Decoding the Public Support Test: How the IRS Distinguishes Public Charities from Private Foundations

Executive Summary

  • Charitable nonprofits are divided into two main categories by the Internal Revenue Service (IRS): public charities, which receive support from a range of sources, and private foundations, which are primarily funded by one, or few, sources.
  • Public charities and private foundations both play an important role in the charitable sector, by supporting civil society and serving communities in need. Combined, individual donations to charities and grants from private foundations make up almost 90 percent of total charitable giving.
  • With a different set of rules for each, the IRS determines whether an entity is a public charity or private foundation by employing the public support test. To qualify as a public charity, a nonprofit organization must receive at least one third of its contributions from the general public, government sources, or nonprofit funding intermediaries.
  • Organizations determined by the public support test to be private foundations have lower tax deductible giving limits, more onerous regulatory restraints, and more restrictions on funds.
  • Proposals to reform the public support test come with important consequences for the charitable sector, including overcomplicating determination requirements and shutting out certain charitable vehicles from being counted toward the public support test.

Decoding the Public Support Test

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