The Test of Being a Charity


According to the Internal Revenue Code and Regulations, charities must be “publicly supported.” This article reviews the criteria for that requirement.


We all know that charities are charged with the obligation to be transparent, ethical, registered when appropriate, and dedicated to their mission.  As you might expect, meeting these standards is not easy.  There is another equally important standard that a charity is challenged to meet.  The Internal Revenue Service requires charities to be “publicly supported,” and that standard is the subject of this short article.

According to the Internal Revenue Code and Regulations, a charity meets the public support test if it normally receives a substantial part of its funds from a governmental unit referred to in IRC § 170(c)(1), or from direct or indirect contributions from the general public.  The term “substantial” is generally defined to be one-third or more.  Newly formed charities are afforded five years to meet the standard.

Even if a charity fails the one-third “public support” test, but receives more than 10% of its total support from the general public or a government unit, it still has the opportunity to qualify as a “publicly supported” organization if it can pass the “facts and circumstances” test as set forth in the Treasury regulations.

The “facts and circumstances” test, simply stated, allows a charity which does not quite meet the one-third test to demonstrate through specific facts and circumstances a past record of compliance and the likelihood in the future that it will again.

Charities which receive more than two-thirds of their support from a single donor or small group will inevitably find themselves in the position of being reclassified as a private foundation due to failure to meet the “public support” test.  An example of a private foundation would be a charity created by a wealthy business person who creates his/her own family foundation, where his/her family is the sole source of support.  Private foundations are regulated differently than charities. 

If you have questions about the “public support”test and how it may or may not apply to your organization, please feel free to contact either Errol Copilevitz or Greg Lam of the firm.