(B)(ii) and paragraph 
(b)(3) of this section, properly notifies the IRS, in such manner as 
may be provided by published guidance, publication, form or 
instructions, before the commencement of such 60-month period, that it 
is terminating its private foundation status; and
    (iii) Properly establishes immediately after the expiration of such 
60-month period that such organization has complied with the 
requirements of section 509(a)(1), section 509(a)(2) or section 
509(a)(3) during the 60-month period, in the manner described in 
paragraph (b)(4) of this section.
    (2) Relationship of section 507(b)(1)(B) to sections 507(a), 
507(c), and 507(g). Because section 507(a) does not apply to a 
termination described in section 507(b)(1)(B), a private foundation's 
notification that it is commencing a termination pursuant to section 
507(b)(1)(B) will not be treated as a notification described in section 
507(a) even if the private foundation does not successfully terminate 
its private foundation status pursuant to section 507(b)(1)(B). A 
private foundation that terminates its private foundation status under 
section 507(b)(1)(B) does not incur tax under section 507(c) and, 
therefore, no abatement of such tax under section 507(g) is required.
    (3) Notification of termination. In order to comply with the 
requirements under section 507(b)(1)(B)(ii), an organization shall 
before the commencement of the 60-month period under section 
507(b)(1)(B)(i) notify the IRS, in such manner as may be provided by 
published guidance, publication, form or instructions, of its intention 
to terminate its private foundation status. Such notification shall 
contain the following information--
    (i) The name and address of the private foundation;
    (ii) Its intention to terminate its private foundation status;
    (iii) The Code section under which it seeks classification (section 
509(a)(1), section 509(a)(2) or section 509(a)(3));
    (iv) If section 509(a)(1) is applicable, the clause of section 
170(b)(1)(A) involved;
    (v) The date its regular taxable year begins; and
    (vi) The date of commencement of the 60-month period.
    (4) Establishment of termination. In order to comply with the 
requirements under section 507(b)(1)(B)(iii), an organization shall 
within 90 days after the expiration of the 60-month period file such 
information with the IRS, in such manner as may be provided by 
published guidance, publication, form or instructions, as is necessary 
to make a determination as to the organization's status as an 
organization described under section 509(a)(1), section 509(a)(2) or 
section 509(a)(3) and the

[[Page 55763]]

related regulations. See paragraph (c) of this section as to the 
information required to be submitted under this paragraph (b)(4).
    (5) Incomplete information. The failure to supply, within the 
required time, all of the information required by paragraph (b)(3) or 
paragraph (b)(4) of this section is not alone sufficient to constitute 
a failure to satisfy the requirements of section 507(b)(1)(B). If the 
information that is submitted within the required time is incomplete 
and the organization supplies the necessary additional information at 
the request of the Commissioner within the additional time period 
allowed by him, the original submission will be considered timely.
    (6) Application of special rules and filing requirements. An 
organization that has terminated its private foundation status under 
section 507(b)(1)(B) is not required to comply with the special rules 
set forth in sections 508(a) and 508(b). Such organization is also not 
required to file a return under the provisions of section 6043(b) by 
reason of termination of its private foundation status under the 
provisions of section 507(b)(1)(B).
    (7) Extension of time to assess deficiencies. If a private 
foundation files a notification (described in paragraph (b)(3) of this 
section) that it intends to begin a 60-month termination pursuant to 
section 507(b)(1)(B) and does not file a request for an advance ruling 
pursuant to paragraph (d) of this section, such private foundation may 
file with the notification described in paragraph (b)(3) of this 
section a consent under section 6501(c)(4) to the effect that the 
period of limitation upon assessment under section 4940 for any taxable 
year within the 60-month termination period shall not expire prior to 
one year after the date of expiration of the time prescribed by law for 
the assessment of a deficiency for the last taxable year within the 60-
month period. Such consents, if filed, will ordinarily be accepted by 
the Commissioner. See paragraph (e)(3) of this section for an 
illustration of the procedure required to obtain a refund of the tax 
imposed by section 4940 in a case where such a consent is not in 
effect.
    (c) Sixty-month terminations--(1) Method of determining normal 
sources of support. (i) In order to meet the requirements of section 
507(b)(1)(B) for the 60-month termination period as a section 509(a)(1) 
or section 509(a)(2) organization, an organization must meet the 
requirements of section 509(a)(1) or section 509(a)(2), as the case may 
be, for a continuous period of at least 60 calendar months. In 
determining whether an organization seeking status under section 
509(a)(1) as an organization described in section 170(b)(1)(A)(iv) or 
section 170(b)(1)(A)(vi) or under section 509(a)(2) normally meets the 
requirements set forth under such sections, support received in taxable 
years prior to the commencement of the 60-month period shall not be 
taken into consideration, except as otherwise provided in this section.
    (ii) For purposes of section 507(b)(1)(B), an organization will be 
considered to be a section 509(a)(1) organization described in section 
170(b)(1)(A)(vi) for a continuous period of 60 calendar months only if 
the organization satisfies the provisions of Sec.  1.170A-9(f), other 
than Sec.  1.170A-9(f)(4)(v), based upon aggregate data for such entire 
period. The calculation of public support shall be made over the period 
beginning with the date of the commencement of the 60-month period, and 
ending with the last day of the 60-month period.
    (iii) For purposes of section 507(b)(1)(B), an organization will be 
considered to be a section 509(a)(2) organization only if such 
organization meets the support requirements set forth in sections 
509(a)(2)(A) and 509(a)(2)(B) and the related regulations, other than 
Sec.  1.509(a)-3(d), for the continuous period of 60 calendar months 
prescribed under section 507(b)(1)(B). The calculation of public 
support shall be made over the period beginning with the date of the 
commencement of the 60-month period, and ending with the last day of 
the 60-month period.
    (2) Organizational and operational tests. In order to meet the 
requirements of section 507(b)(1)(B) for the 60-month termination 
period as an organization described in section 170(b)(1)(A)(i), 
170(b)(1)(A)(ii), 170(b)(1)(A)(iii), 170(b)(1)(A)(iv), or 
170(b)(1)(A)(v) or section 509(a)(3), as the case may be, an 
organization must meet the requirements of the applicable provisions 
for a continuous period of at least 60 calendar months. For purposes of 
section 507(b)(1)(B), an organization will be considered to be such an 
organization only if it satisfies the requirements of the applicable 
provision (including with respect to section 509(a)(3), the 
organizational and operational test set forth in section 509(a)(3)(A)) 
at the commencement of such 60-month period and continuously thereafter 
during such period.
    (d) Advance rulings for 60-month terminations--(1) In general. An 
organization that files the notification required by section 
507(b)(1)(B)(ii) that it is commencing a 60-month termination may 
obtain an advance ruling from the Commissioner that it can be expected 
to satisfy the requirements of section 507(b)(1)(B)(i) during the 60-
month period. Such an advance ruling may be issued if the organization 
can reasonably be expected to meet the requirements of section 
507(b)(1)(B)(i) during the 60-month period. The issuance of a ruling 
will be discretionary with the Commissioner.
    (2) Basic consideration. In determining whether an organization can 
reasonably be expected (within the meaning of paragraph (d)(1) of this 
section) to meet the requirements of section 507(b)(1)(B)(i) for the 
60-month period, the basic consideration is whether its organizational 
structure (taking into account any revisions made prior to the 
beginning of the 60-month period), current or proposed programs or 
activities, actual or intended method of operation, and current or 
projected sources of support are such as to indicate that the 
organization is likely to satisfy the requirements of section 
509(a)(1), section 509(a)(2), or section 509(a)(3) and paragraph (c) of 
this section during the 60-month period. In making such a 
determination, all pertinent facts and circumstances shall be 
considered.
    (3) Reliance by grantors and contributors. For purposes of sections 
170, 545(b)(2), 642(c), 4942, 4945, 4966, 2055, 2106(a)(2), and 2522, 
grants or contributions to an organization which has obtained a ruling 
referred to in this paragraph will be treated as made to an 
organization described in section 509(a)(1), section 509(a)(2), or 
section 509(a)(3), as the case may be, until the IRS publishes notice 
that such advance ruling is being revoked (such as by publication in 
the Internal Revenue Bulletin). However, a grantor or contributor may 
not rely on such an advance ruling if the grantor or contributor was 
responsible for, or aware of, the act or failure to act that resulted 
in the organization's failure to meet the requirements of section 
509(a)(1), section 509(a)(2), or section 509(a)(3), or acquired 
knowledge that the IRS had given notice to such organization that its 
advance ruling would be revoked. Prior to the making of any grant or 
contribution which allegedly will not result in the grantee's failure 
to meet the requirements of section 509(a)(1), section 509(a)(2), or 
section 509(a)(3), a potential grantee organization may request a 
ruling whether such grant or contribution may be made without such 
failure. A request for such ruling may be filed by the grantee 
organization with the IRS. The issuance of such ruling will be at the 
sole discretion of the Commissioner.

[[Page 55764]]

The organization must submit all information necessary to make a 
determination on the factors referred to in paragraph (d)(2) of this 
section. If a favorable ruling is issued, such ruling may be relied 
upon by the grantor or contributor of the particular contribution in 
question for purposes of sections 170, 507, 545(b)(2), 642(c), 4942, 
4945, 4966, 2055, 2106(a)(2), and 2522.
    (4) Reliance by organization. An organization obtaining an advance 
ruling pursuant to this paragraph cannot rely on such a ruling. 
Consequently, if the organization does not pay the tax imposed by 
section 4940 for any taxable year or years during the 60-month period, 
and it is subsequently determined that such tax is due for such year or 
years (because the organization did not in fact complete a successful 
termination pursuant to section 507(b)(1)(B) and was not treated as an 
organization described in section 509(a)(1), section 509(a)(2), or 
section 509(a)(3) for such year or years), the organization is liable 
for interest in accordance with section 6601 if any amount of tax under 
section 4940 has not been paid on or before the last date prescribed 
for payment. However, because any failure to pay such tax during the 
60-month period (or prior to the revocation of such ruling) is due to 
reasonable cause, the penalty under section 6651 with respect to the 
tax imposed by section 4940 shall not apply.
    (5) Extension of time to assess deficiencies. The advance ruling 
described in paragraph (d)(1) of this section shall be issued only if 
such organization's request for an advance ruling is filed with a 
consent under section 6501(c)(4) to the effect that the period of 
limitations upon assessment under section 4940 for any taxable year 
within the advance ruling period shall not expire prior to one year 
after the date of the expiration of the time prescribed by law for the 
assessment of a deficiency for the last taxable year within the 60-
month period.
    (e) Effect on grantors or contributors and on the organization 
itself--(1) Effect of satisfaction of requirements for termination; 
treatment during the termination period. In the event that an 
organization satisfies the requirements of section 507(b)(1)(B) for 
termination of its private foundation status during the continuous 60-
month period, such organization shall be treated for such entire 60-
month period in the same manner as an organization described in section 
509(a)(1), section 509(a)(2), or section 509(a)(3), as the case may be.
    (2) Failure to meet termination requirements--(i) In general. 
Except as otherwise provided in paragraphs (d) and (e)(2)(ii) of this 
section, any organization that fails to satisfy the requirements of 
section 507(b)(1)(B) for termination of its private foundation status 
during the continuous 60-month period shall be treated as a private 
foundation for the entire 60-month period, for purposes of sections 507 
through 509 and Chapter 42, and grants or contributions to such an 
organization shall be treated as made to a private foundation for 
purposes of sections 170, 507(b)(1)(A), 4942, and 4945.
    (ii) Certain 60-month terminations. Notwithstanding paragraph 
(e)(2)(i) of this section, if an organization fails to satisfy the 
requirements of section 509(a)(1), section 509(a)(2), or section 
509(a)(3) for the continuous 60-month period but does satisfy the 
requirements of section 509(a)(1), section 509(a)(2), or section 
509(a)(3), as the case may be, for any taxable year or years during 
such 60-month period, the organization shall be treated as a section 
509(a)(1), section 509(a)(2), or section 509(a)(3) organization for 
such taxable year or years, and grants or contributions made during 
such taxable year or years shall be treated as made to an organization 
described in section 509(a)(1), section 509(a)(2), or section 
509(a)(3). In addition, sections 507 through 509 and Chapter 42 shall 
not apply to such organization for any taxable year within such 60-
month period for which it does meet such requirements. For purposes of 
determining whether an organization satisfies the requirements of 
section 509(a)(1), section 509(a)(2), or section 509(a)(3) for any 
taxable year in the 60-month period, the calculation of public support 
shall be made over the period beginning with the date of the 
commencement of the 60-month period, and ending with the last day of 
the taxable year being tested. The organization shall not be treated as 
a section 509(a)(1) or section 509(a)(2) organization for any taxable 
year during the 60-month period solely by reason of having met a public 
support test for the preceding year. In addition, the transition rules 
in Sec. Sec.  1.170-9(f)(14)(iii) and 1.509(a)-3(n)(iii) shall not 
apply.
    (iii) Aggregate tax benefit. For purposes of section 507(d), the 
organization's aggregate tax benefit resulting from the organization's 
section 501(c)(3) status shall continue to be computed from the date 
from which such computation would have been made, but for the notice 
filed under section 507(b)(1)(B)(ii), except that any taxable year 
within such 60-month period for which such organization meets the 
requirements of section 509(a)(1), section 509(a)(2), or section 
509(a)(3) shall be excluded from such computations.
    (iv) Excess business holdings. See section 4943 and the related 
regulations for rules relating to decreases in a private foundation's 
holdings in a business enterprise which are caused by the foundation's 
failure to terminate its private foundation status after giving the 
notification for termination under section 507(b)(1)(B)(ii).
    (3) Example. The provisions of this paragraph (e) may be 
illustrated by the following example:
    Example 1. Y, a calendar year private foundation, notifies the 
IRS that it intends to terminate its private foundation status by 
converting into a publicly supported organization described in 
section 170(b)(1)(A)(vi) and that its 60-month termination period 
will commence on January 1, 2010. Y does not obtain a ruling 
described in paragraph (d) of this section. Based upon its support 
for 2010, Y does not qualify as a publicly supported organization 
within the meaning of Sec.  1.170A-9(f) and this paragraph for 2010. 
Consequently, in order to avoid the risks of penalties and interest 
if Y fails to terminate within the 60-month period, Y files its 2010 
return as a private foundation and pays the tax imposed by section 
4940. Because a consent (described in paragraph (b)(7) of this 
section), which would prevent the period of limitations for all 
years in the 60-month period from expiring, is not in effect, in 
order to be able to file a claim for refund, Y and the IRS must 
agree to extend the period of limitation for all taxes imposed under 
Chapter 42 for 2010. Based on the aggregate data for the entire 60-
month period (2010 through 2014), Y does qualify as a publicly-
supported organization for the entire 60-month period. Consequently, 
Y is treated as a publicly-supported organization for the entire 60-
month period. Y files a claim for refund for the taxes paid under 
section 4940 for 2010, and such taxes are refunded.

    (f) Effective/applicability date--(1) Effective date. These 
regulations are effective on September 8, 2011.
    (2) Applicability date. The regulations in this section shall apply 
to tax years beginning on or after January 1, 2008. For taxable years 
beginning after December 31, 1969, and beginning before January 1, 
2008, see Sec.  1.507-2 (as contained in 26 CFR part 1 revised April 1, 
2008).


Sec.  1.507-2T  [Removed]

0
Par. 5. Section 1.507-2T is removed.
0
Par. 6. Section 1.509(a)-3 is amended as follows:
    1. Revising paragraphs (a)(2), (a)(3)(i), (c), (d), (e), (k) and 
(n).
    2. Adding new paragraph (o).
    The revisions and addition read as follows:

[[Page 55765]]

Sec.  1.509(a)-3  Broadly, publicly supported organizations.

    (a) * * *
    (2) One-third support test. An organization will meet the one-third 
support test if it normally (within the meaning of paragraph (c) or 
paragraph (d) of this section) receives from permitted sources more 
than one-third of its support in each taxable year from any combination 
of--
    (i) Gifts, grants, contributions, or membership fees; and
    (ii) Gross receipts from admissions, sales of merchandise, 
performance of services, or furnishing of facilities, in an activity 
that is not an unrelated trade or business (within the meaning of 
section 513), subject to certain limitations described in paragraph (b) 
of this section. For purposes of this section, governmental units, 
organizations described in section 509(a)(1), and persons other than 
disqualified persons with respect to the organization shall be referred 
to as permitted sources. For purposes of this section, the amount of 
support received from the sources described in paragraph (a)(2)(i) of 
this section and this paragraph (a)(2)(ii) (subject to the limitations 
referred to in this paragraph (a)(2)) will be referred to as the 
numerator of the one-third support fraction, and the total amount of 
support received (as defined in section 509(d)) will be referred to as 
the denominator of the one-third support fraction. Section 1.509(a)-
3(f) distinguishes gifts and contributions from gross receipts; Sec.  
1.509(a)-3(g) distinguishes grants from gross receipts; Sec.  1.509(a)-
3(h) defines membership fees; Sec.  1.509(a)-3(i) defines ``any bureau 
or similar agency of a governmental unit''; Sec.  1.509(a)-3(j) 
describes the treatment of certain indirect forms of support; paragraph 
(k) of this section describes the method of accounting for support; 
Sec.  1.509(a)-3(l) describes the treatment of gross receipts from 
section 513(a)(1), section 513(a)(2), or section 513(a)(3) activities; 
Sec.  1.509(a)-3(m) distinguishes gross receipts from gross investment 
income; and Sec.  1.509(a)-3(n) describes transition rules for 
organizations that received advance rulings that expire on or after 
June 9, 2008.
    (3) * * *
    (i) In general. An organization will meet the not-more-than-one-
third support test under section 509(a)(2)(B) if it normally (within 
the meaning of paragraph (c) or (d) of this section) receives not more 
than one-third of its support in each taxable year from the sum of its 
gross investment income (as defined in section 509(e)) and the excess 
(if any) of the amount of its unrelated business taxable income (as 
defined in section 512) derived from trades or businesses that were 
acquired by the organization after June 30, 1975, over the amount of 
tax imposed on such income by section 511. For purposes of this section 
the amount of support received from items described in section 
509(a)(2)(B) will be referred to as the numerator of the not-more-than-
one-third support fraction, and the total amount of support (as defined 
in section 509(d)) will be referred to as the denominator of the not-
more-than-one-third support fraction. For purposes of section 
509(a)(2), paragraph (m) of this section distinguishes gross receipts 
from gross investment income. For purposes of section 509(e), gross 
investment income includes the items of investment income described in 
Sec.  1.512(b)-1(a).
* * * * *
    (c) Normally--(1) In general--(i) Definition. The support tests set 
forth in section 509(a)(2) are to be computed on the basis of the 
nature of the organization's normal sources of support. An organization 
will be considered as ``normally'' receiving one third of its support 
from any combination of gifts, grants, contributions, membership fees, 
and gross receipts from permitted sources (subject to the limitations 
described in Sec.  1.509(a)-3(b)) and not more than one third of its 
support from items described in section 509(a)(2)(B) for a taxable year 
and the taxable year immediately succeeding such year, if, for such 
taxable year and the four taxable years immediately preceding such 
taxable year, the aggregate amount of the support received during the 
applicable period from gifts, grants, contributions, membership fees, 
and gross receipts from permitted sources (subject to the limitations 
described in Sec.  1.509(a)-3(b)) is more than one third, and the 
aggregate amount of the support received from items described in 
section 509(a)(2)(B) is not more than one third, of the total support 
of the organization for such five-year period. A publicly supported 
organization described under section 509(a)(2) that has failed to meet 
either the one-third support test of paragraph (a)(2) of this section 
or the not-more-than-one-third support test of paragraph (a)(3) of this 
section for two consecutive years will be treated as a private 
foundation as of the first day of the second consecutive taxable year 
only for purposes of sections 507, 4940, and 6033. Such an organization 
must file a Form 990-PF, ``Return of Private Foundation or Section 
4947(a)(1) Nonexempt Charitable Trust Treated as a Private 
Foundation,'' and will be liable for the net investment tax imposed by 
section 4940 and, if applicable, the private foundation termination tax 
imposed by section 507(c), for that second consecutive failed year. For 
the succeeding years, the organization will be treated as a private 
foundation for all purposes.
    (ii) First five years of an organization's existence. See paragraph 
(d)(1) of this section for the definition of ``normally'' for 
organizations in the first five years of their existence.
    (2) Terminations under section 507(b)(1)(B). For the special rules 
applicable to the term normally as applied to private foundations that 
elect to terminate their private foundation status pursuant to the 60-
month procedure provided in section 507(b)(1)(B), see the regulations 
under such section.
    (3) Exclusion of unusual grants. For purposes of applying the tests 
for support set forth in paragraphs (a)(2) and (a)(3) of this section, 
one or more contributions may be excluded from the numerator of the 
one-third support fraction and from the denominator of both the one-
third support and not-more-than-one-third support fractions only if 
such a contribution meets the requirements of this paragraph (c)(3). 
The exclusion provided by this paragraph (c)(3) is generally intended 
to apply to substantial contributions and bequests from disinterested 
parties, which contributions or bequests--
    (i) Are attracted by reason of the publicly supported nature of the 
organization;
    (ii) Are unusual or unexpected with respect to the amount thereof; 
and
    (iii) Would by reason of their size, adversely affect the status of 
the organization as normally meeting the one-third support test for any 
of the applicable periods described in this paragraph (c) or paragraph 
(d) of this section. In the case of a grant (as defined in Sec.  
1.509(a)-3(g)) that meets the requirements of this paragraph (c)(3), if 
the terms of the granting instrument require that the funds be paid to 
the recipient organization over a period of years, the grant amounts 
may be excluded for such year or years in which they would otherwise be 
includible in computing support under the method of accounting on the 
basis of which the organization regularly computes its income in 
keeping its books under section 446. However, no item described in 
section 509(a)(2)(B) may be excluded under this paragraph (c)(3). The 
provisions of this paragraph (c)(3) shall apply to exclude unusual 
grants made during any of the applicable periods described in this

[[Page 55766]]

paragraph (c) or paragraph (d) of this section. See paragraph (c)(5) of 
this section as to reliance by a grantee organization upon an unusual 
grant ruling under this paragraph (c)(3).
    (4) Determining factors. In determining whether a particular 
contribution may be excluded under paragraph (c)(3) of this section, 
all pertinent facts and circumstances will be taken into consideration. 
No single factor will necessarily be determinative. Among the factors 
to be considered are--
    (i) Whether the contribution was made by any person (or persons 
standing in a relationship to such person which is described in section 
4946(a)(1)(C) through 4946(a)(1)(G)) who created the organization, 
previously contributed a substantial part of its support or endowment, 
or stood in a position of authority, such as a foundation manager 
(within the meaning of section 4946(b)), with respect to the 
organization. A contribution made by a person other than those persons 
described in this paragraph (c)(4)(i) will ordinarily be given more 
favorable consideration than a contribution made by a person described 
in this paragraph (c)(4)(i);
    (ii) Whether the contribution was a bequest or an inter vivos 
transfer. A bequest will ordinarily be given more favorable 
consideration than an inter vivos transfer;
    (iii) Whether the contribution was in the form of cash, readily 
marketable securities, or assets which further the exempt purposes of 
the organization, such as a gift of a painting to a museum;
    (iv) Except in the case of a new organization, whether, prior to 
the receipt of the particular contribution, the organization has 
carried on an actual program of public solicitation and exempt 
activities and has been able to attract a significant amount of public 
support;
    (v) Whether the organization may reasonably be expected to attract 
a significant amount of public support subsequent to the particular 
contribution. In this connection, continued reliance on unusual grants 
to fund an organization's current operating expenses (as opposed to 
providing new endowment funds) may be evidence that the organization 
cannot reasonably be expected to attract future support from the 
general public;
    (vi) Whether, prior to the year in which the particular 
contribution was received, the organization met the one-third support 
test described in paragraph (a)(2) of this section without the benefit 
of any exclusions of unusual grants pursuant to paragraph (c)(3) of 
this section;
    (vii) Whether neither the contributor nor any person standing in a 
relationship to such contributor which is described in section 
4946(a)(1)(C) through 4946(a)(1)(G) continues directly or indirectly to 
exercise control over the organization;
    (viii) Whether the organization has a representative governing body 
as described in Sec.  1.509(a)-3(d)(3)(i); and
    (ix) Whether material restrictions or conditions (within the 
meaning of Sec.  1.507-2(a)(7)) have been imposed by the transferor 
upon the transferee in connection with such transfer.
    (5) Grantors and contributors. Prior to the making of any grant or 
contribution expected to meet the requirements for exclusion under 
paragraph (c)(3) of this section, a potential grantee organization may 
request a determination whether such grant or contribution may be so 
excluded. Requests for such determination may be filed by the grantee 
organization in the time and manner specified by revenue procedure or 
other guidance published in the Internal Revenue Bulletin. The issuance 
of such determination will be at the sole discretion of the 
Commissioner. The organization must submit all information necessary to 
make a determination of the applicability of paragraph (c)(3) of this 
section, including all information relating to the factors described in 
paragraph (c)(4) of this section. If a favorable determination is 
issued, such determination may be relied upon by the grantor or 
contributor of the particular contribution in question for purposes of 
sections 170, 507, 545(b)(2), 642(c), 4942, 4945, 4966, 2055, 
2106(a)(2), and 2522 and by the grantee organization for purposes of 
paragraph (c)(3) of this section.
    (6) Examples. The application of the principles set forth in this 
paragraph is illustrated by the examples as follows. For purposes of 
these examples, the term general public is defined as persons other 
than disqualified persons and other than persons from whom the 
foundation received gross receipts in excess of the greater of $5,000 
or 1 percent of its support in any taxable year, the term gross 
investment income is as defined in section 509(e), and the term gross 
receipts is limited to receipts from activities which are not unrelated 
trades or businesses (within the meaning of section 513).

    Example 1. (i) For the years 2008 through 2012, X, an 
organization exempt under section 501(c)(3) that makes scholarship 
grants to needy students of a particular city, received support from 
the following sources:

2008:
    Gross receipts (general public)..........................    $35,000
    Contributions (substantial contributors).................     36,000
    Gross investment income..................................     29,000
                                                              ----------
        Total support........................................    100,000
2009:
    Gross receipts (general public)..........................     34,000
    Contributions (substantial contributors).................     35,000
    Gross investment income..................................     31,000
                                                              ----------
        Total support........................................    100,000
2010:
    Gross receipts (general public)..........................     35,000
    Contributions (substantial contributors).................     30,000
    Gross investment income..................................     35,000
                                                              ----------
        Total support........................................    100,000
2011:
    Gross receipts (general public)..........................     33,000
    Contributions (substantial contributors).................     32,000
    Gross investment income..................................     35,000
                                                              ----------
        Total support........................................    100,000

[[Page 55767]]

 
2012:
    Gross receipts (general public)..........................     31,000
    Contributions (substantial contributors).................     39,000
    Gross investment income..................................     30,000
                                                              ----------
        Total support........................................    100,000
 

    (ii) In applying section 509(a)(2) to the taxable year 2012, on 
the basis of paragraph (c)(1)(i) of this section, the total amount 
of support from gross receipts from the general public ($168,000) 
for the period 2008 through 2012, was more than one third, and the 
total amount of support from gross investment income ($160,000) was 
less than one third, of X's total support for the same period 
($500,000). For the taxable years 2012 and 2013, X is therefore 
considered normally to receive more than one third of its support 
from the public sources described in section 509(a)(2)(A) and less 
than one third of its support from items described in section 
509(a)(2)(B). The fact that X received less than one third of its 
support from section 509(a)(2)(A) sources in 2012 and more than one 
third of its support from items described in section 509(a)(2)(B) in 
2011 does not affect its status because it normally met the 
applicable tests over a five-year period.
    Example 2. Assume the same facts as in Example 1 except that in 
2012, X also received an unexpected bequest of $50,000 from A, an 
elderly widow who was interested in encouraging the work of X, but 
had no other relationship to it. Solely by reason of the bequest, A 
became a disqualified person. X used the bequest to create five new 
scholarships. Its operations otherwise remained the same. Under 
these circumstances, if A's bequest is included in X's support 
calculation, X could not meet the five-year support test because the 
total amount received from gross receipts from the general public 
($168,000) would not be more than one-third of its total support for 
the five-year period ($550,000). Because A is a disqualified person, 
her bequest cannot be included in the numerator of the one-third 
support test under section 509(a)(2)(A). However, based on the 
factors set forth in paragraph (c)(4) of this section, A's bequest 
may be excluded as an unusual grant under paragraph (c)(3) of this 
section. Therefore, X will be considered to have met the support 
test for the taxable years 2012 and 2013.
    Example 3. Y, an organization described in section 501(c)(3), 
was created by A, the holder of all the common stock in M 
corporation; B, A's wife; and C, A's business associate. The purpose 
of Y was to sponsor and equip athletic teams for underprivileged 
children in the community. Each of the three creators makes small 
cash contributions to Y. A, B, and C have been active participants 
in the affairs of Y since its creation. Y regularly raises small 
amounts of contributions through fundraising drives and selling 
admission to some of the sponsored sporting events. The operations 
of Y are carried out on a small scale, usually being restricted to 
the sponsorship of two to four baseball teams of underprivileged 
children. In 2009, M recapitalizes and creates a first and second 
class of 6 percent nonvoting preferred stock, most of which is held 
by A and B. In 2010, A contributes 49 percent of his common stock in 
M to Y. A's contribution of M's common stock was substantial and 
constitutes 90 percent of Y's total support for 2010. A combination 
of the facts and circumstances described in paragraph (c)(4) of this 
section preclude A's contribution of M's common stock in 2010 from 
being excluded as an unusual grant under paragraph (c)(3) of this 
section for purposes of determining whether Y meets the one-third 
support test under section 509(a)(2).
    Example 4. (i) M is organized in 2009 to promote the 
appreciation of ballet in a particular region of the United States. 
Its principal activities consist of erecting a theater for the 
performance of ballet and the organization and operation of a ballet 
company. M receives a determination letter that it is an 
organization described in section 501(c)(3) and that it is a public 
charity described in section 509(a)(2). The governing body of M 
consists of nine prominent unrelated citizens residing in the region 
who have either an expertise in ballet or a strong interest in 
encouraging appreciation of the art form.
    (ii) In 2010, Z, a private foundation, proposes to makes a grant 
of $500,000 in cash to M to provide sufficient capital for M to 
commence its activities. Although A, the creator of Z, is one of the 
nine members of M's governing body, was one of M's original 
founders, and continues to lend his prestige to M's activities and 
fund raising efforts, A does not, directly or indirectly, exercise 
any control over M. M also receives a significant amount of support 
from a number of smaller contributions and pledges from other 
members of the general public. M charges admission to the ballet 
performances to the general public.
    (iii) Although the support received in 2010 will not impact M's 
status as a public charity for its first five taxable years, it will 
be relevant to the determination of whether M meets the one-third 
support test under section 509(a)(2) for the 2014 taxable year, 
using the computation period 2010 through 2014. Within the 
appropriate timeframe, M may submit a request for a private letter 
ruling that the $500,000 contribution from Z qualifies as an unusual 
grant.
    (iv) Under the above circumstances, even though A was a founder 
and member of the governing body of M, M may exclude Z's 
contribution of $500,000 in 2010 as an unusual grant under paragraph 
(c)(3) of this section for purposes of determining whether M meets 
the one-third support test under section 509(a)(2) for 2014.
    Example 5. (i) Assume the same facts as Example 4(i) except 
that, in addition, in 2013, B, a widow, passes away and bequeaths $4 
million to M. During 2009 through 2013, B made small contributions 
to M, none exceeding $10,000 in any year. During 2009 through 2013, 
M received approximately $450,000 from receipts for admissions and 
contributions from the general public. At the time of B's death, no 
person standing in a relationship to B described in section 
4946(a)(1)(C) through 4946(a)(1)(G) was a member of M's governing 
body. B's bequest was in the form of cash and readily marketable 
securities. The only condition placed upon the bequest was that it 
be used by M to advance the art of ballet.
    (ii) Although the support received in 2013 will not impact M's 
status as a public charity for its first five taxable years, it will 
be relevant to the determination of whether M meets the one-third 
support test under section 509(a)(2) for future years. Within the 
appropriate timeframe, M may submit a request for a private letter 
ruling that the $4 million bequest from B qualifies as an unusual 
grant.
    (iii) Under the above circumstances, M may exclude B's bequest 
of $4 million in 2013 as an unusual grant under paragraph (c)(3) of 
this section for purposes of determining whether M meets the one-
third support test under section 509(a)(2) for 2014 and subsequent 
years.
    Example 6. (i) N is a research organization that was created by 
A in 2009 for the purpose of carrying on economic studies primarily 
through persons receiving grants from N and engaging in the sale of 
economic publications. N received a determination letter that it is 
described in section 501(c)(3) and that it is a public charity 
described in 509(a)(2). N's five-member governing body consists of 
A; A's sons, B and C; and two unrelated economists. In 2009, A made 
a contribution to N of $100,000 to help establish the organization. 
During 2009 through 2013, A made annual contributions to N averaging 
$20,000 a year. During the same period, N received annual 
contributions from members of the general public averaging $15,000 
per year and receipts from the sale of its publications averaging 
$50,000 per year. In 2013, B made an inter vivos contribution to N 
of $600,000 in cash and readily marketable securities.
    (ii) Although the support received in 2013 will not impact N's 
status as a public charity for its first five taxable years, it will 
be relevant to the determination of whether N meets the one-third 
support test under section 509(a)(2) for future years. In 
determining whether B's contribution of $600,000 in 2013 may be 
excluded as an unusual grant, the support N received in 2009 through 
2013 is relevant in considering the factor described in paragraph 
(c)(4)(vi) of this section, notwithstanding that N received a 
determination letter that it is described in section 509(a)(2).
    (iii) Under the above circumstances, in particular the facts 
that B is a disqualified person described in section 4946(a)(1)(D) 
and N does not have a representative governing body as described in 
paragraphs (c)(4)(viii)

[[Page 55768]]

and (d)(3)(i) of this section, N cannot exclude B's contribution of 
$600,000 in 2013 as an unusual grant under paragraph (c)(3) of this 
section for purposes of determining whether N meets the one-third 
support test under section 509(a)(2) for 2014 and future years.
    Example 7. (i) O is an educational organization created in 2009. 
O received a determination letter that it is described in section 
501(c)(3) and that it is a public charity described in section 
509(a)(2). The governing body of O has 9 members, consisting of A, a 
prominent civic leader, and 8 other unrelated civic leaders and 
educators in the community, all of whom participated in the creation 
of O. During 2009 through 2013, the principal source of income for O 
has been receipts from the sale of its educational periodicals. 
These sales have amounted to $200,000 for this period. Small 
contributions amounting to $50,000 have also been received during 
the same period from members of the governing body, including A, as 
well as other members of the general public.
    (ii) In 2013, A contributed $750,000 of the nonvoting stock of 
S, a closely held corporation, to O. A retained a substantial 
portion of the voting stock of S. By a majority vote, the governing 
body of O decided to retain the S stock for a period of at least 
five years.
    (iii) Although the support received in 2013 will not impact O's 
status as a public charity for its first five taxable years, it will 
be relevant to the determination of whether O meets the one-third 
support test under section 509(a)(2) for future years. In 
determining whether A's contribution of the S stock in 2013 may be 
excluded as an unusual grant, the support O received in 2009 through 
2013 is relevant in considering the factor described in paragraph 
(c)(4)(vi) of this section, notwithstanding that O received a 
determination letter that it is described in section 509(a)(2).
    (iv) Under the above circumstances, in particular the facts that 
A is a foundation manager within the meaning of section 4946(b) and 
A's contribution is in the form of closely held stock, O cannot 
exclude A's contribution of the S stock in 2013 as an unusual grant 
under paragraph (c)(3) of this section for purposes of determining 
whether O meets the one-third support test under section 509(a)(2) 
for 2014 and future years.

    (d) Definition of normally; first five years of an organization's 
existence--(1) In general. An organization will ``normally'' meet the 
one-third support test and the not-more-than-one-third support test 
during its first five taxable years as a section 501(c)(3) organization 
if the organization can reasonably be expected to meet the requirements 
of the one-third support test and the not-more-than-one-third support 
test during that period. With respect to an organization's sixth 
taxable year, the general definition of normally in paragraph (c)(1) of 
this section applies. Alternatively, the organization shall be treated 
as normally meeting the one-third support test and the not-more-than-
one-third support test for its sixth taxable year (but not its seventh 
taxable year) if it meets the one-third support test and the not-more-
than-one-third support test under the definition of normally set forth 
in paragraph (c)(1)(i) of this section for its fifth taxable year 
(based on support received in its first through fifth taxable years). 
If a new publicly supported organization described under section 
509(a)(2) cannot meet the requirements of the one-third support test or 
the not-more-than-one-third support test for its sixth taxable year 
using either the general definition of normally in paragraph (c)(1) of 
this section or the alternate rule above (effectively failing to meet a 
public support test for both its fifth and sixth years), it will be 
reclassified as a private foundation as of the first day of its sixth 
taxable year only for purposes of sections 507, 4940, and 6033. Such an 
organization must file a Form 990-PF, ``Return of Private Foundation or 
Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private 
Foundation,'' and is liable for the net investment tax imposed by 
section 4940 and, if applicable, the private foundation termination tax 
imposed by section 507(c), for its sixth taxable year. Beginning the 
first day of its seventh taxable year, the organization will be treated 
as a private foundation for all purposes.
    (2) Basic consideration. In determining whether an organization can 
reasonably be expected (within the meaning of paragraph (c)(1)(i) of 
this section) to meet the one-third support test under section 
509(a)(2)(A) and the not-more-than-one-third support test under section 
509(a)(2)(B) described in paragraph (a) of this section during its 
first five taxable years, the basic consideration is whether its 
organizational structure, current or proposed programs or activities, 
and actual or intended method of operation are such as to attract the 
type of broadly based support from the general public, public 
charities, and governmental units that is necessary to meet such tests. 
The factors that are relevant to this determination, and the weight 
accorded to each of them, may differ from case to case, depending on 
the nature and functions of the organization. An organization cannot 
reasonably be expected to meet the one-third support test and the not-
more-than-one-third support test where the facts indicate that an 
organization is likely during its first five taxable years to receive 
less than one-third of its support from permitted sources (subject to 
the limitations of paragraph (b) of this section) or to receive more 
than one-third of its support from items described in section 
509(a)(2)(B).
    (3) Factors taken into account. All pertinent facts and 
circumstances shall be taken into account under paragraph (d)(2) of 
this section in determining whether the organizational structure, 
programs or activities, and method of operation of an organization are 
such as to enable it to meet the tests under section 509(a)(2) during 
its first five taxable years. Some of the pertinent factors are:
    (i) Whether the organization has or will have a representative 
governing body which is comprised of public officials, or individuals 
chosen by public officials acting in their capacity as such; of persons 
having special knowledge in the particular field or discipline in which 
the organization is operating; of community leaders, such as elected 
officials, clergymen, and educators; or, in the case of a membership 
organization, of individuals elected pursuant to the organization's 
governing instrument or bylaws by a broadly based membership. This 
characteristic does not exist if the membership of the organization's 
governing body is such as to indicate that it represents the personal 
or private interests of disqualified persons, rather than the interests 
of the community or the general public.
    (ii) Whether a substantial portion of the organization's initial 
funding is to be provided by the general public, by public charities, 
or by government grants, rather than by a limited number of grantors or 
contributors who are disqualified persons with respect to the 
organization. The fact that the organization plans to limit its 
activities to a particular community or region or to a special field 
which can be expected to appeal to a limited number of persons will be 
taken into consideration in determining whether those persons providing 
the initial support for the organization are representative of the 
general public. On the other hand, the subsequent sources of funding 
which the organization can reasonably expect to receive after it has 
become established and fully operational will also be taken into 
account.
    (iii) Whether a substantial proportion of the organization's 
initial funds are placed, or will remain, in an endowment, and whether 
the investment of such funds is unlikely to result in more than one 
third of its total support being received from items described in 
section 509(a)(2)(B).
    (iv) In the case of an organization that carries on fundraising 
activities, whether the organization has developed

[[Page 55769]]

a concrete plan for solicitation of funds from the general public on a 
community or area-wide basis; whether any steps have been taken to 
implement such plan; whether any firm commitments of financial or other 
support have been made to the organization by civic, religious, 
charitable, or similar groups within the community; and whether the 
organization has made any commitments to, or established any working 
relationships with, those organizations or classes of persons intended 
as the future recipients of its funds.
    (v) In the case of an organization that carries on community 
services, such as combating community deterioration in an economically 
depressed area that has suffered a major loss of population and jobs, 
whether the organization has a concrete program to carry out its work 
in the community; whether any steps have been taken to implement that 
program; whether it will receive any part of its funds from a public 
charity or governmental agency to which it is in some way held 
accountable as a condition of the grant or contribution; and whether it 
has enlisted the sponsorship or support of other civic or community 
leaders involved in community service programs similar to those of the 
organization.
    (vi) In the case of an organization that carries on educational or 
other exempt activities for, or on behalf of, members, whether the 
solicitation for dues-paying members is designed to enroll a 
substantial number of persons in the community, area, profession, or 
field of special interest (depending on the size of the area and the 
nature of the organization's activities); whether membership dues for 
individual (rather than institutional) members have been fixed at rates 
designed to make membership available to a broad cross-section of the 
public rather than to restrict membership to a limited number of 
persons; and whether the activities of the organization will be likely 
to appeal to persons having some broad common interest or purpose, such 
as educational activities in the case of alumni associations, musical 
activities in the case of symphony societies, or civic affairs in the 
case of parent-teacher associations.
    (vii) In the case of an organization that provides goods, services, 
or facilities, whether the organization is or will be required to make 
its services, facilities, performances, or products available 
(regardless of whether a fee is charged) to the general public, public 
charities, or governmental units, rather than to a limited number of 
persons or organizations; whether the organization will avoid executing 
contracts to perform services for a limited number of firms or 
governmental agencies or bureaus; and whether the service to be 
provided is one which can be expected to meet a special or general need 
among a substantial portion of the general public.
    (4) Example. The application of this paragraph (d) may be 
illustrated by the following example:

    Example. (i) Organization X was formed in January 2008 and uses 
a taxable year ending December 31. After September 9, 2008, and 
before December 31, 2008, Organization X filed Form 1023 requesting 
recognition of exemption as an organization described in section 
501(c)(3) and in section 509(a)(2). In its application, Organization 
X established that it can reasonably be expected to operate as a 
publicly supported organization under paragraph (d) of this section. 
Subsequently, Organization X received a ruling or determination 
letter that it is an organization described in sections 501(c)(3) 
and 509(a)(2) effective as of the date of its formation.
    (ii) Organization X is described in section 509(a)(2) for its 
first five taxable years (for the taxable years ending December 31, 
2008, through December 31, 2012).
    (iii) Organization X can qualify as a publicly supported 
organization beginning with the taxable year ending December 31, 
2013, if Organization X can meet the requirements of either Sec.  
1.170A-9(f)(2) or Sec.  1.170A-9(f)(3) or paragraphs (a) and (b) of 
this section for the taxable years ending December 31, 2009, through 
December 31, 2013, or for the taxable years ending December 31, 
2008, through December 31, 2012.

    (e) Determinations on foundation classification and reliance--(1) A 
ruling or determination letter that an organization is described in 
section 509(a)(2) may be issued to an organization. Such determination 
may be made in conjunction with the recognition of the organization's 
tax-exempt status or at such other time as the organization believes it 
is described in section 509(a)(2). The ruling or determination letter 
that the organization is described in section 509(a)(2) may be revoked 
if, upon examination, the organization has not met the requirements of 
this section. The ruling or determination letter that the organization 
is described in section 509(a)(2) also may be revoked if the 
organization's application for a ruling or determination contained one 
or more material misstatements or omissions of fact or such application 
was part of a scheme or plan to avoid or evade any provision of the 
Code. The revocation of the determination that an organization is 
described in section 509(a)(2) does not preclude revocation of the 
determination that the organization is described in section 501(c)(3).
    (2) Status of grantors or contributors. (i) For purposes of 
sections 170, 507, 545(b)(2), 642(c), 4942, 4945, 4966, 2055, 
2106(a)(2), and 2522, grantors and contributors may rely upon a 
determination letter or ruling that an organization is described in 
section 509(a)(2) until the IRS publishes notice of a change of status 
(for example, in the Internal Revenue Bulletin or Publication 78, 
``Cumulative List of Organizations described in Section 170(c) of the 
Internal Revenue Code of 1986,'' which can be searched at http://www.irs.gov). For this purpose, grantors or contributors may also rely 
on an advance ruling that expires on or after June 9, 2008. However, a 
grantor or contributor may not rely on such an advance ruling or any 
determination letter or ruling if the grantor or contributor was 
responsible for, or aware of, the act or failure to act that resulted 
in the organization's loss of classification under section 509(a)(2) or 
acquired knowledge that the IRS had given notice to such organization 
that it would be deleted from such classification.
    (ii) A grantor or contributor (other than one of the organization's 
founders, creators, or foundation managers (within the meaning of 
section 4946(b))) will not be considered to be responsible for, or 
aware of, the act or failure to act that resulted in the loss of the 
organization's publicly supported classification under section 
509(a)(2) if such grantor or contributor has made such grant or 
contribution in reliance upon a written statement by the grantee 
organization that such grant or contribution will not result in the 
loss of such organization's classification as not a private foundation 
under section 509(a). Such statement must be signed by a responsible 
officer of the grantee organization and must set forth sufficient 
information, including a summary of the pertinent financial data for 
the five taxable years immediately preceding the current taxable year, 
to assure a reasonably prudent person that his grant or contribution 
will not result in the loss of the grantee organization's 
classification as a publicly supported organization under section 
509(a). If a reasonable doubt exists as to the effect of such grant or 
contribution, or if the grantor or contributor is one of the 
organization's founders, creators, or foundation managers, the 
procedure for requesting a determination letter set forth in paragraph 
(c)(5) of this section may be followed by the grantee organization for 
the protection of the grantor or contributor.

[[Page 55770]]

    (3) Examples. The provisions of this paragraph (e) may be 
illustrated by the following examples:
    Example 1. Y, a calendar year organization described in section 
501(c)(3), is created in February 2008 for the purpose of displaying 
African art. On its exemption application Y shows, under penalties 
of perjury, that it can reasonably, in accordance with the 
requirements of paragraph (d) of this section, expect to receive 
support from the public in 2008 through 2012 that will satisfy the 
one-third support and not-more-than-one-third support tests 
described in section 509(a)(2) for its first five taxable years, 
2008 through 2012. Y may therefore receive a determination that it 
meets the requirements of paragraph (a) of this section for its 
first five taxable years (2008, 2009, 2010, 2011, and 2012), 
regardless of the public support Y in fact receives during this 
period.
    Example 2. Z, a calendar year organization described in section 
501(c)(3), is created in July 2008. On its exemption application Z 
shows, under penalties of perjury, that it can reasonably, in 
accordance with the requirements of paragraph (d) of this section, 
expect to receive support from the public in 2008 through 2012 that 
will satisfy the one-third support and not-more-than-one-third 
support tests described in section 509(a)(2) for its first five 
taxable years, 2008 through 2012. Z receives a determination that it 
is described in section 509(a)(2). However, the support actually 
received from the public over Z's first five taxable years (2008 
through 2012) does not satisfy the one-third support and not-more-
than-one-third support tests described in section 509(a)(2). 
Moreover, the support Z receives from 2009 through 2013, also does 
not meet the one-third support and not-more-than-one-third support 
tests described in section 509(a)(2). Z is described in section 
509(a)(2) during its first five years for all purposes. However, 
because Z has not met the requirements of paragraph (a) of this 
section for either 2008 through 2012 or 2009 through 2013, Z is not 
described in section 509(a)(2) for its taxable year 2013. If Z is 
not described in section 509(a)(1), section 509(a)(3), or section 
509(a)(4), then Z will be reclassified as a private foundation as of 
the first day of 2013. However, for 2013, Z will be treated as a 
private foundation only for purposes of sections 507, 4940 and 6033. 
Z must file Form 990-PF and will be liable for the net investment 
tax imposed by section 4940 and, if applicable, the private 
foundation termination tax imposed by section 507(c) for 2013. For 
2014 and succeeding years, Z will be treated as a private foundation 
for all purposes (except as provided in paragraph (e)(2) of this 
section with respect to grantors and contributors).
* * * * *

    (k) Method of accounting. For purposes of section 509(a)(2), an 
organization's support will be determined under the method of 
accounting on the basis of which the organization regularly computes 
its income in keeping its books under section 446. For example, if a 
grantor makes a grant to an organization payable over a term of years, 
such grant will be includible in the support fraction of the grantee 
organization under the method of accounting on the basis of which it 
regularly computes its income in keeping its books under section 446.
* * * * *
    (n) Transition rules. (1) An organization that received an advance 
ruling, that expires on or after June 9, 2008, that it will be treated 
as an organization described in section 509(a)(2) will be treated as 
meeting the requirements of paragraph (d)(1) of this section for the 
first five taxable years of its existence as a section 501(c)(3) 
organization unless the IRS issued to the organization a proposed 
determination prior to September 9, 2008, that the organization is not 
described in sections 170(b)(1)(A)(vi) and 509(a)(1) or in section 
509(a)(2).
    (2) Paragraph (d)(1) of this section shall not apply to an 
organization that received an advance ruling that expired prior to June 
9, 2008, and that did not timely file with the IRS the required 
information to establish that it is an organization described in 
sections 170(b)(1)(A)(vi) and 509(a)(1) or in section 509(a)(2).
    (3) An organization that fails to meet a public support test for 
its first taxable year beginning on or after January 1, 2008, under the 
regulations in this section may use the prior test set forth in 
Sec. Sec.  1.509(a)-3(a)(2) and 1.509(a)-3(a)(3) or Sec.  1.170A-
9(e)(2i) or Sec.  1.170A-9(e)(3) as in effect before September 9, 2008, 
(as contained in 26 CFR part 1 revised April 1, 2008) to determine 
whether the organization may be publicly supported for its 2008 taxable 
year based on its satisfaction of a public support test for taxable 
year 2007, computed over the period 2003 through 2006.

    (4) Examples. The application of this paragraph (n) may be 
illustrated by the following examples:

    Example 1. (i) Organization M was formed in January 2004, and 
uses a taxable year ending June 30. Organization M received an 
advance ruling letter that it is recognized as an organization 
described in section 501(c)(3) effective as of the date of its 
formation and that it is treated as a publicly supported 
organization under section 509(a)(2) during the five-year advance 
ruling period that will end on June 30, 2008. This date is on or 
after June 9, 2008.
    (ii) Under the transition rule, Organization M is a publicly 
supported organization described in section 509(a)(2) for the 
taxable years ending June 30, 2004, through June 30, 2008. 
Organization M does not need to establish within 90 days after June 
30, 2008, that it met a public support test under Sec.  1.170A-9(e) 
or Sec.  1.509(a)-3, as in effect prior to September 9, 2008, (as 
contained in 26 CFR part 1 revised April 1, 2008) for its advance 
ruling period.
    (iii) Organization M can qualify as a public charity beginning 
with the taxable year ending June 30, 2009, if Organization M can 
meet the requirements of Sec.  1.170A-9(f)(2) or Sec.  1.170A-
9(f)(3) or paragraphs (a)(2) and (a)(3) of this section for the 
taxable years ending June 30, 2005, through June 30, 2009, or for 
the taxable years ending June 30, 2004, through June 30, 2008. In 
addition, for its taxable year ending June 30, 2009, Organization M 
may qualify as a publicly supported organization by availing itself 
of the transition rule contained in paragraph (n)(iii) of this 
section, which looks to support received by M in the taxable years 
ending June 30, 2004, through June 30, 2007.
    Example 2. (i) Organization N was formed in January 2000 and 
uses a December 31 taxable year. Organization N received a final 
determination that it was recognized as tax-exempt under section 
501(c)(3) and as a public charity prior to September 9, 2008.
    (ii) For taxable year 2008, Organization N will qualify as 
publicly supported if it meets the requirements under either Sec.  
1.170A-9(f)(2) or Sec.  1.170A-9(f)(3) or paragraphs (a)(2) and 
(a)(3) of this section for the five-year period January 1, 2004, 
through December 31, 2008. Organization N will also qualify as 
publicly supported for taxable year 2008 if it meets the 
requirements under either Sec.  1.170A-9(e)(2) or Sec.  1.170A-
9(e)(3) or Sec. Sec.  1.509(a)-3(a)(2) and 1.509(a)-3(a)(3) as in 
effect prior to September 9, 2008, (as contained in 26 CFR part 1 
revised April 1, 2008) for taxable year 2007, using the four-year 
period from January 1, 2003, through December 31, 2006.

    (o) Effective/applicability date. This section shall generally 
apply to taxable years beginning after December 31, 1969 except 
paragraphs (a)(2), (a)(3)(i), (c), (d), (e), (k) and (n) of this 
section shall apply to tax years beginning on or after January 1, 2008. 
For tax years beginning after December 31, 1969 and beginning before 
January 1, 2008, Sec. Sec.  1.509(a)-3(a)(2), 1.509(a)-3(a)(3)(i), 
1.509(a)-3(c), 1.509(a)-3(d), 1.509(a)-3(e), and 1.509(a)-3(k) as in 
effect on December 31, 2007 (as contained in 26 CFR part 1 revised 
April 1, 2008) shall apply.

Sec.  1.509(a)-3T  [Removed]

0
Par. 7. Section 1.509(a)-3T is removed.


0
Par. 8. Section 1.6033-2 is amended by revising paragraphs (a)(1), 
(a)(2)(ii)(g), (a)(2)(ii)(h), (g)(1)(iii), (g)(1)(iv), (g)(6), (i)(1) 
and (k) to read as follows:


Sec.  1.6033-2  Returns by exempt organizations (taxable years 
beginning after December 31, 1969) and returns by certain nonexempt 
organizations (taxable years beginning after December 31, 1980).

    (a) * * *
    (1) Except as provided in section 6033(a)(3) and paragraph (g) of 
this

[[Page 55771]]

section, every organization exempt from taxation under section 501(a) 
shall file an annual information return specifically setting forth its 
items of gross income, gross receipts and disbursements, and such other 
information as may be prescribed in the instructions, issued with 
respect to the return. Except as provided in paragraph (d) of this 
section, such return shall be filed annually regardless of whether such 
organization is chartered by, or affiliated or associated with, any 
central, parent, or other organization.
    (2) * * *
    (ii) * * *
    (g) The names and addresses of all officers, directors, or trustees 
(or any person having responsibilities or powers similar to those of 
officers, directors or trustees) of the organization, and, in the case 
of a private foundation, all persons who are foundation managers, 
within the meaning of section 4946(b)(1). Organizations must also 
attach a schedule showing the names and addresses and/or total numbers 
of key employees, highly compensated employees, and independent 
contractors as prescribed by publication, form, or instructions.
    (h) A schedule showing the compensation and other payments made to 
each person whose name is required to be listed pursuant to paragraph 
(a)(2)(ii)(g) of this section during the calendar year ending within 
the organization's annual accounting period, or during such other 
period as prescribed by publication, form, or instructions.
* * * * *
    (g) * * *
    (1) * * *
    (iii) An organization (other than a private foundation) described 
in section 6033(a)(3)(C), the gross receipts of which in each taxable 
year are normally not more than $5,000 (as described in paragraph 
(g)(3) of this section);
    (iv) A mission society (other than an organization described in 
section 509(a)(3)) sponsored by or affiliated with one or more churches 
or church denominations, more than one-half of the activities of which 
society are conducted in, or directed at persons in foreign countries;
* * * * *
    (6) The Commissioner may relieve any organization or class of 
organizations (other than an organization described in section 
509(a)(3)) from filing, in whole or in part the annual return required 
by this section where he determines that such returns are not necessary 
for the efficient administration of the internal revenue laws.
* * * * *
    (i) * * *
    (1) An organization that is exempt from taxation under section 
501(a) and is not required to file annually an information return 
required by this section shall immediately notify in writing Exempt 
Organizations Determinations, at an address prescribed by publication 
(including publication on the Internal Revenue Service Web site), of 
any changes in its character, operations, or purpose for which it was 
originally created.
* * * * *
    (k) Effective/applicability date--(1) Generally. The provisions of 
this section shall apply with respect to returns filed for taxable 
years beginning after December 31, 1969.
    (2) The applicability of paragraphs (g)(1)(iii), (g)(1)(iv), and 
(g)(6) of this section shall be limited to returns filed for taxable 
years ending after August 17, 2006. For returns filed for taxable years 
ending on or before August 17, 2006, Sec. Sec.  1.6033-(2)(g)(1)(iii), 
1.6033-(2)(g)(1)(iv), and 1.6033-(2)(g)(6) (as contained in 26 CFR part 
1 revised April 1, 2006) shall apply.
    (3) The applicability of paragraphs (a)(2)(ii)(g) and (a)(2)(ii)(h) 
of this section shall be limited to returns filed on or after January 
1, 2008. For returns filed before January 1, 2008, Sec. Sec.  1.6033-
(a)(2)(ii)(g) and 1.6033-(2)(a)(2)(ii)(h) (as contained in 26 CFR part 
1 revised April 1, 2008) shall apply.

Sec.  1.6033-2T  [Removed]

0
Par. 9. Section 1.6033-2T is removed.


0
Par. 10. Section 1.6043-3 is amended by revising paragraphs (b)(8), (d) 
and (e) to read as follows:


Sec.  1.6043-3  Returns regarding liquidation, dissolution, 
termination, or substantial contraction of organizations exempt from 
taxation under section 501(a).

* * * * *
    (b) * * *
    (8) Any organization no longer exempt from taxation under section 
501(a) and that during the period of its exemption under such section 
was not an organization described in section 501(c)(3), a corporation 
described in section 501(c)(2) that held title to property for an 
organization described in section 501(c)(3), or an organization 
described in such other section as prescribed by publication, form, or 
instructions.
* * * * *
    (d) Definitions. (1) For the definition of the term ``normally'' as 
used in paragraph (b)(2) of this section, see Sec.  1.6033-2(g)(3).
    (2) For the definition of the term ``integrated auxiliaries'' as 
used in paragraph (b)(1) of this section, see Sec.  1.6033-2(h).
    (3) For returns filed for taxable years beginning before January 1, 
2008, for purposes of this section the definition of the term 
``substantial contraction'' set forth in Sec.  1.6043-3(d)(1) (as 
contained in 26 CFR part 1 revised April 1, 2008) may be used.
    (e) Effective/applicability date--(1) Generally. The provisions of 
this section shall apply with respect to returns filed for taxable 
years beginning after December 31, 1969.
    (2) Paragraphs (b)(8) and (d) of this section shall apply for 
taxable years beginning on or after January 1, 2008. For taxable years 
beginning before January 1, 2008, Sec. Sec.  1.6043-3(b)(8) and 1.6043-
3(d) (as contained in 26 CFR part 1 revised April 1, 2008) shall apply.

Sec.  1.6043-3T  [Removed]

0
Par. 11. Section 1.6043-3T is removed.

PART 602--OMB CONTROL NUMBER UNDER THE PAPERWORK REDUCTION ACT

0
Par. 12. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.


0
Par. 13. In Sec.  602.101, paragraph (b) is amended as follows:
0
1. The following entry to the table is removed:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
          CFR part or section where identified              Control No.
------------------------------------------------------------------------
 
                                * * * * *
1.6033-2T...............................................       1545-2117
 
                                * * * * *
------------------------------------------------------------------------



0
2. The following entry is added in numerical order to the table:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
   CFR part or section where identified and described       Control No.
------------------------------------------------------------------------
 

[[Page 55772]]

 
                                * * * * *
1.6033-2................................................       1545-2117
 
                                * * * * *
------------------------------------------------------------------------


Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
    Approved: August 19, 2011.
Emily S. McMahon,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-22614 Filed 9-7-11; 8:45 am]
BILLING CODE 4830-01-P