81_FR_8479 81 FR 8446 - Requirements for Type I and Type III Supporting Organizations

81 FR 8446 - Requirements for Type I and Type III Supporting Organizations

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 81, Issue 33 (February 19, 2016)

Page Range8446-8455
FR Document2016-02858

This document contains proposed regulations regarding the prohibition on certain contributions to Type I and Type III supporting organizations and the requirements for Type III supporting organizations. The regulations reflect changes to the law made by the Pension Protection Act of 2006. The regulations will affect Type I and Type III supporting organizations and their supported organizations.

Federal Register, Volume 81 Issue 33 (Friday, February 19, 2016)
[Federal Register Volume 81, Number 33 (Friday, February 19, 2016)]
[Proposed Rules]
[Pages 8446-8455]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-02858]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-118867-10]
RIN 1545-BJ53


Requirements for Type I and Type III Supporting Organizations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations regarding the 
prohibition on certain contributions to Type I and Type III supporting 
organizations and the requirements for Type III supporting 
organizations. The regulations reflect changes to the law made by the 
Pension Protection Act of 2006. The regulations will affect Type I and 
Type III supporting organizations and their supported organizations.

DATES: Written or electronic comments and requests for a public hearing 
must be received by May 19, 2016.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-118867-10), Room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8:00 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
118867-10), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, 20224 or sent electronically via the 
Federal eRulemaking Portal at http://www.regulations.gov/ (IRS REG-
118867-10).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Jonathan Carter at (202) 317-5800 or Mike Repass at (202) 317-4086; 
concerning submissions of comments and requests for a public hearing, 
Regina Johnson at (202) 317-6901 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review and approval in accordance with the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information 
should be sent to the Office of Management and Budget, Attn: Desk 
Officer for the Department of the Treasury, Office of Information and 
Regulatory Affairs, Washington, DC 20503, with copies to the Internal 
Revenue Service, Attn: IRS Reports Clearance Officer, 
SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of 
information should be received by April 19, 2016.
    Comments are specifically requested concerning:
     Whether the proposed collection of information is 
necessary for the proper performance of the functions of the IRS, 
including whether the information will have practical utility;
     The accuracy of the estimated burden associated with the 
proposed collection of information;
     How the quality, utility, and clarity of the information 
to be collected may be enhanced;
     How the burden of complying with the proposed collection 
of information may be minimized, including through forms of information 
technology; and
     Estimates of capital or start-up costs and costs of 
operation, maintenance, and purchase of services to provide 
information.
    The collection of information in these proposed regulations is in 
Sec.  1.509(a)-4(i)(4)(iv)(D) (written record of close cooperation and 
coordination by the governmental supported organizations) and Sec.  
1.509(a)-4(i)(6)(iii)(B) (written record of contributions received by 
the supported organization). Requiring the supporting organization to 
collect written records of its governmental supported organizations' 
close cooperation and coordination with each other and written records 
of the contributions its supported organizations directly received in 
response to solicitations by the supporting organization permits the 
IRS to determine whether the supporting organization satisfies the 
requirements to be a functionally integrated or non-functionally 
integrated Type III supporting organization. The record keepers are 
Type III supporting organizations.
    Estimated number of recordkeepers: 7,872.
    Estimated average annual burden hours per recordkeeper: 2 hours.
    Estimated total annual recordkeeping burden: 15,744.
    Estimated frequency of collection of such information: Annual.
    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

[[Page 8447]]

of any internal revenue law. Generally, tax returns and return 
information are confidential, as required by 26 U.S.C. 6103.

Background

1. Overview

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1) regarding organizations described in 
section 509(a)(3) of the Internal Revenue Code (Code). An organization 
described in section 501(c)(3) is classified as either a private 
foundation or a public charity. To be classified as a public charity, 
an organization must be described in section 509(a)(1), (2), or (3). 
Organizations described in section 509(a)(3) are known as ``supporting 
organizations.'' Supporting organizations achieve their public charity 
status by providing support to one or more organizations described in 
section 509(a)(1) or (2), which in this context are referred to as 
``supported organizations.''
    To be described in section 509(a)(3), an organization must satisfy 
(1) an organizational test, (2) an operational test, (3) a relationship 
test, and (4) a disqualified person control test. The organizational 
and operational tests require that a supporting organization be 
organized and at all times thereafter operated exclusively for the 
benefit of, to perform the functions of, or to carry out the purposes 
of one or more supported organizations. The relationship test requires 
a supporting organization to establish one of three types of 
relationships with one or more supported organizations. A supporting 
organization that is operated, supervised or controlled by one or more 
supported organizations is known as a ``Type I'' supporting 
organization. The relationship of a Type I supporting organization with 
its supported organization(s) is comparable to that of a corporate 
parent-subsidiary relationship. A supporting organization that is 
supervised or controlled in connection with one or more supported 
organizations is known as a ``Type II'' supporting organization. The 
relationship of a Type II supporting organization with its supported 
organization(s) involves common supervision or control by the persons 
supervising or controlling both the supporting organization and the 
supported organization(s). A supporting organization that is operated 
in connection with one or more supported organizations is known as a 
``Type III'' supporting organization and is discussed further in the 
remainder of this preamble. Finally, the disqualified person control 
test requires that a supporting organization not be controlled directly 
or indirectly by certain disqualified persons.
    These proposed regulations focus primarily on the relationship test 
for Type III supporting organizations. Specifically, the proposed 
regulations reflect statutory changes enacted by sections 1241 through 
1243 of the Pension Protection Act of 2006, Public Law 109-280 (120 
Stat. 780) (2006) (PPA)), which made the following five changes to the 
requirements an organization must satisfy to qualify as a Type III 
supporting organization:
    (1) Removed the ability of a charitable trust to rely on the 
special rule under Sec.  1.509(a)-4(i)(2)(iii) of the regulations then 
in effect;
    (2) Directed the Secretary of the Treasury to promulgate 
regulations under section 509 that establish a new distribution 
requirement for Type III supporting organizations that are not 
``functionally integrated'' (a non-functionally integrated (NFI) Type 
III supporting organization) to ensure that a ``significant amount'' is 
paid to supported organizations (for this purpose the term 
``functionally integrated'' means a Type III supporting organization 
that is not required under Treasury regulations to make payments to 
supported organizations, because the supporting organization engages in 
activities that relate to performing the functions of, or carrying out 
the purposes of, its supported organization(s));
    (3) Required a Type III supporting organization to provide annually 
to each of its supported organizations the information required by the 
Treasury Department and the IRS to ensure that the supporting 
organization is responsive to the needs or demands of its supported 
organization(s);
    (4) Prohibited a Type III supporting organization from supporting 
any supported organization not organized in the United States; and
    (5) Prohibited a Type I or Type III supporting organization from 
accepting a gift or contribution from a person who, alone or together 
with certain related persons, directly or indirectly controls the 
governing body of a supported organization of the Type I or Type III 
supporting organization.
    These proposed regulations set forth additional rules on the 
requirements for Type III supporting organizations, including 
additional requirements to meet the responsiveness test for all Type 
III supporting organizations; additional rules regarding the 
qualification of an organization as a functionally integrated Type III 
supporting organization under Sec.  1.509(a)-4(i)(4), including 
provisions for supporting organizations that support governmental 
entities; and additional rules regarding the required annual 
distributions under Sec.  1.509(a)-4(i)(5) by a NFI Type III supporting 
organization. The proposed regulations also define the term ``control'' 
for purposes of section 509(f)(2), which prohibits a Type I supporting 
organization or a Type III supporting organization from accepting 
contributions from persons who control the governing body of its 
supported organization(s).

2. Prior Rulemaking

    On August 2, 2007, the Treasury Department and the IRS published in 
the Federal Register (72 FR 42335) an advanced notice of proposed 
rulemaking (ANPRM) (REG-155929-06) in response to the PPA. The ANPRM 
described proposed rules to implement the changes made by the PPA to 
the Type III supporting organization requirements and solicited 
comments regarding those proposed rules.
    On September 24, 2009, the Treasury Department and the IRS 
published in the Federal Register (74 FR 48672) a notice of proposed 
rulemaking (the 2009 NPRM) (REG-155929-06). The 2009 NPRM contained 
proposed regulations (the 2009 proposed regulations) setting forth the 
requirements to qualify as a Type III supporting organization under the 
PPA.
    On December 28, 2012, the Treasury Department and the IRS published 
in the Federal Register (77 FR 76382) a Treasury decision (TD 9605) 
containing final and temporary regulations (the 2012 TD) regarding the 
requirements to qualify as a Type III supporting organization. Based on 
the comments received, the 2012 TD made certain changes to the rules 
proposed in the 2009 NPRM, included in the temporary regulations 
significant changes to the distribution requirement, and reserved 
certain topics for further consideration. Also on December 28, 2012, 
the Treasury Department and the IRS published in the Federal Register 
(77 FR 76426) a notice of proposed rulemaking (the 2012 NPRM) (REG-
155929-06) that incorporated the text of the temporary regulations in 
the 2012 TD by cross-reference. The 2012 TD provided transition relief 
for Type III supporting organizations in existence on December 28, 
2012, that met and continued to meet the test under former Sec.  
1.509(a)-4(i)(3)(ii), as in effect prior to December 28, 2012, treating 
them as functionally integrated until the first day of their second 
taxable years

[[Page 8448]]

beginning after December 28, 2012. The preamble to the 2012 TD also 
identified issues for possible future rulemaking and requested 
comments. The IRS received three comments on these issues. The comments 
were considered in developing these proposed regulations and are 
available for public inspection at www.regulations.gov or upon request. 
No public hearing was requested.
    The Treasury Department and the IRS published Notice 2014-4, 2014-2 
I.R.B. 274, to provide additional transition relief for any Type III 
supporting organization that (1) supports at least one governmental 
supported organization to which the supporting organization is 
responsive within the meaning of Sec.  1.509(a)-4(i)(3) and (2) engages 
in activities for or on behalf of the governmental supported 
organization that perform the functions of, or carry out the purposes 
of, the governmental supported organization and that, but for the 
involvement of the supporting organization, would normally be engaged 
in by the governmental supported organization itself. Notice 2014-4 
provides that such an organization will be treated as a functionally 
integrated Type III supporting organization until the earlier of the 
date final regulations are published under Sec.  1.509(a)-4(i)(4)(iv) 
in the Federal Register or the first day of the organization's third 
taxable year beginning after December 31, 2013.
    On December 23, 2015, the Treasury Department and the IRS published 
in the Federal Register (80 FR 79684) a Treasury Decision (TD 9746) 
containing final regulations (the 2015 TD) regarding the distribution 
requirement for NFI Type III supporting organizations. The preamble of 
those regulations provided that supporting organizations supporting a 
governmental supported organization could continue to rely on Notice 
2014-4 until the date of publication of the notice of proposed 
rulemaking prescribing the new proposed regulations under Sec.  
1.509(a)-(i)(4)(iv). The IRS received three comments in response to 
Notice 2014-4, which the Treasury Department and the IRS considered in 
developing these proposed regulations.

Explanation of Provisions and Summary of Comments

    This section describes the proposed provisions and addresses 
comments that the Treasury Department and the IRS received in response 
to the 2012 TD and Notice 2014-4.

1. Gifts From Controlling Donor--Meaning of Control

    Type I and Type III supporting organizations are prohibited from 
accepting a gift or contribution from a person who, alone or together 
with certain related persons, directly or indirectly controls the 
governing body of a supported organization of the Type I or Type III 
supporting organization, or from persons related to a person possessing 
such control. Section 509(f)(2) and Sec.  1.509(a)-4(f)(5). For this 
purpose, related persons include family members and 35-percent 
controlled entities within the meaning of section 4958(f). Although the 
2012 TD reserved Sec.  1.509(a)-4(f)(5)(ii), ``Meaning of control,'' 
the preamble to the 2012 TD indicated that the Treasury Department and 
the IRS intended to issue proposed regulations that would provide such 
a definition.
    These proposed regulations define ``control'' for this purpose 
consistently with Sec.  1.509(a)-4(j), which relates to control by 
disqualified persons for purposes of the disqualified person control 
test. In general, under the proposed regulations, the governing body of 
a supported organization is considered ``controlled'' by a person if 
that person, alone or by aggregating his or her votes or positions of 
authority with certain related persons, as described in section 
509(f)(2)(B)(ii) and (iii), 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.

2. Type III Supporting Organization Relationship Test

    Section 1.509(a)-4(i)(1) provides that for each taxable year, a 
Type III supporting organization must satisfy (i) a notification 
requirement, (ii) a responsiveness test, and (iii) an integral part 
test provided in the regulations. These proposed regulations provide 
additional rules regarding each of these requirements.
A. Notification Requirement
    Section 509(f)(1)(A) provides that an organization shall not be 
considered a Type III supporting organization unless the organization 
provides to each supported organization, for each taxable year, such 
information as the Secretary may require to ensure that the 
organization is responsive to the needs or demands of the supported 
organizations.
    To satisfy this notification requirement, Sec.  1.509(a)-4(i)(2) 
requires a Type III supporting organization to provide to each of its 
supported organizations for each taxable year: (1) A written notice 
addressed to a principal officer of the supported organization 
describing the type and amount of all of the support it provided to the 
supported organization during the supporting organization's preceding 
taxable year; (2) a copy of the supporting organization's most recently 
filed Form 990, ``Return of Organization Exempt from Income Tax,'' or 
other annual information return required to be filed under section 
6033; and (3) a copy of the supporting organization's governing 
documents, including any amendments (unless previously provided and not 
subsequently amended). For NFI Type III supporting organizations, the 
description of support in the written notice includes all of the 
distributions described in Sec.  1.509(a)-4(i)(6) to the supported 
organization.
    The proposed regulations amend Sec.  1.509(a)-4(i)(2) to clarify 
that a supporting organization must deliver the required documents to 
each of its supported organizations by the last day of the fifth month 
of the taxable year after the taxable year in which the supporting 
organization provided the support it is reporting. This proposed change 
is intended to reduce confusion, but does not substantively change the 
due date or the content of the required notification. Date of delivery 
is determined applying the general principles of section 7502.
B. Responsiveness Test
    Section 1.509(a)-4(i)(3)(i) provides that a supporting organization 
meets the responsiveness test if it is ``responsive to the needs or 
demands of a supported organization.'' To meet this responsiveness 
test, an organization must satisfy: (1) A relationship test described 
in Sec.  1.509(a)-4(i)(3)(ii) under which the officers, directors, or 
trustees of the organization have a specified relationship with the 
officers, directors, or trustees (and in some cases the members) of the 
supported organization; and (2) a significant voice test described in 
Sec.  1.509(a)-4(i)(3)(iii) under which the officers, directors, or 
trustees of the supported organization, by reason of this relationship, 
have a significant voice in the investment policies of the supporting 
organization, the timing of grants, the manner of making grants, and 
the selection of grant recipients by the supporting organization, and 
in otherwise directing the use of the income or assets of the 
supporting organization. The preamble to the 2012 TD stated that, in 
determining the appropriate distribution amount for NFI

[[Page 8449]]

Type III supporting organizations, the Treasury Department and the IRS 
considered the required relationship between a supporting organization 
and its supported organizations, and that the Treasury Department and 
the IRS intended to issue proposed regulations in the future that would 
amend the responsiveness test by requiring a Type III supporting 
organization to be responsive to all of its supported organizations.
    In response to this proposal in the preamble to the 2012 TD, one 
commenter stated that a supporting organization should not be required 
to be responsive to all of its supported organizations because the 
resulting administrative burden would effectively limit the total 
number of organizations a supporting organization could support. The 
commenter suggested alternatives under which a supporting organization 
would be responsive to only a subset of its supported organizations 
that would vary from year to year.
    The Treasury Department and the IRS note that the distinguishing 
characteristic of Type III supporting organizations, and the basis for 
their public charity classification, is that they are responsive to and 
significantly involved in the operations of their publicly supported 
organizations. See Sec.  1.509(a)-4(f)(4). The Treasury Department and 
the IRS believe that, unless a Type III supporting organization is 
responsive to each of its supported organizations, the supported 
organizations cannot exercise the requisite level of oversight of and 
engagement with the supporting organization. Limiting the 
responsiveness requirement to fewer than all of the supported 
organizations may result in the necessary oversight and accountability 
being present for less than all of a supporting organization's 
operations. Therefore, the proposed regulations revise Sec.  1.509(a)-
4(i)(3)(i) to require a supporting organization to be responsive to the 
needs and demands of each of its supported organizations in order to 
meet the responsiveness test.
    To illustrate how concerns about potential administrative burdens 
may be addressed consistent with the responsiveness test, the proposed 
regulations include a new example. The proposed example is intended to 
demonstrate one way in which a Type III supporting organization that 
supports multiple organizations may satisfy the responsiveness test in 
a manner that can be cost-effective. The example shows that a 
supporting organization can, with respect to each of its supported 
organizations, meet a different subset of the required relationships 
with the supporting organization's officers, directors, or trustees 
listed in Sec.  1.509(a)-4(i)(3)(ii). It also shows how a supporting 
organization can organize and hold regular meetings, provide 
information, and encourage communication to help ensure that the 
supported organizations have a significant voice in the operations of 
the supporting organization.
    Another commenter requested additional guidance regarding the 
ability of trusts to satisfy the significant voice requirement of the 
responsiveness test. The new Example 3 provides further illustration of 
how Type III supporting organizations, including charitable trusts, 
might satisfy the significant voice requirement of the responsiveness 
test. The Treasury Department and the IRS note that although the 
examples in the regulations relating to the responsiveness test may 
involve a Type III supporting organization that is organized as either 
a corporation or a trust, the applicable law and relevant regulatory 
provisions, as modified by the proposed regulations, are applicable to 
all Type III supporting organizations in the same manner, whether 
organized as a corporation or a trust. The Treasury Department and the 
IRS anticipate that Type III supporting organizations may be able to 
demonstrate they satisfy the responsiveness test in a variety of ways, 
and that the determination will be based on all the facts and 
circumstances.
    As a result of the proposed changes to the responsiveness test, the 
proposed regulations also include conforming changes to examples and 
other regulatory provisions.
C. Integral Part Test--Functionally Integrated Type III Supporting 
Organizations
    Section 1.509(a)-4(i)(1) provides that, for each taxable year, a 
Type III supporting organization must satisfy the integral part test. 
The integral part test is satisfied under Sec.  1.509(a)-4(i)(1)(iii) 
by maintaining significant involvement in the operations of one or more 
supported organizations and providing support on which the supported 
organizations are dependent. To satisfy this test, a Type III 
supporting organization must meet the requirements either for a 
functionally integrated Type III supporting organization or for an NFI 
Type III supporting organization, as set forth in Sec.  1.509(a)-
4(i)(4) or (5), respectively.
    A Type III organization is functionally integrated under Sec.  
1.509(a)-4(i)(4) if (1) it engages in activities substantially all of 
which directly further the exempt purposes of one or more supported 
organizations and otherwise meets the requirements described in 
paragraph (i)(4)(ii) of that section, (2) it is the parent of each of 
its supported organizations as described in paragraph (i)(4)(iii) of 
that section, or (3) it supports a governmental supported organization 
and otherwise meets the requirements of paragraph (i)(4)(iv) of that 
section. The direct furtherance test is not addressed by these 
regulations.
i. Parent of Each Supported Organization
    Under the current regulations, a supporting organization is the 
parent of a supported organization if the supporting organization 
exercises a substantial degree of direction over the policies, 
programs, and activities of the supported organization and a majority 
of the officers, directors, or trustees of the supported organization 
is appointed or elected, directly or indirectly, by the governing body, 
members of the governing body, or officers (acting in their official 
capacities) of the supporting organization. See Sec.  1.509(a)-
4(i)(4)(iii). This definition was adopted by the 2012 TD; however, the 
preamble to the 2012 TD stated that the Treasury Department and the IRS 
had determined that the definition of parent was insufficiently 
specific. It further stated that the Treasury Department and the IRS 
intended to issue proposed regulations that would provide a new 
definition of parent.
    As noted in the preamble to the 2009 NPRM, the classification of a 
parent organization as functionally integrated was intended to ``apply 
to supporting organizations that oversee or facilitate the operation of 
an integrated system, such as hospital systems.'' To more fully 
accomplish this purpose, the proposed regulations amend Sec.  1.509(a)-
4(i)(4)(iii) to clarify that in order for a supporting organization to 
qualify as the parent of each of its supported organizations, the 
supporting organization and its supported organizations must be part of 
an integrated system (such as a hospital system), and the supporting 
organization must engage in activities typical of the parent of an 
integrated system. Examples of these activities include (but are not 
limited to) coordinating the activities of the supported organizations 
and engaging in overall planning, policy development, budgeting, and 
resource allocation for the supported organizations. The Treasury 
Department and the IRS request comments on what activities are typical 
of the parent of an integrated system, and whether additional

[[Page 8450]]

activities should be explicitly listed as examples.
    The proposed regulations retain the requirement that the governing 
body, members of the governing body, or officers of the supporting 
organization must appoint or elect a majority of the officers, 
directors, or trustees of the supported organization. The Treasury 
Department and the IRS intend, as stated in the 2009 NPRM, the use of 
the phrase ``appointed or elected, directly or indirectly'' to mean the 
supporting organization could qualify as a parent of a second-tier (or 
lower) subsidiary. Thus, for example, if the directors of supporting 
organization A appoint a majority of the directors of supported 
organization B, which in turn appoints a majority of the directors of 
supported organization C, the directors of supporting organization A 
will be treated as appointing the majority of the directors of both 
supported organization B and supported organization C.
    The preamble to the 2012 TD stated that the Treasury Department and 
the IRS intended that the new definition of parent would specifically 
address the power to remove and replace officers, directors, or 
trustees of the supported organization. The Treasury Department and the 
IRS interpret the existing requirement under Sec.  1.509(a)-
4(i)(4)(iii) that the parent organization have the power to appoint or 
elect a majority of the officers, directors, or trustees of each 
supported organization to include the requirement that the parent 
organization also have the power to remove and replace such officers, 
directors, or trustees, or otherwise have an ongoing power to appoint 
or elect with reasonable frequency. The Treasury Department and the IRS 
request comments on whether Sec.  1.509(a)-4(i)(4)(iii) should be 
amended to provide further clarification on this issue.
ii. Supporting a Governmental Supported Organization
    The 2009 NPRM proposed an exception to the general rules for 
qualifying as a functionally integrated Type III supporting 
organization if the supporting organization supported only one 
governmental entity, which was defined as an entity the assets of which 
are subject to the appropriations process of a federal, state, local, 
or Indian tribal government. The 2009 NPRM also provided that in order 
to be considered functionally integrated, a substantial part of the 
supporting organization's total activities had to directly further the 
exempt purpose(s) of its supported organization, and that exempt 
purposes are not directly furthered by fundraising, grantmaking, or 
investing and managing non-exempt-use assets. The Treasury Department 
and IRS received multiple comments regarding this proposal. The 2012 TD 
stated the Treasury Department and the IRS were continuing to consider 
the public comments on the 2009 NPRM regarding this governmental entity 
exception and reserved Sec.  1.509(a)-4(i)(4)(iv) for future guidance 
on how a Type III supporting organization can qualify as functionally 
integrated by supporting a governmental entity.
    These proposed regulations take the prior comments into 
consideration and provide rules to qualify as functionally integrated 
both for new and existing Type III supporting organizations that 
support governmental supported organizations. These proposed rules also 
define the term ``governmental supported organization.''
    One commenter stated that the definition of a governmental 
supported organization in the 2009 NPRM was too complicated and 
difficult to understand and administer. This commenter proposed using 
the existing definition of a governmental unit in section 
170(b)(1)(A)(v) and (c)(1).
    The Treasury Department and the IRS agree with the commenter that 
for simplicity and administrability the term ``governmental supported 
organization'' should be defined by using an existing Code definition 
of a governmental unit. The proposed regulations define a governmental 
supported organization as a governmental unit described in section 
170(c)(1), or 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). The Treasury Department and the IRS further note that a 
governmental unit described in section 170(c)(1) includes all of the 
agencies, departments, and divisions of the governmental unit, and all 
such agencies, departments, and divisions will be treated as one 
governmental supported organization for purposes of Sec.  1.509(a)-
4(i)(4)(iv). The Treasury Department and the IRS specifically request 
comments on the proposed definition of governmental supported 
organization.
    Two commenters said that the 2009 NPRM's limit of only one 
governmental supported organization was too strict and instead 
recommended allowing a supporting organization to qualify for this 
exception if it supports at least one governmental supported 
organization, as Notice 2014-4 provides. One commenter noted that the 
2009 NPRM's limit of only one governmental supported organization would 
adversely affect existing supporting organizations that support an 
additional supported organization that is not itself a governmental 
entity, but that has a substantial operational connection with the 
governmental supported organization. Another commenter said that the 
test in Notice 2014-4 was not sufficient because it did not cover 
activities, such as fundraising and grant making, that the governmental 
supported organization could not otherwise perform.
    In response to these comments, the Treasury Department and the IRS 
propose a new test for Type III supporting organizations that support 
only governmental supported organizations to qualify as functionally 
integrated. The Treasury Department and the IRS agree it would be 
appropriate to treat a Type III supporting organization that supports 
two or more governmental supported organizations as functionally 
integrated, provided that the governmental supported organizations are 
themselves connected geographically or operationally, which will help 
ensure that the supported organizations provide sufficient input to and 
oversight of the supporting organization. Thus, the proposed 
regulations provide that a supporting organization that supports more 
than one governmental supported organization may be considered 
functionally integrated if all of its governmental supported 
organizations either: (1) Operate within the same geographic region 
(defined as a city, county, or metropolitan area); or (2) work in close 
coordination or collaboration with one another to conduct a service, 
program, or activity that the supporting organization supports. To 
satisfy the close cooperation or coordination requirement, the proposed 
regulations require a supporting organization to maintain on file a 
letter from each of the governmental supported organizations (or a 
joint letter from all of them) describing their collaborative or 
cooperative efforts with respect to the particular service, program, or 
activity. In addition, the proposed regulations incorporate the 2009 
NPRM proposed requirement that a substantial part of the supporting 
organization's total activities must directly further the exempt 
purposes of its governmental supported organization(s). The Treasury 
Department and the IRS believe that using a substantial part 
requirement, instead of the substantially all requirement in Sec.  
1.509(a)-4(i)(4)(iv)(A), is appropriate when supporting

[[Page 8451]]

organizations support only governmental supported organizations 
operating in the same geographic region or working in close 
collaboration because the input from and oversight by the governmental 
supported organizations minimize the potential for abuse.
    Two commenters stated that activities such as fundraising, grant-
making, and managing non-exempt-use assets should be considered 
activities that directly further the exempt purposes of a governmental 
supported organization. The Treasury Department and the IRS note that 
the integral part test's definition of ``directly further'' in Sec.  
1.509(a)-4(i)(4)(ii)(C) generally excludes fundraising, making grants, 
and investing and managing non-exempt-use assets. The Treasury 
Department and the IRS excluded these items because they determined 
that a Type III supporting organization should qualify as functionally 
integrated only if the supporting organization itself conducts 
activities that perform the functions of or carry out the purposes of 
the supported organization (as distinguished from providing financial 
support for the activities carried out by the supported organization). 
The Treasury Department and the IRS do not believe a different 
definition of ``directly further'' should apply to supporting 
organizations that support governmental supported organizations. 
Accordingly, the proposed regulations do not adopt this comment. 
However, under the proposed rules, these types of organizations would 
be considered functionally integrated if a substantial part, but not 
substantially all, of their total activities directly further the 
exempt purposes of their governmental supported organization(s). 
Accordingly, these proposed regulations allow these organizations to 
conduct more fundraising and other financial activities, if certain 
requirements are met, than is permitted under the substantially all 
test of Sec.  1.509(a)-4(i)(4)(ii).
    In response to comments, the proposed regulations also provide a 
special rule for existing Type III supporting organizations, provided 
that they support no more than one additional supported organization 
that is not a governmental supported organization. A Type III 
supporting organization in existence on or before February 19, 2016 is 
treated as functionally integrated if: (1) It supports one or more 
governmental supported organizations and no more than one supported 
organization that is not a governmental supported organization; (2) it 
designated each of its supported organizations as provided in Sec.  
1.509(a)-4(d)(4) on or before February 19, 2016; and (3) a substantial 
part of its total activities directly furthers the exempt purposes of 
its governmental supported organization(s).
    The proposed regulations also further extend the transition relief 
provided in Notice 2014-4 and extended by the 2015 TD. Under the 
proposed regulations, a Type III supporting organization in existence 
on or before February 19, 2016 that continues to meet the requirements 
of Notice 2014-4 is treated as functionally integrated until the 
earlier of the first day of the organization's first taxable year 
beginning after the date final regulations under Sec.  1.509(a)-
4(i)(4)(iv) are published or the first day of the organization's second 
taxable year beginning after February 19, 2016.
D. Integral Part Test--Non-Functionally Integrated Type III Supporting 
Organizations
    Section 1.509(a)-4(i)(5) generally provides that an NFI Type III 
supporting organization meets the integral part test if it satisfies 
the distribution requirement of paragraph (i)(5)(ii) of that section 
and the attentiveness requirement of paragraph (i)(5)(iii) of that 
section. Section 1.509(a)-4(i)(5)(ii) provides that, with respect to 
each taxable year, a supporting organization must distribute to or for 
the use of one or more supported organizations an amount equaling or 
exceeding its ``distributable amount''. Section 1.509(a)-4(i)(6) 
provides the amount of a distribution made to a supported organization 
is the amount of cash or the fair market value of the property 
distributed.
    For clarity and consistency, the proposed regulations revise Sec.  
1.509(a)-4(i)(5)(ii) to state that a supporting organization must make 
distributions as described in Sec.  1.509(a)-4(i)(6) to satisfy the 
distribution requirement, and revise section 1.509(a)-4(i)(6) to 
describe in detail what distributions count towards the distribution 
requirement.
i. Reduction of Distributable Amount for Taxes Subtitle A Imposes
    Section 1.509(a)-4(i)(5)(ii)(B) provides that the distributable 
amount is equal to the greater of 85 percent of an organization's 
adjusted net income for the immediately preceding taxable year (as 
determined by applying the principles of section 4942(f) and Sec.  
53.4942(a)-2(d)) or its minimum asset amount for the immediately 
preceding taxable year, reduced by the amount of taxes imposed on the 
supporting organization under subtitle A of the Code during the 
immediately preceding taxable year. See Sec.  1.509(a)-4(i)(5)(ii)(B).
    The Treasury Department and the IRS believe that, because the taxes 
under subtitle A of the Code are imposed on a supporting organization's 
unrelated business taxable income (pursuant to section 511) and the 
activity that produces the unrelated business taxable income does not 
further the supported organization's exempt purposes, these taxes 
should not be treated as an amount distributed to a supported 
organization. Therefore, the proposed regulations remove the provision 
in Sec.  1.509(a)-4(i)(5)(ii)(B) that reduces the distributable amount 
by the amount of taxes subtitle A of the Code imposed on a supporting 
organization during the immediately preceding taxable year.
ii. Distributions That Count Toward Distribution Requirement
    As noted above, Sec.  1.509(a)-4(i)(6) provides details on the 
distributions by a supporting organization that count toward satisfying 
the distribution requirement imposed in Sec.  1.509(a)-4(i)(5)(ii). The 
current regulations provide that distributions include but are not 
limited to: (1) Any amount paid to a supported organization to 
accomplish the supported organization's exempt purposes; (2) any amount 
paid by the supporting organization to perform an activity that 
directly furthers the exempt purposes of the supported organization 
within the meaning of Sec.  1.509(a)-4(i)(4)(ii), but only to the 
extent such amount exceeds any income derived by the supporting 
organization from the activity; (3) any reasonable and necessary 
administrative expenses paid to accomplish the exempt purposes of the 
supported organization(s), which do not include expenses incurred in 
the production of investment income; (4) any amount paid to acquire an 
exempt-use asset described in Sec.  1.509(a)-4(i)(8)(ii); and (5) any 
amount set aside for a specific project that accomplishes the exempt 
purposes of a supported organization to which the supporting 
organization is responsive.
    The preamble to the 2012 TD stated that the list in Sec.  1.509(a)-
4(i)(6) is not exhaustive and other distributions may count toward the 
distribution requirement. The preamble further stated the Treasury 
Department and the IRS intended to propose regulations that more fully 
describe the expenditures (including expenditures for administrative 
and additional charitable activities) that do and do not count toward 
the distribution requirement.
    The Treasury Department and the IRS believe that the non-exclusive 
list in the current regulations creates uncertainty

[[Page 8452]]

for supporting organizations and the IRS about what counts toward the 
distribution requirement. Therefore, the proposed regulations revise 
and clarify the list in Sec.  1.509(a)-4(i)(6) of what counts toward 
the distribution requirement and make it an exclusive list.
    The 2012 TD clarified that reasonable and necessary administrative 
expenses paid to accomplish the exempt purposes of supported 
organizations, and not expenses incurred in the production of 
investment income, count toward the distribution requirement. For 
example, if a supporting organization conducts exempt activities that 
are for the benefit of, perform the functions of, or carry out the 
purposes of its supported organization(s) and also conducts nonexempt 
activities (such as investment activities or unrelated business 
activities), then the supporting organization's administrative expenses 
(such as salaries, rent, utilities and other overhead expenses) must be 
allocated between the exempt and nonexempt activities on a reasonable 
and consistently-applied basis. The administrative expenses 
attributable to the exempt activities are treated as distributions to 
its supported organization(s) if such expenses are reasonable and 
necessary. The administrative expenses and operating costs attributable 
to the nonexempt activities are not treated as distributions to the 
supported organization(s). The proposed regulations retain this 
provision, but also provide additional guidance on fundraising 
expenses.
    The 2012 TD did not specifically address whether fundraising 
expenses count toward the distribution requirement. The proposed 
regulations specify that reasonable and necessary administrative 
expenses paid to accomplish the exempt purposes of a supported 
organization generally do not include fundraising expenses the 
supporting organization incurs. However, under the proposed 
regulations, reasonable and necessary expenses incurred by the 
supporting organization to solicit contributions that a supported 
organization receives directly from donors count toward the 
distribution requirement, but only to the extent that the amount of 
such expenses does not exceed the amount of contributions actually 
received by the supported organization as a result of the solicitation 
activities of the supporting organization. The Treasury Department and 
the IRS believe this rule would provide greater consistency with the 
treatment of contributions that supporting organizations receive 
directly and then distribute to their supported organizations (net of 
the supporting organizations' solicitation expenses). To ensure that a 
supporting organization has the information it needs to calculate the 
allowable expenses, the proposed regulations require the supporting 
organization to obtain written substantiation from the supported 
organization of the amount of contributions the supported organization 
actually received as a result of the supporting organization's 
solicitations.
    One commenter requested that program related investments (PRIs) 
count toward the distribution requirement. The preamble to the 2012 TD 
stated the 2012 final and temporary regulations did not specifically 
address whether or not PRIs may count toward the distribution 
requirement or are excluded in calculating a supporting organization's 
distributable amount for a taxable year. The Treasury Department and 
the IRS recognize that private foundations may use PRIs in a variety of 
ways to accomplish their exempt purposes and that PRIs thus are treated 
as qualifying distributions under section 4942. However, because 
supporting organizations must be operated exclusively for the benefit 
of, to perform the functions of, or to carry out the purposes of their 
supported organizations, they differ from private foundations. For 
purposes of meeting the integral part test, the Treasury Department and 
the IRS do not believe that PRIs should be treated as distributions to 
supported organizations. The Treasury Department and the IRS believe 
that other provisions relating to the distribution requirement, such as 
the availability of set asides and the potential for carry-forwards of 
excess distributions, provide significant flexibility for supporting 
organizations to meet the current and future needs of their supported 
organizations. For these reasons, the proposed regulations do not adopt 
this comment.

Effective Date and Reliance

    These regulations are proposed to be effective on the date the 
Treasury decision adopting these rules as final or temporary 
regulations is published in the Federal Register. However, taxpayers 
may rely on the provisions of the proposed regulations until final or 
temporary regulations are issued.

Statement of Availability of IRS Documents

    The IRS Notice 2014-4 cited in this preamble is published in the 
Internal Revenue Bulletin and is available from the Superintendent of 
Documents, U.S. Government Printing Office, Washington, DC 20402, or by 
visiting the IRS Web site at http://www.irs.gov.

Special Analyses

    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory impact 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 to 
these regulations.
    In connection with the requirements of the Regulatory Flexibility 
Act (5 U.S.C. chapter 6), it is hereby certified that the collection of 
information contained in the proposed regulations will not have a 
significant economic impact on a substantial number of small entities. 
This certification is based on the fact that the proposed regulations 
will not impact a substantial number of small entities.
    Based on IRS Statistics of Income data for 2013, there are 
1,052,495 active nonprofit charitable organizations recognized by the 
IRS under section 501(c)(3), of which only 7,872 organizations self-
identified as Type III supporting organizations. The universe of 
organizations that would be affected by the collection of information 
under proposed Sec.  1.509(a)-4(i)(4)(iii) and Sec.  1.509(a)-
4(i)(6)(iii) is a subset of all Type III supporting organizations. 
Thus, the number of organizations that would be affected by the 
collection of information under proposed Sec.  1.509(a)-4(i)(4)(iii) 
and (i)(6)(iii), which is expected to be significantly less than 7,872, 
would not be substantial. Moreover, the time to complete the 
recordkeeping requirements is expected to be no more than 2 hours for 
each organization, which would not have a significant economic impact. 
Therefore, the collection of information under proposed Sec.  1.509(a)-
4(i)(4)(iii) and (i)(6)(iii) would not have a significant economic 
impact.
    Pursuant to section 7805(f) of the Code, this regulation has been 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any electronic comments or written 
comments (a signed original and eight (8) copies) that are submitted 
timely to the IRS. The Treasury Department and

[[Page 8453]]

the IRS request comments on all aspects of the proposed rules. All 
comments that are submitted by the public will be available for public 
inspection and copying at www.regulations.gov or upon request. A public 
hearing may be scheduled if requested in writing by any person that 
timely submits written comments. If a public hearing is scheduled, 
notice of the date, time, and place for the public hearing will be 
published in the Federal Register.

Drafting Information

    The principal authors of these regulations are Jonathan Carter and 
Mike Repass, Office of Associate Chief Counsel (Tax-Exempt and 
Government Entities). However, other personnel from the Treasury 
Department and the IRS participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be 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. Section 1.509(a)-4 is amended by:
0
1. Revising paragraphs (f)(5)(ii), (i)(2)(i) introductory text, 
(i)(2)(i)(A), (i)(2)(iii), and (i)(3)(i);
0
2. Adding Example 3 to paragraph (i)(3)(iv);
0
3. Revising paragraphs (i)(4)(ii)(A)(1), (i)(4)(ii)(B), (i)(4)(iii) and 
(iv), (i)(5)(ii)(A) and (B), (i)(5)(iii)(A), Example 4 of paragraph 
(i)(5)(iii)(D), the third sentence of paragraph (i)(6) introductory 
text, and paragraphs (i)(6)(iii) and (v) introductory text and (l).
    The revisions and additions read as follows:


Sec.  1.509(a)-4  Supporting organizations.

* * * * *
    (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 generally 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. 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 (the 
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);
* * * * *
    (iii) Due date. The notification documents required by this 
paragraph (i)(2) shall be delivered or electronically 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) * * *
    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 regular 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 test 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 organization(s). 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

[[Page 8454]]

supported organizations, the supporting organization and its supported 
organizations must be part of an integrated system (such as a hospital 
system), the supporting organization must engage in activities typical 
of the parent of an integrated system, and a majority of the officers, 
directors, or trustees of each supported organization must be appointed 
or elected, directly or indirectly, by the governing body, members of 
the governing body, or officers (acting in their official capacities) 
of the supporting organization. For purposes of this paragraph 
(i)(4)(iii), examples of activities typical of the parent of an 
integrated system of supported organizations include (but are not 
limited to) coordinating the activities of the supported organizations 
and engaging in overall planning, policy development, budgeting, and 
resource allocation for the supported organizations.
    (iv) Supporting a governmental supported organization--(A) In 
general. A supporting organization satisfies the requirements of this 
paragraph (i)(4)(iv) if--
    (1) The supporting organization supports only governmental 
supported organizations, and, if the supporting organization supports 
more than one governmental supported organization, all of the 
governmental supported organizations either--
    (i) Operate within the same geographic region; or
    (ii) Work in close coordination or collaboration with one another 
to conduct a service, program, or activity that the supporting 
organization supports; and
    (2) 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 its 
governmental supported organization(s).
    (B) Governmental supported organization defined. For purposes of 
paragraph (i)(4)(iv)(A) of this section, the term governmental 
supported organization means a supported organization that is--
    (1) A governmental unit described in section 170(c)(1); 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) Geographic region defined. For purposes of paragraph 
(i)(4)(iv)(A)(1) of this section, the term geographic region means a 
city, county, or metropolitan area.
    (D) Close cooperation or coordination. To satisfy the close 
cooperation or coordination requirement of paragraph (i)(4)(iv)(A)(1) 
of this section, the supporting organization shall maintain on file a 
letter from each of the governmental supported organizations (or a 
joint letter from all of them) describing their collaborative or 
cooperative efforts with respect to the particular service, program, or 
activity.
    (E) Exception for organizations supporting a governmental supported 
organization 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 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 earlier of the first day of the 
organization's first taxable year beginning after the date final 
regulations are published in the Federal Register under this paragraph 
(i)(4)(iv) or 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 met and continues 
to meet the following requirements--
    (1) It supports at least one supported organization that is a 
governmental entity to which the supporting organization is responsive 
within the meaning of paragraph (i)(3) of this section; and
    (2) It engages in activities for or on behalf of the governmental 
supported organization described in paragraph (i)(4)(iv)(F)(1) of this 
section that perform the functions of, or carry out the purposes of, 
that governmental supported organization and that, but for the 
involvement of the supporting organization, would normally be engaged 
in by the governmental supported organization itself.
* * * * *
    (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 Sec.  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) * * *
    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 two-
fifths (more than the required one-third) of its

[[Page 8455]]

distributable amount to supported organizations that are attentive to 
O.
    (6) Distributions that count toward distribution requirement. * * * 
Distributions by the supporting organization that count toward the 
distribution requirement imposed in paragraph (i)(5)(ii) of this 
section are limited to the following--
* * * * *
    (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 the conduct of fundraising 
activities, except as provided in paragraph (i)(6)(iii)(B) of this 
section; and
    (B) Expenses incurred to solicit contributions that are received 
directly by a supported organization, but only to the extent the amount 
of such expenses does not exceed the amount of contributions actually 
received by the supported organization as a result of the solicitation, 
as substantiated in writing by the supported organization;
* * * * *
    (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) Effective/applicability dates. (1) Paragraphs (a)(6), (f)(5), 
and (i) of this section are effective 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 (f)(5)(ii), (i)(2)(i) and (iii), (i)(3)(i), 
(i)(4)(ii)(A)(1), (i)(4)(ii)(B), (i)(4)(iii) and (iv), (i)(5)(ii)(A) 
and (B), (i)(5)(iii)(A), (i)(6)(i), (iii) and (v) of this section, 
Example 3 of paragraph (i)(3)(iv) of this section, and Example 4 of 
paragraph (i)(5)(iii)(D) of this section are effective on the date the 
Treasury decision adopting these rules as final or temporary 
regulations is published in the Federal Register.
    (2) See paragraphs (i)(5)(ii)(B) and (C) and (i)(8) of Sec.  
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 Sec.  1.509(a)-4 
(as effective December 21, 2015), for certain rules regarding non-
functionally integrated Type III supporting organizations effective 
before the date the Treasury decision adopting these rules as final or 
temporary regulations is published in the Federal Register.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-02858 Filed 2-18-16; 8:45 am]
 BILLING CODE 4830-01-P



                                                      8446                     Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Proposed Rules

                                                         (f) Technical data (see § 120.10) and                DEPARTMENT OF THE TREASURY                            the Internal Revenue Service, Attn: IRS
                                                      defense services (see § 120.9) directly                                                                       Reports Clearance Officer,
                                                      related to the defense articles                         Internal Revenue Service                              SE:W:CAR:MP:T:T:SP, Washington, DC
                                                      enumerated in paragraphs (a) through                                                                          20224. Comments on the collection of
                                                      (e) of this category and classified                     26 CFR Part 1                                         information should be received by April
                                                      technical data directly related to items                [REG–118867–10]                                       19, 2016.
                                                      controlled in ECCNs 7A611, 7B611, and                                                                           Comments are specifically requested
                                                                                                              RIN 1545–BJ53                                         concerning:
                                                      7D611. (See § 125.4 for exemptions.)
                                                                                                                                                                      • Whether the proposed collection of
                                                      (MT for technical data and defense                      Requirements for Type I and Type III                  information is necessary for the proper
                                                      services related to articles designated as              Supporting Organizations                              performance of the functions of the IRS,
                                                      such.) Technical data directly related to
                                                                                                              AGENCY: Internal Revenue Service (IRS),               including whether the information will
                                                      manufacture or production of any                                                                              have practical utility;
                                                      defense articles enumerated elsewhere                   Treasury.
                                                                                                              ACTION: Notice of proposed rulemaking.
                                                                                                                                                                      • The accuracy of the estimated
                                                      in this category that are designated as                                                                       burden associated with the proposed
                                                      Significant Military Equipment (SME)                    SUMMARY:   This document contains                     collection of information;
                                                      shall itself be designated as SME.                      proposed regulations regarding the                      • How the quality, utility, and clarity
                                                         (g)–(w) [Reserved]                                   prohibition on certain contributions to               of the information to be collected may
                                                                                                              Type I and Type III supporting                        be enhanced;
                                                         (x) Commodities, software, and                                                                               • How the burden of complying with
                                                      technology subject to the EAR (see                      organizations and the requirements for
                                                                                                              Type III supporting organizations. The                the proposed collection of information
                                                      § 120.42 of this subchapter) used in or                                                                       may be minimized, including through
                                                                                                              regulations reflect changes to the law
                                                      with defense articles controlled in this                                                                      forms of information technology; and
                                                                                                              made by the Pension Protection Act of
                                                      category.
                                                                                                              2006. The regulations will affect Type I                • Estimates of capital or start-up costs
                                                        Note to paragraph (x): Use of this                    and Type III supporting organizations                 and costs of operation, maintenance,
                                                      paragraph is limited to license applications            and their supported organizations.                    and purchase of services to provide
                                                      for defense articles controlled in this category        DATES: Written or electronic comments
                                                                                                                                                                    information.
                                                      where the purchase documentation includes               and requests for a public hearing must                  The collection of information in these
                                                      commodities, software, or technology subject            be received by May 19, 2016.                          proposed regulations is in § 1.509(a)–
                                                      to the EAR (see § 123.1(b) of this subchapter).                                                               4(i)(4)(iv)(D) (written record of close
                                                                                                              ADDRESSES: Send submissions to:
                                                                                                                                                                    cooperation and coordination by the
                                                         Note to Category XII: For purposes of                CC:PA:LPD:PR (REG–118867–10), Room                    governmental supported organizations)
                                                      determining whether an item (i.e., system,              5203, Internal Revenue Service, P.O.                  and § 1.509(a)–4(i)(6)(iii)(B) (written
                                                      end item, part, component, accessory,                   Box 7604, Ben Franklin Station,                       record of contributions received by the
                                                      attachment, or software) is specially designed          Washington, DC 20044. Submissions                     supported organization). Requiring the
                                                      for a military end user, a ‘‘military end user’’        may be hand-delivered Monday through                  supporting organization to collect
                                                      means the national armed services (army,                Friday between the hours of 8:00 a.m.                 written records of its governmental
                                                      navy, marine, air force, or coast guard),               and 4 p.m. to CC:PA:LPD:PR (REG–                      supported organizations’ close
                                                      national guard, national police, government             118867–10), Courier’s Desk, Internal                  cooperation and coordination with each
                                                      intelligence or reconnaissance organizations,           Revenue Service, 1111 Constitution                    other and written records of the
                                                      or any person or entity whose actions or                Avenue NW., Washington, DC, 20224 or                  contributions its supported
                                                      functions are intended to support military              sent electronically via the Federal                   organizations directly received in
                                                      end uses. A system or end item is not                   eRulemaking Portal at http://                         response to solicitations by the
                                                      specially designed for a military end user if           www.regulations.gov/ (IRS REG–                        supporting organization permits the IRS
                                                      the item was developed with knowledge that              118867–10).                                           to determine whether the supporting
                                                      it is or would be for use by both military end          FOR FURTHER INFORMATION CONTACT:                      organization satisfies the requirements
                                                      users and non-military end users, or if the             Concerning the proposed regulations,                  to be a functionally integrated or non-
                                                      item was or is being developed with no                  Jonathan Carter at (202) 317–5800 or                  functionally integrated Type III
                                                      knowledge for use by a particular end user.             Mike Repass at (202) 317–4086;                        supporting organization. The record
                                                      In such instances, documents                            concerning submissions of comments                    keepers are Type III supporting
                                                      contemporaneous with the development                    and requests for a public hearing,                    organizations.
                                                      must establish such knowledge.                          Regina Johnson at (202) 317–6901 (not                   Estimated number of recordkeepers:
                                                                                                              toll-free numbers).                                   7,872.
                                                      *      *     *       *      *
                                                                                                              SUPPLEMENTARY INFORMATION:                              Estimated average annual burden
                                                      Rose E. Gottemoeller,                                                                                         hours per recordkeeper: 2 hours.
                                                                                                              Paperwork Reduction Act
                                                      Under Secretary, Arms Control and                                                                               Estimated total annual recordkeeping
                                                      International Security, Department of State.              The collection of information                       burden: 15,744.
                                                      [FR Doc. 2016–03197 Filed 2–18–16; 8:45 am]             contained in this notice of proposed                    Estimated frequency of collection of
                                                                                                              rulemaking has been submitted to the                  such information: Annual.
                                                      BILLING CODE 4710–25–P
                                                                                                              Office of Management and Budget for                     An agency may not conduct or
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                                                                                                              review and approval in accordance with                sponsor, and a person is not required to
                                                                                                              the Paperwork Reduction Act of 1995                   respond to, a collection of information
                                                                                                              (44 U.S.C. 3507(d)). Comments on the                  unless it displays a valid control
                                                                                                              collection of information should be sent              number assigned by the Office of
                                                                                                              to the Office of Management and                       Management and Budget.
                                                                                                              Budget, Attn: Desk Officer for the                      Books or records relating to a
                                                                                                              Department of the Treasury, Office of                 collection of information must be
                                                                                                              Information and Regulatory Affairs,                   retained as long as their contents may
                                                                                                              Washington, DC 20503, with copies to                  become material in the administration


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                                                                              Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Proposed Rules                                             8447

                                                      of any internal revenue law. Generally,                 this preamble. Finally, the disqualified              Type III supporting organization under
                                                      tax returns and return information are                  person control test requires that a                   § 1.509(a)–4(i)(4), including provisions
                                                      confidential, as required by 26 U.S.C.                  supporting organization not be                        for supporting organizations that
                                                      6103.                                                   controlled directly or indirectly by                  support governmental entities; and
                                                                                                              certain disqualified persons.                         additional rules regarding the required
                                                      Background                                                 These proposed regulations focus                   annual distributions under § 1.509(a)–
                                                      1. Overview                                             primarily on the relationship test for                4(i)(5) by a NFI Type III supporting
                                                         This document contains proposed                      Type III supporting organizations.                    organization. The proposed regulations
                                                      amendments to the Income Tax                            Specifically, the proposed regulations                also define the term ‘‘control’’ for
                                                      Regulations (26 CFR part 1) regarding                   reflect statutory changes enacted by                  purposes of section 509(f)(2), which
                                                      organizations described in section                      sections 1241 through 1243 of the                     prohibits a Type I supporting
                                                      509(a)(3) of the Internal Revenue Code                  Pension Protection Act of 2006, Public                organization or a Type III supporting
                                                      (Code). An organization described in                    Law 109–280 (120 Stat. 780) (2006)                    organization from accepting
                                                                                                              (PPA)), which made the following five                 contributions from persons who control
                                                      section 501(c)(3) is classified as either a
                                                                                                              changes to the requirements an                        the governing body of its supported
                                                      private foundation or a public charity.
                                                                                                              organization must satisfy to qualify as a             organization(s).
                                                      To be classified as a public charity, an
                                                                                                              Type III supporting organization:
                                                      organization must be described in                          (1) Removed the ability of a charitable            2. Prior Rulemaking
                                                      section 509(a)(1), (2), or (3).                         trust to rely on the special rule under                  On August 2, 2007, the Treasury
                                                      Organizations described in section                      § 1.509(a)–4(i)(2)(iii) of the regulations            Department and the IRS published in
                                                      509(a)(3) are known as ‘‘supporting                     then in effect;                                       the Federal Register (72 FR 42335) an
                                                      organizations.’’ Supporting                                (2) Directed the Secretary of the                  advanced notice of proposed
                                                      organizations achieve their public                      Treasury to promulgate regulations                    rulemaking (ANPRM) (REG–155929–06)
                                                      charity status by providing support to                  under section 509 that establish a new                in response to the PPA. The ANPRM
                                                      one or more organizations described in                  distribution requirement for Type III                 described proposed rules to implement
                                                      section 509(a)(1) or (2), which in this                 supporting organizations that are not                 the changes made by the PPA to the
                                                      context are referred to as ‘‘supported                  ‘‘functionally integrated’’ (a non-                   Type III supporting organization
                                                      organizations.’’                                        functionally integrated (NFI) Type III                requirements and solicited comments
                                                         To be described in section 509(a)(3),                supporting organization) to ensure that               regarding those proposed rules.
                                                      an organization must satisfy (1) an                     a ‘‘significant amount’’ is paid to                      On September 24, 2009, the Treasury
                                                      organizational test, (2) an operational                 supported organizations (for this                     Department and the IRS published in
                                                      test, (3) a relationship test, and (4) a                purpose the term ‘‘functionally                       the Federal Register (74 FR 48672) a
                                                      disqualified person control test. The                   integrated’’ means a Type III supporting              notice of proposed rulemaking (the 2009
                                                      organizational and operational tests                    organization that is not required under               NPRM) (REG–155929–06). The 2009
                                                      require that a supporting organization                  Treasury regulations to make payments                 NPRM contained proposed regulations
                                                      be organized and at all times thereafter                to supported organizations, because the               (the 2009 proposed regulations) setting
                                                      operated exclusively for the benefit of,                supporting organization engages in                    forth the requirements to qualify as a
                                                      to perform the functions of, or to carry                activities that relate to performing the              Type III supporting organization under
                                                      out the purposes of one or more                         functions of, or carrying out the                     the PPA.
                                                      supported organizations. The                            purposes of, its supported                               On December 28, 2012, the Treasury
                                                      relationship test requires a supporting                 organization(s));                                     Department and the IRS published in
                                                      organization to establish one of three                     (3) Required a Type III supporting                 the Federal Register (77 FR 76382) a
                                                      types of relationships with one or more                 organization to provide annually to each              Treasury decision (TD 9605) containing
                                                      supported organizations. A supporting                   of its supported organizations the                    final and temporary regulations (the
                                                      organization that is operated, supervised               information required by the Treasury                  2012 TD) regarding the requirements to
                                                      or controlled by one or more supported                  Department and the IRS to ensure that                 qualify as a Type III supporting
                                                      organizations is known as a ‘‘Type I’’                  the supporting organization is                        organization. Based on the comments
                                                      supporting organization. The                            responsive to the needs or demands of                 received, the 2012 TD made certain
                                                      relationship of a Type I supporting                     its supported organization(s);                        changes to the rules proposed in the
                                                      organization with its supported                            (4) Prohibited a Type III supporting               2009 NPRM, included in the temporary
                                                      organization(s) is comparable to that of                organization from supporting any                      regulations significant changes to the
                                                      a corporate parent-subsidiary                           supported organization not organized in               distribution requirement, and reserved
                                                      relationship. A supporting organization                 the United States; and                                certain topics for further consideration.
                                                      that is supervised or controlled in                        (5) Prohibited a Type I or Type III                Also on December 28, 2012, the
                                                      connection with one or more supported                   supporting organization from accepting                Treasury Department and the IRS
                                                      organizations is known as a ‘‘Type II’’                 a gift or contribution from a person who,             published in the Federal Register (77
                                                      supporting organization. The                            alone or together with certain related                FR 76426) a notice of proposed
                                                      relationship of a Type II supporting                    persons, directly or indirectly controls              rulemaking (the 2012 NPRM) (REG–
                                                      organization with its supported                         the governing body of a supported                     155929–06) that incorporated the text of
                                                      organization(s) involves common                         organization of the Type I or Type III                the temporary regulations in the 2012
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                                                      supervision or control by the persons                   supporting organization.                              TD by cross-reference. The 2012 TD
                                                      supervising or controlling both the                        These proposed regulations set forth               provided transition relief for Type III
                                                      supporting organization and the                         additional rules on the requirements for              supporting organizations in existence on
                                                      supported organization(s). A supporting                 Type III supporting organizations,                    December 28, 2012, that met and
                                                      organization that is operated in                        including additional requirements to                  continued to meet the test under former
                                                      connection with one or more supported                   meet the responsiveness test for all Type             § 1.509(a)–4(i)(3)(ii), as in effect prior to
                                                      organizations is known as a ‘‘Type III’’                III supporting organizations; additional              December 28, 2012, treating them as
                                                      supporting organization and is                          rules regarding the qualification of an               functionally integrated until the first
                                                      discussed further in the remainder of                   organization as a functionally integrated             day of their second taxable years


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                                                      8448                    Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Proposed Rules

                                                      beginning after December 28, 2012. The                  1. Gifts From Controlling Donor—                      Type III supporting organization to
                                                      preamble to the 2012 TD also identified                 Meaning of Control                                    provide to each of its supported
                                                      issues for possible future rulemaking                      Type I and Type III supporting                     organizations for each taxable year: (1)
                                                      and requested comments. The IRS                         organizations are prohibited from                     A written notice addressed to a
                                                      received three comments on these                        accepting a gift or contribution from a               principal officer of the supported
                                                      issues. The comments were considered                                                                          organization describing the type and
                                                                                                              person who, alone or together with
                                                      in developing these proposed                                                                                  amount of all of the support it provided
                                                                                                              certain related persons, directly or
                                                      regulations and are available for public                                                                      to the supported organization during the
                                                                                                              indirectly controls the governing body
                                                      inspection at www.regulations.gov or                                                                          supporting organization’s preceding
                                                                                                              of a supported organization of the Type
                                                      upon request. No public hearing was                                                                           taxable year; (2) a copy of the
                                                                                                              I or Type III supporting organization, or
                                                      requested.                                                                                                    supporting organization’s most recently
                                                                                                              from persons related to a person
                                                                                                                                                                    filed Form 990, ‘‘Return of Organization
                                                         The Treasury Department and the IRS                  possessing such control. Section
                                                                                                                                                                    Exempt from Income Tax,’’ or other
                                                      published Notice 2014–4, 2014–2 I.R.B.                  509(f)(2) and § 1.509(a)–4(f)(5). For this
                                                                                                                                                                    annual information return required to be
                                                      274, to provide additional transition                   purpose, related persons include family
                                                                                                                                                                    filed under section 6033; and (3) a copy
                                                      relief for any Type III supporting                      members and 35-percent controlled                     of the supporting organization’s
                                                      organization that (1) supports at least                 entities within the meaning of section                governing documents, including any
                                                      one governmental supported                              4958(f). Although the 2012 TD reserved                amendments (unless previously
                                                      organization to which the supporting                    § 1.509(a)–4(f)(5)(ii), ‘‘Meaning of                  provided and not subsequently
                                                      organization is responsive within the                   control,’’ the preamble to the 2012 TD                amended). For NFI Type III supporting
                                                      meaning of § 1.509(a)–4(i)(3) and (2)                   indicated that the Treasury Department                organizations, the description of support
                                                      engages in activities for or on behalf of               and the IRS intended to issue proposed                in the written notice includes all of the
                                                      the governmental supported                              regulations that would provide such a                 distributions described in § 1.509(a)–
                                                      organization that perform the functions                 definition.                                           4(i)(6) to the supported organization.
                                                      of, or carry out the purposes of, the                      These proposed regulations define                     The proposed regulations amend
                                                                                                              ‘‘control’’ for this purpose consistently             § 1.509(a)–4(i)(2) to clarify that a
                                                      governmental supported organization
                                                                                                              with § 1.509(a)–4(j), which relates to                supporting organization must deliver
                                                      and that, but for the involvement of the
                                                                                                              control by disqualified persons for                   the required documents to each of its
                                                      supporting organization, would
                                                                                                              purposes of the disqualified person                   supported organizations by the last day
                                                      normally be engaged in by the
                                                                                                              control test. In general, under the                   of the fifth month of the taxable year
                                                      governmental supported organization
                                                                                                              proposed regulations, the governing                   after the taxable year in which the
                                                      itself. Notice 2014–4 provides that such                body of a supported organization is
                                                      an organization will be treated as a                                                                          supporting organization provided the
                                                                                                              considered ‘‘controlled’’ by a person if              support it is reporting. This proposed
                                                      functionally integrated Type III                        that person, alone or by aggregating his
                                                      supporting organization until the earlier                                                                     change is intended to reduce confusion,
                                                                                                              or her votes or positions of authority                but does not substantively change the
                                                      of the date final regulations are                       with certain related persons, as                      due date or the content of the required
                                                      published under § 1.509(a)–4(i)(4)(iv) in               described in section 509(f)(2)(B)(ii) and             notification. Date of delivery is
                                                      the Federal Register or the first day of                (iii), may require the governing body of              determined applying the general
                                                      the organization’s third taxable year                   the supported organization to perform                 principles of section 7502.
                                                      beginning after December 31, 2013.                      any act that significantly affects its
                                                         On December 23, 2015, the Treasury                   operations or may prevent the governing               B. Responsiveness Test
                                                      Department and the IRS published in                     body of the supported organization from                 Section 1.509(a)–4(i)(3)(i) provides
                                                      the Federal Register (80 FR 79684) a                    performing any such act.                              that a supporting organization meets the
                                                      Treasury Decision (TD 9746) containing                                                                        responsiveness test if it is ‘‘responsive
                                                                                                              2. Type III Supporting Organization                   to the needs or demands of a supported
                                                      final regulations (the 2015 TD) regarding               Relationship Test
                                                      the distribution requirement for NFI                                                                          organization.’’ To meet this
                                                      Type III supporting organizations. The                    Section 1.509(a)–4(i)(1) provides that              responsiveness test, an organization
                                                      preamble of those regulations provided                  for each taxable year, a Type III                     must satisfy: (1) A relationship test
                                                      that supporting organizations                           supporting organization must satisfy (i)              described in § 1.509(a)–4(i)(3)(ii) under
                                                      supporting a governmental supported                     a notification requirement, (ii) a                    which the officers, directors, or trustees
                                                      organization could continue to rely on                  responsiveness test, and (iii) an integral            of the organization have a specified
                                                      Notice 2014–4 until the date of                         part test provided in the regulations.                relationship with the officers, directors,
                                                      publication of the notice of proposed                   These proposed regulations provide                    or trustees (and in some cases the
                                                                                                              additional rules regarding each of these              members) of the supported organization;
                                                      rulemaking prescribing the new
                                                                                                              requirements.                                         and (2) a significant voice test described
                                                      proposed regulations under § 1.509(a)–
                                                                                                                                                                    in § 1.509(a)–4(i)(3)(iii) under which the
                                                      (i)(4)(iv). The IRS received three                      A. Notification Requirement                           officers, directors, or trustees of the
                                                      comments in response to Notice 2014–
                                                                                                                Section 509(f)(1)(A) provides that an               supported organization, by reason of
                                                      4, which the Treasury Department and                    organization shall not be considered a                this relationship, have a significant
                                                      the IRS considered in developing these                  Type III supporting organization unless               voice in the investment policies of the
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                                                      proposed regulations.                                   the organization provides to each                     supporting organization, the timing of
                                                      Explanation of Provisions and                           supported organization, for each taxable              grants, the manner of making grants,
                                                      Summary of Comments                                     year, such information as the Secretary               and the selection of grant recipients by
                                                                                                              may require to ensure that the                        the supporting organization, and in
                                                        This section describes the proposed                   organization is responsive to the needs               otherwise directing the use of the
                                                      provisions and addresses comments that                  or demands of the supported                           income or assets of the supporting
                                                      the Treasury Department and the IRS                     organizations.                                        organization. The preamble to the 2012
                                                      received in response to the 2012 TD and                   To satisfy this notification                        TD stated that, in determining the
                                                      Notice 2014–4.                                          requirement, § 1.509(a)–4(i)(2) requires a            appropriate distribution amount for NFI


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                                                                              Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Proposed Rules                                          8449

                                                      Type III supporting organizations, the                  the required relationships with the                   purposes of one or more supported
                                                      Treasury Department and the IRS                         supporting organization’s officers,                   organizations and otherwise meets the
                                                      considered the required relationship                    directors, or trustees listed in § 1.509(a)–          requirements described in paragraph
                                                      between a supporting organization and                   4(i)(3)(ii). It also shows how a                      (i)(4)(ii) of that section, (2) it is the
                                                      its supported organizations, and that the               supporting organization can organize                  parent of each of its supported
                                                      Treasury Department and the IRS                         and hold regular meetings, provide                    organizations as described in paragraph
                                                      intended to issue proposed regulations                  information, and encourage                            (i)(4)(iii) of that section, or (3) it
                                                      in the future that would amend the                      communication to help ensure that the                 supports a governmental supported
                                                      responsiveness test by requiring a Type                 supported organizations have a                        organization and otherwise meets the
                                                      III supporting organization to be                       significant voice in the operations of the            requirements of paragraph (i)(4)(iv) of
                                                      responsive to all of its supported                      supporting organization.                              that section. The direct furtherance test
                                                      organizations.                                             Another commenter requested                        is not addressed by these regulations.
                                                         In response to this proposal in the                  additional guidance regarding the
                                                      preamble to the 2012 TD, one                            ability of trusts to satisfy the significant          i. Parent of Each Supported
                                                      commenter stated that a supporting                      voice requirement of the responsiveness               Organization
                                                      organization should not be required to                  test. The new Example 3 provides                         Under the current regulations, a
                                                      be responsive to all of its supported                   further illustration of how Type III                  supporting organization is the parent of
                                                      organizations because the resulting                     supporting organizations, including                   a supported organization if the
                                                      administrative burden would effectively                 charitable trusts, might satisfy the                  supporting organization exercises a
                                                      limit the total number of organizations                 significant voice requirement of the                  substantial degree of direction over the
                                                      a supporting organization could                         responsiveness test. The Treasury                     policies, programs, and activities of the
                                                      support. The commenter suggested                        Department and the IRS note that                      supported organization and a majority
                                                      alternatives under which a supporting                   although the examples in the                          of the officers, directors, or trustees of
                                                      organization would be responsive to                     regulations relating to the                           the supported organization is appointed
                                                      only a subset of its supported                          responsiveness test may involve a Type                or elected, directly or indirectly, by the
                                                      organizations that would vary from year                 III supporting organization that is                   governing body, members of the
                                                      to year.                                                organized as either a corporation or a                governing body, or officers (acting in
                                                         The Treasury Department and the IRS                  trust, the applicable law and relevant                their official capacities) of the
                                                      note that the distinguishing                            regulatory provisions, as modified by                 supporting organization. See § 1.509(a)–
                                                      characteristic of Type III supporting                   the proposed regulations, are applicable              4(i)(4)(iii). This definition was adopted
                                                      organizations, and the basis for their                  to all Type III supporting organizations              by the 2012 TD; however, the preamble
                                                      public charity classification, is that they             in the same manner, whether organized                 to the 2012 TD stated that the Treasury
                                                      are responsive to and significantly                     as a corporation or a trust. The Treasury             Department and the IRS had determined
                                                      involved in the operations of their                     Department and the IRS anticipate that                that the definition of parent was
                                                      publicly supported organizations. See                   Type III supporting organizations may
                                                                                                                                                                    insufficiently specific. It further stated
                                                      § 1.509(a)–4(f)(4). The Treasury                        be able to demonstrate they satisfy the
                                                                                                                                                                    that the Treasury Department and the
                                                      Department and the IRS believe that,                    responsiveness test in a variety of ways,
                                                      unless a Type III supporting                                                                                  IRS intended to issue proposed
                                                                                                              and that the determination will be based
                                                      organization is responsive to each of its                                                                     regulations that would provide a new
                                                                                                              on all the facts and circumstances.
                                                      supported organizations, the supported                     As a result of the proposed changes to             definition of parent.
                                                      organizations cannot exercise the                       the responsiveness test, the proposed                    As noted in the preamble to the 2009
                                                      requisite level of oversight of and                     regulations also include conforming                   NPRM, the classification of a parent
                                                      engagement with the supporting                          changes to examples and other                         organization as functionally integrated
                                                      organization. Limiting the                              regulatory provisions.                                was intended to ‘‘apply to supporting
                                                      responsiveness requirement to fewer                                                                           organizations that oversee or facilitate
                                                                                                              C. Integral Part Test—Functionally                    the operation of an integrated system,
                                                      than all of the supported organizations
                                                      may result in the necessary oversight                   Integrated Type III Supporting                        such as hospital systems.’’ To more fully
                                                      and accountability being present for less               Organizations                                         accomplish this purpose, the proposed
                                                      than all of a supporting organization’s                    Section 1.509(a)–4(i)(1) provides that,            regulations amend § 1.509(a)–4(i)(4)(iii)
                                                      operations. Therefore, the proposed                     for each taxable year, a Type III                     to clarify that in order for a supporting
                                                      regulations revise § 1.509(a)–4(i)(3)(i) to             supporting organization must satisfy the              organization to qualify as the parent of
                                                      require a supporting organization to be                 integral part test. The integral part test            each of its supported organizations, the
                                                      responsive to the needs and demands of                  is satisfied under § 1.509(a)–4(i)(1)(iii)            supporting organization and its
                                                      each of its supported organizations in                  by maintaining significant involvement                supported organizations must be part of
                                                      order to meet the responsiveness test.                  in the operations of one or more                      an integrated system (such as a hospital
                                                         To illustrate how concerns about                     supported organizations and providing                 system), and the supporting
                                                      potential administrative burdens may be                 support on which the supported                        organization must engage in activities
                                                      addressed consistent with the                           organizations are dependent. To satisfy               typical of the parent of an integrated
                                                      responsiveness test, the proposed                       this test, a Type III supporting                      system. Examples of these activities
                                                      regulations include a new example. The                  organization must meet the                            include (but are not limited to)
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                                                      proposed example is intended to                         requirements either for a functionally                coordinating the activities of the
                                                      demonstrate one way in which a Type                     integrated Type III supporting                        supported organizations and engaging in
                                                      III supporting organization that supports               organization or for an NFI Type III                   overall planning, policy development,
                                                      multiple organizations may satisfy the                  supporting organization, as set forth in              budgeting, and resource allocation for
                                                      responsiveness test in a manner that can                § 1.509(a)–4(i)(4) or (5), respectively.              the supported organizations. The
                                                      be cost-effective. The example shows                       A Type III organization is functionally            Treasury Department and the IRS
                                                      that a supporting organization can, with                integrated under § 1.509(a)–4(i)(4) if (1)            request comments on what activities are
                                                      respect to each of its supported                        it engages in activities substantially all            typical of the parent of an integrated
                                                      organizations, meet a different subset of               of which directly further the exempt                  system, and whether additional


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                                                      8450                    Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Proposed Rules

                                                      activities should be explicitly listed as               fundraising, grantmaking, or investing                supported organization would adversely
                                                      examples.                                               and managing non-exempt-use assets.                   affect existing supporting organizations
                                                         The proposed regulations retain the                  The Treasury Department and IRS                       that support an additional supported
                                                      requirement that the governing body,                    received multiple comments regarding                  organization that is not itself a
                                                      members of the governing body, or                       this proposal. The 2012 TD stated the                 governmental entity, but that has a
                                                      officers of the supporting organization                 Treasury Department and the IRS were                  substantial operational connection with
                                                      must appoint or elect a majority of the                 continuing to consider the public                     the governmental supported
                                                      officers, directors, or trustees of the                 comments on the 2009 NPRM regarding                   organization. Another commenter said
                                                      supported organization. The Treasury                    this governmental entity exception and                that the test in Notice 2014–4 was not
                                                      Department and the IRS intend, as                       reserved § 1.509(a)–4(i)(4)(iv) for future            sufficient because it did not cover
                                                      stated in the 2009 NPRM, the use of the                 guidance on how a Type III supporting                 activities, such as fundraising and grant
                                                      phrase ‘‘appointed or elected, directly or              organization can qualify as functionally              making, that the governmental
                                                      indirectly’’ to mean the supporting                     integrated by supporting a governmental               supported organization could not
                                                      organization could qualify as a parent of               entity.                                               otherwise perform.
                                                      a second-tier (or lower) subsidiary.                       These proposed regulations take the                   In response to these comments, the
                                                      Thus, for example, if the directors of                  prior comments into consideration and                 Treasury Department and the IRS
                                                      supporting organization A appoint a                     provide rules to qualify as functionally              propose a new test for Type III
                                                      majority of the directors of supported                  integrated both for new and existing                  supporting organizations that support
                                                      organization B, which in turn appoints                  Type III supporting organizations that                only governmental supported
                                                      a majority of the directors of supported                support governmental supported
                                                                                                                                                                    organizations to qualify as functionally
                                                      organization C, the directors of                        organizations. These proposed rules also
                                                                                                                                                                    integrated. The Treasury Department
                                                      supporting organization A will be                       define the term ‘‘governmental
                                                                                                                                                                    and the IRS agree it would be
                                                      treated as appointing the majority of the               supported organization.’’
                                                                                                                 One commenter stated that the                      appropriate to treat a Type III
                                                      directors of both supported organization
                                                                                                              definition of a governmental supported                supporting organization that supports
                                                      B and supported organization C.
                                                         The preamble to the 2012 TD stated                   organization in the 2009 NPRM was too                 two or more governmental supported
                                                      that the Treasury Department and the                    complicated and difficult to understand               organizations as functionally integrated,
                                                      IRS intended that the new definition of                 and administer. This commenter                        provided that the governmental
                                                      parent would specifically address the                   proposed using the existing definition of             supported organizations are themselves
                                                      power to remove and replace officers,                   a governmental unit in section                        connected geographically or
                                                      directors, or trustees of the supported                 170(b)(1)(A)(v) and (c)(1).                           operationally, which will help ensure
                                                      organization. The Treasury Department                      The Treasury Department and the IRS                that the supported organizations
                                                      and the IRS interpret the existing                      agree with the commenter that for                     provide sufficient input to and oversight
                                                      requirement under § 1.509(a)–4(i)(4)(iii)               simplicity and administrability the term              of the supporting organization. Thus,
                                                      that the parent organization have the                   ‘‘governmental supported organization’’               the proposed regulations provide that a
                                                      power to appoint or elect a majority of                 should be defined by using an existing                supporting organization that supports
                                                      the officers, directors, or trustees of each            Code definition of a governmental unit.               more than one governmental supported
                                                      supported organization to include the                   The proposed regulations define a                     organization may be considered
                                                      requirement that the parent organization                governmental supported organization as                functionally integrated if all of its
                                                      also have the power to remove and                       a governmental unit described in                      governmental supported organizations
                                                      replace such officers, directors, or                    section 170(c)(1), or an organization                 either: (1) Operate within the same
                                                      trustees, or otherwise have an ongoing                  described in section 170(c)(2) and                    geographic region (defined as a city,
                                                      power to appoint or elect with                          (b)(1)(A) (other than in clauses (vii) and            county, or metropolitan area); or (2)
                                                      reasonable frequency. The Treasury                      (viii)) that is an instrumentality of one             work in close coordination or
                                                      Department and the IRS request                          or more governmental units described in               collaboration with one another to
                                                      comments on whether § 1.509(a)–                         section 170(c)(1). The Treasury                       conduct a service, program, or activity
                                                      4(i)(4)(iii) should be amended to                       Department and the IRS further note                   that the supporting organization
                                                      provide further clarification on this                   that a governmental unit described in                 supports. To satisfy the close
                                                      issue.                                                  section 170(c)(1) includes all of the                 cooperation or coordination
                                                                                                              agencies, departments, and divisions of               requirement, the proposed regulations
                                                      ii. Supporting a Governmental                           the governmental unit, and all such                   require a supporting organization to
                                                      Supported Organization                                  agencies, departments, and divisions                  maintain on file a letter from each of the
                                                         The 2009 NPRM proposed an                            will be treated as one governmental                   governmental supported organizations
                                                      exception to the general rules for                      supported organization for purposes of                (or a joint letter from all of them)
                                                      qualifying as a functionally integrated                 § 1.509(a)–4(i)(4)(iv). The Treasury                  describing their collaborative or
                                                      Type III supporting organization if the                 Department and the IRS specifically                   cooperative efforts with respect to the
                                                      supporting organization supported only                  request comments on the proposed                      particular service, program, or activity.
                                                      one governmental entity, which was                      definition of governmental supported                  In addition, the proposed regulations
                                                      defined as an entity the assets of which                organization.                                         incorporate the 2009 NPRM proposed
                                                      are subject to the appropriations process                  Two commenters said that the 2009                  requirement that a substantial part of
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                                                      of a federal, state, local, or Indian tribal            NPRM’s limit of only one governmental                 the supporting organization’s total
                                                      government. The 2009 NPRM also                          supported organization was too strict                 activities must directly further the
                                                      provided that in order to be considered                 and instead recommended allowing a                    exempt purposes of its governmental
                                                      functionally integrated, a substantial                  supporting organization to qualify for                supported organization(s). The Treasury
                                                      part of the supporting organization’s                   this exception if it supports at least one            Department and the IRS believe that
                                                      total activities had to directly further the            governmental supported organization,                  using a substantial part requirement,
                                                      exempt purpose(s) of its supported                      as Notice 2014–4 provides. One                        instead of the substantially all
                                                      organization, and that exempt purposes                  commenter noted that the 2009 NPRM’s                  requirement in § 1.509(a)–4(i)(4)(iv)(A),
                                                      are not directly furthered by                           limit of only one governmental                        is appropriate when supporting


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                                                                              Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Proposed Rules                                            8451

                                                      organizations support only                              organizations as provided in § 1.509(a)–              Code during the immediately preceding
                                                      governmental supported organizations                    4(d)(4) on or before February 19, 2016;               taxable year. See § 1.509(a)–4(i)(5)(ii)(B).
                                                      operating in the same geographic region                 and (3) a substantial part of its total                  The Treasury Department and the IRS
                                                      or working in close collaboration                       activities directly furthers the exempt               believe that, because the taxes under
                                                      because the input from and oversight by                 purposes of its governmental supported                subtitle A of the Code are imposed on
                                                      the governmental supported                              organization(s).                                      a supporting organization’s unrelated
                                                      organizations minimize the potential for                   The proposed regulations also further              business taxable income (pursuant to
                                                      abuse.                                                  extend the transition relief provided in              section 511) and the activity that
                                                         Two commenters stated that activities                Notice 2014–4 and extended by the                     produces the unrelated business taxable
                                                      such as fundraising, grant-making, and                  2015 TD. Under the proposed                           income does not further the supported
                                                      managing non-exempt-use assets should                   regulations, a Type III supporting                    organization’s exempt purposes, these
                                                      be considered activities that directly                  organization in existence on or before                taxes should not be treated as an
                                                      further the exempt purposes of a                        February 19, 2016 that continues to                   amount distributed to a supported
                                                      governmental supported organization.                    meet the requirements of Notice 2014–                 organization. Therefore, the proposed
                                                      The Treasury Department and the IRS                     4 is treated as functionally integrated               regulations remove the provision in
                                                      note that the integral part test’s                      until the earlier of the first day of the             § 1.509(a)–4(i)(5)(ii)(B) that reduces the
                                                      definition of ‘‘directly further’’ in                   organization’s first taxable year                     distributable amount by the amount of
                                                      § 1.509(a)–4(i)(4)(ii)(C) generally                     beginning after the date final regulations            taxes subtitle A of the Code imposed on
                                                      excludes fundraising, making grants,                    under § 1.509(a)–4(i)(4)(iv) are                      a supporting organization during the
                                                      and investing and managing non-                         published or the first day of the                     immediately preceding taxable year.
                                                      exempt-use assets. The Treasury                         organization’s second taxable year
                                                                                                                                                                    ii. Distributions That Count Toward
                                                      Department and the IRS excluded these                   beginning after February 19, 2016.
                                                                                                                                                                    Distribution Requirement
                                                      items because they determined that a
                                                                                                              D. Integral Part Test—Non-Functionally                   As noted above, § 1.509(a)–4(i)(6)
                                                      Type III supporting organization should
                                                                                                              Integrated Type III Supporting                        provides details on the distributions by
                                                      qualify as functionally integrated only if
                                                                                                              Organizations                                         a supporting organization that count
                                                      the supporting organization itself
                                                      conducts activities that perform the                       Section 1.509(a)–4(i)(5) generally                 toward satisfying the distribution
                                                      functions of or carry out the purposes of               provides that an NFI Type III supporting              requirement imposed in § 1.509(a)–
                                                      the supported organization (as                          organization meets the integral part test             4(i)(5)(ii). The current regulations
                                                      distinguished from providing financial                  if it satisfies the distribution                      provide that distributions include but
                                                      support for the activities carried out by               requirement of paragraph (i)(5)(ii) of                are not limited to: (1) Any amount paid
                                                      the supported organization). The                        that section and the attentiveness                    to a supported organization to
                                                      Treasury Department and the IRS do not                  requirement of paragraph (i)(5)(iii) of               accomplish the supported organization’s
                                                      believe a different definition of ‘‘directly            that section. Section 1.509(a)–4(i)(5)(ii)            exempt purposes; (2) any amount paid
                                                      further’’ should apply to supporting                    provides that, with respect to each                   by the supporting organization to
                                                      organizations that support governmental                 taxable year, a supporting organization               perform an activity that directly furthers
                                                      supported organizations. Accordingly,                   must distribute to or for the use of one              the exempt purposes of the supported
                                                      the proposed regulations do not adopt                   or more supported organizations an                    organization within the meaning of
                                                      this comment. However, under the                        amount equaling or exceeding its                      § 1.509(a)–4(i)(4)(ii), but only to the
                                                      proposed rules, these types of                          ‘‘distributable amount’’. Section                     extent such amount exceeds any income
                                                      organizations would be considered                       1.509(a)–4(i)(6) provides the amount of               derived by the supporting organization
                                                      functionally integrated if a substantial                a distribution made to a supported                    from the activity; (3) any reasonable and
                                                      part, but not substantially all, of their               organization is the amount of cash or                 necessary administrative expenses paid
                                                      total activities directly further the                   the fair market value of the property                 to accomplish the exempt purposes of
                                                      exempt purposes of their governmental                   distributed.                                          the supported organization(s), which do
                                                      supported organization(s). Accordingly,                    For clarity and consistency, the                   not include expenses incurred in the
                                                      these proposed regulations allow these                  proposed regulations revise § 1.509(a)–               production of investment income; (4)
                                                      organizations to conduct more                           4(i)(5)(ii) to state that a supporting                any amount paid to acquire an exempt-
                                                      fundraising and other financial                         organization must make distributions as               use asset described in § 1.509(a)–
                                                      activities, if certain requirements are                 described in § 1.509(a)–4(i)(6) to satisfy            4(i)(8)(ii); and (5) any amount set aside
                                                      met, than is permitted under the                        the distribution requirement, and revise              for a specific project that accomplishes
                                                      substantially all test of § 1.509(a)–                   section 1.509(a)–4(i)(6) to describe in               the exempt purposes of a supported
                                                      4(i)(4)(ii).                                            detail what distributions count towards               organization to which the supporting
                                                         In response to comments, the                         the distribution requirement.                         organization is responsive.
                                                      proposed regulations also provide a                                                                              The preamble to the 2012 TD stated
                                                      special rule for existing Type III                      i. Reduction of Distributable Amount for              that the list in § 1.509(a)–4(i)(6) is not
                                                      supporting organizations, provided that                 Taxes Subtitle A Imposes                              exhaustive and other distributions may
                                                      they support no more than one                              Section 1.509(a)–4(i)(5)(ii)(B) provides           count toward the distribution
                                                      additional supported organization that                  that the distributable amount is equal to             requirement. The preamble further
                                                      is not a governmental supported                         the greater of 85 percent of an                       stated the Treasury Department and the
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                                                      organization. A Type III supporting                     organization’s adjusted net income for                IRS intended to propose regulations that
                                                      organization in existence on or before                  the immediately preceding taxable year                more fully describe the expenditures
                                                      February 19, 2016 is treated as                         (as determined by applying the                        (including expenditures for
                                                      functionally integrated if: (1) It supports             principles of section 4942(f) and                     administrative and additional charitable
                                                      one or more governmental supported                      § 53.4942(a)–2(d)) or its minimum asset               activities) that do and do not count
                                                      organizations and no more than one                      amount for the immediately preceding                  toward the distribution requirement.
                                                      supported organization that is not a                    taxable year, reduced by the amount of                   The Treasury Department and the IRS
                                                      governmental supported organization;                    taxes imposed on the supporting                       believe that the non-exclusive list in the
                                                      (2) it designated each of its supported                 organization under subtitle A of the                  current regulations creates uncertainty


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                                                      8452                    Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Proposed Rules

                                                      for supporting organizations and the IRS                supported organizations (net of the                   Government Printing Office,
                                                      about what counts toward the                            supporting organizations’ solicitation                Washington, DC 20402, or by visiting
                                                      distribution requirement. Therefore, the                expenses). To ensure that a supporting                the IRS Web site at http://www.irs.gov.
                                                      proposed regulations revise and clarify                 organization has the information it
                                                                                                                                                                    Special Analyses
                                                      the list in § 1.509(a)–4(i)(6) of what                  needs to calculate the allowable
                                                      counts toward the distribution                          expenses, the proposed regulations                       Certain IRS regulations, including this
                                                      requirement and make it an exclusive                    require the supporting organization to                one, are exempt from the requirements
                                                      list.                                                   obtain written substantiation from the                of Executive Order 12866, as
                                                         The 2012 TD clarified that reasonable                supported organization of the amount of               supplemented and reaffirmed by
                                                      and necessary administrative expenses                   contributions the supported                           Executive Order 13563. Therefore, a
                                                      paid to accomplish the exempt purposes                  organization actually received as a                   regulatory impact assessment is not
                                                      of supported organizations, and not                     result of the supporting organization’s               required. It has also been determined
                                                      expenses incurred in the production of                  solicitations.                                        that section 553(b) of the Administrative
                                                      investment income, count toward the                       One commenter requested that                        Procedure Act (5 U.S.C. chapter 5) does
                                                      distribution requirement. For example,                  program related investments (PRIs)                    not apply to these regulations.
                                                      if a supporting organization conducts                   count toward the distribution                            In connection with the requirements
                                                      exempt activities that are for the benefit              requirement. The preamble to the 2012                 of the Regulatory Flexibility Act (5
                                                      of, perform the functions of, or carry out              TD stated the 2012 final and temporary                U.S.C. chapter 6), it is hereby certified
                                                      the purposes of its supported                           regulations did not specifically address              that the collection of information
                                                      organization(s) and also conducts                       whether or not PRIs may count toward                  contained in the proposed regulations
                                                      nonexempt activities (such as                           the distribution requirement or are                   will not have a significant economic
                                                      investment activities or unrelated                      excluded in calculating a supporting                  impact on a substantial number of small
                                                      business activities), then the supporting               organization’s distributable amount for a             entities. This certification is based on
                                                      organization’s administrative expenses                  taxable year. The Treasury Department                 the fact that the proposed regulations
                                                      (such as salaries, rent, utilities and other            and the IRS recognize that private                    will not impact a substantial number of
                                                      overhead expenses) must be allocated                    foundations may use PRIs in a variety of              small entities.
                                                      between the exempt and nonexempt                        ways to accomplish their exempt                          Based on IRS Statistics of Income data
                                                      activities on a reasonable and                          purposes and that PRIs thus are treated               for 2013, there are 1,052,495 active
                                                      consistently-applied basis. The                         as qualifying distributions under section             nonprofit charitable organizations
                                                      administrative expenses attributable to                 4942. However, because supporting                     recognized by the IRS under section
                                                      the exempt activities are treated as                    organizations must be operated                        501(c)(3), of which only 7,872
                                                      distributions to its supported                          exclusively for the benefit of, to perform            organizations self-identified as Type III
                                                      organization(s) if such expenses are                    the functions of, or to carry out the                 supporting organizations. The universe
                                                      reasonable and necessary. The                           purposes of their supported                           of organizations that would be affected
                                                      administrative expenses and operating                   organizations, they differ from private               by the collection of information under
                                                      costs attributable to the nonexempt                     foundations. For purposes of meeting                  proposed § 1.509(a)–4(i)(4)(iii) and
                                                      activities are not treated as distributions             the integral part test, the Treasury                  § 1.509(a)–4(i)(6)(iii) is a subset of all
                                                      to the supported organization(s). The                   Department and the IRS do not believe                 Type III supporting organizations. Thus,
                                                      proposed regulations retain this                        that PRIs should be treated as                        the number of organizations that would
                                                      provision, but also provide additional                  distributions to supported                            be affected by the collection of
                                                      guidance on fundraising expenses.                       organizations. The Treasury Department                information under proposed § 1.509(a)–
                                                         The 2012 TD did not specifically                     and the IRS believe that other                        4(i)(4)(iii) and (i)(6)(iii), which is
                                                      address whether fundraising expenses                    provisions relating to the distribution               expected to be significantly less than
                                                      count toward the distribution                           requirement, such as the availability of              7,872, would not be substantial.
                                                      requirement. The proposed regulations                   set asides and the potential for carry-               Moreover, the time to complete the
                                                      specify that reasonable and necessary                   forwards of excess distributions,                     recordkeeping requirements is expected
                                                      administrative expenses paid to                         provide significant flexibility for                   to be no more than 2 hours for each
                                                      accomplish the exempt purposes of a                     supporting organizations to meet the                  organization, which would not have a
                                                      supported organization generally do not                 current and future needs of their                     significant economic impact. Therefore,
                                                      include fundraising expenses the                        supported organizations. For these                    the collection of information under
                                                      supporting organization incurs.                         reasons, the proposed regulations do not              proposed § 1.509(a)–4(i)(4)(iii) and
                                                      However, under the proposed                             adopt this comment.                                   (i)(6)(iii) would not have a significant
                                                      regulations, reasonable and necessary                                                                         economic impact.
                                                      expenses incurred by the supporting                     Effective Date and Reliance                              Pursuant to section 7805(f) of the
                                                      organization to solicit contributions that                 These regulations are proposed to be               Code, this regulation has been
                                                      a supported organization receives                       effective on the date the Treasury                    submitted to the Chief Counsel for
                                                      directly from donors count toward the                   decision adopting these rules as final or             Advocacy of the Small Business
                                                      distribution requirement, but only to the               temporary regulations is published in                 Administration for comment on its
                                                      extent that the amount of such expenses                 the Federal Register. However,                        impact on small business.
                                                      does not exceed the amount of                           taxpayers may rely on the provisions of
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                                                      contributions actually received by the                                                                        Comments and Requests for a Public
                                                                                                              the proposed regulations until final or
                                                      supported organization as a result of the                                                                     Hearing
                                                                                                              temporary regulations are issued.
                                                      solicitation activities of the supporting                                                                       Before these proposed regulations are
                                                      organization. The Treasury Department                   Statement of Availability of IRS                      adopted as final regulations,
                                                      and the IRS believe this rule would                     Documents                                             consideration will be given to any
                                                      provide greater consistency with the                      The IRS Notice 2014–4 cited in this                 electronic comments or written
                                                      treatment of contributions that                         preamble is published in the Internal                 comments (a signed original and eight
                                                      supporting organizations receive                        Revenue Bulletin and is available from                (8) copies) that are submitted timely to
                                                      directly and then distribute to their                   the Superintendent of Documents, U.S.                 the IRS. The Treasury Department and


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                                                                              Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Proposed Rules                                               8453

                                                      the IRS request comments on all aspects                 require the governing body of the                        Example 3. Z is described in section
                                                      of the proposed rules. All comments                     supported organization to perform any                 501(c)(3). Z’s organizational documents
                                                      that are submitted by the public will be                act that significantly affects its                    provide that it supports ten different
                                                                                                                                                                    organizations, each of which is described in
                                                      available for public inspection and                     operations or may prevent the governing
                                                                                                                                                                    section 509(a)(1). One of the directors of S
                                                      copying at www.regulations.gov or upon                  body of the supported organization from               (one of the supported organizations) is a
                                                      request. A public hearing may be                        performing any such act. The governing                voting member of Z’s board of directors and
                                                      scheduled if requested in writing by any                body of a supported organization will                 participates in Z’s regular board meetings.
                                                      person that timely submits written                      generally be considered to be controlled              Officers of Z hold regular face-to-face or
                                                      comments. If a public hearing is                        directly or indirectly by one or more                 telephonic meetings during the year to which
                                                      scheduled, notice of the date, time, and                persons described in paragraph                        officers of all the supported organizations are
                                                      place for the public hearing will be                    (f)(5)(i)(A), (B), or (C) of this section if          invited. Z’s meetings with the supported
                                                                                                                                                                    organizations may be held jointly or
                                                      published in the Federal Register.                      the voting power of such persons is 50
                                                                                                                                                                    separately. Prior to the meetings, Z makes
                                                                                                              percent or more of the total voting                   available to the supported organizations
                                                      Drafting Information
                                                                                                              power of such governing body or if one                (including by email) up-to-date information
                                                         The principal authors of these                       or more of such persons have the right                about its activities including its assets and
                                                      regulations are Jonathan Carter and                     to exercise veto power over the actions               liabilities, receipts and distributions, and
                                                      Mike Repass, Office of Associate Chief                  of the governing body of the supported                investment policies and returns. In the
                                                      Counsel (Tax-Exempt and Government                      organization. However, all pertinent                  meetings, officers of each of the supported
                                                      Entities). However, other personnel                     facts and circumstances will be taken                 organizations have an opportunity to ask
                                                      from the Treasury Department and the                                                                          questions and discuss with officers of Z the
                                                                                                              into consideration in determining
                                                      IRS participated in their development.                                                                        projected needs of their organizations, as
                                                                                                              whether one or more persons do in fact                well as Z’s investment and grant making
                                                      List of Subjects in 26 CFR Part 1                       directly or indirectly control the                    policies and practices. In addition to holding
                                                                                                              governing body of a supported                         these meetings with the supported
                                                        Income taxes, Reporting and                           organization.                                         organizations, Z provides the contact
                                                      recordkeeping requirements.                                                                                   information of one of its officers to each of
                                                                                                              *       *    *      *     *
                                                      Proposed Amendments to the                                 (i) * * *                                          the supported organizations and encourages
                                                                                                                                                                    them to contact that officer if they have
                                                      Regulations                                                (2) * * * (i) Annual notification. For             questions, or if they wish to schedule
                                                        Accordingly, 26 CFR part 1 is                         each taxable year (the Reporting Year),               additional meetings to discuss the projected
                                                      proposed to be amended as follows:                      a Type III supporting organization must               needs of their organization and how Z should
                                                                                                              provide the following documents to                    distribute its income and invest its assets. Z
                                                      PART 1—INCOME TAXES                                     each of its supported organizations:                  provides the information required under
                                                                                                                 (A) A written notice addressed to a                paragraph (i)(2) of this section and a copy of
                                                      ■ Paragraph 1. The authority citation                   principal officer of the supported                    its annual audited financial statements to the
                                                      for part 1 continues to read in part as                                                                       principal officers of the supported
                                                                                                              organization describing the type and
                                                      follows:                                                                                                      organizations. Z meets the relationship test of
                                                                                                              amount of all of the support (including               paragraph (i)(3)(ii)(B) or (C) of this section
                                                          Authority: 26 U.S.C. 7805 * * *                     all of the distributions described in                 with respect to each of its supported
                                                      ■  Par. 2. Section 1.509(a)–4 is amended                paragraph (i)(6) of this section if                   organizations. Based on these facts, Z also
                                                      by:                                                     applicable) the supporting organization               satisfies the significant voice requirement of
                                                      ■ 1. Revising paragraphs (f)(5)(ii),                    provided to the supported organization                paragraph (i)(3)(iii) of this section, and
                                                                                                              during the supporting organization’s                  therefore meets the responsiveness test of
                                                      (i)(2)(i) introductory text, (i)(2)(i)(A),
                                                                                                              taxable year immediately preceding the                this paragraph (i)(3) with respect to each of
                                                      (i)(2)(iii), and (i)(3)(i);                                                                                   its ten supported organizations.
                                                      ■ 2. Adding Example 3 to paragraph                      Reporting Year (and during any other
                                                      (i)(3)(iv);                                             taxable year of the supporting                        *      *    *      *    *
                                                      ■ 3. Revising paragraphs (i)(4)(ii)(A)(1),              organization ending after December 28,                  (4) * * *
                                                                                                              2012, for which such support                            (ii) * * *
                                                      (i)(4)(ii)(B), (i)(4)(iii) and (iv),                                                                            (A) * * *
                                                      (i)(5)(ii)(A) and (B), (i)(5)(iii)(A),                  information has not previously been
                                                                                                              provided);                                              (1) Directly further the exempt
                                                      Example 4 of paragraph (i)(5)(iii)(D), the                                                                    purposes of one or more supported
                                                      third sentence of paragraph (i)(6)                      *       *    *      *     *                           organizations by performing the
                                                      introductory text, and paragraphs                          (iii) Due date. The notification                   functions of, or carrying out the
                                                      (i)(6)(iii) and (v) introductory text and               documents required by this paragraph                  purposes of, such supported
                                                      (l).                                                    (i)(2) shall be delivered or electronically           organization(s); and
                                                         The revisions and additions read as                  transmitted by the last day of the fifth
                                                      follows:                                                                                                      *      *    *      *    *
                                                                                                              calendar month of the Reporting Year.                   (B) Meaning of substantially all. For
                                                      § 1.509(a)–4     Supporting organizations.              *       *    *      *     *                           purposes of paragraph (i)(4)(ii)(A) of this
                                                      *       *    *      *     *                                (3) * * * (i) General rule. A                      section, in determining whether
                                                         (f) * * *                                            supporting organization meets the                     substantially all of a supporting
                                                         (5) * * *                                            responsiveness test only if it is                     organization’s activities directly further
                                                         (ii) Meaning of control. For purposes                responsive to the needs or demands of                 the exempt purposes of one or more
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                                                      of paragraph (f)(5)(i) of this section, the             each of its supported organizations.                  supported organization(s), all pertinent
                                                      governing body of a supported                           Except as provided in paragraph (i)(3)(v)             facts and circumstances will be taken
                                                      organization will be considered                         of this section, in order to meet this test,          into consideration.
                                                      controlled by a person described in                     a supporting organization must satisfy                *      *    *      *    *
                                                      paragraph (f)(5)(i)(A) of this section if               the requirements of paragraphs (i)(3)(ii)               (iii) Parent of supported
                                                      that person, alone or by aggregating the                and (iii) of this section with respect to             organization(s). For purposes of
                                                      person’s votes or positions of authority                each of its supported organizations.                  paragraph (i)(4)(i)(B) of this section, in
                                                      with persons described in paragraph                     *       *    *      *     *                           order for a supporting organization to
                                                      (f)(5)(i)(B) or (C) of this section, may                   (iv) * * *                                         qualify as the parent of each of its


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                                                      8454                    Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Proposed Rules

                                                      supported organizations, the supporting                    (D) Close cooperation or coordination.             organization, would normally be
                                                      organization and its supported                          To satisfy the close cooperation or                   engaged in by the governmental
                                                      organizations must be part of an                        coordination requirement of paragraph                 supported organization itself.
                                                      integrated system (such as a hospital                   (i)(4)(iv)(A)(1) of this section, the                 *       *     *     *     *
                                                      system), the supporting organization                    supporting organization shall maintain                   (5) * * *
                                                      must engage in activities typical of the                on file a letter from each of the                        (ii) * * * (A) Annual distribution.
                                                      parent of an integrated system, and a                   governmental supported organizations
                                                                                                                                                                    With respect to each taxable year, a
                                                      majority of the officers, directors, or                 (or a joint letter from all of them)
                                                                                                                                                                    supporting organization must make
                                                      trustees of each supported organization                 describing their collaborative or
                                                                                                                                                                    distributions described in paragraph
                                                      must be appointed or elected, directly or               cooperative efforts with respect to the
                                                                                                                                                                    (i)(6) of this section in a total amount
                                                      indirectly, by the governing body,                      particular service, program, or activity.
                                                                                                                 (E) Exception for organizations                    equaling or exceeding the supporting
                                                      members of the governing body, or
                                                                                                              supporting a governmental supported                   organization’s distributable amount for
                                                      officers (acting in their official
                                                                                                              organization on or before February 19,                the taxable year, as defined in paragraph
                                                      capacities) of the supporting
                                                                                                              2016. A Type III supporting                           (i)(5)(ii)(B) of this section, on or before
                                                      organization. For purposes of this
                                                                                                              organization in existence on or before                the last day of the taxable year.
                                                      paragraph (i)(4)(iii), examples of
                                                      activities typical of the parent of an                  February 19, 2016 will be treated as                     (B) Distributable amount. Except as
                                                      integrated system of supported                          meeting the requirements of this                      provided in paragraphs (i)(5)(ii)(D) and
                                                      organizations include (but are not                      paragraph (i)(4)(iv) if it met and                    (E) of this section, the distributable
                                                      limited to) coordinating the activities of              continues to meet the following                       amount for a taxable year is an amount
                                                      the supported organizations and                         requirements—                                         equal to the greater of 85 percent of the
                                                      engaging in overall planning, policy                       (1) It supports one or more                        supporting organization’s adjusted net
                                                      development, budgeting, and resource                    governmental supported organizations                  income (as determined by applying the
                                                      allocation for the supported                            described in paragraph (i)(4)(iv)(B) of               principles of section 4942(f) and
                                                      organizations.                                          this section and does not support more                § 53.4942(a)–2(d) of this chapter) for the
                                                         (iv) Supporting a governmental                       than one supported organization that is               taxable year immediately preceding the
                                                      supported organization—(A) In general.                  not a governmental supported                          taxable year of the required distribution
                                                      A supporting organization satisfies the                 organization;                                         (immediately preceding taxable year) or
                                                      requirements of this paragraph (i)(4)(iv)                  (2) Each of the supported                          its minimum asset amount (as defined
                                                      if—                                                     organizations is designated by the                    in paragraph (i)(5)(ii)(C) of this section)
                                                         (1) The supporting organization                      supporting organization as provided in                for the immediately preceding taxable
                                                      supports only governmental supported                    paragraph (d)(4) of this section on or                year.
                                                      organizations, and, if the supporting                   before February 19, 2016; and                         *       *     *     *     *
                                                      organization supports more than one                        (3) A substantial part of the                         (iii) * * * (A) General rule. With
                                                      governmental supported organization,                    supporting organization’s total activities            respect to each taxable year, a non-
                                                      all of the governmental supported                       are activities that directly further, as              functionally integrated Type III
                                                      organizations either—                                   defined by paragraph (i)(4)(ii)(C) of this            supporting organization must distribute
                                                         (i) Operate within the same                          section, the exempt purposes of its                   one-third or more of its distributable
                                                      geographic region; or                                   governmental supported organization(s).               amount to one or more supported
                                                         (ii) Work in close coordination or                      (F) Transition rule for supporting                 organizations that are attentive to the
                                                      collaboration with one another to                       organizations in existence on or before               operations of the supporting
                                                      conduct a service, program, or activity                 February 19, 2016. Until the earlier of               organization (within the meaning of
                                                      that the supporting organization                        the first day of the organization’s first             paragraph (i)(5)(iii)(B) of this section).
                                                      supports; and                                           taxable year beginning after the date
                                                                                                              final regulations are published in the                *       *     *     *     *
                                                         (2) A substantial part of the
                                                      supporting organization’s total activities              Federal Register under this paragraph                    (D) * * *
                                                      are activities that directly further, as                (i)(4)(iv) or the first day of the                       Example 4. O is an organization
                                                      defined by paragraph (i)(4)(ii)(C) of this              organization’s second taxable year                    described in section 501(c)(3). O is
                                                      section, the exempt purposes of its                     beginning after February 19, 2016, a                  organized to support five private
                                                      governmental supported organization(s).                 Type III supporting organization in                   universities, V, W, X, Y, and Z, each of
                                                         (B) Governmental supported                           existence on or before February 19, 2016              which is described in section 509(a)(1).
                                                      organization defined. For purposes of                   will be treated as meeting the                        O meets the responsiveness test
                                                      paragraph (i)(4)(iv)(A) of this section,                requirements of this paragraph (i)(4)(iv)             described in paragraph (i)(3) of this
                                                      the term governmental supported                         if it met and continues to meet the                   section with respect to each of its
                                                      organization means a supported                          following requirements—                               supported organizations. Each year, O
                                                      organization that is—                                      (1) It supports at least one supported             distributes an aggregate amount that
                                                         (1) A governmental unit described in                 organization that is a governmental                   equals its distributable amount
                                                      section 170(c)(1); or                                   entity to which the supporting                        described in paragraph (i)(5)(ii)(B) of
                                                         (2) An organization described in                     organization is responsive within the                 this section and distributes an equal
                                                      section 170(c)(2) and (b)(1)(A) (other                  meaning of paragraph (i)(3) of this                   amount to each of the five universities.
asabaliauskas on DSK5VPTVN1PROD with PROPOSALS




                                                      than in clauses (vii) and (viii)) that is an            section; and                                          O distributes annually to each of V and
                                                      instrumentality of one or more                             (2) It engages in activities for or on             W an amount that equals more than 10
                                                      governmental units described in section                 behalf of the governmental supported                  percent of each university’s total annual
                                                      170(c)(1).                                              organization described in paragraph                   support received in its most recently
                                                         (C) Geographic region defined. For                   (i)(4)(iv)(F)(1) of this section that                 completed taxable year. Based on these
                                                      purposes of paragraph (i)(4)(iv)(A)(1) of               perform the functions of, or carry out                facts, O meets the requirements of
                                                      this section, the term geographic region                the purposes of, that governmental                    paragraph (i)(5)(iii) of this section
                                                      means a city, county, or metropolitan                   supported organization and that, but for              because it distributes two-fifths (more
                                                      area.                                                   the involvement of the supporting                     than the required one-third) of its


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                                                                              Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Proposed Rules                                            8455

                                                      distributable amount to supported                       regarding non-functionally integrated                 submit electronically any information
                                                      organizations that are attentive to O.                  Type III supporting organizations                     you consider to be Confidential
                                                         (6) Distributions that count toward                  effective before the date the Treasury                Business Information (CBI) or other
                                                      distribution requirement. * * *                         decision adopting these rules as final or             information whose disclosure is
                                                      Distributions by the supporting                         temporary regulations is published in                 restricted by statute. Multimedia
                                                      organization that count toward the                      the Federal Register.                                 submissions (audio, video, etc.) must be
                                                      distribution requirement imposed in                                                                           accompanied by a written comment.
                                                                                                              John Dalrymple,
                                                      paragraph (i)(5)(ii) of this section are                                                                      The written comment is considered the
                                                      limited to the following—                               Deputy Commissioner for Services and
                                                                                                                                                                    official comment and should include
                                                                                                              Enforcement.
                                                      *       *      *       *     *                                                                                discussion of all points you wish to
                                                                                                              [FR Doc. 2016–02858 Filed 2–18–16; 8:45 am]
                                                         (iii) Any reasonable and necessary—                                                                        make. The EPA will generally not
                                                                                                              BILLING CODE 4830–01–P
                                                         (A) Administrative expenses paid to                                                                        consider comments or comment
                                                      accomplish the exempt purposes of the                                                                         contents located outside of the primary
                                                      supported organization, which do not                                                                          submission (i.e., on the web, cloud, or
                                                      include expenses incurred in the                        ENVIRONMENTAL PROTECTION                              other file sharing system). For
                                                      production of investment income or the                  AGENCY                                                additional submission methods, the full
                                                      conduct of fundraising activities, except                                                                     EPA public comment policy,
                                                                                                              40 CFR Part 52
                                                      as provided in paragraph (i)(6)(iii)(B) of                                                                    information about CBI or multimedia
                                                      this section; and                                       [EPA–R02–OAR–2016–0060, FRL–9942–52–                  submissions, and general guidance on
                                                         (B) Expenses incurred to solicit                     Region 2]                                             making effective comments, please visit
                                                      contributions that are received directly                                                                      http://www2.epa.gov/dockets/
                                                      by a supported organization, but only to                Approval of Air Quality Implementation                commenting-epa-dockets.
                                                      the extent the amount of such expenses                  Plans; Puerto Rico; Infrastructure
                                                                                                                                                                    FOR FURTHER INFORMATION CONTACT:
                                                      does not exceed the amount of                           Requirements for the 1997 and 2008
                                                                                                                                                                    Raymond K. Forde, Air Programs
                                                      contributions actually received by the                  Ozone, 1997 and 2006 Fine Particulate
                                                                                                                                                                    Branch, Environmental Protection
                                                      supported organization as a result of the               Matter and 2008 Lead NAAQS
                                                                                                                                                                    Agency, 290 Broadway, 25th Floor, New
                                                      solicitation, as substantiated in writing               AGENCY:  Environmental Protection                     York, New York 10007–1866, (212) 637–
                                                      by the supported organization;                          Agency (EPA).                                         3716, or by email at forde.raymond@
                                                      *       *      *       *     *                          ACTION: Proposed rule.                                epa.gov.
                                                         (v) Any amount set aside for a specific                                                                    SUPPLEMENTARY INFORMATION:
                                                      project that accomplishes the exempt                    SUMMARY:   The Environmental Protection                 The SUPPLEMENTARY INFORMATION
                                                      purposes of a supported organization,                   Agency (EPA) is proposing to approve                  section is arranged as follows:
                                                      with such set-aside counting toward the                 most elements of the five State
                                                      distribution requirement for the taxable                Implementation Plan (SIP) revision                    Table of Contents
                                                      year in which the amount is set aside                   submittals from the Commonwealth of                   I. Background
                                                      but not in the year in which it is                      Puerto Rico to demonstrate that the                   II. Summary of State Submittals
                                                      actually paid, if at the time of the set-               State meets the requirements of section               III. EPA’s Approach To Review Infrastructure
                                                      aside, the supporting organization—                     110(a)(1) and (2) of the Clean Air Act                      SIPs
                                                                                                              (CAA) for the 1997 and 2008 ozone,                    IV. Summary of EPA’s Rationale for
                                                      *       *      *       *     *                                                                                      Proposing Approval and Disapproval
                                                         (l) Effective/applicability dates. (1)               1997 and 2006 fine particulate matter
                                                                                                              (PM2.5) and 2008 lead National Ambient                V. Proposed Action
                                                      Paragraphs (a)(6), (f)(5), and (i) of this                                                                    VI. Incorporation by Reference
                                                      section are effective on December 28,                   Air Quality Standards (NAAQS). The
                                                                                                                                                                    VII. Statutory and Executive Order Reviews
                                                      2012, except—                                           plan is required to address basic
                                                         (i) Paragraphs (i)(4)(ii)(C), (i)(5)(ii)(C)          program elements, including, but not                  I. Background
                                                      and (D), (i)(6)(iv), (i)(7)(ii), and (i)(8) of          limited to, regulatory structure,                        On July 18, 1997, the Environmental
                                                      this section are applicable on December                 monitoring, modeling, legal authority,                Protection Agency (EPA) promulgated a
                                                      21, 2015; and                                           and adequate resources necessary to                   revised national ambient air quality
                                                         (ii) Paragraphs (f)(5)(ii), (i)(2)(i) and            assure attainment and maintenance of                  standard (NAAQS or standards) for
                                                      (iii), (i)(3)(i), (i)(4)(ii)(A)(1), (i)(4)(ii)(B),      the standards. These elements are                     ozone (62 FR 38856) and a new NAAQS
                                                      (i)(4)(iii) and (iv), (i)(5)(ii)(A) and (B),            referred to as infrastructure                         for fine particle matter (PM2.5) (62 FR
                                                      (i)(5)(iii)(A), (i)(6)(i), (iii) and (v) of this        requirements. In this rulemaking action,              38652). The revised ozone NAAQS was
                                                      section, Example 3 of paragraph                         EPA is proposing to approve, in                       based on 8-hour average concentrations.
                                                      (i)(3)(iv) of this section, and Example 4               accordance with the requirements of the               The 8-hour averaging period replaced
                                                      of paragraph (i)(5)(iii)(D) of this section             CAA, the infrastructure SIP submissions               the previous 1-hour averaging period,
                                                      are effective on the date the Treasury                  with the exception of some portions of                and the level of the NAAQS was
                                                      decision adopting these rules as final or               the submittals addressing Prevention of               changed from 0.12 parts per million
                                                      temporary regulations is published in                   Significant Deterioration (PSD).                      (ppm) to 0.08 ppm. The new PM2.5
                                                      the Federal Register.                                   DATES: Written comments must be                       NAAQS established a health-based
                                                         (2) See paragraphs (i)(5)(ii)(B) and (C)             received on or before March 21, 2016.                 annual standard of 15.0 micrograms per
asabaliauskas on DSK5VPTVN1PROD with PROPOSALS




                                                      and (i)(8) of § 1.509(a)–4T contained in                ADDRESSES: Submit your comments,                      cubic meter (mg/m3) based on a 3-year
                                                      26 CFR part 1, revised as of April 1,                   identified by Docket ID Number EPA–                   average of annual mean PM2.5
                                                      2015, for certain rules regarding non-                  R02–OAR–2016–0060 at http://                          concentrations, and a 24-hour standard
                                                      functionally integrated Type III                        www.regulations.gov. Follow the online                of 65 mg/m3 based on a 3-year average
                                                      supporting organizations effective                      instructions for submitting comments.                 of the 98th percentile of 24-hour
                                                      before December 21, 2015. See                           Once submitted, comments cannot be                    concentrations.
                                                      paragraphs (i)(5)(ii)(A) and (B) and                    edited or removed from Regulations.gov.                  On October 17, 2006 (71 FR 61144),
                                                      (i)(5)(iii)(D) of § 1.509(a)–4 (as effective            The EPA may publish any comment                       effective December 18, 2006, EPA
                                                      December 21, 2015), for certain rules                   received to its public docket. Do not                 revised the 24-hour average PM2.5


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Document Created: 2018-02-02 14:31:58
Document Modified: 2018-02-02 14:31:58
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionProposed Rules
ActionNotice of proposed rulemaking.
DatesWritten or electronic comments and requests for a public hearing must be received by May 19, 2016.
ContactConcerning the proposed regulations, Jonathan Carter at (202) 317-5800 or Mike Repass at (202) 317-4086; concerning submissions of comments and requests for a public hearing, Regina Johnson at (202) 317-6901 (not toll-free numbers).
FR Citation81 FR 8446 
RIN Number1545-BJ53
CFR AssociatedIncome Taxes and Reporting and Recordkeeping Requirements

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