irs non profit regulation changes

8/4/2019 Irs Non Profit Regulation Changes

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55746 Federal Register / Vol. 76, No. 174 / Thursday, September 8, 2011/ Rules and Regulations

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9549]

RIN 1545BH28

Implementation of Form 990AGENCY: Internal Revenue Service (IRS),Treasury.

ACTION: Final regulations and removal oftemporary regulations.

SUMMARY: This document contains finalregulations necessary to implement theredesigned Form 990, Return ofOrganization Exempt From IncomeTax. These final regulations makerevisions to the regulations to allow fornew threshold amounts for reportingcompensation, to require thatcompensation be reported on a calendar

year basis, and to modify the scope oforganizations subject to informationreporting requirements upon asubstantial contraction. The finalregulations also eliminate the advanceruling process for new organizations,change the public support computationperiod for publicly supportedorganizations to five years, consistentwith the revised Form 990, and clarifythat support must be reported using theorganizations overall method ofaccounting. All tax-exemptorganizations required to file annualinformation returns are affected by these

regulations.DATES: Effective Date: These regulationsare effective on September 8, 2011.

Applicability Date: For dates ofapplicability, see 1.170A9(k), 1.5072(f), 1.509(a)3(o), 1.60332(k), and1.60433(e).FOR FURTHER INFORMATION CONTACT:Terri Harris at (202) 6226070 (not atoll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of informationcontained in these final regulations has

been reviewed and approved by theOffice of Management and Budget inaccordance with the PaperworkReduction Act of 1995 (44 U.S.C.3507(d)) under control number 15452117. The estimated annual burden perrecordkeeper will vary, depending onindividual circumstances. Thecollection of information in this finalregulation is in 1.60332. Theinformation collected under 1.60332relates to compensation reporting bytax-exempt organizations. Theinformation that is required to be

collected for purposes of 1.60332 isrequired to be submitted on Form 990,Return of Organization Exempt FromIncome Tax. For further informationconcerning this collection ofinformation and the burden associatedwith the Form 990, or where to submitcomments on this collection ofinformation and the accuracy of the

estimated burden, please refer to theinstructions of the Form 990. The totalannual reporting burden associated withthis document is one hour.

An agency may not conduct orsponsor, and a person is not required torespond to, a collection of informationunless it displays a valid controlnumber assigned by the Office ofManagement and Budget.

Books or records relating to acollection of information must beretained as long as their contents may

become material in the administrationof any internal revenue law. Generally,tax returns and tax return informationare confidential, as required by 26U.S.C. 6103.

Background

Form 990

Under section 6033 of the InternalRevenue Code (Code), organizations thatare exempt from Federal income taxunder section 501(a) are generallyrequired to file an annual informationreturn reporting gross income, receipts,disbursements, and such otherinformation as the IRS requires. Certain

exceptions to this filing requirementapply. For example, churches are notrequired to file annual informationreturns. The Treasury regulations directthat the annual information return shall

be filed on Form 990, Return ofOrganization Exempt From Income Taxor Form 990PF, Return of PrivateFoundation or Section 4947(a)(1)Nonexempt Charitable Trust Treated asa Private Foundation. The regulationsfurther specify certain information to bereported on the return.

The IRS revises forms andinstructions on an annual basis to reflect

changes in the law and evolving taxadministration needs. On December 20,2007, the IRS released a redesignedForm 990. The Form 990 had not beensignificantly revised since 1979, and

both the IRS and stakeholders regardedthe form as needing major revision tokeep pace with changes in the law andwith the increasing size, diversity, andcomplexity of the exempt sector. Withthe exception of certain smallerorganizations for which there is agraduated transition period,organizations began using the new form

for the 2008 tax year (returns filed in2009).

On September 9, 2008, the IRS andthe Treasury Department issued finaland temporary regulations undersections 170(b), 507, 509(a), 6033, and6043 necessary to implement theredesigned Form 990, Return ofOrganization Exempt from Income Tax,

(TD 9423) in the Federal Register (73 FR52528). Also on September 9, 2008, theIRS and the Treasury Department issueda notice of proposed rulemaking cross-referencing those TemporaryRegulations and inviting publiccomment and requests for a publichearing (REG14233307) in theFederal Register (73 FR 52218).

The IRS did not receive any requestsfor a public hearing. The IRS receivedone written comment responding to thisnotice. After consideration of thecomment, the proposed regulations arerevised and published in final form

substantially as proposed. The majorareas of comment and revision arediscussed in the following Explanationof Provisions.

Summary of Comments andExplanation of Provisions

Private Foundation Status and AdvanceRulings

In its application for recognition oftax-exempt status (Form 1023,Application for Recognition ofExemption Under Section 501(c)(3) ofthe Internal Revenue Code), a section501(c)(3) organization also requests a

determination of its private foundationstatus or public charity status, that is,whether it is a private foundation and,if not, the Code provision excepting itfrom private foundation classification.Under the current statute and priorregulations, an organization couldrequest either an advance ruling or adefinitive ruling addressing theorganizations exemption under section501(c)(3) and its private foundationstatus under section 509(a). Theproposed regulations eliminated theadvance ruling process and providedinstead that an organization would be a

publicly supported organization (thusqualifying for public charity status) inits first five years if it could show, in itsapplication for exemption, that it couldreasonably be expected to receive therequisite public support during suchperiod.

The comment suggested that the finalregulations clarify the process forrequesting an updated ruling ordetermination letter as to public charitystatus under 1.170A9(f)(5) and1.509(a)3(e). This process is nowexplained in Rev. Proc. 201110, 2011

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55747Federal Register / Vol. 76, No. 174 / Thursday, September 8, 2011/ Rules and Regulations

2 IRB 294 and its successors. Thus, thefinal regulations do not incorporate thissuggestion.

Computation Period for Public Support

The proposed regulations changed thecomputation period for public supportfrom a four-year period comprised of thefour years prior to the taxable year being

tested to a five-year period ending withthe taxable year being tested. Anorganization that meets a public supporttest for a taxable year is treated aspublicly supported for that taxable yearand the immediately succeeding taxableyear. An organization that does not meeta public support test for a taxable yearmay be at risk of being classified as aprivate foundation as of the first day ofthe succeeding taxable year if theorganization also fails to meet a publicsupport test for that succeeding taxableyear. Because the IRS and the TreasuryDepartment recognized that anorganization will not be able to computeits public support for a taxable yearunder the changed computation perioduntil the subsequent taxable year, thenotice of proposed rulemakingrequested comments on specificsituations that might warrant relief fromthe imposition of Chapter 42 excisetaxes. In addition, organizations that

believed that it would be unfair orinequitable to impose the privatefoundation excise taxes or penaltiesagainst them for all or part of the firstyear in which they were reclassified asprivate foundations were invited tocontact the IRS, Exempt Organizations,

Rulings and Agreements, Washington,DC. No organizations contacted the IRS.

The comment suggested that the finalregulations should treat organizationsthat fail a public support test for twoconsecutive years as private foundationsas of the beginning of the second testyear only for purposes of section 507(termination of private foundationstatus) and section 4940 (excise tax oninvestment income), and that such anorganization should not be treated as aprivate foundation for all other purposesuntil the beginning of the thirdconsecutive taxable year. The

commenter suggested that such a rulewas necessary because organizationscannot always predict the amount ofsupport they receive from year-to-year.The comment analogized this suggestionto the rule that previously applied whena new organization reached the end ofits five-year advance ruling period.Under the prior regulations, anorganization generally was treated aspublicly supported until 90 days afterthe end of the advance ruling period, or,if Form 8734, Support Schedule forAdvance Ruling Period, was timely

submitted, until the IRS made a finaldetermination of its status. If anorganization failed to qualify as apublicly supported organization, onlythe section 4940 investment income taxand section 507 termination tax appliedfor the five-year advance ruling periodthat had already ended. The reclassifiedorganization and its disqualified

persons would be subject to all theChapter 42 excise taxes applicable toprivate foundations and disqualifiedpersons only after the end of the 90-dayperiod or when the IRS made a finaldetermination.

In response to the comment, the finalregulations provide that an organizationthat fails a public support test for twoconsecutive taxable years will be treatedas a private foundation as of the

beginning of the second year of failureonly for purposes of sections 507, 4940,and 6033. An organization will betreated as a private foundation for all

purposes beginning the first day of thethird consecutive taxable year.The comment also suggested adding

examples applying the facts andcircumstances test under 1.170(A)9T(f)(3) or issuing other guidanceproviding examples of the application ofthis test. The proposed regulationscontained numerous examples reflectingthe five-year computation period in 1.170A9T(f)(9), 1.509(a)3T(c)(6),and 1.509(a)3T(e)(3), including severalexamples illustrating the application ofthe facts and circumstances test in 1.170A9(f)(9). The final regulationsretain the examples in the proposed

regulations but do not includeadditional examples, as it was not clearwhat additional clarification wasneeded.

Method of Accounting

Previously, when a section 501(c)(3)organization computed its publicsupport, it was required to use the cashmethod of accounting to report theamount of public support it received onSchedule A, Public Charity Status andPublic Support, even if theorganization used the accrual method ofaccounting to keep its books under

section 446, and otherwise report onForm 990. Under the proposedregulations, when a section 501(c)(3)organization computed its publicsupport and reported the information onSchedule A, it was required to use thesame accounting method that it uses tokeep its books under section 446 andthat it otherwise uses to report on itsForm 990.

The comment observed that anorganization using the accrual methodof accounting to keep its books and tocalculate its public support will need to

include the present value of a multi-yeargrant as support in the year in which thegrant commitment is received. Thecommenter suggested that this coulddeter private foundations from makingsubstantial multi-year grants to anorganization due to a concern that thegrant could cause the organization tofail the public support test and be

reclassified as a private foundation. Thecomment suggested that the unusualgrant rules in the final regulations beexpanded to add a new factor givingfavorable consideration to certain typesof multi-year private foundation grants.Alternatively, the comment suggestedthat the regulations should permitorganizations to elect, for purposes ofthe public support test, to accrue multi-year grants ratably over the period towhich they relate.

The final regulations do notincorporate these suggestions. While therequirement to compute public support

in accordance with an organizationsnormal method of accounting generallyis advantageous and less cumbersomefor most organizations, the IRS and theTreasury Department recognize thatsome accrual-method organizationsreceiving substantial multi-year grantsfrom private foundations andindividuals may be concerned that therequirement to account for those multi-year grants on an accrual-method mayadversely affect their public charitystatus. However, the longer, five-yeartesting period in the proposed and finalregulations should mitigate the impactof recognizing a larger amount of

support from one source in a singleyear.

In addition, one of the goals of theredesign of the Form 990 was toimplement consistent reportingthroughout each organizations Form990 and financial records in order toreduce an organizations recordkeeping

burden and to increase transparency ofan organizations activities to thegeneral public. In general, use of anorganizations normal method ofaccounting for calculation of its publicsupport reduces the recordkeeping andreporting burden on accrual-method

taxpayers, as they no longer mustmaintain separate cash method recordssolely for reporting public support onSchedule A. The revised Form 990,Schedule A, sets forth easier-to-followrules for calculating public support andcaptures the information necessary forthe organization and the general publicto monitor an organizations compliancewith the public support tests. Consistentfinancial reporting on the basis of anorganizations normal accountingmethod throughout the organizationsForm 990, including the support test in



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Schedule A, facilitates reconciliation ofthe Form 990 reporting with anorganizations audited financialstatements, increasing the ability of thegeneral public to rely on anorganizations Form 990 as an accuratereflection of the organizations financialcircumstances. Consistent reportingthus assists in the oversight of the

charitable community by the generalpublic, as well as by the IRS. Giventhese considerations, the IRS and theTreasury Department have determinednot to adopt the suggested electivechange to the accounting method formulti-year grants.

The IRS and the Treasury Departmentalso decline to adopt the suggestion thatthe unusual grant rules be expanded toinclude multi-year grants. The publicsupport test is designed to ensure thatan organization is not funded by a smallnumber of large donors, and IRS and theTreasury Department do not believe it

should exclude a large contributionfrom a single donor simply because it ispaid out over a number of years. Thefact that a grant is a multi-year grant hashistorically been taken intoconsideration in determining whether aparticular grant constitutes an unusualgrant, at times to the benefit and attimes to the detriment of the recipientorganization. The unusual grantexclusion generally applies tosubstantial contributions or bequeststhat (1) Are attracted by the publiclysupported nature of the organization, (2)are unusual or unexpected in theiramount, and (3) would adversely affect

the organizations public charity statusbecause of their amount. The finalregulations in 1.170A9(f)(6)(ii)(B)and 1.509(a)3(c)(3)(iii) provide that allpertinent facts and circumstancescontinue to be taken into considerationwhen determining whether a particularcontribution will be excluded from thesupport calculation under the unusualgrant exclusion, with no single factor

being determinative.If an accrual basis organization

receives a substantial multi-year grantfrom a private foundation or individualthat, taken along with all other facts and

circumstances, would satisfy thestandards in 1.170A9(f)(6) and1.509(a)3(c)(3) for treatment as anunusual grant, such a grant generallywould be excluded from thecomputation of public support. Anorganization may request a private letterruling pursuant to 1.170A9(f)(6)(iv)and 1.509(a)3(c)(5) that a multi-yeargrant constitutes an unusual grant under 1.170A9(f)(6)(ii) and 1.509(a)3(c)(3), based on all the facts andcircumstances. See also Rev. Proc 20114 (20111 IRB 123) and its successors.

Additionally, Rev. Proc. 817 (19811CB 621), provides guidelines regardinggrants and contributions, includingmulti-year grants to finance capitalitems, that will be considered unusualgrants under 1.170A9(f)(6)(ii) and1.509(a)3(c)(3) and related provisionswithout a private letter ruling from theIRS.

Reliance

The proposed regulations providedthat donors may rely on anorganizations ruling that theorganization is described in sections170(b)(1)(A)(vi) and 509(a)(1) or insection 509(a)(2) until notice of a changein status is provided to the public (suchas by publication in the InternalRevenue Bulletin), unless the donor wasresponsible for, or aware of, the act orfailure to act that results in theorganizations loss of public charitystatus. The proposed regulations furtherprovided that donors may rely onadvance rulings that expire on or after

June 9, 2008, until notice of a change instatus is provided to the public (such as

by publication in the Internal RevenueBulletin).

The comment suggested that the finalregulations should incorporate a safeharbor under which a grantor orcontributor will not be consideredresponsible for, or aware of, an act orfailure to act that will result in loss ofpublic charity status, such as those setforth in Rev. Proc. 8923 (19891 CB844) and Rev. Proc. 816 (19811 CB620). The IRS and the Treasury

Department agree that grantor reliancesafe harbors, such as those noted, arestill appropriate, but believe that thisguidance is more appropriatelyprovided in non-regulatory form, suchas revenue procedures. Therefore, thefinal regulations do not incorporate thissuggestion.

However, the final regulations dorestore, in 1.170A9(f)(5)(iii) and1.5093(e)(2)(ii), language that wasinadvertently deleted from the proposedregulations giving limited grantor anddonor reliance based on a writtenstatement from the grantee organization.

Section 4966 imposes an excise tax ona sponsoring organization of a donoradvised fund (DAF) for each taxabledistribution it makes from a DAF. Undersection 4966(c), a taxable distributiongenerally is any distribution from a DAFto any natural person, or to any otherperson if (i) The distribution is for anypurpose other than one specified insection 170(c)(2)(B), or (ii) thesponsoring organization maintaining theDAF does not exercise expenditureresponsibility with respect to suchdistribution in accordance with section

4945(h). Among other things, a taxabledistribution does not include adistribution from a DAF to anyorganization described in section170(b)(1)(A) (other than a disqualifiedsupporting organization).

Notice 2006109 (20062 C.B. 1121)requested comments on the applicationof the Pension Protection Act of 2006,

Public Law 109280 (120 Stat. 780(2006)) (PPA) to DAFs and supportingorganizations. Several comments werereceived requesting that sponsoringorganizations of DAFs be allowed to relyon an IRS ruling or determination of anorganizations public charity status forvarious purposes, including forpurposes of determining whether adistribution to an organization would bea taxable distribution under section4966. The IRS and the TreasuryDepartment agree that reliance relief forsponsoring organizations of DAFs isappropriate. Accordingly, the final

regulations provide that, for purposes ofsection 4966, sponsoring organizationsof DAFs may rely on an IRSdetermination letter or ruling that theorganization is described in sections170(b)(1)(A)(vi) and 509(a)(1) or insection 509(a)(2) to the same extent asother grantors and contributors. Thefinal regulations also allow sponsoringorganizations of DAFs to rely on afavorable determination issued to agrantee that a grant is an unusual grant.

Private Foundation Termination

Section 1.5072 addresses privatefoundation terminations under section

507(b). The proposed regulationsrevised 1.5072 to delete references tothe four-year computation period andthe transition rules related to 12-monthterminations that are obsolete. Section507(b)(1)(B) allows an organization toterminate its private foundation status

by meeting the requirements of section509(a)(1), (a)(2), or (a)(3) (and thusoperating as a public charity) for acontinuous period of 60 months,provided the organization (1) Prior tocommencement of the 60-month period,notifies the Secretary in the mannerprescribed by regulations that it is

terminating private foundation status,and (2) later establishes to thesatisfaction of the Secretary in a mannerprescribed by regulations that itoperated as a public charity during the60-month period. The proposedregulations continued to provide that aterminating private foundation couldrequest an advance ruling regarding itspublic charity status under 1.5072T(d). The proposed regulations alsoretained the provision requiringterminating private foundations toprovide sufficient information to the IRS



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within 90 days of the end of the 60-month period to allow the IRS to makea determination on public charity status.

The comment suggested that the finalregulations should simplify the processof terminating private foundation statusunder 1.5072 by eliminating therequirement that an organization filecertain information with the IRS within

90 days after completing the 60-monthtermination period. The commentobserved that the IRS eliminated theForm 8734 filing requirement for newly-formed organizations with advancerulings, choosing instead to rely on theinformation reported on Schedule A tomonitor public support.

The final regulations do notincorporate this suggestion. Ineliminating the advance ruling periodand liberalizing the procedures for neworganizations, the IRS took intoconsideration the experiential dataindicating the high incidence ofqualification for public charity status atthe end of the advance ruling period. Asstated in the notice of proposedrulemaking, approximately 95 percentof the organizations that receivedadvance rulings later received definitiverulings that they were public charities.The IRS does not have analogousexperiential data relating toorganizations attempting to terminateprivate foundation status under section507(b)(1)(B) to support a similar changein these procedures.

In addition, if the organization fails toqualify as a public charity for the entire60-month period, it will continue to be

treated as a private foundation for theentire 60-month period. Thus, unlike anew organization that had an advanceruling as a public charity, anorganization terminating its privatefoundation status continues to beclassified as a terminating privatefoundation during the 60-month periodand continues as such until the IRSreceives and makes a determination onthe organizations 90-day submission ofinformation following the end of itsadvance ruling period.

Substantial Contributor

The term substantial contributor,for purposes of Chapter 42, is definedunder section 507(d)(2) and 1.5076.The comment suggested that, given thata new organization that fails to qualifyas publicly supported after its first fiveyears of existence will not be treated asa private foundation for any purposeduring its first five years, the finalregulations should clarify whether, forpurposes of Chapter 42, the identity ofsubstantial contributors to theorganization will be determined bytaking into account contributions

received while the organization was apublic charity, or only contributionsreceived after the date the organizationis reclassified as a private foundation.

Because section 1.5076 is not withinthe scope of these final regulations, thefinal regulations do not incorporate thissuggestion.

Miscellaneous

In 1.170A9(f), changes were madein the proposed regulation to clarify thatthe facts and circumstances testdescribed in paragraph (f)(3) takes intoaccount all pertinent facts andcircumstances, and not just those listedin paragraph (f)(3)(iii); additionalconforming changes were made in thefinal regulations. In 1.5072, languageinadvertently added to the proposedregulation when clarifying the factorsfor determining whether a granteeorganization has an independentgoverning body was deleted. Inaddition, the final regulations includelanguage conforming 1.60332(g) tothe changes made to section6033(a)(3)(B) of the Code under thePPA. Since the date of enactment of thePPA, August 17, 2006, theCommissioners discretionary authorityto relieve organizations from the annualfiling requirement under section 6033(a)has not applied to supportingorganizations described in section509(a)(3) of the Code. Section 1.60332(g)(6), which provides the generalstatement of the Commissionersdiscretionary authority to relieveorganizations from the annual filing

requirement under section 6033(a), hasbeen corrected to include the modifyinglanguage provided by the PPA in section6033(a)(3)(B). Sections 1.60332(g)(1)(iii) and 1.60332(g)(1)(iv) have

been amended to include conformingchanges. Several other incidentalchanges were made throughout the finalregulations in order to increase clarityand consistency, none of which modifythe substance of the proposedregulations.

Additionally, the final regulationsinclude a correction in 1.60332(i) tothe place to which an organizations

change of operation notifications is sent.Effective/Applicability Date andTransition Rules

These final regulations generally areeffective on September 8, 2011, andgenerally apply to taxable years

beginning on or after January 1, 2008.All organizations, includingorganizations that received a definitiveruling prior to the effective date of theseregulations, must use the new five-yearcomputation period to calculate publicsupport for their first taxable year

beginning on or after January 1, 2008,and for all subsequent taxable years.

Special Analyses

It has been determined that thisTreasury decision is not a significantregulatory action as defined inExecutive Order 12866, assupplemented by Executive Order13565. Therefore, a regulatoryassessment is not required. It has also

been determined that section 553(b) ofthe Administrative Procedure Act (5U.S.C. chapter 5) does not apply. It ishereby certified that the collection ofinformation in this regulation will nothave a significant economic impact ona substantial number of small entities.This certification is based on the factthat burden on tax-exempt entities will

be reduced by (1) Eliminating theseparate advance ruling process and theadditional process for subsequentlyseeking a definitive ruling, (2) clarifyingrules regarding the method ofaccounting and period for reportingcertain items, and (3) providingdiscretion for the IRS to narrow orclarify circumstances under whichreporting is required. Accordingly, aRegulatory Flexibility Analysis underthe Regulatory Flexibility Act (5 U.S.C.chapter 6) is not required. Pursuant tosection 7805(f) of the Code, theseregulations have been submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for commenton its impact on small business.

Statement of Availability forDocuments Published in the InternalRevenue Bulletin

For copies of recently issued revenueprocedures, revenue rulings, notices andother guidance published in the InternalRevenue Bulletin or CumulativeBulletin please visit the IRS Web site athttp://www.irs.gov.

Drafting Information

The principal author of this regulationis Terri Harris, Office of Associate ChiefCounsel (Tax Exempt and GovernmentEntities). However, other personnelfrom the IRS and the TreasuryDepartment participated in theirdevelopment.

List of Subjects

26 CFR Part 1

Income taxes, Reporting andrecordkeeping requirements.

26 CFR Part 602

Reporting and recordkeepingrequirements.

http://www.irs.gov/http://www.irs.gov/


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Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 602are amended as follows:

PART 1INCOME TAXES

Paragraph 1. The authority citationfor part 1 continues to read in part asfollows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section1.170A9 is amendedby revising paragraphs (f) and (k) to readas follows:

1.170A9 Definition of section170(b)(1)(A) organization.

* * * * *(f) Definition of section

170(b)(1)(A)(vi) organization(1) Ingeneral. An organization is described insection 170(b)(1)(A)(vi) if it

(i) Is referred to in section 170(c)(2)(other than an organization specificallydescribed in paragraphs (b) through (e)

of this section); and(ii) Normally receives a substantial

part of its support from a governmentalunit referred to in section 170(c)(1) orfrom direct or indirect contributionsfrom the general public (publiclysupported). For purposes of thisparagraph (f), an organization ispublicly supported if it meets therequirements of either paragraph (f)(2)of this section (3313 percent supporttest) or paragraph (f)(3) of this section(facts and circumstances test). Paragraph(f)(4) of this section defines normallyfor purposes of the 3313 percent support

test and the facts and circumstancestest, and for new organizations in thefirst five years of the organizationsexistence as a section 501(c)(3)organization. Paragraph (f)(5) of thissection provides for determinations offoundation classification and rules forreliance by donors and contributors.Paragraphs (f)(6), (f)(7), and (f)(8) of thissection list the items that are includedand excluded from the term support.Paragraph (f)(9) of this section providesexamples of the application of thisparagraph. Types of organizations that,subject to the provisions of this

paragraph (f), generally qualify undersection 170(b)(1)(A)(vi) as publiclysupported are publicly orgovernmentally supported museums ofhistory, art, or science, libraries,community centers to promote the arts,organizations providing facilities for thesupport of an opera, symphonyorchestra, ballet, or repertory drama orfor some other direct service to thegeneral public.

(2) Determination whether anorganization is publicly supported;3313percent support test. An

organization is publicly supported if thetotal amount of support (see paragraphs(f)(6), (f)(7), and (f)(8) of this section)that the organization normally (seeparagraph (f)(4)(i) of this section)receives from governmental unitsreferred to in section 170(c)(1), fromcontributions made directly orindirectly by the general public, or from

a combination of these sources, equalsat least 3313 percent of the total supportnormally received by the organization.See paragraph (f)(9), Example 1 of thissection.

(3) Determination whether anorganization is publicly supported;

facts and circumstances test. Even if anorganization fails to meet the 3313percent support test described inparagraph (f)(2) of this section, it ispublicly supported if it normally (seeparagraph (f)(4)(i) of this section)receives a substantial part of its supportfrom governmental units, from

contributions made directly orindirectly by the general public, or froma combination of these sources, andmeets the other requirements of thisparagraph (f)(3). In order to satisfy thefacts and circumstances test, anorganization must meet therequirements of paragraphs (f)(3)(i) and(f)(3)(ii) of this section. In addition, theorganization must be in the nature of anorganization that is publicly supported,taking into account all pertinent factsand circumstances, including the factorslisted in paragraphs (f)(3)(iii)(A) through(f)(3)(iii)(E) of this section.

(i) Ten-percent support limitation.

The percentage of support (seeparagraphs (f)(6), (f)(7) and (f)(8) of thissection) normally received by anorganization from governmental units,from contributions made directly orindirectly by the general public, or froma combination of these sources, must besubstantial. For purposes of thisparagraph (f)(3), an organization will not

be treated as normally receiving asubstantial amount of governmental orpublic support unless the total amountof governmental and public supportnormally received equals at least 10percent of the total support normally

received by such organization.(ii) Attraction of public support. Anorganization must be so organized andoperated as to attract new andadditional public or governmentalsupport on a continuous basis. Anorganization will be considered to meetthis requirement if it maintains acontinuous and bona fide program forsolicitation of funds from the generalpublic, community, or membershipgroup involved, or if it carries onactivities designed to attract supportfrom governmental units or other

organizations described in section170(b)(1)(A)(i) through (b)(1)(A)(vi). Indetermining whether an organizationmaintains a continuous and bona fideprogram for solicitation of funds fromthe general public or community,consideration will be given to whetherthe scope of its fundraising activities isreasonable in light of its charitable

activities. Consideration will also begiven to the fact that an organization, inits early years of existence, may limitthe scope of its solicitation to personsdeemed most likely to provide seedmoney in an amount sufficient to enableit to commence its charitable activitiesand expand its solicitation program.

(iii) In addition to the requirementsset forth in paragraphs (f)(3)(i) and(f)(3)(ii) of this section that must besatisfied, all pertinent facts andcircumstances, including the followingfactors, will be taken into considerationin determining whether an organization

is publicly supported within themeaning of paragraph (f)(1) of thissection. However, an organization is notgenerally required to satisfy all of thefactors in paragraphs (f)(3)(iii)(A)through (f)(3)(iii)(E) of this section. Thefactors relevant to each case and theweight accorded to any one of them maydiffer depending upon the nature andpurpose of the organization and thelength of time it has been in existence.

(A) Percentage of financial support.The percentage of support received byan organization from public orgovernmental sources will be taken intoconsideration in determining whether

an organization is publicly supported.The higher the percentage of supportabove the 10 percent requirement ofparagraph (f)(3)(i) of this section frompublic or governmental sources, thelesser will be the burden of establishingthe publicly supported nature of theorganization through other factors,including those described in thisparagraph (f)(3), while the lower thepercentage, the greater will be the

burden. If the percentage of theorganizations support from public orgovernmental sources is low because itreceives a high percentage of its total

support from investment income on itsendowment funds, such fact will betreated as evidence of an organization

being publicly supported if suchendowment funds were originallycontributed by a governmental unit or

by the general public. However, if suchendowment funds were originallycontributed by a few individuals ormembers of their families, such fact willincrease the burden on the organizationof establishing that it is publiclysupported taking into account allpertinent facts and circumstances,



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including the other factors described inparagraph (f)(3)(iii) of this section.

(B) Sources of support. The fact thatan organization meets the requirementof paragraph (f)(3)(i) of this sectionthrough support from governmentalunits or directly or indirectly from arepresentative number of persons, ratherthan receiving almost all of its support

from the members of a single family,will be considered evidence of anorganization being publiclysupported. In determining what is arepresentative number of persons,consideration will be given to the typeof organization involved, the length oftime it has been in existence, andwhether it limits its activities to aparticular community or region or to aspecial field which can be expected toappeal to a limited number of persons.

(C) Representative governing body.The fact that an organization has agoverning body which represents the

broad interests of the public, rather thanthe personal or private interests of alimited number of donors (or personsstanding in a relationship to suchdonors which is described in section4946(a)(1)(C) through (a)(1)(G)), will beconsidered evidence of an organization

being publicly supported. Anorganization will be treated as having arepresentative governing body if it hasa governing body (whether designatedin the organizations governinginstrument or bylaws as a Board ofDirectors, Board of Trustees, or similargoverning body) which is comprised ofpublic officials acting in their capacities

as such; of individuals selected bypublic officials acting in their capacitiesas such; of persons having specialknowledge or expertise in the particularfield or discipline in which theorganization is operating; of communityleaders, such as elected or appointedofficials, clergymen, educators, civicleaders, or other such personsrepresenting a broad cross-section of theviews and interests of the community;or, in the case of a membershiporganization, of individuals electedpursuant to the organizations governinginstrument or bylaws by a broadly based

membership.(D) Availability of public facilities orservices; public participation in

programs or policies. (1) The fact that anorganization generally providesfacilities or services directly for the

benefit of the general public on acontinuing basis (such as a museum orlibrary which holds open its building orfacilities to the public, a symphonyorchestra which gives publicperformances, a conservationorganization which provideseducational services to the public

through the distribution of educationalmaterials, or an old age home whichprovides domiciliary or nursing servicesfor members of the general public) will

be considered evidence that suchorganization is publicly supported.

(2) The fact that an organization is aneducational or research institutionwhich regularly publishes scholarly

studies that are widely used by collegesand universities or by members of thegeneral public will also be consideredevidence that such organization ispublicly supported.

(3) The following factors will also beconsidered evidence that anorganization is publicly supported:

(i) The participation in, orsponsorship of, the programs of theorganization by members of the publichaving special knowledge or expertise,public officials, or civic or communityleaders.

(ii) The maintenance of a definitiveprogram by an organization toaccomplish its charitable work in thecommunity, such as combatingcommunity deterioration in aneconomically depressed area that hassuffered a major loss of population andjobs.

(iii) The receipt of a significant part ofits funds from a public charity orgovernmental agency to which it is insome way held accountable as acondition of the grant, contract, orcontribution.

(E) Additional factors pertinent tomembership organizations. Thefollowing are additional factors to be

considered in determining whether amembership organization is publiclysupported:

(1) Whether the solicitation for dues-paying members is designed to enroll asubstantial number of persons in thecommunity or area, or in a particularprofession or field of special interest(taking into account the size of the areaand the nature of the organizationsactivities).

(2) Whether membership dues forindividual (rather than institutional)members have been fixed at ratesdesigned to make membership available

to a broad cross section of the interestedpublic, rather than to restrictmembership to a limited number ofpersons.

(3) Whether the activities of theorganization will be likely to appeal topersons having some broad commoninterest or purpose, such as educationalactivities in the case of alumniassociations, musical activities in thecase of symphony societies, or civicaffairs in the case of parent-teacherassociations. See Example 2 throughExample 5 contained in paragraph (f)(9)

of this section for illustrations of thisparagraph (f)(3).

(4) Definition of normally; generalrule(i) Normally; 3313percent supporttest. An organization normallyreceives the requisite amount of publicsupport and meets the 3313 percentsupport test for a taxable year and thetaxable year immediately succeeding

that year, if, for the taxable year beingtested and the four taxable yearsimmediately preceding that taxableyear, the organization meets the 3313percent support test on an aggregate

basis.(ii) Normally; facts and circumstances

test. An organization normallyreceives the requisite amount of publicsupport and meets the facts andcircumstances test of paragraph (f)(3) fora taxable year and the taxable yearimmediately succeeding that year, if, forthe taxable year being tested and thefour taxable years immediately

preceding that taxable year, theorganization meets the facts andcircumstances test on an aggregate basis.In the case of paragraphs (f)(3)(iii)(A)and (f)(3)(iii)(B) of this section, factspertinent to years preceding the five-year period may also be taken intoconsideration. The combination offactors set forth in paragraphs(f)(3)(iii)(A) through (f)(3)(iii)(E) of thissection that an organization normallymust meet does not have to be the samefor each five-year period so long as thereexists a sufficient combination of factorsto show compliance with the facts and

circumstances test.(iii) Special rule. The fact that anorganization has normally met therequirements of the 3313 percentsupport test for a current taxable year,

but is unable normally to meet suchrequirements for a succeeding taxableyear, will not in itself prevent suchorganization from meeting the facts andcircumstances test for such succeedingtaxable year.

(iv) Example. The application ofparagraphs (f)(4)(i), (f)(4)(ii), and(f)(4)(iii) of this section may beillustrated by the following example:

Example. (i) X is recognized as anorganization described in section 501(c)(3).On the basis of support received duringtaxable years 2008, 2009, 2010, 2011, and2012, in the aggregate, X receives at least3313 percent of its support fromgovernmental units referred to in section170(c)(1), from contributions made directlyor indirectly by the general public, or froma combination of these sources.Consequently, X meets the 3313 percentsupport test for taxable year 2012 (the currenttaxable year). X also meets the 3313 supporttest for 2013, as the immediately succeedingtaxable year.



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(ii) In taxable years 2009, 2010, 2011, 2012,and 2013, in the aggregate, X does not receiveat least 3313 percent of its support fromgovernmental units referred to in section170(c)(1), from contributions made directlyor indirectly by the general public, or froma combination of these sources. However, Xstill meets the 3313 percent support test fortaxable year 2013 based on the aggregatesupport received for taxable years 2008

through 2012.(iii) In taxable years 2010, 2011, 2012,2013, and 2014, in the aggregate, X does notreceive at least 3313 percent of its supportfrom governmental units referred to insection 170(c)(1), from contributions madedirectly or indirectly by the general public,or from a combination of these sources. Xdoes not meet the 3313 percent support testfor taxable year 2014.

(iv) X meets the facts and circumstancestest for taxable year 2013 and for taxable year2014 (the immediately succeeding taxableyear) based on the aggregate support Xreceives, Xs fundraising program, andconsideration of other factors, includingthose listed in paragraphs (f)(3)(iii)(A)

through (f)(3)(iii)(E) of this section, duringtaxable years 2009, 2010, 2011, 2012, and2013. Therefore, even though X does notmeet the 3313 percent support test for taxableyear 2014, X is still an organization describedin section 170(b)(1)(A)(vi) for that year.

(v) Normally; first five years of anorganizations existence. (A) Anorganization normally receives therequisite amount of public support andmeets the 3313 percent public supporttest or the facts and circumstances testduring its first five taxable years as asection 501(c)(3) organization if theorganization can reasonably be expectedto meet the requirements of the 3313

percent support test or the facts andcircumstances test during that period.With respect to such organizationssixth taxable year, the general definitionof normally set forth in paragraphs(f)(4)(i), (f)(4)(ii), and (f)(4)(iii) of thissection apply. Alternatively, theorganization shall be treated asnormally meeting the 3313 percentsupport test or the facts andcircumstances test for its sixth taxableyear (but not its seventh taxable year) ifit meets the 3313 percent support test orthe facts and circumstances test underthe definition of normally set forth in

paragraphs (f)(4)(i), (f)(4)(ii), and(f)(4)(iii) of this section for its fifthtaxable year (based on support receivedin its first through fifth taxable years).

(B) Basic consideration. Indetermining whether an organizationcan reasonably be expected (within themeaning of paragraph (f)(4)(v)(A) of thissection) to meet the requirements of the3313 percent support test or the factsand circumstances test during its firstfive taxable years, the basicconsideration is whether itsorganizational structure, current or

proposed programs or activities, andactual or intended method of operationare such as can reasonably be expectedto attract the type of broadly basedsupport from the general public, publiccharities, and governmental units that isnecessary to meet such tests. The factorsthat are relevant to this determination,and the weight accorded to each of

them, may differ from case to case,depending on the nature and functionsof the organization. The information to

be considered for this purpose shallconsist of all pertinent facts andcircumstances, including the factors setforth in paragraph (f)(3) of this section.

(vi) Example. The application ofparagraph (f)(4)(v) of this section may beillustrated by the following example:

Example. (i) Organization Y was formed inJanuary 2008, and uses a taxable year endingDecember 31. After September 9, 2008, and

before December 31, 2008, Organization Yfiled Form 1023 requesting recognition of

exemption as an organization described insection 501(c)(3) and in sections170(b)(1)(A)(vi) and 509(a)(1). In itsapplication, Organization Y established thatit can reasonably be expected to operate asa publicly supported organization underparagraph (f)(2) or (f)(3) and paragraph(f)(4)(v) of this section. Subsequently,Organization Y received a ruling ordetermination letter that it is an organizationdescribed in section 501(c)(3) and sections170(b)(1)(A)(vi) and 509(a)(1) effective as ofthe date of its formation.

(ii) Organization Y is described in sections170(b)(1)(A)(vi) and 509(a)(1) for its first fivetaxable years (the taxable years endingDecember 31, 2008, through December 31,

2012).(iii) Organization Y can qualify as apublicly supported organization for thetaxable year ending December 31, 2013, ifOrganization Y can meet the requirements ofeither paragraph (f)(2) or paragraph (f)(3) ofthis section or 1.509(a)3(a) and 1.509(a)(3)(b) for the taxable years ending December31, 2009, through December 31, 2013, or forthe taxable years ending December 31, 2008,through December 31, 2012.

(vii) Organizations reclassified asprivate foundations. (A) New publiclysupported organizations. If a newpublicly supported organizationdescribed under section 170(b)(1)(A)(vi)

cannot meet the requirements of the3313 percent test of paragraph (f)(2) orthe facts and circumstances test ofparagraph (f)(3) for its sixth taxable yearunder the general definition of normallyset forth in paragraphs (f)(4)(i), (f)(4)(ii),and (f)(4)(iii) of this section or under thealternate rule set forth in paragraph(f)(4)(v) of this section (effectivelyfailing to meet a public support test for

both its fifth and sixth taxable years), itwill be treated as a private foundationas of the first day of its sixth taxableyear only for purposes of sections 507,

4940, and 6033. Such an organizationmust file a Form 990PF, Return ofPrivate Foundation or Section 4947(a)(1)Nonexempt Charitable Trust Treated asa Private Foundation, and will beliable for the net investment taximposed by section 4940 and, ifapplicable, the private foundationtermination tax imposed by section

507(c), for its sixth taxable year. Forsucceeding taxable years, theorganization will be treated as a privatefoundation for all purposes.

(B) Other publicly supportedorganizations. A publicly supportedorganization described in section170(b)(1)(A)(vi) (other than a newpublicly supported organizationdescribed in paragraph (f)(4)(vii)(A) ofthis section) that has failed to meet boththe 3313 percent support test and thefacts and circumstances test for any twoconsecutive taxable years will be treatedas a private foundation as of the first

day of the second consecutive taxableyear only for purposes of sections 507,4940, and 6033. Such an organizationmust file a Form 990PF, Return ofPrivate Foundation or Section 4947(a)(1)Nonexempt Charitable Trust Treated asa Private Foundation, and will beliable for the net investment taximposed by section 4940 and, ifapplicable, the private foundationtermination tax imposed by section507(c), for the second consecutive failedtaxable year. For succeeding taxableyears, the organization will be treated asa private foundation for all purposes.

(5) Determinations of foundationclassification and reliance. (i) A rulingor determination letter that anorganization is described in section170(b)(1)(A)(vi) may be issued to anorganization. Such determination may

be made in conjunction with therecognition of the organizations tax-exempt status or at such other time asthe organization believes it is describedin section 170(b)(1)(A)(vi). The ruling ordetermination letter that theorganization is described in section170(b)(1)(A)(vi) may be revoked if, uponexamination, the organization has not

met the requirements of paragraph (f) ofthis section. The ruling or determinationletter that the organization is describedin section 170(b)(1)(A)(vi) also may berevoked if the organizations applicationfor a ruling or determination containedone or more material misstatements oromissions of fact or if such applicationwas part of a scheme or plan to avoidor evade any provision of the InternalRevenue Code. The revocation of thedetermination that an organization isdescribed in section 170(b)(1)(A)(vi)does not preclude revocation of the



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determination that the organization isdescribed in section 501(c)(3).

(ii) Status of grantors or contributors.For purposes of sections 170, 507,545(b)(2), 642(c), 4942, 4945, 4966,2055, 2106(a)(2), and 2522, grantors orcontributors may rely upon adetermination letter or ruling that anorganization is described in section

170(b)(1)(A)(vi) until the IRS publishesnotice of a change of status (forexample, in the Internal RevenueBulletin or Publication 78, CumulativeList of Organizations described inSection 170(c) of the Internal RevenueCode of 1986, which can be searchedat http://www.irs.gov.) For this purpose,grantors or contributors also may rely onan advance ruling that expires on orafter June 9, 2008. However, a grantor orcontributor may not rely on such anadvance ruling or any determinationletter or ruling if the grantor orcontributor was responsible for, or

aware of, the act or failure to act thatresulted in the organizations loss ofclassification under section170(b)(1)(A)(vi) or acquired knowledgethat the IRS had given notice to suchorganization that it would be deletedfrom such classification.

(iii) Reliance by grantors orcontributors. A grantor or contributor,other than one of the organizationsfounders, creators, or foundationmanagers (within the meaning of section4946(b)), will not be considered to beresponsible for, or aware of, the act orfailure to act that resulted in the loss ofthe organizations publicly supported

classification under section170(b)(1)(A)(vi), if such grantor orcontributor has made such grant orcontribution in reliance upon a writtenstatement by the grantee organizationthat such grant or contribution will notresult in the loss of such organizationsclassification as a publicly supportedorganization as described in section170(b)(1)(A)(vi). Such statement must besigned by a responsible officer of thegrantee organization and must set forthsufficient information, including asummary of the pertinent financial datafor the five taxable years immediately

preceding the current taxable year, toassure a reasonably prudent person thathis grant or contribution will not resultin the loss of the grantee organizationsclassification as a publicly supportedorganization as described in section170(b)(1)(A)(vi). If a reasonable doubtexists as to the effect of such grant orcontribution, or if the grantor orcontributor is one of the organizationsfounders, creators, or foundationmanagers, the procedure set forth inparagraph (f)(6)(iv) of this section forrequesting a determination from the IRS

may be followed by the granteeorganization for the protection of thegrantor or contributor.

(6) Definition of support; meaning ofgeneral public(i) In general. Indetermining whether the 3312 percentsupport test or the 10 percent supportlimitation described in paragraph(f)(3)(i) of this section is met,

contributions by an individual, trust, orcorporation shall be taken into accountas support from direct or indirectcontributions from the general publiconly to the extent that the total amountof the contributions by any suchindividual, trust, or corporation duringthe period described in paragraph(f)(4)(i) or paragraph (f)(4)(ii) of thissection does not exceed two percent ofthe organizations total support for suchperiod, except as provided in paragraph(f)(6)(ii) of this section. Therefore, forexample, any contribution by oneindividual will be included in full in

the denominator of the fractiondetermining the 3312 percent support orthe 10 percent support limitation, butwill be includible in the numerator ofsuch fraction only to the extent thatsuch amount does not exceed twopercent of the denominator. In applyingthe two percent limitation, allcontributions made by a donor and byany person or persons standing in arelationship to the donor that isdescribed in section 4946(a)(1)(C)through (a)(1)(G) and the relatedregulations shall be treated as made byone person. The two percent limitationshall not apply to support received from

governmental units referred to insection 170(c)(1) or to contributionsfrom organizations described in section170(b)(1)(A)(vi), except as provided inparagraph (f)(6)(v) of this section. Forpurposes of paragraphs (f)(2), (f)(3)(i),and (f)(7)(iii)(A)(2) of this section, theterm indirect contributions from thegeneral public includes contributionsreceived by the organization fromorganizations (such as section170(b)(1)(A)(vi) organizations) thatnormally receive a substantial part oftheir support from direct contributionsfrom the general public, except as

provided in paragraph (f)(6)(v) of thissection. See the examples in paragraph(f)(9) of this section for the applicationof this paragraph (f)(6)(i). For purposesof this paragraph (f), the termcontributions includes qualifiedsponsorship payments (as defined in 1.5134) in the form of money orproperty (but not services).

(ii) Exclusion of unusual grants. (A)For purposes of applying the twopercent limitation described inparagraph (f)(6)(i) of this section todetermine whether the 3313 percent

support test or the 10 percent supportlimitation in paragraph (f)(3)(i) of thissection is satisfied, one or morecontributions may be excluded from

both the numerator and thedenominator of the applicable supportfraction if such contributions meet therequirements of paragraph (f)(6)(iii) ofthis section. The exclusion provided by

this paragraph (f)(6)(ii) is generallyintended to apply to substantialcontributions or bequests fromdisinterested parties, whichcontributions or bequests

(1) Are attracted by reason of thepublicly supported nature of theorganization;

(2) Are unusual or unexpected withrespect to the amount thereof; and

(3) Would, by reason of their size,adversely affect the status of theorganization as normally being publiclysupported for the applicable perioddescribed in paragraph (f)(4) of thissection.

(B) In the case of a grant (as definedin 1.509(a)3(g)) that meets therequirements of this paragraph (f)(6)(ii),if the terms of the granting instrumentrequire that the funds be paid to therecipient organization over a period ofyears, the grant amounts received by theorganization may be excluded for suchyear or years in which they wouldotherwise be includible in computingsupport under the method of accountingon the basis of which the organizationregularly computes its income inkeeping its books under section 446.However, no item of gross investment

income may be excluded under thisparagraph (f)(6). The provisions of thisparagraph (f)(6) shall apply to excludeunusual grants made during any of theapplicable periods described inparagraph (f)(4) or paragraph (f)(6) ofthis section. See paragraph (f)(6)(iv) ofthis section as to reliance by a granteeorganization upon an unusual grantruling under this paragraph (f)(6).

(iii) Determining factors. Indetermining whether a particularcontribution may be excluded underparagraph (f)(6)(ii) of this section, allpertinent facts and circumstances will

be taken into consideration. No singlefactor will necessarily be determinative.For some of the factors similar to thefactors to be considered, see 1.509(a)3(c)(4).

(iv) Grantors and contributors. Priorto the making of any grant orcontribution that will allegedly meet therequirements for exclusion underparagraph (f)(6)(ii) of this section, apotential grantee organization mayrequest a determination whether suchgrant or contribution may be soexcluded. Requests for such

http://www.irs.gov/http://www.irs.gov/http://www.irs.gov/


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determination may be filed by thegrantee organization in the time andmanner specified by revenue procedureor other guidance published in theInternal Revenue Bulletin. The issuanceof such determination will be at the solediscretion of the Commissioner. Theorganization must submit allinformation necessary to make a

determination on the factors referred toin paragraph (f)(6)(iii) of this section. Ifa favorable determination is issued,such determination may be relied upon

by the grantor or contributor of theparticular contribution in question forpurposes of sections 170, 507, 545(b)(2),642(c), 4942, 4945, 4966, 2055,2106(a)(2), and 2522 and by the granteeorganization for purposes of paragraph(f)(6)(ii) of this section.

(v) Grants from public charities.Pursuant to paragraph (f)(6)(i) of thissection, contributions received from agovernmental unit or from a section

170(b)(1)(A)(vi) organization are notsubject to the two percent limitationdescribed in paragraph (f)(6)(i) of thissection unless such contributionsrepresent amounts which have beenexpressly or impliedly earmarked by adonor to such governmental unit orsection 170(b)(1)(A)(vi) organization as

being for, or for the benefit of, theparticular organization claiming section170(b)(1)(A)(vi) status. See 1.509(a)3(j)(3) for examples illustrating the rulesof this paragraph (f)(6)(v).

(7) Definition of support; special rulesand meaning of terms(i) Definition ofsupport. For purposes of this paragraph

(f), the term support shall be asdefined in section 509(d) (withoutregard to section 509(d)(2)). The termsupport does not include

(A) Any amounts received from theexercise or performance by anorganization of its charitable,educational, or other purpose orfunction constituting the basis for itsexemption under section 501(a). Ingeneral, such amounts include amountsreceived from any activity the conductof which is substantially related to thefurtherance of such purpose or function(other than through the production of

income); or(B) Contributions of services forwhich a deduction is not allowable.

(ii) For purposes of the 3313 percentsupport test and the 10 percent supportlimitation in paragraph (f)(3)(i) of thissection, all amounts received that aredescribed in paragraph (f)(7)(i)(A) orparagraph (f)(7)(i)(B) of this section areto be excluded from both the numeratorand the denominator of the fractionsdetermining compliance with such tests,except as provided in paragraph(f)(7)(iii) of this section.

(iii) Organizations dependentprimarily on gross receipts from relatedactivities. (A) Notwithstanding theprovisions of paragraph (f)(7)(i) of thissection, an organization will not betreated as satisfying the 3313 percentsupport test or the 10 percent supportlimitation in paragraph (f)(3)(i) of thissection if it receives

(1) Almost all of its support (asdefined in section 509(d)) from grossreceipts from related activities; and

(2) An insignificant amount of itssupport from governmental units(without regard to amounts referred toin paragraph (f)(7)(i)(A) of this section)and contributions made directly orindirectly by the general public.

(B) Example. The application of thisparagraph (f)(7)(iii) may be illustrated

by the following example:

Example. Z, an organization described insection 501(c)(3), is controlled by A, itspresident. Z received $500,000 during the

period consisting of the current taxable yearand the four immediately preceding taxableyears under a contract with the Departmentof Transportation, pursuant to which Z hasengaged in research to improve a particularvehicle used primarily by the Federalgovernment. During this same period, theonly other support received by Z consisted of$5,000 in small contributions primarily fromZs employees and business associates. The$500,000 amount constitutes support undersections 509(d)(2) and 509(a)(2)(A). Underthese circumstances, Z meets the conditionsof paragraphs (f)(7)(iii)(A)(1) and(f)(7)(iii)(A)(2) of this section and will not betreated as meeting the requirements of eitherthe 3313 percent support test or the facts andcircumstances test. As to the rules applicableto organizations that fail to qualify undersection 170(b)(1)(A)(vi) because of theprovisions of this paragraph (f)(7)(iii), seesection 509(a)(2) and the related regulations.For the distinction between gross receipts (asreferred to in section 509(d)(2)) and grossinvestment income (as referred to in section509(d)(4)), see 1.509(a)3(m).

(iv) Membership fees. For purposes ofthis paragraph (f)(7), the term supportshall include membership fees withinthe meaning of 1.509(a)3(h) (that is,if the basic purpose for making apayment is to provide support for theorganization rather than to purchase

admissions, merchandise, services, orthe use of facilities).(8) Support from a governmental unit.

(i) For purposes of the 3313 percentsupport test and the 10 percent supportlimitation described in paragraph(f)(3)(i) of this section, the term support

from a governmental unitincludes anyamounts received from a governmentalunit, including donations orcontributions and amounts received inconnection with a contract entered intowith a governmental unit for theperformance of services or in

connection with a government researchgrant. However, such amounts will notconstitute support from a governmentalunit for such purposes if they constituteamounts received from the exercise orperformance of the organizationsexempt functions as provided inparagraph (f)(7)(i)(A) of this section.

(ii) For purposes of paragraph (f)(8)(i)of this section, any amount paid by agovernmental unit to an organization isnot to be treated as received from theexercise or performance of its charitable,educational, or other purpose orfunction constituting the basis for itsexemption under section 501(a) (withinthe meaning of paragraph (f)(7)(i)(A) ofthis section) if the purpose of thepayment is primarily to enable theorganization to provide a service to, ormaintain a facility for, the direct benefitof the public (regardless of whether partof the expense of providing such serviceor facility is paid for by the public),

rather than to serve the direct andimmediate needs of the payor. Forexample

(A) Amounts paid for themaintenance of library facilities whichare open to the public;

(B) Amounts paid under governmentprograms to nursing homes or homes forthe aged in order to provide health careor domiciliary services to residents ofsuch facilities; and

(C) Amounts paid to child placementor child guidance organizations undergovernment programs for services

rendered to children in the community,are considered payments the purpose ofwhich is primarily to enable therecipient organization to provide aservice or maintain a facility for thedirect benefit of the public, rather thanto serve the direct and immediate needsof the payor. Furthermore, any amountreceived from a governmental unitunder circumstances such that theamount would be treated as a grantwithin the meaning of 1.509(a)3(g)will generally constitute support froma governmental unit described in thisparagraph (f)(8), rather than an amount

described in paragraph (f)(7)(i)(A) of thissection.

(9) Examples. The application ofparagraphs (f)(1) through (f)(8) of thissection may be illustrated by thefollowing examples:

Example 1. (i) M is recognized as anorganization described in section 501(c)(3).For the years 2008 through 2012 (theapplicable period with respect to the taxableyear 2012 under paragraph (f)(4) of thissection), M received support (as defined inparagraphs (f)(6) through (8) of this section)of $600,000 from the following sources:



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Investment income ..................................................................................................................................................................................... $300,000City R (a governmental unit described in section 170(c)(1)) ................................................................................................................... 40,000United Fund (an organization described in section 170(b)(1)(A)(vi)) ..................................................................................................... 40,000Contributions (including six contributions in excess of the two-percent limit, totaling $170,000) ..................................................... 220,000

Total support ....................................................................................................................................................................................... 600,000

(ii) With respect to the taxable year

2012, Ms public support is computed asfollows:

Support from a governmental unit described in section 170(c)(1) ......................................................................................................... $40,000Indirect contributions from the general public (United Fund) ............................................................................................................... 40,000Contributions by various donors that were not in excess of $12,000, or two percent of total support ............................................... 50,000Six contributions that were each in excess of $12,000, or two percent of total support, up to the two-percent limitation, 6

$12,000 .................................................................................................................................................................................................... 72,000

Total support ....................................................................................................................................................................................... 202,000

(iii) Ms support from governmentalunits referred to in section 170(c)(1) andfrom direct and indirect contributionsfrom the general public (as defined inparagraph (f)(6) of this section) with

respect to the taxable year 2012normally exceeds 3313 percent of Mstotal support ($202,000/$600,000 =33.67 percent) for the applicable period(2008 through 2012). M meets the 3313percent support test with respect to2012 and is therefore publiclysupported for the taxable years 2012 and2013.

Example 2. (i) N is recognized as anorganization described in section 501(c)(3). Itwas created to maintain public gardenscontaining botanical specimens anddisplaying statuary and other art objects. Thefacilities, works of art, and a largeendowment were all contributed by a singlecontributor. The members of the governing

body of the organization are unrelated to itscreator. The gardens are open to the publicwithout charge and attract a substantialnumber of visitors each year. For the currenttaxable year and the four taxable yearsimmediately preceding the current taxableyear, 95 percent of the organizations totalsupport was received from investmentincome from its original endowment. N alsomaintains a membership society that issupported by members of the general publicwho wish to contribute to the upkeep of thegardens by paying a small annualmembership fee. Over the five-year period inquestion, these fees from the general publicconstituted the remaining five percent of the

organizations total support for such period.(ii) Under these circumstances, N does not

meet the 3313 percent support test for itscurrent taxable year. Furthermore, becauseonly five percent of its total support is, withrespect to the current taxable year, normallyreceived from the general public, N does notsatisfy the 10 percent support limitationdescribed in paragraph (f)(3)(i) of this sectionand therefore does not qualify as publiclysupported under the facts and circumstancestest. Because N has failed to satisfy the 10percent support limitation under paragraph(f)(3)(i) of this section, none of the otherrequirements or factors set forth in

paragraphs (f)(3)(iii)(A) through (f)(3)(iii)(E)of this section can be considered indetermining whether N qualifies as apublicly supported organization. For itscurrent taxable year, therefore, N is not an

organization described in section170(b)(1)(A)(vi).Example 3. (i) O, an art museum, is

recognized as an organization described insection 501(c)(3). In 1930, O was founded inS City by the members of a single family tocollect, preserve, interpret, and display to thepublic important works of art. O is governed

by a Board of Trustees that originallyconsisted almost entirely of members of thefounding family. However, since 1945,members of the founding family or personsstanding in a relationship to the members ofsuch family described in section4946(a)(1)(C) through (G) have annuallyconstituted less than one-fifth of the Board ofTrustees. The remaining board members arecitizens of S City from a variety of

professions and occupations who representthe interests and views of the people of SCity in the activities carried on by theorganization rather than the personal orprivate interests of the founding family. Osolicits contributions from the general publicand, for the current taxable year and each ofthe four taxable years immediately precedingthe current taxable year, O has received totalcontributions (in small sums of less than$100, none of which exceeds two percent ofOs total support for such period) in excessof $10,000. These contributions from thegeneral public (as defined in paragraph (f)(6)of this section) represent 25 percent of theorganizations total support for such five-yearperiod. For this same period, investment

income from several large endowment fundshas constituted 75 percent of Os totalsupport. O expends substantially all of itsannual income for its exempt purposes andthus depends upon the funds it annuallysolicits from the public as well as itsinvestment income in order to carry out itsactivities on a normal and continuing basisand to acquire new works of art. O has, forthe entire period of its existence, been opento the public and more than 300,000 people(from S City and elsewhere) have visited themuseum in each of the current taxable yearand the four immediately preceding taxableyears.

(ii) Under these circumstances, O does notmeet the 3313 percent support test for itscurrent year because it has received only 25percent of its total support for the applicablefive-year period from the general public.

However, under the facts set forth above, Omeets the 10 percent support limitationunder paragraph (f)(3)(i) of this section, aswell as the requirements of paragraph(f)(3)(ii) of this section. Under all of the factsset forth in this example, O is considered asmeeting the requirements of the facts andcircumstances test on the basis of satisfyingparagraphs (f)(3)(i) and (f)(3)(ii) of thissection and the factors set forth in paragraphs(f)(3)(iii)(A) through (f)(3)(iii)(D) of thissection. O is therefore publicly supported forits current taxable year and the immediatelysucceeding taxable year.

Example 4. (i) In 1960, the P PhilharmonicOrchestra was organized in T City throughthe combined efforts of a local music societyand a local womens club to present to thepublic a wide variety of musical programsintended to foster music appreciation in thecommunity. P is recognized as anorganization described in section 501(c)(3).The orchestra is composed of professionalmusicians who are paid by the association.Twelve performances open to the public arescheduled each year. A small admission feeis charged for each of these performances. Inaddition, several performances are stagedannually without charge. During the currenttaxable year and the four taxable yearsimmediately preceding the current taxableyear, P has received separate contributions of$200,000 each from A and B (not membersof a single family) and support of $120,000from the T Community Chest, a public

federated fundraising organization operatingin T City. P depends on these funds in orderto carry out its activities and will continueto depend on contributions of this type to bemade in the future. P has also begun afundraising campaign in an attempt toexpand its activities for the coming years. Pis governed by a Board of Directorscomprised of five individuals. A facultymember of a local college, the president of alocal music society, the head of a local

banking institution, a prominent doctor, anda member of the governing body of the localchamber of commerce currently serve on PsBoard and represent the interests and views



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of the community in the activities carried onby P.

(ii) With respect to Ps current taxable year,Ps sources of support are computed on the

basis of the current taxable year and the four

taxable years immediately preceding thecurrent taxable year, as follows:

Contributions .............................................................................................................................................................................................. $520,000Receipts from performances ...................................................................................................................................................................... 100,000

Total support ....................................................................................................................................................................................... 620,000Less:

Receipts from performances (excluded under paragraph (f)(7)(i)(A) of this section) ............................................................................ 100,000

Total support for purposes of paragraphs (f)(2) and (f)(3)(i) of this section ................................................................................... 520,000

(iii) For purposes of paragraphs (f)(2)and (f)(3)(i) of this section, Ps publicsupport is computed as follows:

T Community Chest (indirect support from the general public) ............................................................................................................. 120,000Two contributions from A & B (each in excess of $10,4002 percent of total support) 2 $10,400 ................................................. 20,800

Total ..................................................................................................................................................................................................... 140,800

(iv) Under these circumstances, Pdoes not meet the 3313 percent supporttest for its current year because it hasreceived only 27 percent of its totalsupport ($140,800/$520,000) for theapplicable five-year period from thegeneral public. However, under the factsset forth above, P meets the 10 percentsupport limitation under paragraph(f)(3)(i) of this section, as well as therequirements of paragraph (f)(3)(ii) ofthis section. Under all of the facts setforth in this example, P is considered asmeeting the requirements of the factsand circumstances test on the basis ofsatisfying paragraphs (f)(3)(i) and(f)(3)(ii) of this section and the factors

set forth in paragraphs (f)(3)(iii)(A)through (f)(3)(iii)(D) of this section. P istherefore publicly supported for itscurrent taxable year and theimmediately succeeding taxable year.

Example 5. (i) Q is recognized as anorganization described in section 501(c)(3). Itis a philanthropic organization founded in1965 by C for the purpose of making annualcontributions to worthy charities. C createdQ as a charitable trust by the transfer ofappreciated securities worth $500,000 to Q.Pursuant to the trust agreement, C and twoother members of his family are the soletrustees of Q and are vested with the right toappoint successor trustees. In each of thecurrent taxable year and the four taxableyears immediately preceding the current

taxable year, Q received $12,000 ininvestment income from its originalendowment. Each year Q makes a solicitation

for funds by operating a charity ball at Csresidence. Guests are invited and requestedto make contributions of $100 per couple.During the five-year period at issue, $15,000was received from the proceeds of theseevents. C and his family have also madecontributions to Q of $25,000 over the five-year period at issue. Q makes disbursementseach year of substantially all of its netincome to the public charities chosen by thetrustees.

(ii) Qs sources of support for thecurrent taxable year and the four taxableyears immediately preceding the currenttaxable year as follows:

Investment income ..................................................................................................................................................................................... $60,000Contributions .............................................................................................................................................................................................. 40,000

Total support ....................................................................................................................................................................................... 100,000

(iii) For purposes of paragraphs (f)(2)and (f)(3)(i) of this section, Qs publicsupport is computed as follows:

Contributions from the general public ...................................................................................................................................................... $ 15,000Cs contribution (in excess of $ 2,0002 percent of total support) 1 $2,000 ..................................................................................... 2,000

Total ..................................................................................................................................................................................................... 17,000

(iv) Under these circumstances, Qdoes not meet the 3313 percent supporttest for its current year because it hasreceived only 17 percent of its totalsupport ($17,000/$100,000) for theapplicable five-year period from thegeneral public. Thus, Qs classificationas a publicly supported organizationdepends on whether it meets therequirements of the facts andcircumstances test. Even though itsatisfies the 10 percent supportlimitation under paragraph (f)(3)(i) ofthis section, its method of solicitation

makes it questionable whether Qsatisfies the requirements of paragraph(f)(3)(ii) of this section. Because of itsmethod of operating, Q also has agreater burden of establishing itspublicly supported nature underparagraph (f)(3)(iii)(A) of this section.Based upon the foregoing facts andcircumstances, including Qs failure toreceive favorable consideration underthe factors set forth in paragraphs(f)(3)(iii)(B), (f)(3)(iii)(C), and(f)(3)(iii)(D) of this section, Q does notsatisfy the facts and circumstances test.

(10) Community trust; introduction.Community trusts have often beenestablished to attract large contributionsof a capital or endowment nature for the

benefit of a particular community orarea, and often such contributions havecome initially from a small number ofdonors. While the community trustgenerally has a governing bodycomprised of representatives of theparticular community or area, itscontributions are often received andmaintained in the form of separate trustsor funds, which are subject to varying



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degrees of control by the governingbody. To qualify as a publiclysupported organization, a communitytrust must meet the 3313 percentsupport test, or, if it cannot meet thattest, be organized and operated so as toattract new and additional public orgovernmental support on a continuous

basis sufficient to meet the facts and

circumstances test. Such facts andcircumstances test includes arequirement of attraction of publicsupport in paragraph (f)(3)(ii) of thissection which, as applied to communitytrusts, generally will be satisfied if theyseek gifts and bequests from a widerange of potential donors in thecommunity or area served, through

banks or trust companies, throughattorneys or other professional persons,or in other appropriate ways that callattention to the community trust as apotential recipient of gifts and bequestsmade for the benefit of the community

or area served. A community trust is notrequired to engage in periodic,community-wide, fundraisingcampaigns directed toward attracting alarge number of small contributions ina manner similar to campaignsconducted by a community chest orunited fund. Paragraph (f)(11) of thissection provides rules for determiningthe extent to which separate trusts orfunds may be treated as componentparts of a community trust, fund, orfoundation (herein collectively referredto as a community trust, andsometimes referred to as anorganization) for purposes of meeting

the requirements of this paragraph forclassification as a publicly supportedorganization. Paragraph (f)(12) of thissection contains rules for trusts or fundsthat are prevented from qualifying ascomponent parts of a community trust

by paragraph (f)(11) of this section.(11) Community trusts; requirements

for treatment as a single entity(i)General rule. For purposes of sections170, 501, 507, 508, 509, and Chapter 42,any organization that meets therequirements contained in paragraphs(f)(11)(iii) through (f)(11)(vi) of thissection will be treated as a single entity,

rather than as an aggregation of separatefunds, and except as otherwiseprovided, all funds associated with suchorganization (whether a trust, not-for-profit corporation, unincorporatedassociation, or a combination thereof)which meet the requirements ofparagraph (f)(11)(ii) of this section will

be treated as component parts of suchorganization.

(ii) Component part of a communitytrust. In order to be treated as acomponent part of a community trustreferred to in this paragraph (f)(11)

(rather than as a separate trust or not-for-profit corporation or association), atrust or fund:

(A) Must be created by a gift, bequest,legacy, devise, or other transfer to acommunity trust which is treated as asingle entity under this paragraph(f)(11); and

(B) May not be directly or indirectly

subjected by the transferor to anymaterial restriction or condition (withinthe meaning of 1.5072(a)(7)) withrespect to the transferred assets. Forpurposes of this paragraph (f)(11)(ii)(B),if the transferor is not a privatefoundation, the provisions of 1.5072(a)(7) shall be applied to the trust orfund as if the transferor were a privatefoundation established and funded bythe person establishing the trust or fundand such foundation transferred all itsassets to the trust or fund. Any transfermade to a fund or trust which is treatedas a component part of a communitytrust under this paragraph (f)(11)(ii) will

be treated as a transfer made to apublicly supported community trustfor purposes of sections 170(b)(1)(A)and 507(b)(1)(A) if such communitytrust meets the requirements of section170(b)(1)(A)(vi) as a publiclysupported