Advance Ruling Process Elimination - Public Support Test
The IRS will monitor organizations’ public charity status after the first five years based on the public support information reported annually on Schedule A, which is attached to Form 990, Return of Organization Exempt From Income Tax. After an organization’s initial five years, its public support test is based on a five-year computation period that consists of the current year and the four years immediately preceding the current year.
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. For example, if an organization meets the public support test for the 2014 tax year, it is classified as a public charity for the 2014 and 2015 tax years. If, however, the organization does not meet the public support test for 2016 (as well as 2015), it will be reclassified as a private foundation starting at the beginning of the 2016 tax year.
For practical reasons, the organization may not know for sure if it is a public charity for its tax year until it calculates public support at the end of that tax year. Organizations should carefully monitor their public support calculations to avoid unexpectedly losing their public charity status.
The IRS realizes that an organization's level of public support may change due to unforeseeable circumstances, which could result in unexpected imposition of private foundation excise taxes and/or penalties. Thus, the IRS will not assert excise taxes and/or penalties for the first year an organization is reclassified as a private foundation if imposing the taxes and/or penalties would lead to unfair or inequitable results. An organization should contact the IRS if it believes that private foundation excise taxes and/or penalties should not be asserted against it due to its unexpected failure to meet the public support test.