Notice 2014-4 is — Internal Revenue Bulletin 2023-44

Internal Revenue Bulletin and is available from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402, or by visiting the IRS website at: https://www.irs.gov/ irb/2014-02_IRB#NOT-2014-4.

Drafting Information

The principal authors of these regulations are Jonathan Carter and Don Spellmann, Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). However, other personnel from the Treasury Department and the IRS participated in their development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 53

Excise taxes, Foundations, Investments, Lobbying, Reporting and recordkeeping requirements.

Amendments to the Regulations

Accordingly, the Treasury Department and the IRS amend 26 CFR parts 1 and 53 as follows:

PART 1—INCOME TAXES

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

Authority : 26 U.S.C. 7805 * * * Par. 2 . Section 1.509(a)-4 is amended by:

In paragraph (d)(2)(i) introductory text, removing “subdivision (iv) of this subparagraph” and “subparagraph (1) of this paragraph” and adding “paragraph (d)(2)(iv) of this section” and “paragraph (d)(1) of this section” in their places, respectively.
Redesignating paragraphs (d)(2)(i) ( a ) and ( b ) as paragraphs (d)(2)(i)(A) and (B), respectively.
In newly redesignated paragraph (d) (2)(i)(B)( 1 ), removing “( a ) of this subdivision” and adding “paragraph (d)(2)(i) (A) of this section” in its place.
In newly redesignated paragraph (d) (2)(i)(B)( 2 ), removing “subdivision (i)( a ) or this subparagraph” and adding “paragraph (d)(2)(i)(A) of this section or this paragraph (d)(2)(i)(B)( 2 )” in its place.
In paragraph (d)(2)(ii), removing “subdivision (i)( a ) or this subparagraph”, “subparagraph (1) of this paragraph” and “subparagraphs (3) (i), (ii), and (iii) and (4)(i) ( a ) and ( b ) of this paragraph” and adding “paragraph (d)(2)(i)(A) of this section”, “paragraph (d)(1) of this section”, and “paragraphs (d)(3)(i) through (iii) and (d)(4)(i)(A) and (B) of this section” in their places, respectively.
In paragraph (d)(2)(iii) introductory text, removing “subparagraph” and adding “paragraph (d)(2)” in its place.
Designating Examples 1 and 2 of paragraph (d)(2)(iii) as paragraphs (d)(2) (iii)(A) and (B), respectively.
In paragraph (d)(2)(iv) introductory text, removing “subparagraph (1) of this paragraph” and adding “paragraph (d)(1) of this section” in its place.
Redesignating paragraphs (d)(2)(iv) ( a ) and ( b ) as paragraphs (d)(2)(iv)(A) and (B), respectively.
In newly redesignated paragraph (d)(2)(iv)(A), removing “, and” and adding “; and” in its place.

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In paragraph (d)(3) introductory text, removing “subparagraph (2)(i) ( a ) of this paragraph” and adding “paragraph (d) (2)(i)(A) of this section” in its place.
In paragraph (d)(4)(i) introductory text, removing “subparagraph (2)(iv) of this paragraph” and “this subparagraph” and adding “paragraph (d)(2)(iv) of this section” and “this paragraph (d)(4)” in their places, respectively.
Redesignating paragraphs (d)(4)(i) ( a ) through ( c ) as paragraphs (d)(4)(i)(A) through (C), respectively.
Revising newly redesignated paragraph (d)(4)(i)(C).
In paragraph (d)(4)(ii), removing “subdivision (i)( b ) of this subparagraph” and “subdivision (i)( b )” and adding “paragraph (d)(4)(i)(B) of this section” and “paragraph (d)(4)(i)(B)” in their places, respectively.
In paragraph (d)(4)(iii) introductory text, removing “subparagraph” and adding “paragraph (d)(4)” in its place.
Designating the Example in paragraph (d)(4)(iii) as paragraph (d)(4)(iii) (A) and adding reserved paragraph (d)(4) (iii)(B).
In paragraph (e)(3) introductory text, removing “paragraph” and adding “paragraph (e)” in its place.
Designating Examples 1 through 5 of paragraph (e)(3) as paragraphs (e)(3)(i) through (v), respectively.
Revising paragraph (f)(5)(ii).
In paragraph (g)(2) introductory text, removing “paragraph” and adding “paragraph (g)” in its place.
Designating Examples 1 through 3 of paragraph (g)(2) as paragraphs (g)(2)(i) through (iii), respectively.
In newly redesignated paragraph (g)(2)(iii), removing “subparagraph (1)(ii) of this paragraph” and adding “paragraph (g)(1)(ii) of this section” in its place.
In paragraph (h)(3) introductory text, removing “paragraph” and adding “paragraph (h)” in its place.
Designating Examples 1 through 3 of paragraph (h)(3) as paragraphs (h)(3)(i) through (iii), respectively.
Revising paragraphs (i)(2)(i) introductory text, (i)(2)(i)(A), (i)(2)(iii), and (i) (3)(i).
Designating Examples 1 and 2 of paragraph (i)(3)(iv) as paragraphs (i)(3) (iv)(A) and (B), respectively.
Adding paragraph (i)(3)(iv)(C).
Revising paragraphs (i)(4)(ii)(A) ( 1 ), (i)(4)(ii)(B), and (i)(4)(iii) and (iv).
Designating Examples 1 through 5 of paragraph (i)(4)(v) as paragraphs (i)(4) (v)(A) through (E), respectively.
Adding paragraph (i)(4)(v)(F).
Revising paragraphs (i)(5)(ii)(A) and (B) and (i)(5)(iii)(A).
Designating Examples 1 through 4 of paragraph (i)(5)(iii)(D) as paragraphs (i)(5)(iii)(D)( 1 ) through ( 4 ), respectively.
Revising newly designated paragraph (i)(5)(iii)(D)( 4 ), the third sentence of paragraph (i)(6) introductory text, and paragraphs (i)(6)(iii) and (v) introductory text.
In paragraph (k)(2) introductory text, removing “paragraph” and adding “paragraph (k)” in its place.
Designating the Example in paragraph (k)(2) as paragraph (k)(2)(i) and adding reserved paragraph (k)(2)(ii).
Revising paragraph (l). The revisions and additions read as follows:

§1.509(a)-4 Supporting organizations.

(d) * * * (4) * * * (i) * * * (C) Permit the supporting organization to vary the amount of its support between different designated organizations, so long as it meets the requirements of the integral part test set forth in paragraph (i)(1)(iii) of this section with respect to at least one beneficiary organization.

(f) * * * (5) * * * (ii) Meaning of control . For purposes of paragraph (f)(5)(i) of this section, the governing body of a supported organization will be considered controlled by a person described in paragraph (f)(5)(i) (A) of this section if that person, alone or by aggregating the person’s votes or positions of authority with persons described in paragraph (f)(5)(i)(B) or (C) of this section, may require the governing body of the supported organization to perform any act that significantly affects its operations or may prevent the governing body of the supported organization from performing

any such act. The governing body of a supported organization will be considered to be controlled directly or indirectly by one or more persons described in paragraph (f)(5)(i)(A), (B), or (C) of this section if the voting power of such persons is 50 percent or more of the total voting power of such governing body or if one or more of such persons have the right to exercise veto power over the actions of the governing body of the supported organization. Thus, if the governing body of a supported organization is composed of five members, none of whom has a veto power over the actions of the supported organization, and no more than two members are at any time described in paragraph (f)(5)(i)(A), (B), or (C) of this section, such supported organization will not be considered to be controlled directly or indirectly by such persons by reason of this fact alone. However, all pertinent facts and circumstances will be taken into consideration in determining whether one or more persons do in fact directly or indirectly control the governing body of a supported organization.

(i) * * * (2) * * * (i) Annual notification . For each taxable year (Reporting Year), a Type III supporting organization must provide the following documents to each of its supported organizations:

(A) A written notice addressed to a principal officer of the supported organization describing the type and amount of all of the support (including all of the distributions described in paragraph (i)(6) of this section, if applicable) the supporting organization provided to the supported organization during the supporting organization’s taxable year immediately preceding the Reporting Year (and during any other taxable year of the supporting organization ending after December 28, 2012, for which such support information has not previously been provided), including a brief narrative description of the support provided and sufficient financial detail for the recipient to identify the types and amounts of support being reported;

(iii) Due date . The notification documents required by this paragraph (i) (2) must be delivered or electronically

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transmitted by the last day of the fifth calendar month of the Reporting Year.

(3) * * * (i) General rule . A supporting organization meets the responsiveness test only if it is responsive to the needs or demands of each of its supported organizations. Except as provided in paragraph (i)(3)(v) of this section, in order to meet this test, a supporting organization must satisfy the requirements of paragraphs (i)(3)(ii) and (iii) of this section with respect to each of its supported organizations.

(iv) * * * (C) Example 3. Z is described in section 501(c) (3). Z’s organizational documents provide that it supports ten different organizations, each of which is described in section 509(a)(1). One of the directors of S (one of the supported organizations) is a voting member of Z’s board of directors and participates in Z’s regular board meetings. Officers of Z hold regularly scheduled face-to-face or telephonic meetings during the year, to which officers of all the supported organizations are invited. Z’s meetings with the supported organizations may be held jointly or separately. Prior to the meetings, Z makes available to the supported organizations (including by email) up-to-date information about its activities, including its assets and liabilities, receipts and distributions, and investment policies and returns. In the meetings, officers of each of the supported organizations have an opportunity to ask questions and discuss with officers of Z the projected needs of their organizations, as well as Z’s investment and grant making policies and practices. In addition to holding these meetings with the supported organizations, Z provides the contact information of one of its officers to each of the supported organizations and encourages them to contact that officer if they have questions, or if they wish to schedule additional meetings to discuss the projected needs of their organization and how Z should distribute its income and invest its assets. Z provides the information required under paragraph (i)(2) of this section and a copy of its annual audited financial statements to the principal officers of the supported organizations. Z meets the relationship requirement of paragraph (i)(3)(ii)(B) or (C) of this section with respect to each of its supported organizations. Based on these facts, Z also satisfies the significant voice requirement of paragraph (i)(3)(iii) of this section, and therefore meets the responsiveness test of this paragraph (i)(3) with respect to each of its ten supported organizations.

(4) * * * (ii) * * * (A) * * * ( 1 ) Directly further the exempt purposes of one or more supported organizations by performing the functions of,

or carrying out the purposes of, such supported organization(s); and

(B) Meaning of substantially all . For purposes of paragraph (i)(4)(ii)(A) of this section, in determining whether substantially all of a supporting organization’s activities directly further the exempt purposes of one or more supported organization(s), all pertinent facts and circumstances will be taken into consideration.

(iii) Parent of supported organiza- tion(s) —(A) In general . For purposes of paragraph (i)(4)(i)(B) of this section, in order for a supporting organization to qualify as the parent of each of its supported organizations—

( 1 ) The supporting organization and its supported organizations must be part of an integrated system (such as, for example, a hospital system);

( 2 ) The supporting organization must direct the overall policies, programs, and activities of the supported organizations (such as, for example, coordinating the activities of the supported organizations and engaging in overall planning, policy development, budgeting, and resource allocation); and

( 3 ) The supporting organization’s governing body, members of the governing body, or officers (acting in their official capacities) must appoint or elect, directly or indirectly, a majority of the officers, directors, or trustees of each supported organization and have the power to remove and replace such directors, officers, or trustees, or otherwise have an ongoing power to appoint or elect such directors, officers or trustees with reasonable frequency.

(B) Subsidiary organizations . A supporting organization may meet the requirements of paragraph (i)(4)(iii)(A)( 3 ) of this section with respect to a second-tier (or lower) subsidiary provided that the supporting organization, by control of its first-tier subsidiary, has the power to appoint or elect (as described in paragraph (i)(4)(iii)(A)( 3 ) of this section) a majority of the officers, directors, or trustees of the lower-tier subsidiary. For example, if the board of directors of supporting organization A elects a majority of the directors of supported organization B, and the board of directors of B, in turn elect, by a simple

majority vote, a majority of the directors of supported organization C, the directors of supporting organization A will be treated as electing a majority of the directors of both supported organization B and supported organization C.

(iv) Supporting a governmental sup- ported organization —(A) In general . A supporting organization satisfies the requirements of this paragraph (i)(4)(iv) if—

( 1 ) The supporting organization only supports one or more governmental supported organizations;

( 2 ) In any case in which the supporting organization supports more than one governmental supported organization, all of the governmental supported organizations either—

( i ) Operate within the same city, county, or metropolitan area; or

( ii ) Work in close coordination or collaboration with one another to conduct a service, program, or activity that the supporting organization supports; and

( 3 ) A substantial part of the supporting organization’s total activities are activities that directly further, as defined by paragraph (i)(4)(ii)(C) of this section, the exempt purposes of at least one governmental supported organization.

(B) Governmental supported organi- zation defined . For purposes of paragraph (i)(4)(iv)(A) of this section, the term gov- ernmental supported organization means a supported organization that is:

( 1 ) A governmental unit described in section 170(c)(1), including all of its agencies, departments, and divisions (all of which will be treated as one governmental supported organization for purposes of this paragraph (i)(4)(iv)); or

( 2 ) An organization described in section 170(c)(2) and (b)(1)(A) (other than in clauses (vii) and (viii)) that is an instrumentality of one or more governmental units described in section 170(c)(1).

(C) Close coordination or collabora- tion . To satisfy the close coordination or collaboration requirement of paragraph (i) (4)(iv)(A)( 2 ) of this section, the supporting organization must maintain on file a letter from each of the governmental supported organizations (or a joint letter from all of them) describing their coordination or collaboration efforts with respect to the particular service, program, or activity.

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(D) Substantial part . For purposes of paragraph (i)(4)(iv)(A)( 3 ) of this section, in determining whether a substantial part of a supporting organization’s activities directly further the exempt purposes of one or more governmental supported organization(s), all pertinent facts and circumstances will be taken into consideration.

(E) Exception for organizations sup- porting a governmental supported organi- zation on or before February 19, 2016 . A Type III supporting organization in existence on or before February 19, 2016, will be treated as meeting the requirements of this paragraph (i)(4)(iv) if it met and continues to meet the following requirements:

( 1 ) It supports one or more governmental supported organizations described in paragraph (i)(4)(iv)(B) of this section and does not support more than one supported organization that is not a governmental supported organization;

( 2 ) Each of the supported organizations is designated by the supporting organization as provided in paragraph (d)(4) of this section on or before February 19, 2016; and

( 3 ) A substantial part (as defined in paragraph (i)(4)(iv)(D) of this section) of the supporting organization’s total activities are activities that directly further (as defined by paragraph (i)(4)(ii)(C) of this section) the exempt purposes of its governmental supported organization(s).

(F) Transition rule for supporting organizations in existence on or before February 19, 2016 . Until the first day of the organization’s second taxable year beginning after February 19, 2016, a Type III supporting organization in existence on or before February 19, 2016, will be treated as meeting the requirements of this paragraph (i)(4)(iv) if it continuously met the following requirements prior to the first day of the organization’s second taxable year beginning after February 19, 2016— ( 1 ) It supported at least one supported organization that was a governmental entity to which the supporting organization was responsive within the meaning of paragraph (i)(3) of this section; and

( 2 ) It engaged in activities for or on behalf of the governmental supported organization described in paragraph (i)(4) (iv)(E)( 1 ) of this section that performed

the functions of, or carried out the purposes of, that governmental supported organization and that, but for the involvement of the supporting organization, would normally have been engaged in by the governmental supported organization itself.

(v) * * * (F) Example 6 . X, an organization described in section 501(c)(3), is organized and operated as a supporting organization to two organizations, City and Park. X meets the responsiveness test described in paragraph (i)(3) of this section with respect to both City and Park. City and Park are both governmental units described in section 170(c)(1). Park maintains a state park located within the same county as City. X does not support any other organizations. X supports Park by operating an information center for visitors to Park. The information center provides educational material and informational sessions to visitors to Park. X’s activities related to operating the Park information center constitute a substantial part of X’s activities. X also makes grants directly to City to fund City’s other programs. X’s grant making activities constitute a substantial part of X’s activities. X meets the requirements of paragraph (i)(4)(iv)(A)( 1 ) of this section because X only supports City and Park, both of which are governmental supported organizations described in paragraph (i)(4)(iv)(B) of this section. X meets the requirements of paragraph (i) (4)(iv)(A)( 2 ) of this section because City and Park operate within the same county in accordance with paragraph (i)(4)(iv)(A)( 2 )( i ) of this section. Finally, X meets the requirements of paragraph (i)(4)(iv) (A)( 3 ) of this section because a substantial part of X’s activities directly further (within the meaning of paragraph (i)(4)(ii)(C) of this section) Park’s exempt purposes, even though X’s grants to City are also a substantial part of X’s activities. Based on these facts, X qualifies as functionally integrated under paragraph (i)(4)(iv) of this section.

(5) * * * (ii) * * * (A) Annual distribution . With respect to each taxable year, a supporting organization must make distributions described in paragraph (i)(6) of this section in a total amount equaling or exceeding the supporting organization’s distributable amount for the taxable year, as defined in paragraph (i)(5)(ii)(B) of this section, on or before the last day of the taxable year.

(B) Distributable amount . Except as provided in paragraphs (i)(5)(ii)(D) and (E) of this section, the distributable amount for a taxable year is an amount equal to the greater of 85 percent of the supporting organization’s adjusted net income (as determined by applying the principles of section 4942(f) and §53.4942(a)-2(d) of

this chapter) for the taxable year immediately preceding the taxable year of the required distribution (immediately preceding taxable year) or its minimum asset amount (as defined in paragraph (i)(5)(ii) (C) of this section) for the immediately preceding taxable year.

(iii) * * * (A) General rule . With respect to each taxable year, a non-functionally integrated Type III supporting organization must distribute one-third or more of its distributable amount to one or more supported organizations that are attentive to the operations of the supporting organization (within the meaning of paragraph (i)(5) (iii)(B) of this section).

(D) * * * ( 4 ) Example 4. O is an organization described in section 501(c)(3). O is organized to support five private universities, V, W, X, Y, and Z, each of which is described in section 509(a)(1). O meets the responsiveness test described in paragraph (i)(3) of this section with respect to each of its supported organizations. Each year, O distributes an aggregate amount that equals its distributable amount described in paragraph (i)(5)(ii)(B) of this section and distributes an equal amount to each of the five universities. O distributes annually to each of V and W an amount that equals more than 10 percent of each university’s total annual support received in its most recently completed taxable year. Based on these facts, O meets the requirements of paragraph (i)(5)(iii) of this section because it distributes twofifths (more than the required one-third) of its distributable amount to supported organizations that are attentive to O.

(6) - * * Distributions by the supporting organization that count toward the distribution requirement imposed in paragraph (i)(5)(ii) of this section are limited to—

(iii) Any reasonable and necessary— (A) Administrative expenses paid to accomplish the exempt purposes of the supported organization, which do not include expenses incurred in the production of investment income or expenses incurred in the conduct of fundraising activities (except solicitation expenses described in paragraph (i)(6)(iii)(B) of this section); and

(B) Expenses incurred to solicit contributions that are received directly by a supported organization (rather than by the

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supporting organization), but only to the extent the amount of the reasonable and necessary expenses the supporting organization incurs for each solicitation does not exceed the amount of contributions that are actually received by the supported organization directly from donors as a result of each such solicitation, as substantiated in a written report by the supported organization to the supporting organization that is postmarked or electronically transmitted by the due date of the supporting organization’s Form 990 (or successor form) for the year of the solicitation(s) (without regard to extensions);

(v) Any amount set aside for a specific project that accomplishes the exempt purposes of a supported organization, with such set-aside counting toward the distribution requirement for the taxable year in which the amount is set aside but not in the year in which it is actually paid, if at the time of the set-aside, the supporting organization—

(l) Applicability dates . (1) Paragraphs (a)(6), (f)(5), and (i) of this section are applicable on December 28, 2012, except—

(i) Paragraphs (i)(4)(ii)(C), (i)(5)(ii)(C) and (D), (i)(6)(iv), (i)(7)(ii), and (i)(8) of

this section are applicable on December 21, 2015; and (ii) Paragraphs (d)(4)(i)(C), (f)(5)(ii), (i)(2)(i) and (iii), (i)(3)(i), (i)(3)(iv)(C) ( Example 3 ), (i)(4)(ii)(A)( 1 ), (i)(4)(ii)(B), (i)(4)(iii) and (iv), (i)(4)(v)(F) ( Example 6 ), (i)(5)(ii)(A) and (B), (i)(5)(iii)(A), (i) (5)(iii)(D)( 4 ) ( Example 4 ), (i)(6) introductory text, and (i)(6)(iii) and (v) of this section are applicable to taxable years beginning on or after October 16, 2023.

(2) Taxpayers may choose to apply the paragraphs listed in paragraph (I)(1)(ii) of this section to taxable years beginning on or after February 19, 2016, and before October 16, 2023, provided the taxpayer applies the provisions listed in paragraph (l)(1)(ii) of this section in their entirety and in a consistent manner.

(3) See paragraphs (i)(5)(ii)(B) and (C) and (i)(8) of §1.509(a)–4T contained in 26 CFR part 1, revised as of April 1, 2015, for certain rules regarding non-functionally integrated Type III supporting organizations effective before December 21, 2015. See paragraphs (i) (5)(ii)(A) and (B) and (i)(5)(iii)(D) of §1.509(a)-4 contained in 26 CFR part 1, revised as of April 1, 2023, for certain rules regarding non-functionally integrated Type III supporting organizations effective before October 16, 2023.

PART 53—FOUNDATION AND SIMILAR EXCISE TAXES

Par. 3. The authority citation for part 53 continues to read in part as follows:

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

§53.4947-1 [Amended]

Par. 4. Section 53.4947-1 is amended in paragraph (b)(3) by removing the language “§§ 1.509(a)–4(d)(2)(iv)( a ), and 1.509(a)–4(i)(1) (ii) and (iii)( c )” and “the regulations under section 507(b)(1)” and adding in their places “§ 1.509(a)–4(d)(2) (iv)(A) and (i)(1)(ii) of this chapter” and “the regulations in this part under section 507(b)(1)”, respectively.

Douglas W. O’Donnell, Deputy Commissioner for Services and

Enforcement.

Approved: August 20, 2023.

Lily L. Batchelder, Assistant Secretary of the Treasury (Tax

Policy).

(Filed by the Office of the Federal Register October 13, 2023, 8:45 a.m., and published in the issue of the Federal Register for October 16, 2023, 88 FR 71287)

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