What Happens If a Nonprofit Fails the Public Support Test?
The public support test is administered within the nonprofit’s first five years using the organization’s tax returns from the first four years. According to the IRS, an organization is a publicly supported charity if it meets one of two tests:
In addition, the IRS does not require new public charities to demonstrate public support until year 6. Failure to pass the public support test will result in your nonprofit having its public charity status retroactively reverted to private foundation. For the majority of nonprofits, that would be a potentially devastating outcome.
What is the public support test for charities?
An organization that meets the public support test for a tax year is treated as a publicly supported charity for that year and the succeeding year, regardless of its actual support for the succeeding year.
How is the percentage of public support determined?
Generally, public support of more than 33⅓% must be maintained to preserve public charity status (Sec. 509 (a) (2) (A)). Two exclusive tests exist to facilitate the calculation to determine an organization’s public support percentage.
