The Difficulties of Establishing a Supporting Organization When Making Charitable Contributions to a Donor-Advised Fund Program: Lapham Foundation Inc. v. Commissioner
In Lapham Foundation Inc. v. Commissioner, the Tax Court held that a foundation making charitable grants to a donor-advised fund program was not a private foundation because it failed to meet the criteria for a supporting organization delineated in section 509(a)(3)(B). The court determined that the tax-payer-foundation did not satisfy several of the key tests that are essential to characterization as a supporting organization. This holding resulted in the taxpayer’s loss of benefits that being a supporting organization would have conferred. The case illustrates how complicated various regulations have made it for a supporting organization to prove that it is operated in connection with a publicly supported organization. In particular, supporting organizations seeking to make modest donations to donor-advised funds with considerable resources will have compliance difficulties due to the structure of the regulatory tests. The result is that some taxpayers who deserve supporting organization status according to Congressional intent are instead being categorized as private foundations.Part I of this Note lays out the basic concepts and facts of the case. Part II presents the Tax Court’s holding. Part III analyzes the decision, and Part IV discusses some of the basic problems in establishing a supporting organization, while asserting that various regulations conflict with Congressional intent.