Tax Brief: Form 990, Schedule A: Public Charity Status and Public Support
For many non-profit organizations, Schedule A is the most important part of the Form 990 Return of Organizations Exempt from Income Tax. Organizations that are described in Internal Revenue Code Section 501(c)(3) and are public charities must complete Schedule A. The purpose of Schedule A is to provide information about the public charity status and public support of the tax exempt entity. This is how a tax exempt entity distinguishes itself as a public charity and not a private foundation.
Schedule A reports to the IRS a substantial amount of information and is broken into six parts as follows:
Part I – Reason for Public Charity Status
In this section, the filing organization checks only one of the boxes on lines 1 through 12 to indicate the reason the organization is a public charity for the tax year. The reason can be the same as stated in the organization’s tax-exempt determination letter from the IRS (“exemption letter”) or subsequent IRS determination letter, or it can be different.
The rest of Schedule A is completed based on the box checked in Part I.
Part II – Support Schedule for Organizations Described in Sections 170(b)(1)(A)(iv) and 170(b)(1)(A)(vi)
Part II should be completed if under Part I, Box 5, 7 or 8 was selected. For Part II, only gifts, grants and contributions are counted towards public support. Program service revenue is excluded. It is very important to track large donations for purposes of Schedule A, Part II as excess contributions must be calculated and excluded from public support. Excess contributions are those that exceed 2% of the total contribution revenue for the five year rolling period. Contributions from governmental agencies and other 501(c)(3) non-profit organizations are excluded from this excess contributions calculation.
Public support is calculated and reported on line 14. This is the most important line on the Schedule. In order to meet the public support test, the calculated percentage of public support must be greater than 33 1/3%. If this number is decreasing annually or approaching the threshold, you should consider consult with a CPA.
Part III – Support Schedule for Organizations Described in Section 509(a)(2)
Part III should be completed if under Part I, Box 10 was selected. For Part III, gifts, grants and contributions and program service revenue counts towards the public support calculation. However, certain amounts must be backed out per the IRS guidelines including disqualified persons, which includes substantial donors and certain program service revenue. This part of the Schedule can be quite complex and it is highly recommended an experienced accountant review the Schedule.
Public support is calculated and reported on line 15. This is the most important line on the Schedule. In order to meet the public support test, the calculated percentage of public support must be greater than 33 1/3%. If this number is decreasing annually or approaching the threshold, you should consider consult with a CPA.
Part IV – Supporting Organizations
Part IV is only to be completed if a Box on line 11 in Part 1 was selected. The sections completed will depend on the type of supporting organization (I, II, or III), but all supporting organizations must complete Section A. A series of questions is asked that must be answered to demonstrate compliance with the detailed rules pertaining to these organizations.
Part V – Type III Non-Functionally Integrated 509(a)(3) Supporting Organizations
Part V only needs to be completed if the organization is a Type III Non-Functionally integrated supporting organization. This section will tell the IRS if the supporting organization met the distribution requirement. The requirement is that the organization must make a minimum amount of distributions to or for the use of one or more supported organizations.
Part VI – Supplemental Information
This section is used to provide additional support for any of the items in the above sections requiring further explanation. Any additional information the organization deems necessary may also be reported here.
The Form 990 is a complex information return and the accurate completion of Schedule A is imperative for tax-exempt entities to retain public charity status. Jones & Roth has a team of experts that specialize in tax-exempt returns and we are happy to assist your organization to ensure tax compliance and ease your burden.
The purpose of this article is to summarize the major components and reporting requirements of Schedule A and is not intended to be all encompassing or serve as replacement for the Form’s instructions.
This article is meant to be a resource and provide tools to assist your organization. Please consult your tax advisor regarding your specific tax situation.