Form 990 Schedule A Public Support: Common Reporting Issues

Public support is computed on a rolling five-year window, which means an error made in one year travels with the organization for four more. Most of the problems below are mechanical rather than interpretive, and all of them are visible on the face of the schedule.

The 33 1/3% test and the 10% fallback

An organization passes the public support test when public support is at least 33 1/3% of total support for the five-year measuring period. When the percentage falls between 10% and 33 1/3%, a Part II organization can still qualify under the facts-and-circumstances test, which weighs factors such as the breadth of public solicitation, the share of support from governmental units and other public charities, whether the governing body and facilities are open to the public, and whether the organization's programs serve a broad constituency. Below 10%, the fallback is unavailable.

The fallback is not a safe harbor that accumulates: each year it is relied on, the organization must affirmatively establish the facts, and a drifting percentage that settles in the low teens is a warning that the organization is operating at the edge of public charity status.

Part II and Part III are different tests

Part II applies to organizations described in section 170(b)(1)(A)(vi) — publicly supported by contributions from the general public and governmental units. Part III applies to organizations described in section 509(a)(2), which rely on exempt-function revenue. They are not interchangeable, and the choice is driven by the organization's actual revenue profile rather than by which test it passes more comfortably.

• Part II: public support of at least 33 1/3% of total support, or at least 10% with facts and circumstances demonstrating public support
• Part III: public support of more than 33 1/3% of total support, and investment income plus net unrelated business income of not more than 33 1/3% of total support — both tests must be met

The 2% cap under Part II

Contributions from any one person are included in public support only to the extent they do not exceed 2% of total support for the five-year period. The excess remains in total support in the denominator, which is what makes a single large gift dilutive rather than neutral.

Contributions from governmental units and from other publicly supported organizations described in section 170(b)(1)(A)(vi) are not subject to the 2% cap. Grants from private foundations are, and so are gifts from an individual and that individual's related parties, which are treated as one person.

The Part III caps are different

Under section 509(a)(2), gross receipts from admissions, merchandise, services, or facilities in an activity that is not an unrelated trade or business are included in public support only up to the greater of $5,000 or 1% of total support from any one person for the year. Contributions and gross receipts from disqualified persons are excluded from public support entirely, not capped.

Cash basis, always

Schedule A is prepared on the cash receipts and disbursements basis regardless of the method used for the rest of the return. An accrual-basis organization that pulls the contributions line from Part VIII will report multi-year pledges in the year recognized rather than the year received, and the support percentage will not reconcile to the underlying records in any later year.

Unusual grants

A substantial contribution that is unusual, unexpected, and attracted by the organization's publicly supported character may be excluded from both the numerator and the denominator as an unusual grant. This is a relief provision with conditions, not a discretionary exclusion for any large gift, and the amount excluded is reported on the schedule. Excluding a recurring major donor's annual gift as unusual is a recognizable error.

Failing the test

An organization that fails its test for a year retains public charity status if it passes based on the prior year's five-year computation. Failure in two consecutive years results in classification as a private foundation, generally as of the beginning of the second year, with the full Chapter 42 regime applying from that point. Tipping is usually predictable a year or more in advance from the rolling schedule.