Form 990: Schedule A Part I

Purpose of Schedule A
The primary purpose of Schedule A is to assist the IRS in determining if an organization qualifies as tax-exempt.  Public accountability is also promoted by providing certain details of the organization’s finances and operations for public inspection. Only 501(c)(3) organizations and 4947(a)(1) nonexempt charitable trusts complete Schedule A.

Special Issues With Schedule A, Part I
While your IRS determination letter is the first place to look to determine that type of organization you are, your activities may have changed. For your first five tax years as a section 501(c)(3) organization, you must check the box in Part I that corresponds to your public charity status as stated in your exemption determination letter from the IRS. After the first five years, check the box that corresponds to the activity you currently have.

Information You Will Need to Prepare Schedule A, Part I
You will need to gather or prepare the following information:

• IRS exemption determination letter. If you do not have your exemption determination letter, call 1-877-829-5500 to speak to the Exempt Organizations Customer Account Services.
• Information regarding the sources of your income.
• View the IRS Form 990 Filing Tips: Schedule A (Public Support and Public Charity Classification) for additional help.

How to Prepare Schedule A, Part I
Complete Part I by specifying under which part of the Internal Revenue Code (IRC) your organization claims classification as tax-exempt. Look at your determination letter to determine under what section the IRS has determined you fall, then verify that you still meet the qualifications of the section, as detailed on the schedule and shown below. The remainder of this article will only address lines 7, 9, and 11 as they can be a little confusing.

Line 7 — 509(a)(1)
An organization that checks the box on line 7 qualifies as tax-exempt under IRC 509(a)(1) and 170(b)(1)(A)(vi) indicating that it is a “publicly-supported public charity”. This means that a substantial part of your revenue comes from contributions from the general public or from a governmental unit. A publicly-supported charity must attract public support in the form of donations and grants from people and granting agencies who agree with its goals and that it is successfully achieving them. If you are described in IRC 509(a)(1) and 170(b)(1)(A)(vi), you will complete Part II of Schedule A.

Line 9 — 509(a)(2)
An organization that checks the box on line 9 qualifies as tax-exempt under IRC 509(a)(2) and is typically supported by revenue from its exempt-purpose activities and services rather than from contributions. A 509(a)(2) organization, which depends more on revenue from services provided to those who find the services valuable and cost-effective, must in addition avoid competing with commercial businesses or risk being reclassified as a commercial business itself. In general, 509(a)(2) organizations are at greater risk of losing their tax-exempt status as a result of being reclassified as a commercial (and not charitable) organization. To prevent this, restrict your activities to ones that primarily advance your stated missions. If you are described in IRC 509(a)(2), you will complete Part III of Schedule A.

Line 11 — 509(a)(3), Supporting Organizations
Supporting organizations will select what type of supporting organization they are in line 11. Again, look at your IRS determination letter as a first place to start. If this does not tell you your type, answer the following:

• Type I:  the organization is operated, supervised or controlled by one or more publicly supported organization. Choose this if you can answer “Yes” to this question: 
  “Does the governing body, officers ,or membership of the supported public charity(ies) select a majority of your organization’s officers, directors, or trustees?”
• Type II: the organization is supervised or controlled in connection with one or more publicly supported organizations. Choose this if you can answer “Yes” to this question: 
  “Do the same persons, such as directors, trustees, and officers supervise or control the supported organization and my organization?”
• Type III: choose this is you answered “No” to the questions for Type I and Type II, your activities perform the functions of, or carry out the purposes of, the publicly supported organization(s), and but for your organization’s involvement, such activities would normally be engaged in by the publicly supported organizations themselves.  If this is the case, choose Type III Functionally Integrated. If not, you must (1) make payments of substantially all of your income (at least 85% of adjusted net income) to or for the use of one or more supported organizations, (2) provide enough support to one or more supported organizations to ensure that the supported organization is attentive to your operations; and (3) pay a substantial amount of the total support of the supporting organization to those supported organizations that meet requirements (1) and (2). If this describes you, choose Type III, Other.

NOTE: The IRS has published a notice of proposed regulations for Type III Supporting Organizations That Are Not Functionally Integrated as a result of changes made in the Pension Protection Act of 2006, Public Law 109-280 (PPA). As a result of the PPA, Type III Supporting Organizations are prohibited from supporting any supported organization not organized in the United States. It also prohibits Type I or Type III supporting organizations form accepting a gift or contribution from a person who directly or indirectly controls the governing body of a supported organization.

For more information, view the IRS instructions at http://www.irs.gov/pub/irs-pdf/i990sa.pdf.

Coming Soon
Schedule A, Parts II and III, coming in January, 2010.