Form 990’s Schedule B, Schedule of Contributors, generally requires a tax-exempt organization to report donor information for contributions of $5,000 or more. A special rule has been available for organizations required to file Schedule B that limits the donor disclosure to contributions greater than 2% of total contribution revenue for the tax year rather than the lower $5,000 threshold. To qualify for limited donor disclosure under the special rule, an organization must meet a quantitative support test under Section 509(a)(1) of the Internal Revenue Code. This public support test requires the organization to receive a substantial part of its support from a governmental unit or from the general public.
In the past, a Section 501(c)(3) organization filing Form 990 or 990-EZ that met the public support test under Sections 509(a)(1) and 170(b)(1)(A)(vi) of the Code (i.e., hospital, university, school) was allowed to use the special rule but was not required to substantiate that it met the public support test on its return. The recently released 2013 Form 990 instructions, however, now require an organization using the special rule for Schedule B to complete the public support test in Part II of Form 990 Schedule A, Public Charity Status and Public Support, in order to demonstrate that the organization meets the public support threshold.
This change in the 2013 Form 990 instructions will affect many charitable organizations that do not claim public charity status under Section 509(a)(1) of the Code as their primary basis for tax exemption but still use the limited disclosure under Schedule B’s special rule. Effective with the 2013 Form 990, these organizations (i.e., colleges, universities and hospitals) must complete the public support test in Part II of Schedule A in order to use the special rule. We suggest that these organizations begin to prepare now for this expanded disclosure.
In addition to completing the public support test in Part II of Schedule A, the 2013 instructions also require an organization using the Schedule B special rule to check Box 7 in Part I of Schedule A to report its public charity status under Section 509(a)(1) of the Code. For example, in Part I of Schedule A, Reason for Public Charity Status, a university will no longer identify itself as a school but rather as a publicly supported organization.
Checking the box will not affect the organization’s original public charity classification as outlined in its determination letter, and the Internal Revenue Service will not change the organization’s public charity status based upon information reported in Part I of Schedule A. An organization may use the supplemental information in Part IV of Schedule A to clarify the basis for its exemption. We recommend that the filing organization provide an explanation to avoid confusion about the organization’s tax exempt status. Interested in learning more about Form 990 updates or other not-for-profit accounting news? Subscribe to our complementary weekly newsletter Our Thoughts On, and our monthly not-for-profit newsletter, Nonprofit Matters.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.