Pubic Charity Calculations for 501c3

February 15, 2022 - Categories: Legal Articles

When filing for 501c3 EZ, one question is whether you will be a private foundation or public charity.

A public charity gives more flexibility and has fewer rules restricting "self-dealing," for example, but it also requires you meet certain "public support" thresholds.

A general rule is that "1/3 (33.3%) of your public support amount (donations received from the public) must -- over a 5-year period -- be expected to be, or actually, donated by donors who give less than 2% of the non profit's overall receipts."

This can be calculated as follows.

Let's just say that  over 5 years, you actually only expect to get 50k total (appx 10k per year).

Then, to determine if you are public charity or not, 2% of the non-profits overall receipts of 50k (over 5 years) is \$1,000. The below examples show how to calculate the 33.33% threshold.

50k over 5 years.
2% is 1000
36 donations given over 5 years as follows:

10 at \$500 = \$5000
10 at \$1000 = \$10000
11 at \$1700 = \$18700
5 at \$3260 = 16300

16 were over 1000 = \$35,000, when the max public amount for calculation is 1000 x 16 = 16,000, so contributions of any person that exceed the 2% threshold = \$19,000

We subtract 19000 from 50,000 (= 31,000), which is the "PUBLIC SUPPORT AMOUNT".

Add to 50,000 any amounts from "business revenues" and investment income (e.g. you sell 30k of books at auction, which the non-profit paid 20k for, thus you have a total profit of 10k (business revenues). Add this 10k to your 50k in donations = \$60k TOTAL SUPPORT AMOUNT.

Divide your "public support amount" (31k) by your "total support amount" (50k), = 51.66%.

Therefore, you still qualify as a public charity because your public support amount is at least 33 1/3 % of your total support amount.

However, if you let's say get only \$50k over 5 years in donations (x .02 = 1000), plus \$10,000 in revenues, = \$60,000.

And let's say your donations are given by only 10 donors over 5 years of of:

3 at \$1000 = \$3000
4 at \$2000 = \$8000
3 at \$10000 = \$30000
1 at \$9000 = 9000
= 50,000

so 8 of these, for 47000, are over the 8000 max public support amount (8 x 1000) by 39000 (47000 less 8000).

Subtract the 39000 overage from the total amount of donations of 50k = 11k, which is your public support amount.

Your total support amount is 60k (50k donations plus 10k revenues).

Now, divide your total allowable public support amount of \$11k from the total support amount of 60k, and this equals 18.33%.

This is less than the 33.33 % required to remain as a public charity.

Therefore, you qualify only as a private foundation.

Therefore, please consider your expected donors and donation amounts when choosing an organization type when applying for 501(c)3.

By a very rough rule, you want to just make sure that at least 1/3 of your donations are of 2% or less than your total donations received, but this is not exact. The exact calculations were listed above. But this will get you close.