Schedule A of the Form 990 is required to be completed by all public charities. This schedule shows the IRS how the Organization is a public charity (versus a private foundation) and also proves that the Organization is receiving enough support from the general public, in order to maintain its status as a public charity. The general rule is that the Organization must receive at least 33 1/3% of total support from the general public in aggregate over the last 5 years.
One area of potential confusion is on page 1 of the Schedule A, where the Organization is required to check a box to indicate which category they fit into that ensures their public charity status. In general, the box checked should match the category selected on the Organization’s original tax exemption application with the IRS (Form 1023). However, the Organization is allowed to change the category when circumstances change and a different category suits them more accurately. Although it is not required, the charity can also request an official approval of the change in category by filing Form 8940 with the IRS.
Box 7 and Box 9 are probably the two most commonly selected categories checked on page 1 of Schedule A, and sometimes there is confusion as to which of these two categories applies. In a very basic sense, box 7 should be checked when the majority of the charity’s revenue is from the general public, and box 9 should be checked when the majority of the charity’s revenue is from program service fees.
One point to remember is if you have any revenue from the government, it may meet the definition of being a contribution for purposes of the Form 990 and Schedule A, even if it doesn’t meet the definition of contribution under GAAP. This should be reviewed carefully when completing lines 1 and 2 on Part VIII of the Form 990 because where the amount is reported on that page affects where it is reported on Schedule A, and therefore affects the public support percentage calculation. For purposes of the Form 990 (and Part VIII), a government contribution would be any revenue from the government where the general public ends up receiving the primary benefit from the use of those funds, rather than the government receiving the primary benefit.
By Colette Kamps, CPA