A grant is regarded as an unusual grant if it is much, and negatively affects the organization’s IRC 509 status. The requirements outlined in the regulations often determine whether or not a grant qualifies as an atypical grant. A donation or a request from an unrelated party that satisfies a number of requirements outlined in the treasury regulations is considered an unusual grant.
An organization’s support can be kept above the required level, by excluding contributions and bequests that meet the criteria for unusual grants from both the numerator and the denominator of the computation. Contributions or bequests from disinterested persons that meet the three following requirements are eligible for the unusual grant exception:
They are drawn to the organization because of its public support, their amount is uncommon or unexpected, and their size would negatively impact the status of the organization as one that is supported by the public.
Here are the Unusual Grant Factors You Should Know
A contribution’s eligibility as an unusual grant cannot be determined by any one factor in isolation. All relevant information and conditions are usually considered. The considerable variables include the connection between the donor and the organization.
Normally, individuals who did not hold a position, like the foundation manager will be given a more favorable evaluation.
- Whether a bequest or an inter-vivos transfer was used to make the donation. An inter vivos transfer will not be given as much weight as a bequest.
- Whether the donation was made in cash, tradeable securities, or assets that support the organization’s exempt purposes, such as a painting given to a museum.
- Whether the organization previously engaged in a program of public solicitation and exempt activities and was successful in gaining a sizable amount of public support, with the exception of a new organization.
- Whether it is reasonable to predict that the group will receive substantial public support after the contribution.
- Whether the organization passed the public support criteria without the aid of any unusual grant exclusions prior to the year donation was received.
- If the donor, or any “disqualified person” related to the donor—such as a family member, a controlled corporation, or a substantial donor—directly or indirectly exercises influence over the organization.
- Whether the organization’s governing body is impartial.
- Whether there are limitations or constraints attached to the contribution.
These are Examples of Unusual Grants
In some situations, every factor point to an unusual grant. In a recent private letter judgment, the IRS determined that a donation to a public charity for the establishment of a new program, as well as the expansion and improvement of two other programs, qualified as an unusual grant. The gift was acceptable due to, among other things;
- The charity’s attempts at public fundraising attracted the donation.
- The contributor had no authority or influence over the charity.
- The contributor had never before given to the cause.
- Few restrictions were imposed on the donation by the giver.
- The charity’s governing body was representational.
- The charity already passed the test for public support.
- Through its current fundraising efforts, the charity would continue to raise money.
In some cases, a grant could be considered unusual even if it doesn’t satisfy every criterion. For example, a newly constituted charity received cash contributions from a private foundation that was founded by a person, who was one of the organization’s founders and board members to cover its initial capital costs.
Although the person is one of the charity’s nine board members and was one of its founders, according to the regulations “[he] continues to lend his prestige to [the charity activities]’s and fund-raising efforts, [he] does not, directly or indirectly exercise any control over [the charity].”
According to the hypothetical, the charity “also obtains assistance from smaller gifts and commitments from other members of the public. If a donation satisfies other pertinent criteria, it may be considered uncommon even if it originates from a person who is involved in the recipient’s operations.
Here are Unusual Grants and Equivalency Determinations
Both foreign organizations seeking equivalence decisions and public charities operating in the United States are subject to the unusual grant exception (EDs). When compiling an ED, an NGO source asks groups that may have received unusual grants that have a detrimental impact on their public support for supplementary information.
When it is conceivable, excluding an unusual grant may be the deciding factor in whether or not a company qualifies as being on par with a public charity. However, it is advantageous for both grantmakers and grantees to be knowledgeable about the relevant regulations.