Public Charity or Private Foundation

What the difference costs

• A public charity is one the public supports or uses: churches, schools, hospitals, donor-supported organizations, fee-supported organizations, and organizations that support those. A private foundation is the rest — typically one family’s or one company’s money, making grants rather than running programs. A private operating foundation (§4942(j)(3)) runs its own programs with that money and gets some public-charity treatment (donors get the 60% / 30% limits).
• Private foundations pay the §4940 excise tax on net investment income (1.39%; the 2025 House bill’s tiers up to 10% were dropped) and file Form 990-PF with a fully public Schedule B. They live under Chapter 42: §4941 self-dealing (10% on the self-dealer, 5% on a knowing manager, 200% if not corrected — no “reasonable” defense, any sale, lease or loan with an insider is self-dealing), §4942 the 5% minimum distribution, §4943 excess business holdings (20% of a business, counting insiders), §4944 jeopardizing investments, §4945 taxable expenditures (lobbying, grants to individuals without an approved program, grants to non-charities without expenditure responsibility). added 2026
• Donors to a private non-operating foundation deduct cash up to 30% of AGI and appreciated property up to 20%, at basis rather than value except for publicly traded stock; donors to a public charity get 60% for cash and 30% for appreciated property at fair market value. [Final Q10; Review image11, D; Q39, A updated: 100% was 2021 only, 60% is now permanent]
• Both file Form 990-T if they have $1,000 of gross unrelated business income.

Schedule A, Part I: the twelve boxes

• Line 1, church. No statutory definition; the IRS’s fourteen criteria (distinct legal existence, recognized creed and form of worship, definite ecclesiastical government, formal code of doctrine, distinct religious history, membership not associated with another church, organization of ordained ministers selected after prescribed study, its own literature, established places of worship, regular congregations, regular services, Sunday schools, schools for ministers) — not all required (Chapman, 48 T.C. 358; Pusch). A community elementary school associated with the church is not a characteristic of a church. [Final Q30, A; marked]
• Line 2, school. Primary function formal instruction; regular faculty, curriculum, enrolled student body, a place. A private school must have and publish a racially nondiscriminatory policy (Rev. Proc. 75-50 as updated by Rev. Proc. 2019-22, which allows the publication on the school’s website) — that is Schedule E. A university that incidentally runs a museum is a school; a museum that runs classes is not. [Final Q29, C; marked]
• Line 3, hospital. Principal purpose hospital or medical care; a rehabilitation institution or outpatient clinic can qualify; a medical school, medical research organization, convalescent home, home for the aged or vocational training facility cannot. A cooperative hospital service organization (§501(e)) may do data processing, purchasing, warehousing, billing and collection, food, clinical, industrial engineering, laboratory, printing, communications, personnel and records for two or more hospitals — but not laundry and not reciprocal malpractice insurance. [SQ 15, A; Final Q31, A; marked]
• Line 4, medical research organization in conjunction with a hospital: principally the direct conduct of medical research, with the equipment and staff on hand; safe harbors of more than half its assets devoted to research or 3.5% of endowment value spent on it. An organization that funds other people’s research is not one.
• Line 5, support organization for a state college or university (same support test as line 7). Line 6, governmental unit — don’t check it. Line 7, §170(b)(1)(A)(vi) publicly supported → Part II. Line 8, community trust → Part II. Line 9, agricultural research organization with a land-grant college. Line 10, §509(a)(2) → Part III. Line 11, testing for public safety (needs a ruling). Line 12, supporting organization → 12a–12g and Parts IV–V.
• The box checked may differ from the determination letter; the organization may ask for a new letter confirming the change but need not. Part II may also be completed by a school or church that wants to prove the one-third test for Schedule B’s special rule.

Part II: the §170(b)(1)(A)(vi) test, line by line

• Book method, five-year columns (the current year and four prior), on the same accounting method as the 990 — the trap is prior columns prepared on cash by someone else.
• Line 1: gifts, grants, contributions and membership fees that are really contributions (fees that buy admissions or services go to line 12). Government grants belong here, including payments for services, unless the government is buying the service for itself (that is exempt-function income, line 12). A government grant that lets a soup kitchen serve weekend meals enables a service for the direct benefit of the public → line 1 (Ex. 3.1). Line 2: taxes levied for the organization’s benefit. Line 3: value of government services or facilities furnished free.
• Unusual grants are left out of line 1 entirely: a substantial contribution from a disinterested party, attracted by the organization’s public character, unexpected in amount, and large enough to endanger the test (Reg. §1.170A-9(f)(6)(ii)). Keep the list (donor, date, amount) in the file; report amounts by year without names in Part VI.
• Line 5, the 2% cap. For each person (individual, trust, corporation, with related persons aggregated), the amount by which five-year total contributions exceed 2% of line 11(f) total support. The cap does not apply to governmental units or to other §170(b)(1)(A)(vi) publicly supported charities. The donor’s whole gift stays in the denominator; only 2% of total support stays in the numerator.
• Lines 8–10: gross investment income, net UBTI (zero if a loss), and other §509(d) support. Line 12: gross receipts from related activities — admissions, merchandise, services, facilities, the volunteer-run or donated-goods or convenience business, bingo, sponsorship payments. These are not in total support for Part II, which is why a fee-supported organization with few donors cannot pass here and belongs in Part III.
• Line 13: first five years — check and stop. Lines 14–15: this year’s and last year’s percentage (line 6 ÷ line 11). Lines 16a–b: 33⅓% or more in either year → publicly supported for this year and next. [Final Q41, C; marked]
• Lines 17a–b, the 10% facts-and-circumstances test: at least 10% public support, an active continuous program to attract public or government support, and enough of the five factors — the percentage itself (higher means less burden on the rest; endowment income from a public source counts in favor), breadth of sources (not one family), a representative governing body (public officials, experts, community leaders, broad-based elected members), public availability of facilities or services (a museum open to the public, public performances, published studies, a community program, accountability to a public funder), and for membership organizations affordable dues and broad solicitation. Part VI must then explain why support fell below one-third, what is being done, and why the IRS should keep treating the organization as public. [Final Q32, B; marked]
• Line 18: no box on 13, 16a, 16b, 17a or 17b → private foundation; file 990-PF. The IRS position is that a new Form 1023 is needed to return to public status later.

Part III: the §509(a)(2) test

• Two tests, both required, five years: (A) more than one-third of support from contributions, membership fees and gross receipts from related activities and from activities that are not unrelated businesses under §513; (B) not more than one-third from gross investment income and net UBTI (after §511 tax) from businesses acquired after June 30, 1975.
• Lines 1–3: contributions (no unusual-grant exclusion needed; unusual grants are excluded here too under Reg. §1.509(a)-3(c)(3)); related-activity receipts; receipts from the §513-excluded businesses (volunteer-run, convenience, donated goods, trade shows, bingo, low-cost articles, mailing lists, sponsorship payments).
• Line 7a: everything on lines 1–3 received from disqualified persons comes back out — substantial contributors (more than $5,000 and more than 2% of lifetime contributions, once and forever), officers and directors, 20% owners of a substantial contributor, their families (spouse, ancestors, children, grandchildren, great-grandchildren and the spouses of those descendants — a cousin is not family), and 35%-owned entities. Keep the unfiled list by person and year (Ex. 3.3: Larue $15,000 and Rich $16,000 over five years, $31,000 on line 7a). [SQ 17, D]
• Line 7b: related-activity receipts from any one person or government agency above the greater of $5,000 or 1% of that year’s total support come out too (not for disqualified persons; their whole amount is already out).
• Lines 10a–11: investment income; post-1975 UBTI net of tax; other net unrelated income. Lines 15–18: public support percentage (line 8 ÷ line 13) and investment income percentage (line 10c ÷ line 13), this year and last. Lines 19a–b: more than 33⅓% and not more than 33⅓% in either year → publicly supported. Line 20: otherwise a private foundation.

Supporting organizations (§509(a)(3))

• Public charity status borrowed from one or more established public charities (or (c)(4), (5) or (6) organizations that would pass the §509(a)(2) test). Four tests: organizational (the articles name the supported organizations — by class is fine for Types I and II, not for Type III), operational (only activities that support them), control (not controlled directly or indirectly by disqualified persons — they may sit on the board but not be a majority or hold a veto), and relationship.
• Type I: operated, supervised or controlled by the supported organization — it appoints a majority of the SO’s board (parent–subsidiary). Type II: supervised or controlled in connection with — the same people form a majority of both boards (brother–sister). Type III: operated in connection with — and must separately pass the annual notification requirement (by the end of the fifth month after year-end: a notice of support given, the most recent 990, and current governing documents to each supported organization), the responsiveness test (the supported organization has a significant voice: shared or appointed directors, or a close continuous working relationship — a charitable trust can no longer rely on the beneficiary’s state-law power to compel an accounting), and the integral part test. [SQ 16; Review image12, A]
• Type III functionally integrated (FISO): passes the integral-part test by the activities test (substantially all activities directly further the supported organization’s purposes and, but for the SO, the supported organization would do them — running a food pantry for a group of churches, holding and maintaining a church’s buildings; fundraising, investing and grantmaking are not “direct furtherance”), by being the parent of the supported organizations (appoints a majority of their boards and directs their policies), or by supporting a governmental entity (Notice 2014-4, now Reg. §1.509(a)-4(i)(4)(iv) after T.D. 9981) check.
• Type III non-functionally integrated (non-FISO): must distribute each year the greater of 85% of adjusted net income or 3.5% of the value of non-exempt-use assets (Schedule A, Part V), and at least one-third of it to supported organizations that are attentive (the distribution is at least 10% of the supported organization’s total support, or necessary to keep a substantial function running, or otherwise sufficient on the facts). Subject to §4943 excess business holdings. A private foundation’s grant to a non-FISO is not a qualifying distribution and needs expenditure responsibility (§4942(g)(4), §4945(d)(4)) — which is why family foundations ask what type you are.
• A Type I or III SO may not accept gifts from a person who controls the governing body of a supported organization (§509(f)(2)). Line 12e: check only if the letter states the type and, for a Type III, says functionally integrated or not. The 2025 Schedule A instructions were rewritten for the final Type III regulations (T.D. 9981, October 2023). updated 2026
• Part IV Section A is the ten-question checklist every SO answers; B for Type I, C for Type II, D for every Type III, E for FISOs; Part V is the non-FISO payout computation; Part VI is the narrative (not Schedule O).

Study questions 14–17

• A private foundation is the vehicle for channeling a wealthy family’s giving; it files 990-PF, its donors get 30% / 20% ceilings, and it is the opposite of a public charity. [SQ 14, D; Final Q10 topic]
• A rehabilitation institution can be a hospital; a medical school, a medical research organization and a vocational training institution for the handicapped cannot. [SQ 15, A]
• Type I = operated, supervised or controlled by its supported organizations; “in connection with” is Type II (supervised or controlled) or Type III (operated). [SQ 16, A]
• A trustee’s cousin is not a disqualified person for §509(a)(3) control purposes; substantial contributors, officers and directors are. [SQ 17, D]

Private reference, not client advice. Notes taken from a continuing-education course, Form 990: A Practical Guide (Thomson Reuters Checkpoint Learning, 12 hours, 2022 edition written on 2021 law and the 2021 forms). Figures and rules brought current to 2026 in October 2026 (P.L. 119-21, Rev. Proc. 2025-32, T.D. 9933, T.D. 9898, the 2025 form instructions). Items tagged check are to be confirmed against primary sources before they are relied on.