EXCESS BUSINESS HOLDINGS OF SUPPORTING ORGANIZATIONS.

SEC. 1243. EXCESS BUSINESS HOLDINGS OF SUPPORTING ORGANIZATIONS.(a) In General.—Section 4943, as amended by this Act, is amended by adding at the end the following new subsection:“(f) Application of Tax to Supporting Organizations.—“(1) In general.—For purposes of this section, an organization which is described in paragraph (3) shall be treated as a private foundation.“(2) Exception.—The Secretary may exempt the excess business holdings of any organization from the application of this subsection if the Secretary determines that such holdings are consistent with the purpose or function constituting the basis for its exemption under section 501.“(3) Organizations described.—An organization is described in this paragraph if such organization is—“(A) a type III supporting organization (other than a functionally integrated type III supporting organization), or“(B) an organization which meets the requirements of subparagraphs (A) and (C) of section 509(a)(3) and which is supervised or controlled in connection with one or more organizations described in paragraph (1) or (2) of section 509(a), but only if such organization accepts any gift or contribution from any person described in section 509(f)(2)(B).“(4) Disqualified person.—“(A) In general.—In applying this section to any organization described in paragraph (3), the term ‘disqualified person’ means, with respect to the organization—“(i) any person who was, at any time during the 5-year period ending on the date described in subsection (a)(2)(A), in a position to exercise substantial influence over the affairs of the organization,“(ii) any member of the family (determined under section 4958(f)(4)) of an individual described in clause (i),“(iii) any 35-percent controlled entity (as defined in section 4958(f)(3) by substituting ‘persons described 120 STAT. 1106 in clause (i) or (ii) of section 4943(f)(4)(A)’ for ‘persons described in subparagraph (A) or (B) of paragraph (1)’ in subparagraph (A)(i) thereof),“(iv) any person described in section 4958(c)(3)(B), and“(v) any organization—“(I) which is effectively controlled (directly or indirectly) by the same person or persons who control the organization in question, or“(II) substantially all of the contributions to which were made (directly or indirectly) by the same person or persons described in subparagraph (B) or a member of the family (within the meaning of section 4946(d)) of such a person.“(B) Persons described.—A person is described in this subparagraph if such person is—“(i) a substantial contributor to the organization (as defined in section 4958(c)(3)(C)),“(ii) an officer, director, or trustee of the organization (or an individual having powers or responsibilities similar to those of the officers, directors, or trustees of the organization), or“(iii) an owner of more than 20 percent of—“(I) the total combined voting power of a corporation,“(II) the profits interest of a partnership, or“(III) the beneficial interest of a trust or unincorporated enterprise,which is a substantial contributor (as so defined) to the organization.“(5) Type iii supporting organization; functionally integrated type iii supporting organization.—For purposes of this subsection—“(A) Type iii supporting organization.—The term ‘type III supporting organization’ means an organization which meets the requirements of subparagraphs (A) and (C) of section 509(a)(3) and which is operated in connection with one or more organizations described in paragraph (1) or (2) of section 509(a).“(B) Functionally integrated type iii supporting organization.—The term ‘functionally integrated type III supporting organization’ means a type III supporting organization which is not required under regulations established by the Secretary to make payments to supported organizations (as defined under section 509(f)(3)) due to the activities of the organization related to performing the functions of, or carrying out the purposes of, such supported organizations.“(6) Special rule for certain holdings of type iii supporting organizations.—For purposes of this subsection, the term ‘excess business holdings’ shall not include any holdings of a type III supporting organization in any business enterprise if, as of November 18, 2005, the holdings were held (and at all times thereafter, are held) for the benefit of the community pursuant to the direction of a State attorney general or a State official with jurisdiction over such organization.120 STAT. 1107“(7) Present holdings.—For purposes of this subsection, rules similar to the rules of paragraphs (4), (5), and (6) of subsection (c) shall apply to organizations described in section 509(a)(3), except that—“(A) ‘the date of the enactment of this subsection’ shall be substituted for ‘May 26, 1969’ each place it appears in paragraphs (4), (5), and (6), and“(B) ‘January 1, 2007’ shall be substituted for ‘January 1, 1970’ in paragraph (4)(E).”.(b) Effective Date.—The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.