Real Help With Your 501(c)(3) Application
A. The two most common types of public charity status are 509(a)(1)/170(b)(1)(A)(vi) and 509(a)(2). The primary difference between the two is the type of public support they receive. Both share the same annual IRS filing requirements, unrelated business income tax rules and donor deductibility limits (more favorable than those imposed on private foundations). Before completing one of the pages of Form 990, Schedule A to attach to your Form 8940, you will need to decide whether your organization's support is likely to be in the form of gifts, grants and contributions or in the form of payments for goods or services, such as admissions to cultural events, tuition, fees for therapy, or payments at fundraising events.
Completing Form 990, Schedule A, Part II:
For organizations seeking 509(a)(1)/170(b)(1)(A)(vi) public charity status
Line 5 of Part II of Form 990, Schedule A asks about donations that exceed 2% of your total support. After you have completed lines 1 through 11 (skipping line 5), multiply the total in Line 11, column (f) by .02. The top of page 7 of the 990, Schedule A instructions has an example list of donors over 2%. You will probably not need as many columns as the example, since you have been in existence fewer years. (Do not list donors by name; instead use Donor A, Donor B, etc., specifying the type of donor, such as individual, private foundation, business, partnership, etc. Keep a list in your own records of actual names.) Donations from members of the same family, business co-owners, etc. should be combined. (Check the 990, Schedule A instructions for Line 5 of Part II if you are unsure.) Donations from public charities and governmental entities are not subject to the 2% limitation, and should not be included on this list. Enter the total of "excess amounts" on line 5. column (f).
If there have been no donations in excess of 2%, or donations in excess of 2% have only come from public charities or governmental entities, mention this in Form 8940, Part III (page 2) Explanation of Request.
Completing Form 990, Schedule A, Part III
For organizations seeking 509(a)(2) public charity status
Line 7 asks for lists showing:
a. The amounts of contributions and gross receipts (lines 1, 2, and 3 of Part III of Schedule A) that the organization received from disqualified persons. (Do not list disqualified persons by name. Instead use DQP A, DQP B, etc. Keep a list in your own records of actual names.) The 990 Schedule A instructions have a sample list on page 10, but no definition of disqualified persons. (A short definition would be officers, directors, trustees, and individuals or organizations that have donated a combined total of more than $5,000, or 2% of total support (Line 13). Since family or business relationships can mean others are considered disqualified persons as well, you may want to check the detailed definition of disqualified persons that appears in the left hand column of page 43 of the 2/2023 version of IRS Publication 557 or on page 58 of the Glossary in the instructions for Form 990.) Enter yearly totals on line 7a and the grand total on line 7a, column (f)
b . The amounts of gross receipts (lines 2 and 3 of Part III of Schedule A) from each source other than a governmental unit or a disqualified person, that exceed the greater of $5,000 or 1% of the amount on line 13 for each year. Page 10 of the 990 Schedule A instructions has a sample chart showing how to compute "excess" amounts to be entered on 7b. Enter yearly totals on line 7b, and the grand total on Line 7b, column (f).
c. Line 7c is simply a total of Lines 7a and 7b.
If there have been no amounts from disqualified persons, or "excess" gross receipts, mention this in form 8940, Part III (page 2) Explanation of Request..
Question 4 - (Schedule A) How do we decide
which type of public charity status to ask for?