What Are 990 Schedule A Excess Contributions?

Tax-exempt organizations file Form 990, an annual information return, with the Internal Revenue Service. Attached to this form is Schedule A, Public Charity Status and Public Support, where an organization demonstrates it receives broad support from the public, distinguishing it from a private foundation. Maintaining public charity status allows for more favorable tax deduction rules for donors and avoids the stricter operating rules imposed on private foundations.

The concept of excess contributions is directly tied to proving this broad public support. It is a specific calculation designed to ensure that the financial backing of a charity is genuinely public by applying limits to large donations from single sources. Understanding this calculation is a part of the annual compliance for many charitable organizations.

Understanding the Public Support Test

Schedule A is the mechanism for an organization to prove it meets one of the public support tests required by the IRS. These mathematical tests measure the proportion of an organization’s support that comes from public sources over a five-year period, which includes the current tax year and the four preceding years. Failing the test for two consecutive years can lead the IRS to reclassify a public charity as a private foundation.

There are two primary tests detailed on Schedule A. The test for organizations described in Internal Revenue Code Section 509(a) is for charities that receive a mix of contributions and revenue from activities related to their exempt purpose. The other main test, for organizations under Section 170(b), is for charities that primarily rely on gifts, grants, and contributions, and it is within this test that “excess contributions” are calculated.

The purpose of the excess contribution rule is to prevent an organization from meeting its public support threshold primarily through large donations from a small number of individuals. To pass this test, an organization must show that at least 33.33% of its support is public. Alternatively, it can qualify under a “facts and circumstances” test if its public support is at least 10%, provided it can demonstrate it is actively seeking broad public backing. The excess contribution calculation directly impacts this percentage.

Identifying Disqualified Persons and the Contribution Limit

Before calculating excess contributions, an organization must identify its “disqualified persons.” This IRS-defined term refers to individuals or entities with significant influence over the organization. The category includes foundation managers, such as officers, directors, and trustees. It also extends to their family members, including spouses, ancestors, children, grandchildren, great-grandchildren, and the spouses of those descendants.

A key type of disqualified person is a “substantial contributor.” A person or entity is considered a substantial contributor if they have donated an aggregate amount of more than $5,000, and that amount is more than 2% of the total contributions the organization has received from its founding up to the end of the tax year in which that person’s contribution was received. Once an individual meets this definition, they retain the status of a substantial contributor.

While identifying disqualified persons is part of compliance, the excess contribution limit has a broader scope. For the public support test, contributions from any single individual or private entity are only counted up to an amount equal to 2% of the organization’s total support over the five-year measurement period. Any amount given by a person above this 2% threshold is an excess contribution and must be excluded from the public support figure. Contributions from governmental units or other qualifying public charities are not subject to this limitation.

Calculating and Reporting Excess Contributions on Schedule A

The calculation and reporting of excess contributions are performed on Form 990, Schedule A, Part II. First, the organization must determine its total support for the five-year measurement period, which is found on Line 11, column (f). The 2% threshold is calculated by multiplying this total support number by 0.02. This result is the maximum amount from any single contributor that can be included as public support.

With the threshold established, the organization reviews the total contributions received from each person over the five-year period. For any individual whose total donation exceeds the 2% threshold, the organization must calculate the excess amount. For example, if an organization’s total support is $1,000,000, the 2% limit is $20,000, so a $50,000 contribution results in a $30,000 excess contribution.

The final step is to sum the excess amounts from all such contributors and enter this aggregate total on Line 5 of Schedule A. This line is for the total amount by which contributions exceeded the 2% threshold. The form then uses this figure in its subsequent calculations, subtracting the total on Line 5 from the total contributions on Line 1 to determine public support.