Tax and Legal Advantages
Supporting organizations are separate legal entities under the Area Foundation's group tax exemption. Supporting organizations enjoy tax and legal advantages not available to private foundations. We handle the administrative oversight, including Form 990 tax returns, annual audits, governance, administrative and legal support.
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 that align with the Area Foundation's strategic priorities.
- Efficiency and cost-savings -Gifts to supporting organizations entitle the donor to maximum tax benefits including full deduction 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 that can decrease or eliminate paid staff.
- Flexibility - Unlike private foundations, there is no 5% minimum annual distribution requirement. The amount of support provided by the Area Foundation (and associated fees) are based upon the supporting organization's needs.
- Longevity - The Area Foundation’s Board of Directors appoints the majority or all board members. The supporting organization’s Board of Directors has a duty to carry out the supporting organization's mission as defined in its certificate of formation and bylaws. This ensures donor intent is preserved in perpetuity.
A private foundation can convert into a "public charity."
A supporting organization continues as a separate legal entity. 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.
Learn more about establishing a supporting organization:
The San Antonio Area Foundation will assist in preparing the certificate of formation and bylaws that specify the supporting organization's charitable purposes and satisfy the tests to qualify as a public charity under the Internal Revenue Code. 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 includes a grant making foundation, the charitable purpose of both entities are parallel.
The supporting organization must be operated, supervised or controlled by, or in connection with, one or more public charities. The Area Foundation requires that its supporting organizations meet the relationship test through creation of a parent/subsidiary-type relationship. The supporting organization is under the direction of, and accountable or responsible to, the Area Foundation. This parent-subsidiary relationship is established by the Area Foundation appointing a majority of the supporting organization's Board of Directors.
The supporting organization must not be controlled, directly or indirectly, by “disqualified persons,” including:
- Substantial contributors i.e. funding donors.
- Family members of substantial contributors.
- Others in an employment, financial, or business relationship.
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 supporting organization's actions.
The supporting organization will identify the administrative, financial, compliance and grant making services. Once the management fees are determined, representatives will sign the Services Agreement with services detailed in the work scope. There is no set-up fee to establish a supporting organization, although there may be initial legal or filing costs.
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).