and which is an agency or instrumentality of a state or a political subdivision of a state, or which is owned or operated by a state or political subdivision of a state or by an agency or instrumentality of one or more states or political subdivisions.413
Governmental Units. A governmental unit is a public charitable organization and thus is not a private foundation.414 This category includes a state, a possession of the United States, any political subdivision of either of the foregoing, the United States, or the District of Columbia.415
Publicly Supported Donative Entities. There are two basic types of publicly supported charities as defined in the federal tax law. One category is informally known as the donative publicly supported charity; the other category is sometimes referred to as the service provider publicly supported charity.
Public Support Law. An organization is not a private foundation if it is a charitable entity that “normally receives a substantial part of its support” (other than income from a tax-exempt function) from a governmental unit416 or from direct or indirect contributions from the public.417
The primary way for a charitable organization to achieve nonprivate foundation status under these rules is for it to normally derive at least one-third of its support from qualifying public and/or governmental sources.418 Thus, an organization qualifying as a publicly supported entity under these rules must maintain a support fraction, the denominator of which is total eligible support and the numerator of which is the amount of support from eligible public and/or governmental sources.
For these purposes, the term support means amounts received as gifts, grants, contributions, membership fees, net income from unrelated business activities, gross investment income,419 tax revenues levied for the benefit of the organization and either paid to or expended on behalf of the organization, and the value of services or facilities (exclusive of services or facilities generally furnished to the public without charge) furnished by a governmental unit to the organization without charge.420 All of the foregoing items are amounts that, if directly or indirectly received by the organization, constitute the denominator of the support fraction.
In computing the eligible amount of public support (the numerator of the support fraction), contributions from individuals, trusts, or corporations constitute public support to the extent that the total amount of contributions from any donor during the computation period does not exceed an amount equal to 2 percent of the organization's total support for the period.421 Therefore, the total amount of support by a donor is included in full in the denominator of the support fraction, and the amount determined by application of the 2 percent limitation is included in the numerator of the support fraction. The latter amount is the amount of support in the form of direct or indirect contributions from the general public. Donors who stand in a defined relationship to one another422 must share a single 2 percent limitation.
This 2 percent limitation does not, however, generally apply to support received from other publicly supported organizations of the donative type, nor to grant support from governmental units. Thus, these types of support are, in their entirety, public support, as indirect contributions from the general public.423 Because a charitable organization can be classified as not being a private foundation pursuant to a categorization other than a donative-type publicly supported organization (such as by being one of the institutions424) and nonetheless meet the requirements to be a donative-type publicly supported organization,425 the 2 percent limitation does not apply with respect to contributions from these organizations. For example, financial support from a church is generally considered to be indirect public support in full, because churches derive substantial amounts of their support from the general public, even though their non–private foundation status is derived, as discussed,426 from their institutional status as churches.427 Nonetheless, the 2 percent limitation will apply with respect to support received from a donative-type publicly supported organization or governmental unit if the support represents an amount that was expressly or implicitly earmarked by a donor to the publicly supported organization or unit of government as being for, or for the benefit of, the organization asserting status as a donative-type publicly supported organization.428
In constructing the support fraction, an organization must exclude from both the numerator and the denominator of the support fraction amounts received from the exercise or performance of its exempt purpose or function and contributions of services for which a charitable deduction is not allowable.429 An organization will not be treated as meeting the support test, however, if it receives almost all of its support from gross receipts from related activities and an insignificant amount of its support from the general public (directly and indirectly) and governmental units.430 The organization may exclude from both the numerator and denominator of the support fraction an amount equal to one or more unusual grants.431
In computing the support fraction, review must be made of the organization's support that is normally received. This means that the organization must meet the one-third support test for a period encompassing its most recent five years, including the year involved, on an aggregate basis. When this is done, the organization will be considered as meeting the one-third support test for its current tax year and for the tax year immediately succeeding its current tax year.432
Facts and Circumstances Test. Notwithstanding the foregoing general body of law, an organization may qualify as a donative-type publicly supported organization, even if it cannot satisfy the one-third requirement, by meeting a facts and circumstances test, as long as the amount normally received from public and/or governmental sources is substantial.433 To meet this test, the organization must demonstrate the existence of three elements: (1) The total amount of public and/or governmental support normally received by the organization is at least 10 percent of its total support normally received; (2) the organization has a continuous and bona fide program for solicitation of funds from the general public, governmental units, or public charitable organizations; and (3) it satisfies all other pertinent facts and circumstances, including the percentage of its support from public and/or governmental sources, the “public” nature of the organization's governing board, the extent to which its facilities or programs are publicly available, its membership dues rates, and whether its activities are likely to appeal to persons having some broad common interest or purpose.434
