In: Accounting
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.
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 $310,800 but for the purpose of the external test, the following amount is included.
External Support Test | Amount ($) |
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 |
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 -
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 |
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.