Schedule A: public charity status and the public support test

A Form 990 filer that answers “Yes” on Part IV, line 1, is a section 501(c)(3) organization that isn't a private foundation, and it attaches Schedule A. Every section 501(c)(3) organization that files Form 990-EZ attaches it too. So do organizations described in sections 501(e), (f), (j), (k) and (n), and section 4947(a)(1) charitable trusts that aren't treated as private foundations. An organization that doesn't have to file Form 990 or 990-EZ but chooses to must still file a complete return, Schedule A included.

A private foundation files Form 990-PF, which has no Schedule A. Form 990-N has no schedules at all. Organizations exempt under other paragraphs of section 501(c) don't file Schedule A either.

Part I has twelve boxes, and you check exactly one. The main ones:

• A church, convention or association of churches (line 1).
• A school with a regular faculty, curriculum and enrolled students (line 2). It also completes Schedule E.
• A hospital, or a medical research organization working with one (lines 3 and 4).
• An organization that normally gets a substantial part of its support from the public or governmental units, under section 170(b)(1)(A)(vi) (line 7), or a community trust (line 8). These complete Part II.
• An organization supported by contributions, membership fees and receipts from its charitable activities, under section 509(a)(2) (line 10). It completes Part III.
• A supporting organization under section 509(a)(3) (line 12). It completes Part IV.

The box can be the status in your determination letter or a different one, if the organization qualifies for it this year. The IRS doesn't update their records from Schedule A. An organization that wants its records changed asks for a new determination on Form 8940. If no box applies, the organization is a private foundation for the year and files Form 990-PF instead.

Part II is for section 170(b)(1)(A)(vi) organizations and Part III for section 509(a)(2) organizations. Both measure public support as a share of total support over five years, but they count different things:

An organization that fails Part II can complete Part III to see whether it qualifies there, and the other way around. If it does, it checks the matching box in Part I instead.

Under Part II, an organization is publicly supported if 33⅓% or more of its total support comes from governmental units, the general public and other public charities. If its public support is at least 10% but under 33⅓%, it can still qualify under the facts-and-circumstances test: it must keep up a continuous, genuine program of soliciting the public, and the other facts must show a publicly supported organization. The instructions name a governing body that represents the broad public, facilities or services provided directly to the public, and, for a membership organization, dues set so a broad cross section of people can join. The lower the percentage, the more the other facts must carry. An organization claiming the 10% test explains in Part VI how it meets it.

Under Part III, public support must be more than 33⅓% of total support, and gross investment income plus net unrelated business income must be no more than 33⅓%. There is no 10% alternative in Part III.

Both parts add up the current year and the four years before it, including any short years. The public support percentage is figured on the five-year totals, not year by year, and is rounded to the nearest hundredth. Part II, line 14, is this year's percentage and line 15 is last year's, copied from last year's Schedule A. Part III uses lines 15 and 16 the same way, and lines 17 and 18 for the investment income percentage, rounded to a whole percent.

Passing in one year counts for two. An organization that meets a test on this year's computation qualifies for this year and next; one that fails this year but passed last year still qualifies for this year. Report amounts only for the years the organization was a section 501(c)(3) organization, and use the accounting method checked on this year's main form for every column.

In Part II, a donor's gifts over the five years count as public support only up to 2% of total support for the period. The excess goes on line 5 and comes out. Gifts from governmental units and from other publicly supported organizations aren't limited, and gifts from a donor's spouse, certain other family members and entities they control are added to the donor's. Here is a small example:

At 70% the organization checks line 16a. Without the 2% limit, the donor's whole $60,000 would have counted, and a few large donors could make almost any organization look publicly supported. Keep the list of donors over the limit in your records; don't file it, because Schedule A is public. Unusual grants, large unexpected gifts from disinterested donors that would upset the test, are left out of both totals and listed in Part VI by amount only.

A new organization is classified as a public charity for its first five tax years as a section 501(c)(3) organization on the strength of the support it can reasonably expect, not the support it actually gets. On Schedule A it fills in its support figures, checks the box on Part II, line 13, or Part III, line 14, and stops. No percentage is computed on the return.

From the sixth year on, the organization computes the percentage every year, on its second through sixth years at first. If that fails, the instructions let it test its first five years instead, and it qualifies for the sixth year if those pass. The IRS suggests working the computation on a private copy of Schedule A during the first five years so the sixth doesn't bring a surprise.

Because passing in one year covers the next, an organization only stops qualifying under Part II when both this year's and last year's percentages fall short of 33⅓% and neither meets the 10% test, so none of lines 16a, 16b, 17a or 17b can be checked. It then checks line 18 and tries Part III. Part III works the same way with lines 19a, 19b and 20.

An organization that qualifies under none of the Part I boxes is a private foundation as of the beginning of that tax year. For that year it files Form 990-PF, with “Initial return of a former public charity” checked at the top, instead of Form 990 or 990-EZ and Schedule A. A private foundation has its own excise taxes and distribution rules, so an organization near this line should get professional advice before the second failing year, not after it. Our private foundation filing guide covers what Form 990-PF asks for.

A supporting organization is a public charity because of its relationship to one or more other public charities, not because of where its money comes from. It checks line 12 in Part I, picks its type (Type I, Type II, Type III functionally integrated or Type III non-functionally integrated), lists its supported organizations in the table on line 12g, and completes Part IV, which asks about its governing documents, who controls it, and its relationship with each supported organization. A Type III non-functionally integrated supporting organization also completes Part V, which figures a minimum amount it must distribute. These rules are detailed, and the instructions point to Pub. 557 and Regulations section 1.509(a)-4 for the full requirements.

When you enter Form 990 or 990-EZ online here and start from last year's return, Schedule A's public support history comes across, moved forward one year, for you to check. You enter the current year's figures.