How do I need to calculate Part III Line 7b?

Part III, Line 7b of the form serves to identify and report the portion of gross receipts from specific donors that surpasses a defined threshold. This threshold ensures that a 509(a)(2) organization maintains broad public support. Here's a breakdown of how to calculate and report this amount:

1. Identify Applicable Gross Receipts:

Include the gross receipts reported on Part III, lines 2 and 3:

• Line 2: Typically includes revenue from activities directly related to the organization's tax-exempt purpose, such as admissions, sales of merchandise, service fees, or facility usage charges.
• Line 3: Encompasses receipts from activities that are not considered unrelated trade or business under section 513. Examples include activities where volunteers perform substantially all the work, activities for the convenience of members/students/patients, sales of donated goods, and certain qualified entertainment or convention activities.

2. Determine the Source of Receipts:

These gross receipts must originate from either an individual person or a bureau or similar agency of a governmental unit.

3. Exclude Receipts from Disqualified Persons:

Crucially, do not include any amounts received from disqualified persons. These amounts are reported separately on Line 7a. Refer to the Glossary of the Instructions for Form 990 for the precise definition of a disqualified person.

4. Establish the Limitation Threshold:

For each individual or government agency (that is not a disqualified person) from whom you received gross receipts included on lines 2 and 3, determine the limitation amount. This limitation is the greater of:

• $5,000
• 1% of the amount reported on Part III, line 13 for that specific tax year. (Line 13 represents the organization's total support for that year.)

5. Calculate the Excess Amount:

For each individual or government agency whose gross receipts (from lines 2 and 3) for a given year exceed the limitation calculated in step 4, determine the excess amount. The calculation for this excess is:

(Total Gross Receipts from that source for the year) - (The greater of $5,000 or 1% of Line 13 for that year)

6. Sum the Excess Amounts for the 5-Year Period:

Line 7b represents the total of these calculated excess amounts from all applicable individuals and government agencies over the five-year period covered by the form. This means you will sum the excess amounts calculated for each year (columns (a) through (e)) and report the total in column (f).

Reporting and Recordkeeping Requirements:

• Report the calculated total excess amount for each of the five years and the overall five-year total on Part III, Line 7b, in columns (a) through (f), respectively.
• Maintain detailed records for your organization. This list should show, for each year:
  • The name of the individual or government agency.
  • The total amount received from that source during the year.
  • The greater of $5,000 or 1% of line 13 for that year.
  • The calculated excess amount, if any.
  • The source material provides an example of how to format this list.
• Do not file this detailed list with the organization's Form 990 or 990-EZ, as it may be subject to public inspection.

In essence, Line 7b acts as a mechanism to identify and account for larger contributions from specific non-disqualified sources that could potentially skew the public support calculation for 509(a)(2) organizations. By reporting the portion of these receipts exceeding a defined limit, the form ensures that a substantial portion of the organization's support comes from a diverse range of sources, rather than being overly reliant on a few significant payers for services or goods related to its exempt purpose.