Does your organization check all the right boxes? For Schedule A, that is. Schedule A is a crucial piece of the 990 for nonprofits as it calculates whether they truly qualify as a publicly supported organization or not. Generally, to be considered a publicly supported organization, the nonprofit must have support of at least 33 1/3% from the public in the aggregate of five years, meaning the support is calculated on a rolling five year basis. If an organization were to fail the public support test in two consecutive years they would be required to file a Form 990-PF as a private foundation instead of the general Form 990.
Support from the public includes contributions from individuals, trusts, or corporations as well as governmental agencies. It can also include income from program services such as admissions if the exempt organization were, for example, a museum. Types of revenue that are not considered public support include investment income, income from unrelated business activities, rental income, royalties, and special event income outside of the contribution portion. Even an unusual contribution (large and unexpected) is not included in the public support calculation since it would skew the percentage over the five year calculation.
Part I of Schedule A has a checklist asking the reason for public charity status. The most common boxes that organizations check are Box 7 or Box 9. To decide what box to check, the organization can first look to their IRS determination letter or Form 1023. Box 7 typically relates to those exempt under section 170(b)(1)(A)(vi) of the Internal Revenue Code, meaning most of the public support is contributions. When Box 7 is checked, Part II of the schedule is completed in order to determine if those contributions compose more than 33 1/3% of total support (income of the organization) for the past five years.
Box 9 typically relates to organizations exempt under section 509(a)(2) of the Internal Revenue Code, meaning most of the public support is income from program services, even if they still receive contributions as well. When Box 9 is checked, it requires Part III of the schedule to be completed to calculate the 33 1/3% public support test mentioned above. If the organization cannot pass the 33 1/3% test but does have more than 10% of its total support from the public from the past five years, Part II will be completed. In this 10% test, the organization must provide facts and circumstances proving that they are publicly supported.
It is important to understand the differences between Box 7 and Box 9 because an organization is allowed to choose a more appropriate box than what their IRS determination letter has listed in order to provide more accurate reporting.
By Rebecca Davis