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Reliance by Grantors on Public Charity Status of Grantees

As discussed in Grants to Organizations, a private foundation need not exercise expenditure responsibility with respect to a grant if the grant is made to a public charity described in section 509(a)(1), (2), or (3).  This general rule does not apply, however, to grants to a supporting organization if--

  1. It is a Type III supporting organization (other than a functionally integrated Type III organization),
  2. A disqualified person of the private foundation directly or indirectly controls the supporting organization or a supported organization of such supporting organization, or 
  3. The Secretary determines by regulations that a distribution to the supporting organization is inappropriate. 

If an organization to which a private foundation wishes to make a grant has received a final ruling or determination letter classifying it as an organization described in section 509(a)(1), (2), or (3), the treatment of grants and contributions and the status of grantors and contributors to the organization will generally not be affected by reason of a later revocation by the Service of the organization's classification until the date on which notice of change of status is made to the public (such as by publication in the Internal Revenue Bulletin) or another applicable date, if any, specified in the public notice.  In appropriate cases, however, the treatment of grants and contributions and the status of grantors and contributors to an organization described in section 509(a)(1), (2), or (3) may be affected pending verification of the continued classification of the organization.  Notice to this effect will be made in a public announcement by the Service.  In these cases the effect of grants and contributions made after the date of the announcement will depend on the statutory qualification of the organization as an organization described in section 509(a)(1), (2), or (3).

Note.  The preceding paragraph shall not apply if the grantor or contributor:

  1. Had knowledge of the revocation of the ruling or determination letter classifying the organization as an organization described in section 509(a)(1), (2), or (3), or
  2. Was in part responsible for, or was aware of, the act, the failure to act, or the substantial and material change on the part of the organization that gave rise to the revocation.

A grantor or contributor will not be considered responsible for the substantial and material change if:

  1. The total support received from such grantor or contributor for a taxable year is 25 percent or less of the total support received by the donee organization from all sources (excluding support provided by the grantor or contributor or related parties) for the four immediately preceding taxable years, or
  2. The grant or contribution qualifies as an unusual grant.


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Page Last Reviewed or Updated: 02-May-2014