Most handbooks on establishing a nonprofit organization have a section on the "public support test" — one means by which the IRS determines if a nonprofit organization is a private foundation or a public charity.
The Council on Foundation's Legal Compendium for Community Foundations (1996), has a chapter addressing the public support test.
For more detailed information you might want to refer to How to Calculate the Public Support Test (2nd ed.), published by the Council on Foundations in 1998. This is a hands-on guide to understanding and calculating the public support test. Author John Edie provides a general explanation of the first of two public support tests listed in the Internal Revenue Code — the test that relies primarily on gifts and contributions to meet the minimum percentage requirement and does not count gross receipts (admission fees, fees for services, etc.) as public support. He also provides a step-by-step worksheet approach to reaching a reliable calculation of percentage of public support. This guide is designed to be of use to board and staff of community foundations and other public charities, as well to private foundations concerned that their grants may adversely affect the status of their grantees by causing them to fail the public support test. It will also be helpful to those lawyers and accountants who are approaching the subject of the public support test for the first time.
You might also want to look at the following resources:
- Nober, Jane C. "Tipping." Foundation News & Commentary 42 (March-April 2001) p. 16-7. A large grant to a small nonprofit can have tax consequences, and cause a change in the organization's status if it no longer passes the public support test. Steps for avoiding such an outcome are given here. Also available online.
- Blum, Debra E. "Big Change Afoot at Pew Trusts." Chronicle of Philanthropy 16 (13 November 2003) p. 11-2. Announces that the Pew Charitable Trusts, one of the nation's largest private foundations, will convert itself into a public charity. Explains how Pew was able to pass the Internal Revenue Service's public-support test to achieve charity status. Despite its new designation, Pew plans to continue giving at least 5 percent of its assets annually.
- IRS Publication 557: Tax-Exempt Status for Your Organization. See the section "Qualifying as Publicly Supported" on page 31.
For other books and articles on the "public support test", try searching our Catalog of Nonprofit Literature (CNL), the Center's bibliographic database. You could start searching on the term "public support test" in the keywords field.
Many of the books and articles found through CNL can be located in Center Libraries and some Cooperating Collections. It is best to call ahead to verify a specific library's holdings. All articles, but not books, can be obtained through interlibrary loan at your local Cooperating Collection.
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