Public Charity vs Private Foundation

What differentiates a public charity from a private foundation?

We hear this question quite often, so let’s break it down.

What's the Difference?

First, public charities:

• Are churches, hospitals, or qualified medical research organizations affiliated with hospitals, schools, colleges and universities,
• Have an active program of fundraising and receive contributions from many sources, including the general public, governmental agencies, corporations, private foundations or other public charities,
• Receive income from the conduct of activities in furtherance of the organization’s exempt purposes, or
• Actively function in a supporting relationship to one or more existing public charities.

In contrast, private foundations usually have a single major source of funding, typically gifts from one family or corporation rather than funding from many sources. Most private foundations make grants to other charitable organizations and individuals as their primary activity, rather than the direct operation of charitable programs.

What Is Schedule A?

If an organization falls into the following three categories, they will need to use Schedule A. If an organization is described in section 501(c)(3) and is a public charity: it is described in sections 501(e), (f), (j), (k), or (n): or it is a nonexempt charitable trust described in section 4947(a)(1) that is not treated as a private foundation.

If an organization isn’t required to file Schedule A and decides to fill it out, they must complete the full schedule with all of the information required.

Can You Explain Public Support?

If an organization receives more than 10% but less than 33 and ⅓% of its support from the general public or a governmental unit, it can qualify as a public charity. It is up to the charity to establish that it normally receives a substantial part of its support from governmental units or the general public.

And that, in a nutshell, is the difference between public charities and private foundations.

Hope this clears things up! If you have any other questions, reach out to ExpressTaxExempt at 704.839.2321.

Read More »

What is the Public Charity Support Test?

As a publicly funded organization, there are many trials and tribulations out there for a tax exempt organizations and nonprofits. We’ve covered how you can get more donations and how to get more volunteers, but what other challenges await you? One such is the Public Support Test from the IRS.

What Does It Mean When You Fail to Meet a Public Support Test?

Let’s establish what the public support test is first. After your organization has been active for five years, the IRS will monitor the organization’s public charity status based on the public support information reported annually on Schedule A. After the first five years, the support test kicks in.

According to the IRS, for an organization to qualify as a publicly supported organization under section 170(b)(1)(A)(vi), either:

• 33% or more of its total support must come from governmental agencies, contributions from the general public, and contributions or grants from other public charities; or 
• 10% or more of its total support must come from governmental agencies, contributions from the general public, and contributions or grants from other public charities and the facts and circumstances indicate it is a publicly supported organization.

The support test is based on a five-year computation period, consisting of the current year and the four years immediately before this one. If your organization meets the public support test for a tax year, it is treated as a publicly supported charity for that year and the succeeding year, regardless of its actual support for the succeeding year.

Losing Tax Exempt Status

There’s a chance an organization may have lost its tax exempt status without knowing. That’s why we suggest you keep track of and monitor your returns, so you don’t unexpectedly lose your status.

An organization will not meet either of these public support tests if almost all of their support comes from gross receipts from related activities. Public charities need to have an insignificant amount of its support come from governmental units and contributions made directly or indirectly by the general public. If a public charity fails the test, it would then be considered a private charity.

The good news is that here at ExpressTaxExempt, we can get you e-filing Form 990 and 990-EZ in no time. Just make sure you have your records of the last 5 years, and we can get you squared away with Schedule A.

If you run into any issues e-filing Form 990, reach out to our dedicated customer service team, who will gladly answer any of your questions. With live chat, 24/7 support email, and phone support at 704.839.2321, our customer service team is ready to help!

Read More »

Gifts and Contributions

Isn’t the holiday season the most special time of year? The streets and houses are adorned with festive decorations, holiday music plays through the radio, or through your streaming music service, and the television airs the annual list of holiday specials. While it may be a couple more weeks before we are all back around family and friends, these things are our first glimpse of the holiday season, and as the song pronounces, “It’s beginning to look a lot like Christmas.”

One of the most common trends of this time of year is giving donations, and with the #GivingTuesday kickoff earlier this week, the act of giving is now in full effect. For those of you operating nonprofits and charities, it has to be an exciting time with all the contributions you’re receiving. In most cases, you’ll have to report those contributions when you file a tax return for your exempt organization.

With ExpressTaxExempt, reporting your contributions is as simple as waking up on Christmas morning.

After you’ve completed entering your organization details, prior year information, and your organization’s program service, you can begin to enter your contributions and gifts from the “Statement of Revenue” page.

1. Click the “Start” link for “Contributions, Gifts, Grants.”

2. Click “Start” if you need to list “Contributions from Fundraising Events” or “Contributions, Gifts, Grants, and Similar Amounts Received.”

Let’s say your organization has a holiday fundraiser, and it received contributions and donations from that fundraiser. Here, you can…

3. Enter the required income and contribution amount, and any expenses, from the fundraising event, then click the “Add” link.

If you didn’t host a fundraising event, and your organization accepted contributions as they were given, you can…

4. Click “Yes” for “Did you receive any contributions, gifts, grants and similar amounts received?”

5. Enter the required contribution details and click “Add Another” to list another contribution, or click “Add” to list only what you’ve just entered. That’s all there is to it.

“Do I have to list every individual contribution? I don’t have to with the paper form.”
We hear this quite often, and we understand that entering every single contribution can be tedious. While you might not have to do that with the paper form, please keep in mind that, with e-filing, you’re using sophisticated software with automated calculations and algorithms. The program even states the contribution will be factored into your public support percentage.

So if you tell a program that your organization receives at least 33% of its support from contributions, memberships fees, etc., then the program is going to automatically attempt to factor 33% from your list of contributions. If you list them as one large donation, that’s going to prompt an improper calculation, which will fail your public support test.


Bulk Upload

To compensate for having to sit within the program, and list contributions one by one, we do offer a bulk upload feature, which can list all your contributions at once.

All you need to do is

• Step 1 - Download our pre-set Excel template.
• Step 2 - Enter your contributions within the template and save.
• Step 3 - Upload your saved template from your computer.

In this merry time of year, as well as anytime of year, our jolly support team in Rock Hill, South Carolina is more than happy to answer any questions, or help with any assistance you may need with e-filing your tax return. Give us a call at (704) 839-2321 Monday through Friday from 9 a.m. to 6 p.m. EST. Email us anytime, 24/7 at support@expresstaxexempt.com, or live chat with us at www.expresstaxexempt.com.

Read More »

Private Foundations

In the recent blog, “Public Charity Test,” we mentioned briefly how Private Foundations have more regulations than Public Charities along with paying a tax on investment income. But that was just a small tidbit about the differences between private foundations and public charities. All exempt organizations listed under section 501(c)(3) are considered private foundations until they can prove they qualify for public charity status.

What is a Private Foundation?
The main difference between a private foundation and a public charity is donor control, that’s it. If your organization operates as a private foundation, then you receive all of your funding from a single donor or a limited group of donors. These donors are usually just one person, a family, or a corporation, but not the general public.

Generally, private foundations have about four sub-categories:

• Traditional - This is your most common type of private foundation. It may be fully funded by an endowment, or receive funding annually by its donor. The main function of a traditional private foundation is typically to produce grants.
• Pass-Throughs or Conduits - These types of private foundations keep their donor’s contribution under lock for a short amount of time. The contribution from the donor, and any acquired income with it, is dispersed after the end the tax year in which the contribution was made - usually within two months.
• Operating - An operating, private foundation works like a public charity in which it has its own charitable activities such as a museum or library; however, that doesn’t make it a public charity - remember about donor control. The only difference with an operating, private foundation is that engages more in working programs than grants.
• Pooled Common Funds - Both the donor and donor’s spouse can annually choose the recipients of their funds. Generally, the recipients are public charities and even after the end of the donors’ lives, the funds still go to the charity that they have chosen.

Even if your organization has the word “foundation” in its name, that doesn’t mean that you operate as a foundation; it’s all about how you receive your donations. Usually, private foundations are privately created, funded, and managed by either a single person, a family, or a corporation.

Because of the donor control of private foundations, they do not rely on public donors for support; therefore, they are not under the same close, public examination as public charities are. One thing you can bet that private foundations and public charities have in common is both of their tax returns are due on the 15th day of the 5th month after the end of the tax period.

Select your organization status in Schedule A and complete the rest of your tax return form with Express990. We support Form 990, 990-EZ, and 990-N (e-Postcard), and we offer a safe, secure, and accurate e-filing process that will save you time and money.

For any assistance with e-filing our available 990 forms, you can contact our live professionals by phone (704-839-2321, Monday through Friday from 9am to 6pm, Eastern Standard Time), by email (support@expresstaxexempt.com), or by live chat (www.expresstaxexempt.com).

Read More »

Public Charity Test

When you’re filling out a Form 990 or a Form 990-EZ, you’re going to come across Schedule A, which asks if your tax-exempt organization is considered a Public Charity or Private Foundation. According to experts, there’s a default rule that all 501(c)(3) organizations are labelled private foundations until they can prove public charity. 

Private Foundations are exposed to more regulations than Public Charities, and they have to pay a tax on investment income. But that’s information for another blog. To prove that your tax-exempt organization is a Public Charity, you have to pass one of two tests administered by the IRS.

Test 1
The first test states that your organization receives a substantial support in contributions from publicly supported organization, governmental units, or from the general public.

Example: Your organization’s revenue is made through widespread public fundraising campaigns, federated fundraising drives, or government grants.

Experts may explain this as the Donate Charity Test in which your organization normally receives at least one-third its total income from government grants, grants from other public charities, and from members of the public. However, there is a limit.

Only two percent of your funding can come from any one donor, foundation, or corporate fund that’s counted as the numerator, while the entire amount of the gift is counted as the denominator.

Test 2
The second test states that your organization receives no more than one-third of its support from gross investment income, and more than one-third from contributions, membership fees, and gross receipts from exempt-related activities.

Example: You have a membership-free organization like a parent-teacher group, or an art group with box office revenue.

This is also explained as the Gross Receipts Charity Test, which includes receiving at least one-third of your support from government grants, grants from other public charities, and from members of the public. But also by receiving your support from revenues generated by activities within the organization’s exempt purpose.

The second test has a different limit on the amount that can be counted as the numerator. Receipts only up to the greater of one percent of the charity’s total support during the year, or $5,000, is counted as the numerator. The total amount of the gift is the denominator.

These are only glimpses of the complexity of these two test. Of course, there are exceptions, like the Unusual Grant Exception, exclusions, and even exceptions from exceptions. For a careful analysis of your organization’s Schedule A classification, you would want to consult with an accountant or tax professional.
E-file your Schedule A, along with the rest of your Form 990 or 990-EZ, with Express990. We offer a safe, secure, and accurate e-filing process that will save you time and money. We are also backed by expert help with technical and support teams that are the most experienced in the industry, knowing the in’s and out’s of the filing process better than anyone else.

For any assistance with e-filing our available 990 forms, you can contact our live professionals by phone (704-839-2321, Monday through Friday from 9am to 6pm, Eastern Standard Time), by email (support@expresstaxexempt.com), or by live chat (www.expresstaxexempt.com).

Read More »

What Does It Mean: Failure To Meet A Public Support Test

Sometimes your curiosity gets the best of you and you want to know the answer to this question: What does it mean if an organization failed the "public support test"?

It's reasonable enough to ask but when you search for this answer an insane amount of information is thrown up on your screen. The Express990 team wants to save you a bit of time and some vision by just putting all your answers in this convienient, yet informative blog..

These are the answers you have been searching for...

Here is an interesting tidbit, I bet many non-profits did not know, the default rule is that all 501(c)(3) organizations are private foundations unless they qualify as a public charities. Which is mean, unless your organization passes the "public support test" you are otherwise classified and governed as a private foundation. And private foundations are subject to more restrictions and have to pay taxes on investment income. Thus qualifying as a "public" charity is very beneficial.

There are two tests that an organization can use to determine if they pass the "public support test"; donative charity test and gross receipts charity test.

The donative charity text stipulates that a charity must normally receive at least 1/3 of its total income from government grants, grants from other public charities, and from members of the public. A caveat is that there is a 2% limit on the amount of funding from any one donor, foundation, or corporate funder that can be counted toward the total.

The gross receipts charity test to see if it normally receives at least 1/3 of its total income from government, grants from other public charities, from members of the public, or from revenues generated by activities within the organization's exempt purpose. The caveat is that this test places a limit on the amount of investment income that the organization can earn. The organization cannot have not more than 1/3 of its total income can derive from investment income.

These test are review year after year. If you meet the public charity test in 2013 tax year, you will be classified a charity for the 2013 and 2014 tax years. However, if you do not pass the public support test in 2013, your organization will be classified as a private foundation for tax year 2013. If you believe that the classification of a private foundation should not be applicable to you, then you should the IRS.

Before you go to share this wealth of knowledge with the world, I just wanted to add this little smidgen (it's a word ;) of information in here for good measure. If you need to file your Form 990-N or 990-EZ and the thought of all that paperwork makes you sick to your stomach, Express990.com provides e-filing of these forms. The entire process is much more simple to get through and understand. If you have any questions, do not hesitate to contact our amazing support team. 

Read More »