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Supporting Organizations

Supporting organizations, established under Section 509 of the tax code, are foundations that exist as a part of the East Tennessee Foundation family. They operate as separate charities with their own charters, bylaws, and boards. East Tennessee Foundation, in consultation with the donor, appoints a majority of the supporting organization's board members. ETF also performs its audit, tax reporting, and other duties as agreed upon by the Foundation and the supporting organization. A supporting organization is most cost efficient with assets of $2 million or more.

A supporting organization is the right choice for:

  • One who is thinking of establishing a private foundation but would enjoy the preferred tax status, cost-effectiveness, flexibility, and assistance that East Tennessee Foundation offers;
  • One who wants more autonomy and involvement in grantmaking.

ETF Structure

SUPPORTING ORGANIZATIONS

• Supporting organizations operate as separate charities with their own tax exempt status, charters, bylaws, and boards.

• Generally, to qualify as a public charity, an exempt organization must receive at least one-third of its financial support from a broad spectrum of donors. A supporting organization does not have to meet this "public support test" because a supporting organization qualifies as a public charity due to its close structural and financial relationship with another nonprofit organization that is itself a public charity.

• There are three types of supporting organizations. Type I supporting organizations are operated, supervised, or controlled by the supported organization (a parent-subsidiary relationship), where the public charity appoints at least a majority of the supporting organization's board of directors. (All of East Tennessee Foundation's (ETF) supporting organizations are Type I.) Type II supporting organizations are usually designed with a majority of directors serving on both the supporting organization's and the supported organization's boards (brother-sister relationship). Type III supporting organizations are the least structured relationship between the two organizations. Typically, the supported organization appoints one or more directors of the supporting organization and institutes other procedures to ensure the responsiveness of the supporting organization to the supported organization.

• Because of provisions contained in the Pension Protection Act of 2006, there is a misperception that foundations can no longer make grants to supporting organizations. In reality, most supporting organizations (and all of ETF's) can still receive grants. Type III supporting organizations (the least structured relationship between supported and supporting organizations) cannot receive grants unless they are "functionally integrated". A Type III supporting organization is deemed to be functionally integrated if, but for the supporting organization, the supported organization would be conducting the same activities. Grants may also not be made to Type I or Type II supporting organizations if a "disqualified person" directly or indirectly controls the supporting organization or the supported organization.

• ETF has nine active and two testamentary supporting organizations: Blalock Family Foundation, Chapman Family Foundation, Clayton Foundation, Cornerstone Foundation, East Tennessee Supporting Foundation (established to accept gifts of property), Education Consumers Foundation, Knoxville Jewish Community Family of Funds, Legacy Parks Foundation, Public School Forum of East Tennessee, Shults Family Foundation, and Spencer/Bilo Nelson Family Foundation. Legally, the ETF Board of Directors must appoint a majority of each supporting organization board; it may consult with the supporting organization and its board and donors as to potential candidates.

• A supporting organization is most cost effective with assets of $2 million or more. A donor advised or other type of component fund would better serve an entity with less than $2 million in assets.

• Although they have their own advisory boards and bylaws, ETF's county affiliate funds (for example, the Kingsport Community Foundation and the Johnson County Community Foundation) do not have supporting organization status. They are component funds of ETF, are under the ultimate control of the Board of Directors, and are managed by ETF staff.

• East Tennessee Foundation policy requires that an ETF staff or board member serve as a regular or non-voting member of each of its supporting organization boards. This has been implemented in most cases. Where it has not, a staff member attends the board meetings.

• As a separate nonprofit organization, the financial management and reporting are the responsibility of the board of the supporting organization. However, ETF requires, as a part of the agreement between the two organizations, that the audit and tax reporting be done by ETF for purposes of ensuring adequate oversight and control.

• As part of the relationship between East Tennessee Foundation and its supporting organizations, ETF assists with an assortment of management and administrative tasks:

  • A supporting organization is responsible for its own investments and selects investment managers as needed. However, two of ETF's supporting organizations (Knoxville Jewish Community Family of Funds and Blalock Family Foundation) have opted to be invested in the commingled fund. This is permissible by the nature of the supporting organization relationship.
  • East Tennessee Foundation receives and administers gifts, and acknowledges donors, if requested by the supporting organization.
  • East Tennessee Foundation provides the supporting organization's directors and officers with adequate liability insurance.
  • East Tennessee Foundation is able to provide the supporting organization professional management and oversight.
  • Supporting organizations are independent from ETF in their grantmaking. The board of the supporting organization is ultimately responsible for and approves the grants made by that organization. ETF does provide technical and administrative assistance to its supporting organizations, if requested.

• Their public charity status makes supporting organizations an excellent alternative for family foundations because donors may receive favored tax status versus that of a private foundation. A major contributor, member of his/her family, or business entity he/she controls may be a very active member or officer of the supporting organization. This is what often makes a supporting organization attractive to donors. However, the supporting organization cannot be controlled directly or indirectly by the above.

• A supporting organization is the right choice for one who is thinking of establishing a private foundation but would enjoy the preferred tax status, autonomy, cost-effectiveness, flexibility, and assistance that East Tennessee Foundation offers.

Cornerstone Foundation http://www.cornerstoneofknoxville.org/

Education Consumer  Foundation http://www.education-consumers.com/

Knoxville Jewish Community Family of Funds http://www.jewishknoxville.org/

Legacy Parks Foundation http://www.legacyparksfoundation.org/


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