501(c)(3) versus 509(a)(1). What is the difference
between these two statuses?
Section 501(c)(3) is the section of the Tax Code that describes religious, scientific, literary, educational and other charitable organizations exempt from federal income tax. All charities are further subdivided, however, between public charities, which receive broad public support from gifts or fees, and private foundations, which receive almost all of their income (other than investment income) from a very narrow group of persons, such as a single individual, family or corporation. The Code provides more restrictions on the activities of private foundations than on public charities. (See Ready Reference Page: What Do We Mean When We Say Nonprofit?)
Every charity is deemed to be a private foundation unless it satisfies the IRS that it meets one of the definitions of a public charity under Section 509(a). Section 509(a)(1) primarily includes churches, schools, hospitals, and other organizations that receive their public support primarily from gifts, grants and contributions from a broad group of people. Section 509(a)(2) covers organizations that receive their support from a combination of gifts, grants and contributions and fees for their exempt services. The methods of calculating these public support levels can be tricky. (See Ready Reference Page: “Calculating Public Support.”)
Section 509(a)(3) covers “supporting organizations” that support other public charities, governmental units and certain other exempt organizations. They receive public charity status because of the relationship, without regard to the source of their income. Congress has recently enacted some significant limitations on supporting organizations. (See Ready Reference Page: Congress Passes Charitable Reforms, Approves Limited Giving Incentives.”)
Therefore, it is not 501(c)(3) versus 509(a)(1), but 501(c)(3) and 509(a)(1).
May 15, 2013
1:30-3:00 PM ET
In today’s challenging times, few nonprofit organizations can afford boards that are not performing up to their potential. Yet many executive directors and individual directors express frustration with their boards. Engaging in effective board self-assessment is a constructive way to improve board performance. Learn how to gain the support of board members for this process and do it in ways that will reap important benefits. Learn More
Weekly question and answer
Notice of each full edition
and its free stories
Report on 501(c)(3) electioneering
What our readers say about Nonprofit Issues
Once again you've tackled a tricky question and explained it so we all can understand the issue.--M.V.
Thank you for your informative and keen advice on nonprofit matters. I believe it's a unique and concise place to get answers to this often wispy area called nonprofit. --R.T.
Have a question?
Other ways to
Talk to the Editor
Next Conference Call:
Wednesday, June 19, 2013
Participate in this bi-monthly telephone seminar conference call and ask your questions directly to Editor Don Kramer.
Access the entire site
($9.95/24 hours, $17.95/3 months).
Full Day Program
A well-received full-day program that covers the current hottest topics in nonprofit law. Qualifies in Pennsylvania for Continuing Education credits.
Don is available for programs and speaking engagements ranging from a one-hour presentation to a full-day primer on nonprofit law. Contact us if you are interested in having him speak at your program.