Nonprofit Accounting Basics

Advance Ruling Period Eliminated

During the process of applying for tax-exempt status under code Section 501(c)(3) an organization provides information showing that it is reasonable to expect that it will be publicly supported.

In the past, once the application was approved by the IRS, a five year advance ruling period would follow. Once the five year period ended, Form 8734, Support Schedule for Advanced Ruling Period, was filed with the IRS showing that the organization was in fact publicly supported.

This changed when the updated Form 990 was introduced in 2008. Now the public support test contained in the Form 990, Schedule A, includes a five year computational period. The change allows the IRS to use Schedule A to monitor the public support status of new charities.

It is important to monitor the public support percentages calculated during the initial five year period as this information is not reflected in Form 990, Schedule A until the fifth year. The rules for calculating and meeting the public support test requirements are not the same for all 501(c)(3) organizations. If the percentage threshold(s) for a particular organization are not met, the organization will become a private foundation and will be required for file a Form 990PF.