Direct Support Organizations

(DSO)

Why a DSO?

To insure proper stewardship of private donations

• Separate legal entity• It’s own board of directors• Strict adherence to donor intent

Internal Revenue Service Guidelines

• Organizational Test• Operational Test• Relationship Test

Organizational TestIRS:• Organized exclusively for the benefit of, to perform the

functions of, or to carry out the purposes of the supported organization

FS 1004.70 (a)(2)• Organized and operated exclusively to receive, hold,

invest and administer property and to make expenditures to, or for the benefit of, a Florida College System institution in this state.

Operational TestIRS:• supporting organization must engage solely in

activities that support or benefit its supported organization

FS 1004.70 (a)(3)• An organization that the Florida College System

institution board of trustees, after review, has certified to be operating in a manner consistent with the goals of the Florida College System institution and in the best interest of the state.

Relationship TestIRS:Must demonstrate a clear level of coordination between the College and the DSO in three key areas:1. Demonstrated information flow

(Notification requirement)

2. Responsiveness to College needs (Responsiveness test)

3. DSO existence is integral to the College (Integral Part test)

Notification RequirementFS 1004.70 (5)• ANNUAL BUDGETS AND REPORTS.—Each direct-support organization

shall submit to the board of trustees its federal Internal Revenue Service Application for Recognition of Exemption form (Form 1023) and its federal Internal Revenue Service Return of Organization Exempt from Income Tax form (Form 990).

DSO Audit Review Checklist (4)• In accordance with Section 1004.70(5), Florida Statutes, did this direct-

support organization submit to the board of trustees a copy of its federal IRS Application for Recognition of Exemption form (Form 1023) and its federal Internal Revenue Service Return of Organization Exempt from Income Tax form (Form 990)?

Notification RequirementFS 1004.70 (6)• ANNUAL AUDIT.—Each direct-support organization shall provide for an annual

financial audit in accordance with rules adopted by the Auditor General pursuant to s. 11.45(8). The annual audit report must be submitted, within 9 months after the end of the fiscal year, to the Auditor General, the State Board of Education, and the board of trustees for review…

DSO Audit Review Checklist (5)• Did the board of trustees review the following issues and accept

the annual audit?A. College support of direct-support organization’s operating expenses.B. Annual change in the direct-support organization’s net assets.C. Direct-Support Organization’s ability to cover indebtedness (both current and

projected).

Responsiveness TestIRS• The DSO must be responsive to the College:

The College is adequately represented in the governing body of the DSO if the following occurs:• The Trustees appoint at least one officer or director of the

supporting organization,• At least one member of the Trustees also serves as an officer,

director or trustee of the DSO and • There is a demonstrated close and continuous working

relationship between the College and the DSO.

Responsiveness TestFS 1004.70 (2)• BOARD OF DIRECTORS: The chair of the board of trustees shall appoint a representative to the

board of directors and the executive committee of each direct-support organization established under this section, including those established before July 1, 1998. The president of the Florida College System institution for which the direct-support organization is established, or the president’s designee, shall also serve on the board of directors and the executive committee of the direct-support organization, including any direct-support organization established before July 1, 1998.

DSO Audit Review Checklist (1-2)• In accordance with Section 1004.70(2), Florida Statutes, did the chairperson of the board of trustees

appoint a representative to the board of directors and the executive committee of each direct-support organization established under Section 1004.70, Florida Statutes?

• In accordance with Section 1004.70(2), Florida Statutes, did the president or the president’s designee serve on the board of directors and the executive committee of the college’s direct-support organization?

Integral Part TestIRSDSOs can be functionally integrated by complying with one or more of three alternatives.

DSO’s qualify under Alternative 3: Supporting a Governmental Entity (Under temporary guidelines).

Direct Support Organization(DSO)

A separate legal entity with its own board to insure

proper stewardship of private donations and provide strict

adherence to donor intent.