The assignment this week includes looking at the differences between these two n

Question

The assignment this week includes looking at the differences between these two nonprofits. You will find, in many areas of the government, good behavior is assumed. Nonprofits that intend to be public charities have several tests they must meet, and they have time to meet these tests. There can also be penalties if the nonprofit fails to meet the tests. If an entity is not a public charity, it still may qualify as a private foundation. The Gates foundation, for example, is a good nonprofit that has a global outreach.

What are the tests for a public charity? What happens if a public charity fails these tests?

Explanation / Answer

The two main tests for a public charity ate One Third Support Test and Facts and Circumstances Test.

An organisation will be treated as public charity under the respective sections for the current and next taxable year if in the measuring period of five years , one third or more of its total support is public support from governmental agencies and qualifying contributions and grants are from the general public and other public charities.

If an organisation fails to meet the one third support test can alternatively qualify as public charity u.der law if the organisation is organized and operated to attract new and additional governmental or public support ; if it has public support ratio of 10% or more ; the facts indicate that it is a public supported organisation.

If none of the above mentioned criteria are satisfied by an organisation, it can opt for other alternative ways such as passing a public support test under IRC , meeting the requirements of a supporting organisation under IRC etc.

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