Calculating public support
Download: Nonprofit Law Podcast #8 (mp3, 09:27)
Shownotes
Intro
Tim Mooney… Welcome to the Nonprofit Law Podcast
Your guide to the laws impacting nonprofits.
Shownotes…. nplawcast.com
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"I was told there'd be no math on this exam"
- Ethan Hawke as Tom Dyer, Reality Bites
If you are a public charity, you have to show public support if you're not a church or a school.
This can be a complicated area because there are several, math-intensive ways of determining public support
MOST organizations will qualify under IRC Sec. 509(a)(1)... the 1/3 test
If after we go through this test and you determine your organization doesn't meet the 1/3 test, don't panic... you may meet it under another test, but it's time to contact a tax professional (lawyer or accountant)
Why public support?
Practically, it shows your charity gets a lot of small contributions to make up its total support. It demonstrates broad fiscal commitment from the community to your organization, and therefore makes you worthy of tax exempt status with all the benefits of a charity.
Who cares if you lose it?
You're now a private foundation... still exempt, but with more hassles
It's harder to offer tax deductibility to contributors
Your paperwork just went sky high (990PF)
No lobbying at all
Taxes on investments
The 1/3 test
Step 1 - Figure out the threshold amount. For your tax year, multiply your total support by .02 - this gives you the magic number that the IRS considers the maximum contribution that qualifies as public support.
Step 2 - add up all of the contributions you received that are LESS than that threshold amount. We'll call that qualifying support.
Step 3 - Divide qualifying support by total support. Note that any big grants or individual contributions that don't make it in the numerator are in the denominator... If the total percentage is greater than 33.3%, congratulations... you pass. If not... take a deep breath and call your tax professional. You may qualify under another test OR it might be possible to push for small donors if you are working with projected numbers in your current tax year
Other things to think about
New charities are given 4-6 years to meet the public support test
Tipping is not for waiters. It's when you get a big donation from one source that is so big that it causes your organization to fail the public support test.
Resources
Foundation Center resources
SharingLaw.net examples
IRS: Pub 557 if you're a tax masochist
Dyson Foundation on tipping
Closing
Email me with questions and suggested topics
AP audio & handbook on using the Internet, podcasting and social networking for your nonprofit coming later this summer
Need more than a podcast? Tim-Mooney.com
nplawcast.com
This podcast provides general information about legal topics but it is not a complete discussion of all legal issues that arise in relation to nonprofits nor is it a substitute for legal advice. This podcast does not create an attorney-client relationship. This is general legal information and the contributors make no warranties regarding the general legal information provided in this podcast , and disclaim liability for damages resulting from its use to the fullest extent permitted by the applicable law.
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