Procedures for 501(c)(3) Organizations to Change Their Public Charity
Classification

Note: On September 24, 2007, the IRS released a memo (PDF) and guidelines (PDF) outlining procedures it will follow for organizations seeking functionally integrated Type III supporting organization status. This memo supersedes an earlier memo of February 22, 2007 that temporarily suspended the issuance of determination letters to organizations seeking that status.

IRS Procedure for Changing Public Charity Classification
Public charities that are classified as supporting organizations under section 509(a)(3) of the federal tax code are subject to several provisions in the Pension Protection Act. In particular, they are not eligible to receive tax-free contributions from IRAs, subject to new restrictions on gifts they receive from private foundations and donor advised funds, and prohibited from make payments to their substantial contributors and other related parties. If your organization is currently classified as a Supporting Organization (indicated as 509(a)(3) on your IRS Determination Letter) and you are interested in seeking a reclassification as a result of the Pension Protection Act, the IRS announced a procedure to request a reclassification based on the activities, structure, and level of public support received by your organization. We recommend that you consult your tax or legal advisor for professional guidance on seeking reclassification.

The IRS has also clarified that grantors may rely on the IRS Business Master File (BMF) for the exempt classification of a grantee, and may use a third party to obtain the BMF data...4/12/07

Organizations seeking reclassification from section 509(a)(3) for reasons related to the Pension Protection Act must submit a written request to the IRS following the procedure described in IRS Announcement 2006-93 (PDF). The requests will be considered according to established procedures for requesting determination letters (IRS Revenue Procedure 2006-4 PDF) although no user fee will be required. Organizations will receive a determination letter from the IRS indicating whether the change in public charity classification has been made.

The request to the IRS must include the following:

1. A statement requesting reclassification from section 509(a)(3) to another public charity status under 509(a)(1) or (2); and,
2. Either
   • Page one and the signature page of most recently filed Form 990 or Form 990-EZ, and pages 2 and 3 (Parts IV – Reason for Non-Private Foundation Status, and IV-A – Support Schedule) of Schedule A related to the organization’s most recently filed Form 990 or 990-EZ; or
   • Form 8734, Support Schedule for Advance Ruling Period

The organization must write at the top of the request “509(a)(3) Pension Protection Act” and mail or fax the complete request for reclassification to:

If an organization previously submitted a regular request for reclassification as a result of the Pension Protection Act, the organization should mail or fax a statement notifying the IRS that a request for reclassification was submitted. For further information contact the IRS Customer Account Services at 1-877-829-5500.

How to Determine Your Current Public Charity Classification

For organizations that do not know what type of public charity they are, there are several places they can check:

1. Determination letter – this is the letter that the IRS sends an organization recognizing the organization’s exempt status and providing its public charity classification (note: determination letters have varied over the years and some do not specify the type of supporting organization). If the determination letter cannot be located, a copy can be requested from the IRS. Organizations can also check their Form 1023 (Application for Recognition of Exemption) to determine how the organization described itself originally and how it expected to be funded;
2. Form 990 – check Part IV of Schedule A of the Form 990 where each organization must check a box stating why it is not a private foundation (the most recent revision of the Form 990 specifically asks whether an organization is a type I, II, or III supporting organization);
3. Organizing documents – check the organization’s bylaws or articles of incorporation for a description of how the organization was established with respect to receiving support from or supporting other organizations, and its structural relationship to other organizations; or,
4. IRS Master File – IRS maintains a database that lists all exempt organizations; however, it should be noted that the IRS has found some classification errors in this database. The IRS has also clarified that grantors may rely on the IRS Business Master File (BMF) for the exempt classification of a grantee, and may use a third party to obtain the BMF data.

Last Updated: October 17, 2007

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