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.”
Planned giving sounds complicated, with its CRUTs and CRATs, CLUTs and CLATS, and CGAs. It can be incredibly complicated, but it needn’t be. Keeping it simple may be the best way to start a planned giving program for a charity that hasn’t already put one in place.
This webinar offered a review of major planned giving instruments and a discussion of ones that make the most sense to emphasize in starting a planned giving program. It discussed the advantages of integrating planned giving into an existing development program, targeting the best prospects, getting buy-in from the board that is likely to generate results, and setting a structure to make it all happen.
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