Understanding the 501(c)(3) Public Support Test
ฝัง
- เผยแพร่เมื่อ 15 มิ.ย. 2024
- Over the course of our many years in business, we have found the public support test to be among the least understood topics by nonprofits, especially smaller organizations. But, it is absolutely critical to understand how it works, lest your nonprofit lose its public charity status.
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•ARTICLE: “Understanding the 501(c)(3) Public Support Test" bit.ly/33PVe2G
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0:00 Start
0:20 501(c)(3) University Intro
0:41 Private Foundations vs. Public Charities
1:48 Public Support Test Definition
3:10 509(a)(1) vs. 509(a)(2)
4:51 Public Support Test Example 1
5:20 Public Support Test Example 2
6:20 Public Support Test Example 3
7:02 Public Support Test Example 4
7:38 Failing The Test
8:18 Facts and Circumstances Test
9:12 Public Support Test Loophole
9:39 Conclusion
If you need help filing for IRS 501(c)(3) status, we’d love to help. Fill out the form at bit.ly/3i6rFxz or give us a call at 888-361-9445.
Hi Greg! Are foreign gov't or their agencies subject to 2% test for the Part II calculation?
I would say so, yes. The governmental exclusion for public support is based on support from federal, state, or local US government sources.
Also to follow up on my previous statements from below. The public support test is NOT ACTIVATED until a nonprofit has surpassed 50K in revenue or elects to file a 990 form other than the 990 N (if it is making 50K or less). You also failed to mention "UNUSUAL GRANTS" and how you determine that someone has made an "UNUSUAL GRANT" to your organization.
True and true! Nonprofits that operate perpetually under $50k in gross revenue, while still subject to the public support test technically, will never be subject to having to demonstrate it. If they ever increase revenue to the point where they suddenly have to file Form 990-EZ, however, they will have to calculate the public support percentage assuming they're in year 6 or beyond. That's why it's important for even micro-charities to keep an eye on public support if they expect to eventually grow. As for unusual grants, we could have mentioned that, at least in passing. We'll do an entire video on that subject later this year.
Hi! Really interesting content. Just curious if there is any reason/risk for a non-profit to carry debt for a long period of time?
I'm confused about Part III of Schedule A and the 'disqualified' contributions, and the mention of 5k, not necessarily the 2%. Does the 5k requirement apply to 509 (a)1 and 509 A 2, or just 509 A1?
Great video !!! However, how many family members you have on your board is an operation of state law and NOT of federal tax exemption status. There are many states within the United States or the union that allow you to have just ONE board member to operate as a nonprofit public charity. My wife and I operate a nonprofit that is a PUBLIC CHARITY in MA it's a 509 (a)(2). I am a 20 year plus attorney in the field of tax law.
Hi, Wayne...thanks for the feedback. This is one of those situations where there is a conflict between state and federal law, and more specifically the text of federal law and application thereof. It is true that federal law doesn't specifically address the number or percentage of family members on a public charity board. However, the IRS on a daily basis will withhold 501(c)(3) public charity status from applicant nonprofits that do not have a majority of independent board members. It is their extrapolation/interpretation of the rules governing private benefit and inurement. The IRS Exempt Organizations office will refer to it as part of the Organizational Test. While we don't necessarily agree with the extrapolation, it is part of the IRS SOP and has been for the 26 years we've been in this business. That's why you've seen the rise of creative structures, such as the single member public charity, to effectively allow closer control while still satisfying the IRS expectations with regard to board makeup. As for existing organizations like yours, it is not uncommon to see boards adopt non-independent control. It is very uncommon, however, to get that setup approved on the front end.
@@FoundationGroup Thank you for your return email and your time. My prior firm was successful in getting a number of single-person nonprofits approved when state law permitted this process. The service or (IRS) in my conversations with them ADMIT that the establishment of nonprofit corporations are based upon state LAWS and NOT federal guidance. There is NO real requirement for bylaws and it clearly states on form 990 that you do NOT need a COI or Conflict of Interest policy ( Please see form 990 Part VI Sec. (B)). The question on form 990 about conflict of interest is for informational data collection purposes only. I will also refer you to the 10th amendment in this matter. It clearly states where federal law is silent. The states are allowed to make laws. (10th amendment; The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.) Please see the 10th Amendment.
Good job on the video---I sent you an inquiry about opening a dog shelter.
Thanks, Cecilia! We didn't see your name in our sales system, so let's make sure we get you assisted. Since we have a lot of people who reach out to us about starting a nonprofit, the quickest way to talk with a team member is to call into our office at 615-361-9445 during business hours (8:30 - 5:00 Central). Just let Angela know you want to talk with someone about starting a dog shelter. She'll get you with the right folks!
*Under the 509(a)(2) subset:
What percentage, (or how much) of the public support test required (if any) to be from earned income/participation fees for service vs. other revenue sources? (I.E. Public donations, grants, in-kind donations, etc.)
*Also, in regards to 509(a)(2) "Disqualified Persons" :
-Does this completely bar Managers (Officers, Directors) from donating to the organization at all?" (Including both monetary and in-kind donations).
-Plus, is a Board Give and Get Policy possible under a 509(a)(2) subset?
Thank you so much!
Interestingly, a 509(a)(2) is not required to have any program revenue. You could be categorized as that and have 100% of your revenue coming from donor support. Disqualified persons are not restricted in any way from giving to a nonprofit they serve. Finally, yes, a Give and Get policy should be just fine in a 509(a)(2).
If you fail public charity test in year 6, it will revert to private foundation. What happens to donors who gave funds to your public charity and took deduction? Do those donations are disallowed on their personal tax return, requiring them to amend their tax returns?
Thanks.
Loss of public charity status is a "go forward" loss, not a backdated loss. Therefore, the donors should be fine. For what it's worth, loss of public charity status reverts the organization to a private foundation, which is still a 501(c)(3). Donations are still tax-deductible, albeit at a lower AGI max of 30% instead of 60%.