Understanding Schedule A on the Nonprofit Form 990
by Jennifer Kirk, CPA
The Form 990 is often accompanied with several schedules for filing with the Internal Revenue Service (IRS). The purpose of the schedules is to provide additional details regarding events, balances and transactions that occurred during the year, similar to the notes disclosed with financial statements. The first schedule in the series is Schedule A – Public Charity Status and Public Support.
Schedule A is required for Section 501(c)3 organizations or Section 4947(a)(1) charitable trusts. Although there are six parts to the schedule, only certain parts need to be completed based on the organization’s reason for public charity status, indicated in Part I. In this article, we will focus on the following two parts:
- Part II – Support Schedule for Organizations Described in Sections 170(b)(1)(A)(iv) and 170(b)(1)(A)(vi)
- Part III – Support Schedule for Organizations Described in Section 509(a)(2)
- Determine if the Organization qualifies for the 10% facts and circumstances test
- Determine if the Organization qualifies to file an alternative part (between Part I and Part II) and passes the test.
- To accurately complete Schedule A, it is important to track substantial donor names and amounts given.
- If your organization’s public support percentage dips significantly or is nearing the threshold, contact your CPA.
- If you receive or expect to receive a gift that is very significant to the organization, contact your CPA to discuss how this may impact Schedule A and prepare to take any necessary actions as early as possible.
- Remember donors often use Form 990 to learn more about organizations. Schedule A can help donors gauge whether an organization is receiving most of its support from the general public versus a few large donors. Given a nonprofit can be significantly impacted if a large donor withdraws support, Schedule A can help donors determine where to contribute.
What is the purpose of Schedule A?
Schedule A distinguishes public charities from private foundations. An Organization is required to complete either Part II or Part III to calculate its public support percentage. The IRS seeks to prevent public charities from being funded by a small number of substantial donors by requiring that at least 33 1/3% of their revenue is from the general public (including governmental agencies). Additionally, Organizations that file Part III must also have an investment income percentage that does not exceed 33 1/3%. The calculation is based on five years of revenue. If an organization is in their first five years as a 501(c)(3), the schedule is still required but the public support percentage is not calculated nor included in the tax return until year six.
How is the public support percentage calculated? Public Support / Total Support
Seems easy, right? Unfortunately, that’s not the case. Depending on whether Part II or Part III is completed, public support has a different definition. Additionally, to prevent the required percentage from being skewed by substantial donors, certain contributions and receipts are excluded from the public support total used to calculate the percentage.
What happens when an Organization fails the public support test?
Schedule A presents the public support percentage of the two most recent years. As long as the Organization meets the 33 1/3% threshold for one of the two years, it’s in the clear.
If the Organization presents two years of public support percentages below the 33 1/3% threshold, there are some options:
If neither of these options are available, the organization will no longer be considered a public charity and will be required to file Form 990-PF as a private foundation.
What should you keep in mind for your public charity?
Schedule A is a complex but important schedule as it determines if a 501(c)(3) organization qualifies as a public charity based on the types of revenue streams and amounts received from certain parties. Don’t let the calculation, or results, scare you. We’re here to help!
Call us at (360) 734-4280 or fill out the form below and we'll contact you to discuss your specific situation.
Jennifer Kirk, CPA
Jennifer Kirk is a Senior Associate who specializes in serving nonprofit organizations with their financial statement and tax needs.