How to Maintain Your Public Charity Status and Pass the Public Support Test
Many nonprofits qualify as public charities. The public charity designation, also known as a public 501(c)(3), has many benefits. But did you know that just because the IRS determination letter says the organization is a public charity doesn’t mean it maintains that status forever? How is that status determined and maintained?
Read Yeo & Yeo’s Public Support for Nonprofits eBook to learn …
- The reasons for public charity status
- How to conduct support tests for contribution-driven and program service-driven organizations
- What actions to take to maintain public charity status
It’s important to maintain an entity’s public charity status. This allows the entity to operate with fewer rules and regulations, as compared to a private foundation, and may allow donors to deduct a larger percentage of contributions at times. But what can be done to maintain that status?
First and foremost, an organization needs to know its public support reason and status. Every year you have Form 990 (or a 990-EZ), and it has a Schedule A. Make sure you are looking at it. Make sure you review it and understand where the numbers come from. Make sure you know what percentages you have.
You also need to understand the timing of when your organization’s tax return is normally done. Nonprofits could wait until the 15th day of the 11th month after year-end to file. But if they do, that means there are one-and-a-half months left in the next fiscal year to deal with any potential support problems. As soon as a public support test is below 33 1/3% on Schedule A (or in the case of investment income for a 509(a)(2), it is above 33 1/3%), the organization needs to start making significant plans and forecasting their public support.
Do you need help navigating your public charity status?
Yeo & Yeo’s Nonprofit Services Group serves more than 300 nonprofit organizations throughout Michigan. Our professionals’ extensive experience translates into recommendations to improve accounting controls and operating efficiencies that are practical and realistic. We provide the advice and support you need – allowing you to concentrate on your organization’s central purpose.
If you need assistance with your charity status, contact your Yeo & Yeo advisor or contact us for more information.