Schedule D of the Form 1023 deals with supporting organizations which are described in section 509(a)(3). The term "supported organization" refers to an organization that a supporting organization benefits. A supporting organization may support more than one supported organization.

An organization qualifies as a supporting organization (for purposes of classification under section 509(a)(3)) if it is organized and at all times thereafter is operated exclusively for the benefit of, to perform the function of, or to carry out the purposes of one or more public charities described in section 509(a)(1) or 509(a)(2).

It must also meet one of three required relationship tests with the supported organization(s), and it must not be controlled by disqualified persons, directly or indirectly. A supporting organization can also support the charitable purposes of organizations that are exempt under sections 501c4 501(c)(4), (5), or (6).

Form 1023 Schedule D: Identification of Supported Organizations

List the name, address, and EIN of each organization you support.

Answer "Yes," if each supported organization has a letter from the IRS recognizing it as a public charity under section 509(a)(1) or 509(a)(2). Before filing the application, confirm through IRS records that each supported organization is currently recognized as exempt and classified as a public charity.

Answer "Yes," if any supported organization is exempt under sections 501c4 501(c)(4), (5), or (6) and meets the public support test under section 509(a)(2).

If you answer "No," describe how each organization you support qualifies as a public charity under section 509(a)(1) or 509(a)(2). If you support a church or foreign organization without a determination letter, explain how that organization qualifies under section 509(a)(1) or 509(a)(2).

Form 1023 Schedule D: Required Relationship Tests

To qualify under section 509(a)(3), you must meet one of three relationship tests with your supported organization(s).

Type I Supporting Organization

Operated, supervised, or controlled by the supported organization. A majority of your governing board or officers are elected or appointed by the governing body, members of the governing body, officers acting in their official capacity, or the membership of your supported organization(s).

Type II Supporting Organization

Supervised or controlled in connection with the supported organization. Control or management is vested in the same persons who control or manage your supported organization(s).

Type III Supporting Organization

Operated in connection with the supported organization and responsive to its needs. One or more of your officers, directors, or trustees are elected or appointed by the supported organization, serve on its governing body, or maintain a close and continuous working relationship with its leadership.

If you do not meet one of these three relationship tests, you are not described in section 509(a)(3) and must reconsider your requested public charity classification.

Form 1023 Schedule D: Governance and Selection of Leadership

Describe how your governing board and officers are selected, including where this information appears in your governing documents, bylaws, or internal rules.

Type III organizations must also describe how officers, directors, or trustees maintain a close and continuing relationship with the officers, directors, or trustees of the supported organization(s).

Form 1023 Schedule D: Prohibited Control by Disqualified Persons

A supporting organization cannot qualify under section 509(a)(3) if it is directly or indirectly controlled by disqualified persons.

Control exists if disqualified persons:

• Can exercise 50% or more of the total voting power of the governing body
• Have authority over significant decisions, including investment or charitable disbursement decisions
• Can exercise veto power over organizational actions

Indirect control by disqualified persons is also disqualifying.

Public charities and foundation managers who are disqualified persons solely due to their role as foundation managers are not treated as disqualified persons for this purpose.

Form 1023 Schedule D: Organizational Test Requirements

Type III supporting organizations must specify their supported organization(s) by name in their articles of incorporation.

If this requirement is not met, the organization fails the organizational test under section 509(a)(3) and must amend its organizing documents or reconsider its requested public charity classification.

Form 1023 Schedule D: Restrictions on Donors

When responding to contribution questions, do not include donors that are section 509(a)(1), (2), or (4) organizations.

The prohibition on contributions from controlling donors applies only to Type I and Type III supporting organizations.

Form 1023 Schedule D: Type III Responsiveness Requirement

A Type III supporting organization must show that the supported organization has significant involvement in:

• Investment policies
• The making and timing of grants
• Directing the use of income and assets

Describe how the supported organization participates in these decisions.

Form 1023 Schedule D: Type III Notification Requirement

A Type III supporting organization must provide notice to its supported organization(s). This notification must be provided annually and reported on the organization's annual information return.

Form 1023 Schedule D: Type III Integral Part Test

An organization seeking classification as a Type III supporting organization must satisfy the integral part test by maintaining significant involvement in the operations of one or more supported organizations and providing support on which the supported organization(s) are dependent.

Type III organizations may be:

• Functionally integrated, or
• Non-functionally integrated, depending on how the integral part test is satisfied

Functionally integrated Type III organizations are subject to fewer restrictions than non-functionally integrated Type III organizations.

Form 1023 Schedule D: Functionally Integrated Type III Organizations

An organization is functionally integrated if it is the parent of its supported organizations and:

• Has the power to appoint or elect a majority of the officers, directors, or trustees of each supported organization; and
• Exercises a substantial degree of direction over policies, programs, and activities

An organization is also functionally integrated if it conducts activities that the supported organization would otherwise need to conduct to further its exempt purposes.

Holding title to and managing exempt-use assets directly further the exempt purposes of the supported organization. Fundraising, grantmaking, and managing non-exempt-use assets generally do not.

Form 1023 Schedule D: Non-Functionally Integrated Type III Organizations

To satisfy the integral part test, a non-functionally integrated Type III supporting organization must distribute at least 85% of its annual net income or 3.5% of the aggregate fair market value of its non-exempt-use assets, whichever is greater.

For the first tax year, the distributable amount is zero.

Net income has the same meaning as adjusted net income. Gross income does not include gifts, grants, or contributions.

Non-exempt-use assets include all assets other than exempt-use assets and certain excluded assets described in applicable regulations.

Form 1023 Schedule D: Distribution Reporting and Earmarking

List the total amount distributed annually to each supported organization and describe how amounts vary year to year.

List the total annual income of each supported organization or supported program.

Answer "Yes," if funds are earmarked for a particular program or activity conducted by the supported organization.