Know the Tax Code: IRC § 509(a)

To be a public charity, an organization must qualify under § 509(a) of the Tax Code. All charities are subdivided between public charities, which are publicly supported by donations or fees, and private foundations, which are typically supported by a specific, limited faction of supporters. The Tax Code restricts the activities of private foundations more than public charitable organizations.

The Tax Code (and the IRS) considers a charity to be a private foundation until it meets the definition of a public charity under Section 509(a), which includes schools, churches, hospitals, and other organizations that are public supported primarily by gifts, grants, and contributions from a broad sector of donors.

One test under § 509(a)(1) determines if an entity’s public support is greater than 33.33 percent if so, it receives “public charity” status. If public support is less than 33.33 percent, it may still qualify as a public charity under a subjective 10 percent facts-and-circumstances analysis.

Section 509(a)(1) refers to organizations described in § 170(b)(1)(A)(i)-(v), such as churches, schools, hospitals and governmental units that are treated as public charities based upon the nature of their activities. § 170(b)(1)(A)(vi) determines public charity status based upon an organization’s sources of support.

Section 509(a)(2) applies to organizations that receive their support from a combination of gifts, grants, and from the performance of activities related to an organization’s exempt purpose  Calculating these public support levels is a difficult proposition that requires a qualified tax professional.

Section 509(a)(3) covers “supporting organizations” that support other public § 509(a)(1) and § 509(a)(2) charities, governmental units and certain other exempt organizations that receive public charity status because of the supporting relationship, and regardless of their income source. Congress has recently enacted legislation that significantly limits these supporting organizations. Staying abreast of all of these changes requires a knowledgeable tax professional.

Many provisions of the Internal Revenue Code are complicated. Proper interpretation of the rules and regulations contained in these provisions requires the assistance of an experienced and knowledgeable tax professional. A tax professional may also evaluate anyone’s situation to help determine the wisdom of any tax-savings moves for 2017. Call THE TAX EXPERTS AT THE Thorgood Law Firm For a FREE consultation, call 212-490-0704.Know the Tax Code: IRC § 509(a)

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