Special Rules for Supporting Organizations

(1) In the case of any supporting organization described in Section 509(a)(3), an

excess benefit transaction includes:

a. Any grant, loan, compensation, or other similar payment from a supporting

organization to a substantial contributor, members of the substantial contributor’s family (as described in Section 4958(f)(4)), or entities 35% controlled by such persons (as defined in Section 4958(f)(3) and modified in Section 4958(c)(3)(B)). See Section 4958(c)(3)(A)(i)(I).

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• A substantial contributor is any person who contributed or bequeathed an

aggregate of more than $5,000 to the organization, if such amount is more than 2% of the total contributions and bequests received by the organization before the close of the organization’s taxable year when the contribution or bequest is received. In the case of a trust, the creator of the trust is also a substantial contributor. Rules similar to those of Section 507(d)(2)(B) and (C) apply. See Section 4958(c)(3)(C)(i).

• A substantial contributor doesn’t include organizations described in

Section 509(a)(1), (2), or (4), or the supporting organization’s supported organizations that are described in Section 501(c)(4), 501(c)(5), or 501(c)(6) and that are treated as Section 509(a)(2) organizations by virtue of the last sentence of Section 509(a). See Section 4958(c)(3)(C)(ii).

b. Loans from any supporting organization to a disqualified person of the

supporting organization. See Section 4958(c)(3)(A)(i)(II).

• A disqualified person (defined in Section 4958(f)(1)) includes any person

who was, at any time during the 5-year period ending on the date of such transaction, in a position to exercise substantial influence over the affairs of the organization, members of those persons’ families (as described in Section 4958(f)(4)), and entities 35% controlled by such persons (as described Section 4958(f)(3)).

• A disqualified person doesn’t include organizations described in Section

509(a)(1), (2), or (4) or the supported organizations that are described in Section 501(c)(4), 501(c)(5), or 501(c)(6) and that are treated as Section 509(a)(2) organizations by virtue of the last sentence of Section 509(a). See Section 4958(c)(3)(C)(ii).

(2) The amount of the excess benefit in (a) or (b) above is the entire amount of the

grant, loan, compensation, or other similar payment. See Section 4958(c)(3)(A)(ii).

(3) “Other similar payments” include payments in the nature of a grant, loan, or

payment of compensation, such as an expense reimbursement. See Staff of Joint Committee on Taxation, Technical Explanation of H.R. 4, The “Pension Protection Act of 2006,” JCX-38-06 NO 13 at 358.

(4) Other similar payments don’t include, for example, payments pursuant to bona fide

sales or leases of property. See citation above. However, these transactions are still subject to the general rules of Section 4958.

(5) Transactions that don’t meet the special rules for supporting organizations under

Section 4958(c)(3) are still subject to the general rules under Section 4958 if the substantial contributor meets the definition of a disqualified person under Section 4958(f).

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(6) Section 4958(c)(3) applies to payments made by a supporting organization to a

substantial contributor but not to payments made by a substantial contributor to a supporting organization.

Note: See also section II.D.5, Supporting Organizations Arrangements Prior to August 17, 2006, below.

Note: See TG 31, 501(c)(3) Foundation Classification – IRC 509(a)(3) Type I Supporting Organizations, TG 32, 501(c)(3) Foundation Classification - IRC 509(a)(3) Type II Supporting Organizations, and TG 33, 501(c)(3) Foundation Classification - IRC 509(a)(3) Type II Supporting Organizations for additional discussion of supporting organizations described in Section 509(a)(3). These TGs will be published in the future. For a list of all TGs, published and in process, see the cumulative list of Technical Guides located in TG 0 Technical Guide Overview, Exhibit III, starting on page 10.