On June 30, 2009, the Internal Revenue Service (IRS) announced that it will publish Revenue Procedure 2009-32 on July 13, 2009, in Internal Revenue Bulletin 2009-28. This Revenue Procedure provides guidance to private foundations and sponsoring organizations that maintain donor-advised funds on how to determine whether a potential grantee is an organization described in Internal Revenue Code section 509(a)(1), (2), or (3).
This guidance is particularly important to private foundations and sponsoring organizations because of the rules recently imposed by the Pension Protection Act of 2006. The Act modified the rules for “qualifying distributions” under Internal Revenue Code section 4942 from private foundations to non-functionally integrated Type III supporting organizations, or to supporting organizations which are controlled by a disqualified person with respect to the private foundation. Such distributions would not be qualifying distributions and would be considered taxable expenditures unless the private foundation exercised expenditure responsibility under Internal Revenue Code section 4945(h). Likewise for organizations sponsoring donor-advised funds, the Act imposed a new excise tax on distributions to such supporting organizations unless the sponsoring organization exercised expenditure responsibility. Thus, in order to avoid the taxes imposed by Internal Revenue Code sections 4942, 4945, and 4966, private foundations and sponsoring organizations must determine whether a potential grantee is an organization described in section 509(a)(1), (2), or (3), and if the grantee is a supporting organization under section 509(a)(3) whether it is a Type I, Type II, or Type III functionally integrated supporting organization.
Previously, under Notice 2006-109, the IRS provided interim guidance on how private foundations and sponsoring organizations could determine whether a potential grantee was classified under section 509(a)(1), (2), or (3). Revenue Procedure 2009-32 confirms the interim guidance and states that in making this determination, private foundations and sponsoring organizations may continue to rely in good faith on either the grantee’s current determination letter from the IRS or information from the Business Master File.
Organizations may either (1) download the Business Master File directly from the IRS website and store the relevant information in hard copy or electronically; or (2) obtain the Business Master File information from a third party. A third-party report must be able to be stored in hard copy or electronically, and must provide the grantee’s name, employee identification number, and classification under section 509(a)(1), (2), or (3), a statement that the information is from the most recent update to the Business Master File and the revision date, and the date and time that the information was provided to the private foundation or sponsoring organization.
Revenue Procedure 2009-32 does not affect the interim guidance given in Notice 2006-109 regarding how a private foundation or sponsoring organization may determine whether a section 509(a)(3) supporting organization is a Type I, Type II, or functionally integrated Type III organization, rather than a non-functionally integrated Type III supporting organization.
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