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What report must 501(c)(3) file after 5 years to protect status?

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What report must 501(c)(3) file after 5 years to protect status?

What report must a 501(c)(3) charity file in its 5th year of existence to confirm its status as a 501(c)(3)?  

None.  You are probably thinking of the old procedure the IRS used to grant an “advance ruling” of public charity status to organizations seeking exemption under Section 501(c)(3).  When an organization applies for recognition as a 501(c)(3) charity, it is considered a private foundation under the Tax Code unless it proves to the IRS that it qualifies as a public charity under a relevant subsection of Section 509.

Section 509(a)(1) grants public charity status as of right to churches, schools and colleges, hospitals and a few other specialized entities, plus organizations that generate sufficient public support from a range of gifts, grants and contributions, so-called “donative” charities.  Section 509(a)(2) grants the status to groups that generate enough public support from a combination of contributions and fees for services, so-called “commercial” charities.  (See Ready Reference Page: “Calculating Public Support”)  Section 509(a)(3) describes “supporting organizations” that wouldn’t meet the public support tests but have certain close relationships with public charities or governmental institutions.  (See Ready Reference Page: “Supporting Organizations Qualify as Public Charities”)

Under the old process, the IRS granted an “advance ruling” for organizations that said they would meet one of the percentage tests under 509(a)(1) or (a)(2).  They had to file a complete Schedule A after five years to show that they continued to qualify.  The question was never whether they retained their 501(c)(3) charity status, but only whether they were public charity under the relevant tests.

Virtually every organization that has an active program meets one of the tests and the IRS has eliminated the two-step process.  It grants public charity status with the initial application and no longer requires a separate five-year report to confirm it.  The IRS will monitor the Schedule A filed with the Form 990 or 990-EZ tax information return to see if anyone fails.  It is very rare that anyone does.

Monday, March 27, 2017


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