The Internal Revenue Code divides organizations exempt under Section 501(c)(3) into two distinct tax categories - public charities and private foundations. A Section 501(c)(3) organization is classified as a public charity (1) by being a certain kind of institution, such as a church, university, or hospital, (2) by meeting one of two mathematical public support tests, or (3) by qualifying as a supporting organization to another public charity. Public charities are subject to substantially less regulation under federal tax law than private foundations, and therefore qualifying as a public charity is usually preferable. We help our clients obtain and maintain public charity status, and take advantage of the greater flexibility of operating as a public charity.
Areas of Focus
- Public support test calculations.
- Structuring gifts, grants, and contributions to avoid “tipping” into private foundation status.
- Compliance with federal and state nonprofit and tax-exemption law applicable to public charities, including Section 4958 of the Internal Revenue Code governing insider transactions.
- Fiscal sponsorship, permitting a charity to support charitable projects that do not yet have IRS recognition of tax-exempt status.
- Conducting fundraising activities and compliance with state charitable solicitation registration requirements.
- Donor-advised funds, allowing a donor to make immediate tax-deductible contributions while retaining the right to recommend future charitable distributions of the funds.
- Supporting organizations, which qualify as public charities by virtue of their close relationship with other charities that are publicly supported.
- Property tax exemptions.
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November 11, 2020
Authors
David A. Levitt
Catherine Chang
Related Publications (2)
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April 2019
Practitioner Perspectives on Using Section 501(c)(4) Organizations for Charitable Lobbying: Realities and an Alternative
This paper, originally published in the NYU Journal of Legislation and Public Policy, discusses a wide array of issues arising from the use of Section 501(c)(4) social welfare organizations to conduct the lobbying necessary to advance charitable goals. The paper goes on to propose an innovative legislative change that would allow the creation of a…Authors
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May 2009
Excess Benefit Transactions Under Section 4958 and Revocation of Tax-Exempt Status
When charities are generous to the wrong people, they risk losing their tax-exempt status.Author
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Past Events
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Presentation May 1, 2018
Center for Volunteer and Nonprofit Leadership, Emerging Leaders Program: “Nonprofit Legal Compliance”
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Seminar March 27, 2018
Grant Thornton, LLP - “What’s New in Not-for-Profit Law?”
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Webinar March 6, 2018
Continuing Education of the Bar (CEB): "Representing Charitable Nonprofits: Helping Nonprofits Engage with Confidence in Ongoing Operations"
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