Supporting Organizations

A lower-cost and tax-wise alternative to a private foundation.

Supporting organizations are separate public charities are under the management of the Area Foundation. You can hire staff and convene a board, while enjoying tax and legal advantages not available to private foundations. We handle the administrative oversight, including IRS-mandated tax returns and annual audits.

In simplest terms, a supporting organization can be described as a "hybrid" of a donor-advised fund and a private foundation.

Supporting organizations enjoy the following benefits:

  • Independence - A supporting organization has its own board of directors and makes its own decisions about investments, spending policy and grant making. 
  • Efficiency and cost-savings - Gifts to supporting organizations entitle the donor to maximum tax benefits, including full deductions for contributions of real estate and closely held stock.  There is no excise tax on investment income.  The Area Foundation can perform a variety of back-office functions reducing or eliminating the need for the supporting organization to have paid staff. 
  • Flexibility - There is no 5% minimum annual distribution requirement, and the amount of support provided by the Area Foundation (and associated fees) are based upon the administrative needs of the supporting organization.
  • Longevity - While the majority of the members are appointed by the Area Foundation, the Board of Directors has a duty to carry out the mission of the supporting organization as defined in its articles of incorporation and bylaws.  This feature ensures that the intent of the original donor(s) is preserved in perpetuity.

A private foundation can convert into a "public charity". A supporting organization continues its separate legal existence. It continues to administer its program and can continue to invest its assets in an independent manner. It must meet certain requirements imposed by Section 509(a)(3) of the Internal Revenue Code. There are three basic types of supporting organizations, and each option reserves a varying degree of the supporting organization’s governance for the trustees of the supported public charity.

Learn more about establishing a supporting organization:

    1. Process and Structure:  The San Antonio Area Foundation will assist in the preparation of revised articles of incorporation and bylaws that specify the charitable purposes of the organization and satisfy three tests to qualify as a public charity under Internal Revenue Code Section 509(a)(3):The organizational and operational test.  The supporting organization must be organized and operated exclusively “for the benefit of, to perform the functions of, or to carry out the purposes of” the Area Foundation.  If the supporting organization is a grant making foundation, the charitable purpose of both entities are parallel.
        • The relationship test.  The supporting organization must be operated, supervised or controlled by, or in connection with, one or more public charities.  While there are three ways to meet this test, the Area Foundation requires that its supporting organizations meet the test through creation of a parent/subsidiary-type relationship.  Under this relationship, the supporting organization is under the direction of, and accountable or responsible to, the Area Foundation.  This parent-subsidiary relationship is established by having a majority of the board of directors of the supporting organization appointed or elected by the Area Foundation.
        • The control test.  The supporting organization must not be controlled, directly or indirectly, by “disqualified persons,” such as substantial contributors (i.e., funding donors), family members of substantial contributors, or other individuals in an employment, financial or business relationship with substantial contributors.  Such persons are not prohibited from serving as trustees or directors of the supporting organization, but must hold less than 50% of the voting power of the supporting organization’s governing body and cannot have veto power over the actions of the supporting organization.
    2. Fees:  The supporting organization will identify the amount of administrative, financial, compliance and grant making services needed. Once the back office and management fees are negotiated, representatives will sign an Affiliate Services Agreement with contracted services detailed in the Appendix.  There is no set-up fee to establish a supporting organization, although there may be initial legal or filing costs.

    3. Financial Commitment: Supporting organizations may be established as an endowment (ensuring that grants are made in perpetuity) or as an expendable fund (allowing grants of any size to be made at any time).

303 Pearl Parkway, Suite 114
San Antonio, TX 78215

The San Antonio Area Foundation helps donors achieve their charitable goals for the greater benefit of the community.

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