Article Archives >> To the Point

Does a 509(a)(1) still hold nonprofit status?  Is it able to apply for nonprofit funding?

To understand the meaning of 509(a)(1), it helps to understand the classification of nonprofit organizations.  “Nonprofit” is a state law concept that requires the profits of an organization – usually called a “surplus” in the nonprofit world – to stay within the organization and not be disbursed to “owners” as dividends are distributed to shareholders of a business.  (See Ready Reference Page: “What Do We Mean When We Say Nonprofit?) Most nonprofits are exempt from federal income tax, and most of these are exempt under one of the 28 categories listed in Tax Code section 501(c).  The largest group described in section 501(c) is “charities” described in section 501(c)(3).

The Tax Code classifies all charities as private foundations unless they show that they are publicly supported under the terms of section 509. Section 509(a)(1) describes one type of so-called “public charities,” including schools, hospitals, churches and other organizations that are publicly supported because they receive a large portion of their income from gifts grants, and contributions from the general public.  (See Ready Reference Page: “Calculating Public Support.”) As public charities, they are able to receive tax deductible gifts from individuals and corporations, grants from private foundations, and certain government funding available only to nonprofits.

So the short answers to these questions are “yes” and “yes.”

Article Archives >> To the Point

Top 10 Legal Issues in Fundraising Events:
Avoiding financial and public relations disaster

Pre-recorded Webinar -
Listen Today

Charity fundraising event planners have to worry not only about the invitation list, the menu and the program. They also have to worry about a host of legal issues that, if ignored, could turn the event into a financial and public relations disaster. This webinar will explore the top ten areas of legal concern for a charity’s annual gala dinner dance, bikathon, day in the park, or other special fundraising event. Learn more in our pre-recorded webinar.

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