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What is the "public support" test? How do I calculate it?

The IRS uses the public support test to check if a nonprofit receives substantial support from the general public, as outlined by Section 509(a) of the Internal Revenue Code. This test determines if a nonprofit is a private foundation or a public charity.

According to the IRS, an organization is a publicly supported charity if it meets one of two tests:

1. The organization receives a substantial part of its support in the form of contributions from publicly supported organizations, governmental units, and/or the general public. Example: A human service organization whose revenue is generated through widespread public fundraising campaigns, federated fundraising drives, or government grants is a publicly supported charity.

2. The organization receives no more than one-third of its support from gross investment income and more than one-third of its support from contributions, membership fees, and gross receipts from activities related to its exempt functions. Examples: A membership-fee organization, such as parent-teacher organization, or an arts group with box office revenue is a publicly supported charity.

The IRS further advises:

An organization that meets the public support test for a tax year is treated as a publicly supported charity for that year and the succeeding year, regardless of its actual support for the succeeding year. For example, if an organization meets the public support test for the 2011 tax year, it is classified as a public charity for the 2011 and 2012 tax years. If, however, the organization does not meet the public support test for 2013 (as well as 2012), it will be reclassified as a private foundation starting at the beginning of the 2013 tax year....An organization should contact the IRS if it believes that private foundation excise taxes and/or penalties should not be asserted against it due to its unexpected failure to meet the public support test.

IRS Pub. 557: Tax-Exempt Status for Your Organization, describes how to calculate public support in the section titled, "Qualifying as Publicly Supported". Also, most handbooks on establishing a nonprofit organization have a section on calculating public support.

See also our related Knowledge Base article:

- What is the difference between a private foundation and a public charity?

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