There are two main classifications of 501(c)(3) nonprofit organizations: (1) Public Charities and (2) Private Foundations.
Although there are many distinguishing traits between the two types of 501(c)(3) organizations, the Public Support Test is a defining factor between the public charity classification over private foundation status for a charity. The Public Support Test sets forth specific calculations and resultant thresholds which, if met, establish that the public charity is supported by the public rather than a singular or insufficiently small number of funding sources. Notably, public charity status is often desired given the preferential tax treatment, including higher deductibility limits of donor contributions and less stringent operational requirements imposed on private foundations.
For this reason, commencing five years following incorporation, public charities have the burden of establishing satisfaction with the Public Support Test on an annual basis through Schedule A of its Form 990. Failure to meet the Public Support Test will subject the organization to re-classification as a private foundation.
The Public Support Test can be complex and requires an exceptional amount of forward-thinking by a nonprofit regarding fundraising strategy, gift acceptance policies, and programmatic models that result in funding. Tovella Dowling assists clients with Public Support Test calculations, strategy, and planning to avoid placing their client’s public charity status in jeopardy.
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