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).
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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