What are the distinguishing characteristics between a public charity and a private foundation? What is a public support test and how does it relate to public charities and private foundations

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Ch.14 Questions August 8, 2016
14-1 Identify which level(s) of government regulate(s) NFP organizations and identify the source of authority.
 
Not-for-profit organizations have strict regulations and must follow these set in place by multiple levels of governances. The three main governances for NFP organizations are State, Federal, and Internal. The State, level of government, regulates the laws that NFP organizations must follow, along with license to solicit contributions, local tax exemption, and lobbying or political activity. The Federal government determines their corporate tax exempt status, monitor their annual reporting to ensure compliance, determine unrelated business tax income, excessive benefits transactions, and the reorganization and dissolution of the NFP organization.
 

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14-4 What are the distinguishing characteristics between a public charity and a private foundation? What is a public support test and how does it relate to public charities and private foundations?
 
If NFP organizations qualifies under IRC Section 501 (c) (3), it is considered a private foundation unless it can be excluded per IRC Section 509 (a), due to the nature of organizational mission, or it meets the support test requirement. The public support test factors where the organization received the majority of its funding. Private foundations receive the primary amount of their support from investment income, corporations or a few select individuals. Public charities receive the most of their funding from the general public. Meaning they pass the support test.
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