The unusual grants exclusion lets a public charity remove a large, one-time contribution from both sides of its public support fraction so the gift doesn’t drag the organization below the threshold and into private foundation status. When a grant qualifies, it disappears from the Schedule A math entirely. The organization’s public support percentage then reflects its ordinary fundraising pattern rather than a single windfall.
The exclusion is available to organizations classified under Internal Revenue Code Section 170(b)(1)(A)(vi) and to Section 509(a)(2) organizations. Both types measure public support over a rolling five-year window, and both can be knocked off course by a single oversized gift because the contribution inflates total support on the denominator even when the amount counted as public support on the numerator is capped.1Internal Revenue Service. Form 990, Schedules A and B: Public Charity Support Test
What Qualifies as an Unusual Grant
Treasury Regulations set the framework and the IRS decides on the totality of the circumstances. No single factor controls. The regulation at 26 CFR 1.170A-9(f)(6)(ii) establishes the exclusion for 170(b)(1)(A)(vi) organizations, 1.509(a)-3(c)(3) does the same for 509(a)(2) organizations, and the factors listed at 1.509(a)-3(c)(4) apply to both.2eCFR. 26 CFR 1.170A-9 – Definition of Section 170(b)(1)(A) Organization
A Disinterested Donor
The most important factor is whether the donor is genuinely at arm’s length from the organization. A gift receives less favorable treatment when the donor created the charity, previously provided a substantial share of its support, held a position of authority such as a board seat or officer role, exercised direct or indirect control, or has a family or business relationship with anyone who did.3Internal Revenue Service. Private Letter Ruling 201704019 The closer the donor is to the inside, the weaker the case.
Large, Unexpected, and Non-Recurring
The contribution has to be unusual both in amount and in circumstance. It should be substantial enough that it threatens to push the organization below its public support threshold, and it should not have been anticipated by the organization’s leadership. A regular donor’s planned annual gift fails on both counts. The IRS is looking for a genuine windfall.4Internal Revenue Service. Instructions for Schedule A (Form 990)
The gift also needs to be a one-time event rather than part of a sustained funding relationship. A series of planned payments from the same source spread over several years looks like private support, not a windfall. The IRS will still treat a single commitment as one grant even if the funds are received or accrued over multiple years, as long as it is one grant and not a pattern of separate ones.4Internal Revenue Service. Instructions for Schedule A (Form 990)
Bequests
A bequest ordinarily gets more favorable consideration than a lifetime gift. The organization had no ability to solicit the gift from a donor who has died, and the timing and amount were outside the charity’s control.5Internal Revenue Service. Developments in the Private Foundation Area (CPE Text) This is not automatic qualification, but the testamentary character of the gift helps.
Purpose, History, and Control After the Gift
Contributions earmarked for a capital campaign, building fund, or endowment are more likely to qualify than gifts covering routine operations. The organization should also have been operating as a publicly supported entity for a meaningful period before the gift arrived. A brand-new charity that receives a massive check in its first year has a harder case. And if the donor ends up on the board or otherwise gains influence over the organization after making the gift, the IRS will question whether the contribution really came from a disinterested source.
How the Exclusion Changes the Math
When a grant qualifies, the full amount comes out of both the numerator and the denominator of the public support fraction on Schedule A.4Internal Revenue Service. Instructions for Schedule A (Form 990) The gift becomes mathematically invisible.
A concrete example: a charity has $200,000 in public contributions and $100,000 in other support across its five-year measurement period, giving it a 66 percent public support ratio. In year three it receives a $2 million bequest from a disinterested donor. Without the exclusion, total support balloons to $2.3 million and the denominator expansion alone can push the ratio below one-third even after the cap that limits how much of a single donor’s gift counts as public support. With the exclusion, the $2 million disappears from both sides and the ratio stays at 66 percent.
The exclusion protects the one-third safe harbor and the 10 percent facts-and-circumstances test for 170(b)(1)(A)(vi) charities, and it shields the one-third support test for 509(a)(2) organizations.4Internal Revenue Service. Instructions for Schedule A (Form 990)
How to Report the Exclusion
There are two paths. Most organizations handle the exclusion themselves as part of their annual return. Organizations that want written confirmation from the IRS can request it before filing.
Self-Reporting on Schedule A
The standard approach is to exclude the grant when completing Schedule A of Form 990. A 170(b)(1)(A)(vi) organization leaves the amount out of Part II, Line 1. A 509(a)(2) organization excludes it from Part III, Line 1. In both cases, the organization must list the amount of each unusual grant received or accrued during each year in Part VI. Do not list the donor’s name. Schedule A is public, and the instructions specifically warn against disclosing grantor identities there.4Internal Revenue Service. Instructions for Schedule A (Form 990)
Self-reporting relies on the organization’s own judgment that the grant meets the regulatory criteria. If the IRS later disagrees, the organization has to defend the position with its documentation.
Requesting a Determination on Form 8940
Organizations wanting advance certainty can submit Form 8940 (Request for Miscellaneous Determination) asking the IRS to rule on whether a specific contribution qualifies.6Internal Revenue Service. Form 8940 for Miscellaneous Determination Requests Form 8940 must be filed electronically through Pay.gov. Paper submissions are no longer accepted.7Internal Revenue Service. About Form 8940, Request for Miscellaneous Determination
The user fee for most Form 8940 requests is $600.8Internal Revenue Service. User Fees for Tax Exempt and Government Entities Division The IRS reports that it issues 80 percent of Form 8940 determinations within 215 days.9Internal Revenue Service. Where’s My Application for Tax-Exempt Status? A favorable determination letter can be attached to Form 990 and effectively closes the question for that grant. For a transformative gift that dwarfs years of normal fundraising, the fee and the wait usually buy worthwhile certainty.
Documentation to Keep
The IRS will not take your word for it. Build the file before you need it.
- Donor history showing prior contributions to the organization or the absence of them, along with any relationship to the founders, board, or staff.
- A disqualified person analysis under Section 4946, covering substantial contributors, foundation managers, family members of either, and entities they control. A donor who meets this definition has a much harder path to the exclusion.10Office of the Law Revision Counsel. 26 USC 4946 – Definitions and Special Rules
- The grant agreement or donor letter, showing purpose, restrictions, and whether the funds are designated for capital purposes or general operations.
- Financial records covering all five years in the support period, establishing what normal support looks like and showing the grant is out of proportion.1Internal Revenue Service. Form 990, Schedules A and B: Public Charity Support Test
- A written narrative explaining how the charity attracted the gift and how the funds will advance its exempt purposes, ideally showing the contribution resulted from the organization’s public profile rather than a targeted pitch.
- Post-gift governance records demonstrating the donor did not receive a board seat, advisory role, or other control after making the contribution.
What Reclassification Would Cost
Failing the public support test without an exclusion turns a public charity into a private foundation, and the consequences are not cosmetic.
Private foundations pay a 1.39 percent excise tax on net investment income every year.11Office of the Law Revision Counsel. 26 USC 4940 – Excise Tax Based on Investment Income They face strict self-dealing rules on transactions with insiders: a disqualified person who engages in self-dealing faces an initial tax of 10 percent of the amount involved, and if the transaction is not corrected, an additional tax of 200 percent.12Office of the Law Revision Counsel. 26 USC 4941 – Taxes on Self-Dealing Routine arrangements at a public charity, like paying a board member for consulting or renting space from a founder, become potential violations.
Donors also feel the change. Contributions to a public charity are deductible up to 50 percent of the donor’s adjusted gross income. Contributions to a non-operating private foundation are capped at 30 percent.13Internal Revenue Service. Charitable Contribution Deductions Major donors adjust accordingly.
An organization can terminate private foundation status under Section 507(b)(1)(B) by meeting the requirements of Section 509(a)(1), (2), or (3) for a continuous 60-month period and notifying the IRS before that period begins.14Internal Revenue Service. Operation as a Public Charity If the organization fails to meet the requirements during those 60 months, it is treated as a private foundation for the entire period, and contributions received during that time are treated as contributions to a private foundation.15Office of the Law Revision Counsel. 26 USC 507 – Termination of Private Foundation Status Getting the exclusion right the first time is much easier than the road back.