Natalya Attestatova, CPA

First Exception to Private Foundation Definition: Traditional Public Charity

March 27th, 2010

There are two ways for an organization to qualify under this exception:

1. By definition – if an organization is:

• churches
• colleges
• universities
• schools
• nonprofit hospitals
• medical research institutes
• support organizations to schools and governmental unit.

2. By the amount of public support the organization receives. There are 2 tests under which the organization may qualify as a public charity:

• mechanical test - look to the most recent 4 years - if public support >= 1/3 of total support  – the charity is a public charity. Let’s talk about definitions involved in this test:

             public support – generally the support will fall in one of these categories:

1. contributions from individuals, foundations, trusts and corporations.
2. support from governmental units.
3. membership dues, if the purpose of such payment is to support the organization and NOT to purchase admissions, use facilities, etc.

             total support – everything included in public support PLUS:

1. gross investment income
2. contributions and dues from individuals, foundations, trusts or corporations that are MORE than 2% of total support
3. net income from unrelated business activities.

• facts and circumstances test – if the organization fails to qualify under the mechanical test, it can still try to qualify under the facts and circumstances test. For this, evidence of three elements must be demonstrated:

1. the total amount of government and public support = or > than 10% of total support for the applicable period.
2. the organization continuously tries to attract new and additional public and governmental support.
3. the organization is entitled to be recognized as public rather than private. Most often, two factors are considered:

            a. To what degree the board of directors represents the general public (and not just donors)

            b. To what extent services or facilities of the organization are available to the general public.

Entry Filed under: Non-Profit Organizations