2014 Schedule A Expands Reporting Requirements for Supporting Organizations (article)

2014 Schedule A Expands Reporting Requirements for Supporting Organizations (article)

Home /  Insights / Articles / Article Details

Tax filing may be a longer process for supporting organizations this year. The recently released 2014 Form 990, Schedule A, Public Charity and Public Support indicates 509(a)(3)s will face additional reporting requirements. Organizations that are not functionally integrated with the public charities they support will face the brunt of the additional requirements, which come as part of the changes required by the Pension Protection Act of 2006.

New Schedule A Parts IV and have been added (andPart I, line 11 modified) for section 509(a)(3) supporting organizations to demonstrate compliance with the detailed rules pertinent to them, including new regulations.

Background

All 501(c)(3) organizations are considered private foundations until they prove themselves to be publicly supported. This is done on Schedule A of the Form 990. 

A 509 (a)(3) organization, commonly referred to as a Supporting Organization, is a 501(c)(3) that derives its public status from its relationship with one or more public charities. Because this relationship is the only thing that provides for the public status and because private foundations face more restrictions and public disclosures than 509(a)(3) public charities, this relationship with the supported organization needs to be strong.

To qualify as a public charity, supporting organizations must pass the following tests:

Organizational Test: The supporting organization's primary mission is to support another public charity's (or charities') mission or activities.

Operational Test: The supporting organization's activities must support or benefit its supported organization(s). Included in activities is grant making either directly to the supported organization or to other supporting organizations that serve the same supported organization.

Control Test: A supported organization cannot be controlled by a disqualified person either directly or indirectly (other than the organization's manager or a publicly supported organization).

Relationship Test: The IRS permits varying degrees of control and oversight between a supporting and supported organization. Supporting/supported relationships fall into three categories:

  • Type I: A supporting organization operated, supervised, or controlled by its supported organization(s), typically by giving the supported organization(s) the power to regularly appoint or elect a majority of the directors or trustees of the supporting organization.
  • Type II: A supporting organization supervised or controlled in connection with its supported organization(s), by having control or management of the supporting organization vested in the same persons that control or manage the supported organization(s).
  • Type III: The supporting organization is either functionally integrated or non-functionally integrated with the supported organization. In a functionally integrated relationship, the supporting organization might carry out activities on behalf of the organization it supports. In a non-functionally integrated relationship, the supporting organization operates in connection with the organization it supports but does not help the supported organization with any activities. The organization generally must satisfy a distribution requirement and an attentiveness requirement

Even with the four tests, a narrow line separates a private foundation from a public supporting organization. 509(a)(3) organizations must closely adhere to reporting regulations to keep from losing their public charity status. This is especially important for Type III organizations, which have the loosest arrangement with their supported organizations.

The Pension Protection Act of 2006 (the Act) sought to clarify the 509(a)(3) definition. The Act requires all supporting organizations to file a Form 990 or 990-EZ and the accompanying Schedule A. They are prohibited from filing the 990-N even if they fall within the gross revenue threshold of less than $50,000. Among its other provisions, the Act required 509(a)(3)s to specify in their IRS Form 990s their type of 509(a)(3) organization and include additional information about the supported organization's control over the 509(a)(3). For older supporting organizations that have had trouble determining what "Type" they are, the questions on the revised Schedule A may help them make the determination.

The 2014 Form 990 Schedule A shows the Pension Protection Act's changes will now be part of the annual reporting for supporting organizations. The form has gone from four pages to eight. Below, we have outlined some of the new reporting requirements supporting organizations can expect for 2014.

Part I

Part I of the 2014 Schedule A is similar to previous years. Public charities indicate their particular type of public charity. 509(a)(3)s will have to specify how many exempt organizations their mission mandates them to support. Additionally, supporting organizations will have to include the following for each of their supported organizations:

  • Name
  • EIN
  • Type of public charity
  • Whether they have the organization(s) listed in governing documents
  • The amount of monetary or other support the supporting organization supplies to its supported organization(s)

Supporting organizations are not required to provide monetary support. They may provide support in the form of services. Historically, Part I of the Schedule A focused on the monetary support, and non-monetary services were detailed in other sections. Line 11g column (vi) of the 2014 Schedule A allows organizations to estimate the fair market value of property, services and use of facilities the organization provided to supported organizations during the reporting period. Column (vi) is not a mandatory reporting requirement. Organizations further describe the services provided to supported organizations in Part IV.

Part IV

All 509(a)(3) organizations will fill out Part IV, Section A. This includes 11 questions with sub-questions, many of which require further explanation or description. The rest of the sections are split among the different types of supporting organizations. Section B applies only to Type I supporting organizations, and Section C applies only to Type II supporting organizations. All Type III supporting organizations will fill out Section D with Type III Functionally Integrated Organizations also filling out Section E.

Section D

This section, related to the notification requirement outlined by the Act, is completed by all Type III organizations.

Notification Requirement

Type III organizations must provide the following to the organizations they support:

  • A written notice describing the type and amount of support provided by the supporting organization to the supported organization during the taxable year preceding the year in which the notice is provided;
  • A copy of the supporting organization's Form 990 or 990-EZ that was most recently filed as of the date the notification is provided; and
  • A copy of the supporting organization's governing documents, as most recently amended, to the extent not previously provided.

The 2014 Schedule A sets a deadline for the notification requirement. To avoid penalty, Type III organizations must deliver their notifications (electronically or in hard copy) before the last day of the fifth month following the end of the organization's tax year.

Part V

As mentioned earlier, Type III Non-Functionally Integrated Supporting Organizations will encounter a number of new reporting requirements on the Schedule A. They will fill out the second page of Part V, which goes into more detail about adjusted net income, minimum asset amount, distributable amount, distributions and distribution allocations.

Plan Ahead

We encourage 509(a)(3) organizations to review the Form 990 Schedule A to prepare for year-end planning. Organizations that wish to change their public charity designation with the IRS, including Type I, II or II supporting organization classification, must file Form 8940Request for Miscellaneous Determination.

Because of the extent of the changes made to Schedule A, we expect filing will be more time consuming for 2014 than it was for 2013. If you have any questions about the new form or how your organization can prepare for the additional reporting requirements, please contact us.


Copyright © 2014, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. To ensure compliance with requirements imposed by the IRS, we inform you that-unless specifically indicated otherwise-any tax advice in this communication is not written with the intent that it be used, and in fact it cannot be used, to avoid penalties under the Internal Revenue Code, or to promote, market, or recommend to another person any tax related matter. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

2014 Schedule A Expands Reporting Requirements for Supporting Organizations (article)Tax filing may be a longer process for supporting organizations this year. The recently released 2014 Form 990, Schedule A, Public Charity and Public Support indicates 509(a)(3)s will face additional reporting requirements. ...2014-12-17T18:37:00-05:00

Tax filing may be a longer process for supporting organizations this year. The recently released 2014 Form 990, Schedule A, Public Charity and Public Support indicates 509(a)(3)s will face additional reporting requirements.