Calculating Public Support & Large “Excess” Contributions
A 501(c)(3) public charity needs to meet the 1/3 public support test (ideally) or the 10% facts and circumstances test (if percentage is too low for 1/3 test)?
When computing a charity’s public support percentage, the amount by which each individual donation exceeds 2% of the TOTAL REVENUE counts toward the EXCESS Block.
This means a charity needs to be mindful as disproportionately large amounts of financial support from a small number of individuals, corporations, foundations, and/or other non-publicly supported organizations can push a nonprofit’s public support percentage below the IRS required levels.
Funds provided by another 501(c)(3) public charity do NOT count as “excess” because they are derived from the public. If the public support test is not met, an organization may lose its “public charity” status and become a 501(c)(3) foundation (which has stricter guidelines for the organization and donors).
Example:
11 small donors provide a small charity $100 each = $1,100.
1 major donor provides the charity $10,000.
Total support = $11,100. (revenue vs. donation)
2% of $11,100 = $220.
Major donor’s contribution counts for only $220 toward the public support “small block” and $9,780 toward the “excess block.”
Total revenue ($11,100) – Excess ($9,780) = Small Block ($1,320).
Divide Small Block by Total Support $1,320 / $11,100 = 11.89% “public support”
Result:
The nonprofit would fail the “1/3” test and have to provide reasons why it mets the “10% + facts and circumstances” test in order to remain a “public charity.” Criteria include programs that benefit the public and explicit efforts to raise funds (as opposed to just relying on a small number of large donors).
NOTE:
The calculation for the 990 is based on the most recent five years. In other words, each individual year doesn’t matter in itself, but as part of the sum of five years. So, for the 2017 990, count the years (2013-2017). This test is NOT run for the first five years of the organization, but those years will count for the first test.
NOTE:
A. Gifts of services and use of space, do NOT count towards either the Small Block (numerator) or Total Support (denominator).
B. Large “unusual grants” that happen once (like an inheritance) also do NOT count.
C. Contributions from government or other publicly supported organizations count in BOTH numerator and denominator. In other words, large contributions from another “publicly supported” 501(c)3, do NOT count towards the Excess Block.