Publicly Supported. Section 501(c)(3) "public charities" must have a broad base of supporters, otherwise the IRS may reclassify them as private foundations, and give them tax treatment accordingly. For the first 5 years of a 501(c)(3) public charity's existence, the IRS will presume it to be publicly supported and not a private foundation. After the first 5 years, the IRS will no longer make this presumption and the organization must prove that it is indeed a public charity by showing a broad base of support. The IRS wants to know that there are not just a few sources of income like often a private foundation has, warranting stricter rules. The IRS believes that if the charity has to appeal to enough donors, it keeps the charity more fiscally accountable.
The IRS has recently eliminated its long standing 5-year Advance Ruling. This means charities are no longer required to file Form 8734 after 5 years of operations to prove they are publicly supported. Now the charities must just show this through Schedule A of Form 990 and Form 990-EZ, starting after their fifth year.
In Schedule A of Form 990, the IRS lays out a mathematical formula for determining if a charity's support is broad enough. The publicly supported test requires that 1/3 of the contributions come from the public - and that any one supporter's gift is not counted to the extent that it exceeds 2% of the total contributions. Anything in excess of that 2% figure is considered "non-public" support.
Total Support for 4 year period = $1,000,000
Required amount of public support = $333,333
2% of Total Support = $20,000
Therefore, in this example, if a donor gives $100,000, only $20,000 will be counted as public support and go towards the $333,333 the organization needs to remain a public charity.
Fortunately, there is a caveat to the 2% rule that excludes donations from other public charities AND churches. Therefore any donations from those categories go straight into the public support category without a 2% restriction.
As said above, for the first 5 years as a new charity, it is presumed to be publicly supported, even if it don't meet the test. This gives new charities time to get on their feel in terms of their fundraising schemes. But as the charity proceeds, it must bear this formula in mind.
Earmarking. The public can request that their contribution go for a specific purpose, but the charity has the responsibility of making certain the funds are used for exempt purposes and must maintain control. Therefore the contributor should be informed that the organization will make the best attempts to honor his or her wishes for the donation, but if not possible, it will be used for another exempt purpose.