IRA Rollover Giving – IS Your Org Eligible?

Image result for what type of organization tax exempt

Should be an easy question.  Except that it isn’t always so clear.

With IRA giving (donors age 70.5+) becoming particularly important in light of the new tax law, your nonprofit may want to read this post carefully.

  1. Private Foundations and Supporting Organizations are NOT eligible to receive qualified IRA rollover gifts.
  2. A Supporting Organization (SO) is one which was founded and received its exemption under IRS Code Section 509(a)(3) (there are 3 types of SOs – all are not eligible – not relevant to this post).

Last week, a question came via a client.  It was a religious entity upset that they are a SO – what can they do about accepting IRA rollover gifts?

Answer:  find out if your organization is definitely an SO or not!  Someone may have thought you are one and checked off that box on the 990 or some other form (when, in fact, the org is something else).

First, look at your 990 return – your accountant may have checked off the box saying that you are an SO!  DON’T ASSUME THAT IS ACTUALLY THE CASE.

Next, call the IRA tax exempt hotline (pretty short waits) – and ask them what they have you as.  AGAIN, DON’T ASSUME THEY ARE CORRECT EITHER.

Next, look at your incorporation documents and preferably a copy of your original IRS form 1023 application for exemption – what do they say?

Incorporation docs and your 1023 rule over anything else (call me if you have a discrepancy between the incorporation docs and your 1023!).

Many times accountants who file the 990s make mistakes and the IRS doesn’t question them.  Your organization can go on for years filing under as the wrong type of organization.  All the IRS cares about for 990s is that they are filed – not whether they are particularly accurate – as long as the numbers are generally sound.

I am sure there are thousands of nonprofit public charities which are in fact SOs!!  If  your organization is some sort of subsidiary, controlled by a parent charity (as long as the parent controls the board membership), you might be an SO.  SOs were an easy route to gain exemption status by “pigging-backing” on the parent’s exemption (and maintaining control of the subsidiary).

It doesn’t matter if your organization no longer resembles an SO.  Until you amend your articles of incorporation and refile your 1023, your org is what it started out as.

Of course, there may be many orgs which think they are SOs – because of an error on the 990s or other mistaken approaches – but are really NOT.

Go back to the beginning.  You might be surprised. I had the IRS telling me definitively that a client was an SO.  But, I kept digging (no one had the 1023 or articles of incorporation) and eventually figured out that the so-called parent church’s attorney thought they were an SO and told the IRS on one of their forms.  They lost their exemption retroactively for not filing 990s (they were actually a religious org that wasn’t required to file 990s).  In the IRS’s system – they were switched to an SO and that was it.

Eventually, they got it reversed but some damage was done.



One comment

  1. Good post (as usual) Jonathan. There certainly is a lot of confusion circulating in the “who is eligible for gifts arena” via Charitable IRA Rollover channels. Very helpful info. As you know, there are solutions out there for SOs (and even certain public charity sponsors of DAFs) that can effectively facilitate the receipt of Charitable IRA Rollover gifts from their valued donors.

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