Question 4 - (Schedule A) How do we decide

which type of public charity status to ask for?

A. The two most common types of public charity status are 509(a)(1)/170(b)(1)(A)(vi) and 509(a)(2).  The primary difference between the two is the type of public support they receive.  Both share the same annual IRS filing requirements, unrelated business income tax rules and donor deductibility limits (more favorable than those imposed on private foundations).  Before completing one of the pages of Form 990, Schedule A to attach to your Form 8940, you will need to decide whether your organization's support is likely to be in the form of gifts, grants and contributions or in the form of payments for goods or services, such as admissions to cultural events, tuition, fees for therapy, or payments at fundraising events.

• If your organization expects support mostly in the form of gifts or contributions from public sources, fill out Part II of Form  990, Schedule A, for 509(a)(1)/170(b)(1)(A)(vi) organizations
• If your organization expects support mostly in the form of payments for goods or services, such as admissions to cultural events, tuition, fees for therapy, or payments (not contributions) at fundraising events, fill out Part III of Form  990, Schedule A, for 509(a)(2) organizations
  
• Most organizations have a mixture of types of income.  If you expect at least 10% of your income will be from contributions from public sources, fill out Part II Form 990, Schedule A, for 509(a)(1)/170(b)(1)(A)(vi) organizations
  
• You should also fill out Part II of Form  990, Schedule A, for 509(a)(1)/170(b)(1)(A)(vi) organizations if you are unsure.  This is the most common type of public charity status and has a very slight tax advantage over 509(a)(2).
  

​Completing Form 990, Schedule A, Part II:
For organizations seeking 509(a)(1)/170(b)(1)(A)(vi) public charity status

• Schedule A of Form 990 asks about actual support the organization has received. 
• You do not need to prepare or submit Form 990 itself.
  
• Be sure to write the organization's name and EIN at the top of the page.
  
• No information about expenditures is required.
  
• Organizations that have not completed their first five years do not need to "exclude unusual grants." 
  
• New organizations need only the columns covering the years since formation and the Total column.
  
• If you have a tax year close to completion which is not covered by the years listed in the Form 990 Schedule A, it is better to submit that information – changing the heading on an unused column.
  
• You will not be able to list an amount on line 5, column (f) until you have completed the 2% donor attachment, below. 
  
• Stop at line 13 and check the "First Five Years" box.
  

​​Line 5 of Part II of Form 990, Schedule A asks about donations that exceed 2% of your total support.  After you have completed lines 1 through 11 (skipping line 5), multiply the total in Line 11, column (f) by .02.  The top of page 7 of the 990, Schedule A instructions has an example list of donors over 2%.  You will probably not need as many columns as the example, since you have been in existence fewer years.  (Do not list donors by name; instead use Donor A, Donor B, etc., specifying the type of donor, such as individual, private foundation, business, partnership, etc.  Keep a list in your own records of actual names.)  Donations from members of the same family, business co-owners, etc. should be combined.  (Check the 990, Schedule A instructions for Line 5 of Part II if you are unsure.)  Donations from public charities and governmental entities are not subject to the 2% limitation, and should not be included on this list.    Enter the total of "excess amounts" on line 5. column (f).

If there have been no donations in excess of 2%, or donations in excess of 2% have only come from public charities or governmental entities, mention this in Form 8940, Part III (page 2) Explanation of Request.

Completing Form 990, Schedule A, Part III
For organizations seeking 509(a)(2) public charity status

• Schedule A of Form 990 asks about actual support the organization has received. 
• You do not need to prepare or submit Form 990 itself.
  
• No information about expenditures is required.
  
• Be sure to write the organization's name and EIN at the top of the page.
  
• Organizations that have not completed their first five years do not need to "exclude unusual grants." 
  
• New organizations need only the columns covering the years since formation and the Total column.
  
• If you have a tax year close to completion which is not covered by the years listed in Form 990 Schedule A, it is better to submit that information – changing the heading on an unused column.
  
• You will not be able to list amounts on lines 7a, b, and c until you have completed the attachments described below.
  
• Stop at line 14 and check the "First Five Years" box.
  

 Line 7 asks for lists showing:
a. The amounts of contributions and gross receipts (lines 1, 2, and 3 of Part III of Schedule A) that the organization received from disqualified persons.  (Do not list disqualified persons by name.  Instead use DQP A, DQP B, etc.  Keep a list in your own records of actual names.)  The 990 Schedule A instructions have a sample list on page 10, but no definition of disqualified persons.  (A short definition would be officers, directors, trustees, and individuals or organizations that have donated a combined total of more than $5,000, or 2% of total support (Line 13).   Since family or business relationships can mean others are considered disqualified persons as well, you may want to check the detailed definition of disqualified persons that appears in the left hand column of page 43 of the 2/2023 version of IRS Publication 557 or on page 58 of the Glossary in the instructions for Form 990.)  Enter yearly totals on line 7a and the grand total on line 7a, column (f)

b . The amounts of gross receipts (lines 2 and 3 of Part III of Schedule A) from each source other than a governmental unit or a disqualified person, that exceed the greater of $5,000 or 1% of the amount on line 13 for each year.  Page 10 of the 990 Schedule A instructions has a sample chart showing how to compute "excess" amounts to be entered on 7b.  Enter yearly totals on line 7b, and the grand total on Line 7b, column (f).

c. Line 7c is simply a total of Lines 7a and 7b.

If there have been no amounts from disqualified persons, or "excess" gross receipts, mention this in form 8940, Part III (page 2) Explanation of Request..​​​​​​​​