Pages10 and 11 - Part X - Public Charity Status
Current tax law divides all 501(c)(3) organizations into two broad sub-
categories - public charities and private foundations. When you file
a
501(c)(3) application, you are actually asking the IRS to decide not only
whether your group qualifies as a 501(c)(3), but also
whether it is publicly
supported.
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Page 10 - Part X - Question 1 - Are you a private foundation?
A
private foundation is an organization that receives most of its support
from
a limited number of sources, such as one family or one corporation.
It is
generally less favorable to be a 501(c)(3) private foundation because
these
organizations must pay a 1% or 2% tax on interest, dividends, capital
gains
and other investment income, and are subject to a wide variety of
restrictions
with respect to how they invest their assets and conduct their
operations.
Percentage limits placed on the amount donors can deduct on
their individual
income tax returns are also lower.
I am not including detailed coverage of private foundations
in this website
because I have seen too many small groups get themselves in trouble with the
"wide variety of restrictions" mentioned above. If you are forming this type
of
group, I recommend you sit down with a professional who can alert you to
the potential pitfalls as
well as help you prepare your 501(c)(3) application.
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Page 10 - Part X - Questions 2 through 4 - Private Operating Foundation
Private
Operating Foundations are outside the scope of this website. If you are
forming this type of
group, you should seek professional help in preparing your
501(c)(3) application.
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Page 10 - Part X - Question 5 - Public
Charity
Some organizations are public charities solely because of the activities they carry on
(boxes 5a through 5f on pages 10 and 11 of Form 1023):
- Churches (if you check
this box, you must complete Schedule A of Form 1023)
[
click here for information about Sandy Deja's book about Schedule A]
- Schools
-
Hospitals
- Supporting organizations
- Testing for public safety organizations
Other organizations are public charities because they receive at least one third
of their
support from the general public. Organizations whose public support
is mostly in the form of
gifts or contributions would check box g on page 11
of Form 1023; organizations whose public support
is mostly in the form of
payments for goods or services, such as admission to cultural events, fees
for
therapy, or payments at fundraising events, would check box h. Many groups
check
box I, which asks the IRS to decide for you.
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Attention: Advance
Rulings Have Been Eliminated!
The IRS has eliminated the Advance Ruling process
described in Question 6 of Part X
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Page
10 - Part X - Question 6 - Advance Ruling
As explained in Notice 1382 (which you should have
received with Form 1023)
SKIP question 6a. and the Consent that follows it. Only provide
the information
requested in Part X - Questions 6b and 7 if your group has been in existence for
5 or more tax years.
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Page
10 - Part X - Questions 7 - Unusual grants
Read the definition of unusual grants given in
the Form 1023 instructions or IRS
Publication 557 before deciding that any amounts your organization
has received
are unusual grants.
Have more questions about Form 1023?
Visit www.501c3Book.com for information about Sandy Deja's book,
Prepare Your Own 501(c)(3) Application
(Ebooks
available for immediate download.) 