By now, Amateur Radio organizations and others know about ARDC and their grant program. I’m going to discuss an IRS rule that will be a problem you must navigate if you are a 501(c)3 in the US and receive a large grant from ARDC.
ARDC states here that US-based entities that wish to receive grants must be a “501(c)(3) Public Charity, government agency, school, or university.” For the purpose of this article I will assume that you are in the US and aren’t a government entity or a school. Thus, according to that page, you must be a 501(c)3 or have one as a financial sponsor to receive an ARDC grant.
I have previously been told by ARDC that they will give grants to entities that are not a 501(c)3, but that the accounting requirements are much worse and require your annual financial statements and detailed data about how the money was spent. That’s not an official statement, and I don’t speak for them, so if you need this you should contact them directly.
To continue to be a 501(c)3, a charity must pass the Public Support Test. This test requires that 1/3 of your charity’s income must come from donors who each contribute less than 1/50 of your charity’s income.
So, let’s say that your charity receives a $100,000 grant from ARDC in a tax year, and no other large grants. To pass the Public Support Test, you must also raise $50,000 from donors who each donate $3000 or less. You could achieve this with 17 donations, but it is more likely that you would have hundreds or thousands of donors who each donated a small amount.
The way I have planned to do this for HamOpen.org (which is still in the 501(c)3 process and hasn’t asked ARDC for anything yet) is to ask ARDC to double-match donations. In other words, for each $1 of small private donations, ARDC would give $2. Double-matching is a pretty strong motivator for people to donate: every $1 they put in becomes $3. So, I’d probably be able to collect donations sufficient to pass the Public Support Test and get the full amount of the grant from ARDC.
We first learned about this because Open Research Institute got a big grant from ARDC. I suspect it’s so large that they don’t have a hope of collecting small donations sufficient to pass the Public Support Test – and the tax year in which they had to do this may already have passed. This not their fault – the public support test requirement came as a surprise to them, and me too – but the IRS might convert them to a private foundation instead of a 501(c)3, and they might lose the ability for donors like you and me to write their donations off of their taxes.
ARDC is a non-profit and doesn’t need this write-off. It’s smaller donors like you and me who do.
When your organization fails the Public Support Test, it’s called “tipping” in tax jargon, because it causes your 501(c)3 to “tip” over to being a private foundation. This is not the end of the world for an organization, but it’s sub-optimal for collecting donations from individuals and businesses.
One problem here is that ARDC doesn’t want to give their prospective grantees tax guidance, because, no doubt, their lawyers have told them not to – for their own legal protection. So they don’t explain the situation I just have. I am not a tax attorney, or a tax accountant, and you should consult those folks.
