In our prior post, we examined the extensive technical requirements to qualify as a Type III Supporting Organization.
So why would any Donor willingly subject him or herself to complying with this barrage of compliance rules?
The answer is simple:
If a family charity qualifies for Supporting Organization status, then it will be classified in the preferred Public Charity status, as opposed to the dreaded Private Foundation status.
For affluent families, the economic and other advantages of Public Charity status far outweigh the comparatively meager benefits bestowed upon Private Foundations.
A brief glance at these differences reveals the following advantages:
- A Donor may deduct a greater amount of his donation to a Public Charity than to a Private Foundation
- Gifts of cash may be deducted up to 50% of Donor’s Adjusted Gross Income (as opposed to 30% for a Private Foundation)
- Gifts of appreciated assets may be deducted up to 30% of Donor’s Adjusted Gross Income (as opposed to 20% for a Private Foundation)
- A Donor may deduct the full Fair Market Value of appreciated assets that are donated to a Public Charity (including any untaxed appreciation)
- If given to a Private Foundation, the Donor may only deduct his or her Tax Basis in the property
- A Public Charity is not subject to the Private Foundation Excise Tax
- A Public Charity is exempt from the Self-Dealing Rules that apply to Private Foundations
Conclusion
While the Type III Supporting Organization has its own regulatory and administrative burdens, and requires that the Donor exercise less control than he or she would in a Private Foundation, it still is an option that may be worth exploring in greater detail.
Especially for those Donors who wish to contribute appreciated assets like stock or real estate, a Type III Supporting Organization may help them achieve their philanthropic goals and objectives better than a Private Foundation.
Due to the extremely technical nature of the IRS requirements on Type III Supporting Organizations, you should not attempt to establish one without first seeking the guidance of qualified legal counsel.
We welcome the opportunity to meet with you in person to further discuss these charitable planning opportunities.
