Schedule A of the Form 990 reports out the criteria by which your organization is considered publicly supported (Part I) and where your support and revenue come from (Parts II and III). The main purpose of the schedule is to show that a substantial portion of your revenue is coming from the general public, and not highly concentrated donations from a small number of donors.
Whether you fill out Part II or Part III will depend on what revenue streams you have. If you are primarily supported by grants and contributions, fill out Part II. If you have a lot of revenue from your programs, use Part III. This might include admissions, sale of merchandise, and/or fee-for-service work you perform. The determination letter you received from the IRS, granting you tax-exempt status, will include a designation of IRC Section 170(b)(1)(iv) or 509(a)(2). This designation tells you whether to use Part II (Section 170) or Part III (509(a)(2)).
In either part, you’ll have to subtract certain large donations from your public support. On Part II line 5, you subtract contributions larger than 2% of your total support (line 13 of Schedule A Part II, not the total revenue in the core part of the Form 990). On Part III line 7, you subtract out:
- Contributions from disqualified persons – primarily officers, directors, trustees, etc., certain family members, donors who gave more than $5,000 if that is more than 2% of contributions you’ve received since your inception.
- Contributions from persons who are not disqualified that exceed the greater of $5,000 or 1% of your total support for the year (line 13 of Schedule A Part III, not total revenue from the core part of the Form 990).
Large donations are taken out of the calculation because the IRS wants publicly supported organizations to draw contributions from a wide range of sources, not a small, concentrated pool of donors. You’re aiming to have at least 33 1/3% of your revenue be considered public support, based on calculations in Parts II and III. If you fall under 33 1/3% but remain above 10% and certain “facts and circumstances” are met, you can still be considered publicly supported. If you don’t meet either test for 2 years in a row, the IRS will consider you a private foundation, dating back to the start of the second year. In this case, you would file the Form 990-PF instead of the 990 or 990-EZ and be subject to certain other restrictions as a private foundation.
The 10% facts and circumstances test requires you to normally have public support of at least 10%, be organized and operated to attract public support on a continuous basis, and meet a sufficient number of criteria within Treasury Regulations 1.170a-9(e)(3). As your public support percentage gets lower, you’ll be expected to meet more of the Treasury Regulations criteria. If you fail the public support test for 2 consecutive years and become a private foundation, it’s possible to regain public charity status again using the provisions of IRC 507(b)(1)(B). Under certain circumstances, and if you give advance notice to the IRS and operate as a public charity with sufficient public support for 60 months, you can return to being a publicly supported organization.
Note that if your organization is in its first 5 years of operations, you’re exempt from the public support test. Also, if you fill out Part III, you can also not have investment income and/or unrelated business income totaling more than 33 1/3% of your total support.