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How do we change our foundation classification?

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How do we change our foundation classification?

Our organization is a 501(c)(3) charity classified as a public charity under Section 509(a)(2) of the Tax Code. We want to change our status to use the Support Schedule on Schedule A for organizations described in Sections 509(a)(1) and 170(b)(1)(A)(vi), which properly aligns with our organization’s fundraising. I was told that I need to use Form 8940 to make the change, but I don't see an appropriate box in "Part II - Type of Request".  

A 501(c)(3) charity is considered a private foundation by the IRS unless it can show that it is a “public charity” under Section 509(a) of the Tax Code.  Section 509(a)(1) includes churches, schools and hospitals and organizations, such as the United Way, that receive their public support primarily from contributions from a wide group of supporters.  Section 509(a)(2) includes organizations, such as nursing homes, that receive their public support from a wide variety of contributions and fees for related services.  (See Ready Reference Page: ”Calculating Public Support”)  Section 509(a)(3) includes “supporting organizations” that receive their public charity status because they are “operated, supervised or controlled by or in connection with” a publicly supported charity or a governmental unit.  It is possible to change the classification between these types of organizations.

Form 8940 is the proper form to do so.  It is a relatively new form that covers “miscellaneous determinations,” such as approval of private foundation set-asides, voter registration activities, or terminations, plus exemption from Form 990 filing requirements, exclusion of unusual grants from public support calculations, and changing “foundation status.”  The Instructions to the Form make clear that change in foundation status includes reclassification from 509(a)(2) to 509(a)(1) and vice versa. 

As a general matter, if an IRS form doesn’t make clear what is being requested, or is otherwise incomprehensible, the accompanying instructions can be very helpful.  They are available on the IRS website and are usually written in pretty clear English so that a law degree is not required to understand them.

Tuesday, November 28, 2017

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