Backache, Inc., a §501(c)(3) organization, received support from the following s

Question

Backache, Inc., a §501(c)(3) organization, received support from the following sources.

Medicare for services rendered                      $ 6,300

Medicaid for services rendered                      $ 4,500

Fees from the general public for services

          Services rendered ($100/visit)            75,000

Gross investment income                              39,000

Contributions from disqualified persons         26,000

Contributions from other than disqualified

          Persons (each gift was $50)                160,000

Total Support                                               $310,800

a. Does Backache satisfy the test for receiving broad public support? Why or why not?

b. Is Backache a private foundation? Be specific and explain your answer.

c. Margaret Dominez, Backache’s treasurer, has asked you to advise her on whether Backache is a private foundation. Write a letter to her addressing the issue. Her address is 10195 Spring Street, Gainesville, GA 30501. Use good business letter form.

Explanation / Answer

Answer:

a) To satisfy the test of broad public support, the external and internal support test must be met. The total support received would be $310,800 but for the purpose of the external test, the following amount is included.

So, the external support test is satisfied (244,500/310,800=78.67%)

Internal Support Test-

For the purpose of the internal support test, only the gross investment income is tested, this would mean (39,000/310,800=12.55%) which satisfied the internal support test. This would mean that Backache satisfy the test for receiving broad public support.

b) Since, Backache satisfied both external and internal support test for being a broad public support organization, this would mean that it is not a private foundation.

c) Writing a Letter

June 8, 2018

Margaret Dominez, Treasurer

10195 Spring Street

Gainesville, GA 30501.

Dear Mr. Dominez,

I am writing this letter in regards to our conversation about whether Backache is a private foundation. In my calculation, Backache is not a private foundation. For Backache not to be classified as a private foundation, it must satisfy external and internal support test. In order to satisfy the external support test, more than one third of Backache’s support must come from external sources such as the calculation below -

So, the external support test is satisfied (244,500/310,800=78.67%)

Internal Support Test-

For the purpose of the internal support test, only the gross investment income is tested, this would mean (39,000/310,800=12.55%) which satisfied the internal support test. This would mean that Backache satisfy the test for receiving broad public support.

Since, Backache satisfied both external and internal support test for being a broad public support organization, this would mean that it is not a private foundation.

Yours Sincerely,

XYZ.

External Support Test Amount ($) Medicare for services rendered (minimum)              5,000 Medicare for services rendered              4,500 Fees from the general public for services            75,000 Contributions from other than disqualified persons          160,000 Qualifying support          244,500

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