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The IRS says we fall under 509(a)(1) and 170(b)(1)(a)(vi). Can you explain why?

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The IRS says we fall under 509(a)(1) and 170(b)(1)(a)(vi). Can you explain why?

My nonprofit has applied for our 501(c)(3) exemption and received a letter from the IRS saying they believe because of our type of support we may fall under 509(a)(1) and 170(b)(1)(a)(vi). Can you explain why? We are relying on funding from individual donations as well as writing grants.

It sounds likely to be correct to me. All section 501(c)(3) organizations are considered to be private foundations unless they show the IRS that they qualify as public charities under one of the definitions of Section 509(a). Section 509(a)(1) includes churches, schools, hospitals, and other organizations that receive a broad range of support from contributions as described in Section 170(b)(1)(a)(vi), such as a United Way or other organization receiving substantial support from small contributors. Section 509(a)(2) describes organizations that receive most of their support from fees for services, such as nursing homes. (See Ready Reference Pages "Calculating Public Support Percentage.") Section 509(a)(3) organizations are “supporting organizations” supporting 509(a)(1) or 509(a)(2) organizations or public agencies. (See Ready Reference Page "Supporting Organizations are Public Charities.") Supporting organizations, and especially Type III supporting organizations, have been subjected to significant new restrictions by the Pension Protection Act of 2006. (See Ready Reference Page: "Congress Passes Charitable Reforms.")

Tuesday, March 13, 2007


Thank you for your work.

Is a 501(c)(3) school classified as a 170(b)(1)(A)(ii) subject to the public support test?

    No.  Churches (listed under 170(b)(1)(A)(i), certain educational organizations like schools and colleges (listed under 170(b)(1)(A)(ii), and hospitals (listed under 170(b)(a)(A)(iii) are all considered public charities without having to meet a public support test.  —Don Kramer

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