Nonprofits need all the help they can get, but that help can sometimes get them in trouble.
During the AICPA Not-for-Profit Industry Conference, Deborah G. Kosnett of Tate & Tryon CPAs and Tracy S. Paglia of Moss-Adams LLP discussed supporting organizations, those that have been established to help an existing exempt entity.
The laws governing nonprofits are many and complex, and those covering supporting organizations are no less so. Part of this complexity comes from an attempt to stem abuses that arose years ago. There has been a system of constant scrutiny to ensure integrity in the sector.
Kosnett and Paglia offered the following information about supporting organizations:
- They must operate solely in support or benefit of specified organizations.
- A supporting organization doesn’t have to pay over its income to it supported organizations, but it may operate independent programs in support.
- They are less regulated than private foundations, but they have less freedom and more restrictions today than before 2006 (when president George W. Bush signed the Pension Protection Act into law).
- Qualifying requirements are numerous and restrictive.
- Depending on the type, there are restrictions on spending or grants.
- Depending on the type, there are payout requirements and restricted donors.
- Excess benefit transaction rules now apply to all supporting organizations.