Last reviewed: July 2026
Every organization that receives IRC 501(c)(3) exemption is either a private foundation or a public charity. IRC 509 establishes the framework for making that determination, and the stakes are significant: private foundation classification triggers a separate filing regime (Form 990-PF), a suite of Chapter 42 excise taxes, and a minimum distribution obligation that does not apply to public charities. Practitioners advising nonprofit clients at formation, at restructuring, or through an IRS compliance review need a working command of the IRC 509 exclusion hierarchy and the tests that sustain public charity status year over year.
This guide addresses IRC 509(a)(1) through 509(a)(4), the two public support tests, supporting organization types and their relationship requirements, and the OBBBA amendments to IRC 4966 that create parallel obligations for Type III non-functionally integrated supporting organizations operating donor-advised fund programs.
IRC 509(a) operates as a rebuttable presumption: any organization described in IRC 501(c)(3) is a private foundation unless it establishes that it falls within one of the four exclusion categories in IRC 509(a)(1) through 509(a)(4). The burden is on the organization. Failure to affirmatively qualify means private foundation status applies, with all associated excise taxes and distribution requirements, even if the organization raises funds from multiple donors and appears publicly active.
IRC 509(a) Exclusion Categories
Congress crafted four distinct exclusion paths under IRC 509(a), each serving a different organizational profile. Understanding which path fits a client's structure is the first analytical step in any exempt organization engagement.
| Subsection | Category | Qualifying Basis | Key Reference |
|---|---|---|---|
| 509(a)(1) / 170(b)(1)(A)(i) | Churches and religious organizations | Institutional character; no numerical support test required | IRC 170(b)(1)(A)(i) |
| 509(a)(1) / 170(b)(1)(A)(ii) | Schools and educational organizations | Regular faculty, curriculum, and enrolled student body | Treas. Reg. 1.170A-9(b) |
| 509(a)(1) / 170(b)(1)(A)(iii) | Hospitals and medical research organizations | Hospital operations or research attached to a hospital | IRC 170(b)(1)(A)(iii) |
| 509(a)(1) / 170(b)(1)(A)(iv) | Governmental units and publicly supported governmental organizations | Government ownership or substantial governmental support | IRC 170(b)(1)(A)(iv) |
| 509(a)(1) / 170(b)(1)(A)(v) | Agricultural research organizations | Attached to a land-grant college or university | IRC 170(b)(1)(A)(v) |
| 509(a)(1) / 170(b)(1)(A)(vi) | Publicly supported organizations | 33-1/3% public support test over five-year period | Treas. Reg. 1.170A-9(f) |
| 509(a)(2) | Gross-receipts publicly supported organizations | More than 1/3 from public/exempt-function sources; no more than 1/3 from investment income and UBIT | IRC 509(a)(2) |
| 509(a)(3) | Supporting organizations (Type I, II, III) | Organizational and operational relationship with a supported public charity | Treas. Reg. 1.509(a)-4 |
| 509(a)(4) | Organizations that test for public safety | Organized and operated exclusively to test for public safety; contributions not deductible under IRC 170 | IRC 509(a)(4) |
Categories under IRC 509(a)(1) through the non-vi subcategories qualify by structural or operational nature, not by any numerical support fraction. Churches, accredited schools, and licensed hospitals do not compute public support percentages. The IRC 509(a)(1)(vi), IRC 509(a)(2), and IRC 509(a)(3) paths each require ongoing compliance monitoring.
The Public Support Test Under IRC 170(b)(1)(A)(vi)
The IRC 170(b)(1)(A)(vi) pathway is the most common route to public charity status for grant-making and program-service organizations that draw contributions from a broad donor base. The governing regulation is Treas. Reg. 1.170A-9(f).
The 33-1/3% Test
An organization normally receives at least 33-1/3% of its support from the public if the fraction of public support to total support, computed over the five-year measurement period, equals or exceeds one-third. The measurement period is the current tax year and the four immediately preceding years. "Total support" is defined under Treas. Reg. 1.170A-9(f)(7) and includes gifts, grants, contributions, net income from unrelated business activities, gross receipts from permitted sources, tax revenues levied for the organization, and the value of services or facilities furnished by a governmental unit.
Individual donor contributions count toward the public support numerator only to the extent they do not exceed 2% of the total support received during the five-year period. This cap ensures that a single large donor does not artificially inflate the public support percentage. Contributions from governmental units and from organizations that themselves qualify as public charities are not subject to the 2% cap.
The Facts-and-Circumstances Test
If an organization's public support percentage falls between 10% and 33-1/3%, it may still qualify under the facts-and-circumstances test of Treas. Reg. 1.170A-9(f)(3). To qualify, the organization must demonstrate: (1) a public support percentage of at least 10%; and (2) facts and circumstances showing it is publicly supported, such as a governing body representing broad public interests, programs available to the public, and a meaningful degree of public participation.
The support computation is based on the five-year aggregate period ending with the current tax year, not projected forward. An organization formed in year one does not compute public support until it has completed at least one full year. For organizations in their second through fifth years of existence, the computation uses the available completed years. A year in which the organization received an unusually large government grant may inflate the denominator and depress the public support fraction in later years even if the grant has been spent, because it remains in the five-year total support base.
Unusual Grants
Treas. Reg. 1.170A-9(f)(6)(ii) permits exclusion of an unusual grant from both the numerator and denominator of the support fraction. The exclusion applies when: (1) the grant is attracted by the publicly supported nature of the organization; (2) it is an unusual or unexpected grant from a disinterested party; and (3) inclusion would cause the organization to fail the support test and the grant is not expected to recur. The IRS has stated in Rev. Proc. 81-6 that it will rule on unusual grant exclusions, and practitioners should consider requesting a ruling when a single-year grant would cause an otherwise well-supported organization to lose public charity status.
The unusual grant exclusion is not self-executing. It requires substantiation that the grant meets all regulatory criteria: it must come from an arms-length party with no pre-existing relationship that would make the grant expected or recurring, and it must not represent a quid pro quo for naming rights or other benefits. A contribution from a board member, a founder, or a major recurring donor will rarely qualify. Practitioners should document the unusual grant analysis contemporaneously in the year the grant is received, not when the organization is already in trouble on its public support computation.
The IRC 509(a)(2) Public Support Test
IRC 509(a)(2) is designed for organizations that earn significant revenue from carrying out their exempt purposes (program service revenue) rather than from passive investment income. Museums with admission fees, theaters, research institutes, and organizations charging for educational programs commonly use this pathway.
The IRC 509(a)(2) test has two prongs:
- More-than-one-third test (positive prong): The organization must normally receive more than one-third of its support from gifts, grants, contributions, membership fees, and gross receipts from activities that are in furtherance of exempt purposes and received from governmental units or from persons other than disqualified persons. Gross receipts from a single person are counted only to the extent they do not exceed the greater of $5,000 or 1% of total support.
- No-more-than-one-third test (negative prong): The organization must not normally receive more than one-third of its support from gross investment income and net unrelated business taxable income (reduced by the IRC 511 tax).
Unlike the IRC 170(b)(1)(A)(vi) test, the IRC 509(a)(2) test does not apply the 2% cap on individual contributions to the positive prong computation, but it does limit gross receipts from any one source. An organization that receives substantial program-service revenue from the general public will generally find IRC 509(a)(2) a more favorable path than IRC 170(b)(1)(A)(vi).
Comparing the Two Public Support Tests
| Factor | IRC 170(b)(1)(A)(vi) Test | IRC 509(a)(2) Test |
|---|---|---|
| Statutory authority | IRC 170(b)(1)(A)(vi); Treas. Reg. 1.170A-9(f) | IRC 509(a)(2); Treas. Reg. 1.509(a)-3 |
| Support threshold | At least 33-1/3% from public sources | More than 33-1/3% from public/exempt-function sources; no more than 33-1/3% from investment income and UBIT |
| Counting of program service revenue | Not counted toward public support | Counted toward public support if from exempt activities and from non-disqualified persons |
| Per-donor contribution cap | 2% of total support (except governmental units and public charities) | Greater of $5,000 or 1% of total support for gross receipts |
| Facts-and-circumstances fallback | Yes, at 10% to 33-1/3% with additional indicia | No equivalent facts-and-circumstances test |
| Investment income restriction | No upper limit on investment income in isolation | Investment income plus UBIT may not exceed 33-1/3% of support |
| Best fit | Grant-dependent organizations with broad donor bases | Organizations generating substantial exempt-function revenue (museums, theaters, research institutes) |
IRC 4942 imposes a 30% excise tax on the undistributed income of private foundations that fail to make qualifying distributions equal to at least 5% of the fair market value of non-charitable-use assets each year. This requirement does not apply to any organization that qualifies as a public charity under IRC 509(a)(1), 509(a)(2), or 509(a)(3). The distinction matters when advising a donor considering whether to structure giving through a private foundation versus a donor-advised fund at a public charity sponsoring organization: the foundation bears a mandatory payout obligation each year regardless of investment performance, while the public charity sponsor does not (though OBBBA-era IRC 4966 now imposes a separate mandatory distribution test on DAF accounts at those sponsors).
Supporting Organizations Under IRC 509(a)(3)
A supporting organization escapes private foundation status by maintaining an organizational and operational relationship with one or more publicly supported organizations. This classification is attractive when a donor wants to concentrate philanthropic activity around a single institution or cluster of institutions without the costs and restrictions of private foundation status.
Under IRC 509(a)(3) and Treas. Reg. 1.509(a)-4, a qualifying supporting organization must:
- Be organized exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more publicly supported organizations (the "organizational test");
- Be operated exclusively to support or benefit one or more publicly supported organizations (the "operational test");
- Not be controlled directly or indirectly by one or more disqualified persons (other than foundation managers); and
- Maintain one of three specified relationship types (Type I, II, or III) with its supported organization.
Type I: Operated, Supervised, or Controlled By
A Type I supporting organization is one where the supported organization or organizations appoint or elect a majority of the officers, directors, or trustees of the supporting organization. The supported organization exercises control comparable to a parent-subsidiary relationship. Under Treas. Reg. 1.509(a)-4(g), this control must be ongoing, not merely historical. Type I relationships are common in university or hospital foundation structures where the institution directly oversees the affiliated fund-raising entity.
Type II: Supervised or Controlled in Connection With
A Type II supporting organization maintains a relationship where the same persons control or manage both the supporting organization and the supported organization. Substantial identity of governing boards satisfies this requirement under Treas. Reg. 1.509(a)-4(h). Unlike a Type I, neither the supporting nor the supported organization controls the other in a hierarchical sense; instead, they are governed by substantially the same group of individuals. This structure is common in situations where a founding family maintains board seats on both entities.
Type III: Operated in Connection With
A Type III supporting organization maintains a looser relationship with its supported organization. The supported organization does not control the supporting organization, and the boards need not overlap substantially. Two sub-types exist: functionally integrated and non-functionally integrated.
A functionally integrated Type III supporting organization directly furthers the exempt purposes of the supported organization through its own activities, not merely by making grants. A land trust that manages conservation easements held for a land conservation organization, or a research entity that conducts scientific work on behalf of a university, can qualify. Under Treas. Reg. 1.509(a)-4(i)(4), the supporting organization must engage in activities that, but for the involvement of the supporting organization, would normally be engaged in by the supported organization.
A non-functionally integrated Type III supporting organization does not directly carry out the supported organization's activities. Instead, it must satisfy the distribution requirement of Treas. Reg. 1.509(a)-4(i)(6): it must distribute to or for the use of the supported organization an amount equal to the greater of 85% of its adjusted net income or 3.5% of the fair market value of its non-exempt-use assets, computed as of the end of the prior year.
The Pension Protection Act of 2006 and subsequent regulations imposed restrictions on Type III non-functionally integrated supporting organizations (NFISOs) that do not apply to Type I or Type II structures. NFISOs may not accept contributions from a person (other than an organization described in IRC 509(a)(1) or IRC 509(a)(2)) who controls, directly or indirectly, the governing body of a supported organization. Under the OBBBA amendments to IRC 4966, sponsoring organizations that are Type III NFISOs and that maintain donor-advised fund programs face overlapping mandatory distribution obligations: the Treas. Reg. 1.509(a)-4(i)(6) payout test and the new IRC 4966 annual payout floor apply in parallel. Practitioners advising any entity that is both a Type III NFISO and a DAF sponsor must analyze whether distributions satisfy both tests independently, or whether a restructuring to Type I or Type II status is warranted.
An organization does not elect functionally integrated status by describing its activities a certain way in its governing documents. The IRS and Treasury evaluate whether the supporting organization's actual program activities directly further the exempt purposes of the supported organization. An entity that primarily holds endowment assets and makes annual grants to a university cannot simply classify itself as functionally integrated to avoid the 3.5% asset-based distribution requirement. Misclassification exposes the supporting organization to loss of public charity status if it fails to meet the non-functionally integrated distribution test that actually applies to it.
Supporting Organization Types: Comparison Summary
| Feature | Type I | Type II | Type III (Functionally Integrated) | Type III (Non-Functionally Integrated) |
|---|---|---|---|---|
| Relationship basis | Operated, supervised, or controlled by supported organization | Supervised or controlled in connection with; substantially common governance | Operated in connection with; carries out supported org's exempt activities directly | Operated in connection with; distributes funds to supported organization |
| Board control | Supported org appoints majority of supporting org's board | Substantially overlapping boards | No majority overlap required; responsiveness test applies | No majority overlap required; responsiveness and notification tests apply |
| Distribution requirement | None specific; must further supported org's purposes | None specific; must further supported org's purposes | None numeric; activities must directly further supported org's purposes | Greater of 85% of adjusted net income or 3.5% of non-exempt-use assets |
| OBBBA / DAF interaction | Minimal; no special DAF-sponsor restriction | Minimal; no special DAF-sponsor restriction | Limited; IRC 4966 may apply if DAF accounts exist | High; overlapping payout obligations under IRC 4966 and Treas. Reg. 1.509(a)-4(i)(6) |
| Disqualified person contribution bar | Not subject to same restriction as NFISO | Not subject to same restriction as NFISO | Not subject to NFISO contribution bar | Cannot accept contributions from persons controlling a supported org's governing body |
Form 990-PF vs. Form 990: The Filing Consequence of Classification
An organization's IRC 509 status determines which annual information return it files with the IRS. Private foundations file Form 990-PF, which discloses all assets, investment income, minimum distribution calculations, and grants paid. Public charities file Form 990 or 990-EZ (with a Schedule A to report public support). The two forms are structurally different and serve different oversight functions: Form 990-PF is designed to enforce Chapter 42 compliance, while Form 990 focuses on governance and public accountability.
An organization that transitions between private foundation and public charity status must change its filing form accordingly and may need to file Form 8940 to request an IRS determination of its current classification. Advisors handling the early years of a new organization should track public support data from inception even before the organization is required to demonstrate it on Schedule A, because the five-year lookback will eventually include those early years.
Termination of Private Foundation Status: IRC 507
A private foundation that grows into a genuinely publicly supported organization can terminate its private foundation status without the punitive IRC 507(c) termination tax by following the procedures under IRC 507(b)(1)(B). The organization must provide 60 days advance notice to the IRS of its intent to operate as a public charity, then demonstrate over a continuous 60-month period that it meets the applicable public support test on an aggregate basis. Upon successful completion of the 60-month period, the IRS issues a determination that private foundation status has been terminated.
Alternatively, under IRC 507(b)(1)(A), a private foundation may transfer all net assets to one or more public charities, after which its private foundation status terminates immediately upon the final transfer. This route is appropriate when the foundation's mission is being merged into an established public charity rather than when the foundation itself is being repositioned.
OBBBA and the IRC 509 Landscape in 2026
The One Big Beautiful Bill Act amended IRC 4966 to impose mandatory annual distribution requirements on donor-advised fund accounts, which creates ripple effects across the IRC 509 classification landscape. Sponsoring organizations that are publicly supported under IRC 509(a)(1) or IRC 509(a)(2) must now ensure their DAF programs comply with the new IRC 4966 payout floor while also maintaining their own public support percentages.
The more significant planning question arises for entities structured as Type III NFISOs under IRC 509(a)(3) that also maintain DAF programs. These organizations face two distinct and independently calculated distribution obligations, and failure on either can carry serious consequences: failing the Treas. Reg. 1.509(a)-4(i)(6) distribution test risks loss of public charity classification, while failing the new IRC 4966 payout floor triggers excise tax under IRC 4966. Practitioners should model both tests annually for any NFISO DAF sponsor and should evaluate whether a structural conversion to Type I or Type II status would simplify compliance.
The OBBBA's increase in the floor for enhanced IRC 170 deductions for contributions to certain public charities has also increased formation activity among supporting organizations, since the classification as a 509(a)(3) supporting organization preserves the donor's access to enhanced deduction limits that would not apply to contributions to private foundations.
Frequently Asked Questions
What is a private foundation under IRC 509?
Under IRC 509(a), a private foundation is any organization described in IRC 501(c)(3) that does not qualify as one of the four excluded categories: (1) a publicly supported organization or church, school, hospital, or governmental unit under IRC 509(a)(1) by reference to IRC 170(b)(1)(A)(i)-(vi); (2) an organization meeting the IRC 509(a)(2) public support test; (3) a supporting organization described in IRC 509(a)(3); or (4) an organization organized exclusively to test for public safety under IRC 509(a)(4). Any 501(c)(3) that cannot satisfy at least one of these four exclusions is a private foundation by operation of law.
What is the default rule for 501(c)(3) organizations under IRC 509?
The default rule under IRC 509(a) is that every organization exempt under IRC 501(c)(3) is presumed to be a private foundation unless it establishes that it qualifies for one of the four exclusions listed in IRC 509(a)(1) through 509(a)(4). The burden of proof rests on the organization. An organization seeking to establish public charity status must notify the IRS and maintain its qualifying status on an ongoing basis. Failure to maintain qualification reverts the organization to private foundation status, triggering all associated excise tax regimes.
What is IRC 509(a)(1)?
IRC 509(a)(1) excludes from private foundation status any organization described in IRC 170(b)(1)(A)(i) through (vi). These are: (i) churches, synagogues, or religious organizations; (ii) educational organizations with a regular faculty and curriculum; (iii) hospitals and medical research organizations; (iv) governmental units; (v) publicly supported organizations that receive substantial support from a broad range of public sources, meeting the 33-1/3% public support test under Treas. Reg. 1.170A-9(f); and (vi) supporting organizations described in IRC 509(a)(3). Organizations in categories (i) through (iv) qualify by their nature or governmental affiliation rather than by a numerical support test.
What is the public support test under IRC 170(b)(1)(A)(vi)?
Under Treas. Reg. 1.170A-9(f), an organization qualifies as publicly supported under IRC 170(b)(1)(A)(vi) if it normally receives at least 33-1/3% of its total support from governmental units, from contributions made directly or indirectly by the general public, or from a combination of those sources, measured over the most recent five completed tax years including the current year. A single donor's contributions are generally capped at 2% of total support for purposes of counting toward the 33-1/3% numerator. If the organization falls short of 33-1/3%, it may still qualify under a facts-and-circumstances test if it receives at least 10% from public sources and demonstrates additional indicia of public support.
What is the IRC 509(a)(2) public support test?
Under IRC 509(a)(2), an organization qualifies as a public charity if it (1) normally receives more than one-third of its support from permitted sources, which include gifts, grants, contributions, membership fees, and gross receipts from activities in furtherance of exempt purposes from the general public or governmental units, and (2) normally receives no more than one-third of its support from gross investment income and net unrelated business taxable income. The IRC 509(a)(2) test is distinct from the IRC 170(b)(1)(A)(vi) test in that it also counts gross receipts from exempt function activities and does not apply the 2% cap to individual donor contributions in the same manner.
What is a supporting organization under IRC 509(a)(3)?
A supporting organization under IRC 509(a)(3) is an organization that is organized and at all times operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more publicly supported organizations. It must maintain one of three specified relationships (Type I, II, or III) with the supported organization and must not be controlled directly or indirectly by a disqualified person other than foundation managers. Supporting organizations are public charities by classification, not private foundations, even if they receive contributions from a narrow donor base.
What are the three types of supporting organizations?
Treas. Reg. 1.509(a)-4 defines three types of supporting organizations. A Type I supporting organization is operated, supervised, or controlled by one or more publicly supported organizations, meaning the supported organization appoints a majority of the supporting organization's board. A Type II supporting organization is supervised or controlled in connection with one or more publicly supported organizations, meaning the boards of both organizations have substantial overlap in membership. A Type III supporting organization is operated in connection with one or more publicly supported organizations and must satisfy either the functionally integrated or the non-functionally integrated distribution requirements.
What is a Type III non-functionally integrated supporting organization?
A Type III non-functionally integrated (NFISO) supporting organization under Treas. Reg. 1.509(a)-4(i)(6) is one that does not directly further the exempt purposes of its supported organization through its own program activities. Instead, it must satisfy an annual distribution requirement equal to the greater of 85% of its adjusted net income or 3.5% of the fair market value of its non-exempt-use assets, distributing to the supported organization. NFISOs are subject to heightened restrictions: they cannot accept contributions from persons who control a supported organization, and they are the category most directly affected by OBBBA donor-advised fund reclassification concerns.
What is a donor-advised fund's relationship to IRC 509?
A donor-advised fund (DAF) is typically maintained by a sponsoring organization that is itself a public charity, generally qualifying under IRC 509(a)(1) by reference to IRC 170(b)(1)(A)(vi) or IRC 509(a)(2). Some DAF sponsors structure themselves as Type III non-functionally integrated supporting organizations under IRC 509(a)(3). The individual DAF accounts are not separately classified as private foundations or public charities; the classification applies at the sponsoring organization level. Taxable distributions from DAFs are governed by IRC 4966, not directly by IRC 509, but the sponsoring organization's IRC 509 classification determines many compliance obligations.
Does OBBBA affect IRC 509 classifications?
The One Big Beautiful Bill Act most directly impacts IRC 509 through its amendments to IRC 4966, which impose mandatory annual distribution requirements on donor-advised funds. Sponsoring organizations that are Type III non-functionally integrated supporting organizations under IRC 509(a)(3) face heightened scrutiny because the OBBBA's new IRC 4966 payout floor and the Treas. Reg. 1.509(a)-4(i)(6) distribution test operate in parallel and may create conflicting or duplicative distribution obligations. Practitioners advising Type III NFISOs that sponsor DAFs must analyze both regimes carefully.
What is the one-third support test?
The one-third support test refers to the 33-1/3% threshold that appears in both public support tests. Under IRC 170(b)(1)(A)(vi) and Treas. Reg. 1.170A-9(f), the organization must normally receive at least 33-1/3% of its support from public sources to qualify as publicly supported. Under IRC 509(a)(2), the organization must normally receive more than one-third of its support from permitted public sources and no more than one-third from investment income and net unrelated business income. Both tests are applied to the support received over the five-year measurement period ending with the current tax year.
What is an unusual grant?
An unusual grant is an atypically large contribution from a disinterested party that, if counted in the support computation, would adversely skew the public support percentage. Under Treas. Reg. 1.170A-9(f)(6)(ii), an unusual grant may be excluded from both the numerator and denominator of the support fraction when computing the 33-1/3% test under IRC 170(b)(1)(A)(vi). The exclusion is available if the grant is attracted by the organization's public nature, is not expected to recur, and if including it would distort the picture of the organization's actual public support base. An unusual grant may not be excluded from the IRC 509(a)(2) support computation in the same manner.
What happens if a public charity loses its public charity status?
If an organization fails to maintain its qualifying public support level or supporting organization relationship, it reverts to private foundation status. The IRS provides a grace period under Treas. Reg. 1.509(a)-3T for certain supporting organizations. An organization that loses public charity status must file Form 990-PF in place of Form 990, become subject to the full suite of private foundation excise taxes under IRC 4940 through IRC 4945, comply with the 5% minimum distribution requirement under IRC 4942, and may need to file Form 8940 to request a status determination. Voluntary termination of private foundation status is governed by IRC 507.
What excise taxes apply to private foundations that do not apply to public charities?
Private foundations are subject to a suite of Chapter 42 excise taxes that do not apply to public charities: IRC 4940 imposes a 1.39% excise tax on net investment income; IRC 4941 imposes initial and additional taxes on acts of self-dealing with disqualified persons; IRC 4942 imposes a 30% excise tax on undistributed income when the foundation distributes less than 5% of its assets annually; IRC 4943 taxes excess business holdings; IRC 4944 taxes jeopardizing investments; and IRC 4945 taxes taxable expenditures, including grants to individuals and non-public-charity organizations without expenditure responsibility. Public charities face none of these taxes, though they remain subject to IRC 4958 excess benefit transaction rules.
Can a private foundation convert to a public charity?
Yes. A private foundation can terminate its private foundation status and convert to public charity status through the procedures under IRC 507. Under IRC 507(b)(1)(B), a private foundation may give 60 days advance notice to the IRS and then operate as a public charity for a 60-month period while demonstrating that it meets the public support test on an aggregate basis over that period. If successful, private foundation status terminates without the imposition of the IRC 507(c) termination tax. Alternatively, a private foundation may transfer all its assets to a public charity under IRC 507(b)(1)(A), which also terminates private foundation status without the termination tax.
What is IRC 509(b)?
IRC 509(b) provides that the determination of whether an organization is a private foundation is made at the time of the determination, and that certain organizations may be treated as private foundations for specific purposes even if they technically qualify for an exclusion. More practically, IRC 509(b) clarifies that the classification of an organization as a private foundation under this section is separate from its exemption status under IRC 501(c)(3): an organization can be tax-exempt but still be a private foundation, with all associated Chapter 42 obligations. The two determinations, exemption and foundation classification, are distinct and require separate IRS review.
Advising a Nonprofit on Foundation Classification?
Americas Tax works with attorneys, CPAs, and enrolled agents advising exempt organizations on IRC 509 classification, public support test monitoring, supporting organization structuring, and private foundation excise tax compliance. Contact us to discuss a specific client situation or to request a consultation on Form 990 vs. Form 990-PF filing obligations.
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