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The following is the second article in a two-part series that provides a detailed examination of Form 990, Schedule A, offering practical guidance to the many organizations responsible for its complete and accurate preparation. 

To quote George R. R. Martin, “Different roads sometimes lead to the same castle.” The same can be said for Schedule A. When it comes to qualifying as a public charity, the IRS offers more than one path forward. In Part I of this series, we explored the Schedule A Part II public support test—a common route for donor‑supported organizations. In this second installment, we turn to the Schedule A Part III test, an alternative approach designed for organizations that operate under a fee‑for‑service or program‑revenue model. While the tests are different, both can ultimately lead to the same destination: public charity status. 

Who qualifies for the Part III test? 

Under Schedule A, Part I, Line 10 – Section 509 (a)(2), a qualified organization normally receives the following over a five-year computation period: 

• More than 33.33% of its support from contributions; membership fees; and gross receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities in an activity that isn’t an unrelated trade or business under section 513 
• No more than 33.33% of its support must normally come from gross investment income and net unrelated business income (less section 511 tax) from businesses acquired by the organization after June 30, 1975 

How Part III differs from Part II 

1) Treatment of program revenue 
The Part III test is generally preferable for organizations that primarily generate revenue through program service activities (i.e., fee‑for‑service revenue activities), whereas Part II is generally preferable for organizations that primarily generate revenue through donations/contributions from the general public. The Part III test does take contribution income into account as part of the public support test calculation, but the Part II test specifically focuses on contribution income only and does not take into account revenues from program service activities. 

2) Exclusions from public support: Disqualified persons
The Part III test requires certain amounts to be excluded from the public support calculation. These exclusions reduce the numerator of the public support fraction and can directly affect whether an organization remains above the required 33.33% public support threshold. 

Amounts received from disqualified persons 

Any amounts of contribution income or program service revenue received from “disqualified persons” are required to be removed from the public support calculation entirely. The most common examples we see in practice are donations made to the organization by officers or other members of the organization’s board. The IRS considers disqualified persons to be “insiders” and, as such, are not considered part of the general public for purposes of the test. 

Disqualified persons include the following: 

a. Substantial contributors: Any person who has contributed more than $5,000 in total and whose contributions exceed 2% of all contributions received since the organization’s inception 

b. Foundation managers, defined as officers, directors, trustees, or individuals with power or similar authority to officers, directors, or trustees 

c. Owners of more than 20% of a corporation, partnership, trust, or other entity that is a substantial contributor to the organization 

d. Family members of any of the above, limited to spouses, ancestors, children, grandchildren, great‑grandchildren, and their spouses

Note: Because the disqualified person definition is far-reaching, it amplifies the need for organizations to have in effect sound practices, policies, and procedures concerning potential conflicts of interest. These relationships can not only affect governance issues, but compliance matters, as well. 

3) Exclusions from public support: Excess amounts from non-disqualified persons
In addition to disqualified persons, organizations may need to also exclude certain “excess amounts” received from those who are not considered disqualified persons. The exclusion applies to program revenues (not contribution income) that exceed the greater of $5,000 or 1% of the organization’s total support for the current tax year. Only the excess portion is excluded from public support. Further, it takes into account amounts that have been received on behalf of a program participant, not just amounts received directly (for example, a resident of a senior living facility whose fees are paid in whole or in part by Medicare, state funding, etc.) must also be included on a per-person basis for purposes of applying the test. 

Example: Calculating amounts received from non-disqualified persons 

Assume the 501(c)(3) organization is a senior living facility completing its Schedule A, Part III public support test. It serves approximately 100 residents.

• For purposes of the test, total support for the year is $5,000,000 
• 1% of total support is: $5,000,000 x 1% = $50,000 

Now consider two residents: 

• Resident A is a full-time private-pay resident and pays $85,000 for services rendered for the year.  
  • $35,000 ($85,000 – $50,000) is required to be excluded from the Schedule A, Part III public support test for Resident A 
• Resident B is covered by Medicare. Total revenues to the facility for the resident total $95,000. 
  • $45,000 ($95,000 – $50,000) is required to be excluded from the Schedule A, Part III public support test for Resident B

Organizations are encouraged to work with their tax advisors to maintain these internal lists supporting any amounts excluded. These lists are never filed as part of the Form 990 filing. 

4) No 10% facts-and-circumstances test
Finally, the Part III test does not have the 10% facts-and-circumstances (discussed in detail in our Part II article) to rely on if the public support percentage dips below 33.33%. 

What happens if you fail the test? 

Organizations are not locked into one test and can move between the Part II and Part III tests from year to year as long as the organization’s fact pattern supports the selection. That said, the test chosen should accurately reflect how the organization is structured and supported. 

Organizations that fail either or both of the Part II and Part III public support tests for two consecutive years statutorily lose their public charity status and automatically become a private foundation, subject to tax on net investment income and required to file Form 990-PF instead of Form 990.  

Note: This reclassification is retroactive to the beginning of Year 2, which can cause major disturbance for organizations, as well as potential donors (especially grant-makers). 

Key takeaways 

1. Know your revenue model: Are you an organization who primarily receives donations from multiple sources or do you operate under a fee‑for‑service model? The answer often determines whether Part II or Part III is a better fit. We also have an article that takes a deeper look at the Part II test. 
2. Watch for donor concentration: Large contributors, particularly those who may be disqualified people, can significantly reduce public support for purposes of the test. 
3. Monitor investment income carefully: Excessive passive income can cause an otherwise compliant organization to fail the test. 

If you have questions about which Schedule A public support test is the right fit for your organization—or if you’d like help working through the calculations—we’re always ready to support your needs. BerryDunn’s  team of professionals serves a range of nonprofit organizations, including but not limited to educational institutions, foundations, behavioral health organizations, community action programs, conservation organizations, and social services agencies. We provide the vital strategic, financial, and operational support necessary to help nonprofits fulfill their missions. Learn more about our team and services. 

Benjamin Franklin is attributed with having once said: “Nothing is certain but death and taxes.” While true, 501(c)(3) organizations, which are exempt from income taxes on activities related to their exempt purposes, could have a different spin on Ben Franklin’s classic line: “Nothing is certain but death, taxes, and Schedule A.” This is because any 501(c)(3) organization (or organization treated as such) claiming tax exemption as a public charity is required in one way, shape, or form to complete Schedule A. 

While at first glance the schedule seems easy enough, it is chock-full of nuances, potential limitations, and issues that can make or break a public charity’s tax-exempt status. To borrow from a somewhat less historical source, Avril Lavigne once observed, “Why’d you have to go and make things so complicated?”

This article is the first in a two-part series that provides a detailed examination of Form 990, Schedule A, offering practical guidance to the many organizations responsible for its complete and accurate preparation. Part one will focus on organizations that qualify under Part I, Line 7—509(a)(1) and the steps required to substantiate this classification through the Part II public support test.  

What is Schedule A? 

As noted above, Schedule A is required for all 501(c)(3) organizations claiming public charity status. Other tax-exempt organizations—such as 501(c)(2)s, 501(c)(4)s, 501(c)(5)s, and 501(c)(6)s—are not required to complete it. Additionally, 501(c)(3) private foundations are exempt from this requirement, as they file Form 990-PF instead.  

In simple terms, Schedule A lets the IRS confirm that an organization is truly supported by the public, which is what allows it to keep its public charity status. 

This determination begins in Schedule A, Part I, where an organization selects one of the IRS‑defined public charity categories listed on lines 1–12. Certain organizations, such as churches, schools, and hospitals, qualify automatically and are recognized as public charities without needing to demonstrate public support. 

For organizations that do not meet one of these automatic classifications, public charity status must instead be demonstrated through one of two IRS public support tests: 

• Organizations primarily supported by contributions generally rely on the Part II public support test 
• Organizations that earn most of their revenue from program service activities may qualify under the Part III public support test 

These two tests form the core framework through which many nonprofits establish and maintain public charity status. However, if an organization fails the applicable public support test for two consecutive years, it will automatically become a private foundation and face stricter rules and reporting requirements. Understanding these basics helps ensure your organization remains well‑positioned to maintain its public charity status and avoid surprises down the line. 

The basics: Understanding Schedule A, Part II 

Who qualifies? 

An organization qualifies as a public charity under Part II, over the five-year computation period, if it meets either of the following thresholds: 

• More than 33.33% of its total support is from governmental units, contributions from the general public, and contributions or grants from other public charities 
• More than 10% of its total support is from governmental units, contributions from the general public, and contributions or grants from other public charities, and the facts and circumstances indicate it is a publicly supported organization 

How is Part II different from Part III? 

1. Excess contributions 
A critical feature of the Part II public support test is how the IRS treats large contributions from a single donor. On Line 5, organizations must exclude the portion of a donor’s contributions that exceeds 2% of the organization’s total support over the five‑year computation period (the current year plus the four preceding years). 

This safeguard prevents an organization from appearing “publicly supported” merely because a few large donors provided most of its support. Instead, the Part II test is designed for organizations that maintain a diverse donor base, with many contributors giving smaller amounts rather than relying on a handful of major donors.  

It is important to recognize that certain types of support, such as contributions from governmental units or other publicly supported organizations qualifying under section 170(b)(1)(A)(vi), are not subject to exclusion under the 2% limitation rule. These sources are considered inherently public in nature and therefore always count fully toward public support, even when the amounts received are large.

Example: Calculating excess contributions 
Assume the organization has $4,000,000 in total support for the five‑year period. 

• The 2% limit is: $4,000,000 × 2% = $80,000

Now consider two donors: 

• Donor A contributes $50,000 → below the $80,000 limit 
  • None of Donor A’s contribution is an excess contribution. 
  • Full $50,000 counts as public support. 
• Donor B contributes $200,000 → above the limit 
  • Excess: $200,000 − $80,000 = $120,000 
  • Only $80,000 counts toward public support. 
  • The $120,000 excess must be reported on Line 5 and excluded from the numerator. 

Although large donations are beneficial for operations, they can hurt public support percentages if they are concentrated in a few donors. 

Key takeaway: For organizations completing the Part II test, it is essential to stay vigilant around donor concentration throughout the five-year period to ensure that the organization is not receiving the majority of their support from just a few donors. 

2. Treatment of unusual grants 
Another nuance to the Schedule A, Part II test is the treatment of unusual grants. Unusual grants are large, unexpected contributions from disinterested parties that would skew an organization’s public support percentage if treated as regular support. Because these gifts are extraordinary in size and could jeopardize an organization’s ability to meet the 33.33% public support test or the 10% facts‑and‑circumstances test, they are excluded entirely from both the numerator and denominator of the Part II calculation. This allows organizations to accept significant one‑time gifts without risking “tipping” into private‑foundation status. Organizations must report the amount only in Schedule A, Part VI, and keep internal records documenting the donor, date, and why the grant qualifies as unusual.

3. The 10% facts‑and‑circumstances test
For organizations completing Schedule A, Part II, the 10% facts‑and‑circumstances test provides a backup option for demonstrating public charity status if they fall short of the standard public support requirement. If an organization does not meet the 33.33% public support requirement under Part II, it may still qualify as a public charity as long as it still receives at least 10% public support and it can demonstrate that it truly operates for the benefit of the community.  

The IRS considers a variety of factors to determine whether an organization still functions as a public charity. This includes whether it actively fundraises from the general public, whether its board of directors reflects the community it serves, and whether its programs, services, and facilities are open and easily accessible to the general public. The IRS also looks at whether the organization receives grants or support from government agencies, which reinforces that it operates for the general public and not private benefit. 

This backup rule helps organizations maintain public charity status during years when donation patterns fluctuate—for example, when a large gift temporarily skews the support ratio or when a newer organization is still building its donor base. With good records and a clear explanation of how it serves the public, many organizations can rely on this test when their support dips below the standard threshold. 

4. The Schedule B “special rule” 
Organizations that complete and pass the Schedule A, Part II support test may also qualify for the “special rule” related to donor disclosure on Form 990, Schedule B. Under the general Schedule B rules, organizations must report any donor who contributed $5,000 or more during the year, including the donor’s name and address. However, organizations that complete and pass the Part II support test are only required to disclose donors whose contributions exceed 2% of the organization’s total contribution income for the year. This higher disclosure threshold can significantly reduce the Schedule B reporting burden, particularly for organizations that receive a substantial portion of their revenue from individual contributions. 

Pro tip: Certain organizations (namely, colleges and universities) can opt to complete the Schedule A, Part II support test in order to take advantage of this special rule as well. For additional information, please see the article, Easy ‘A’ for schools: Pass the test to reduce requirements under Schedule B. 

Now that we’ve covered how Schedule A, Part II measures public support based largely on contributions, the next step is understanding the alternative approach. In the second article in our series, we’ll explore Schedule A, Part III, which is often a better match for organizations supported primarily through program services and fees. 

We can help

BerryDunn’s team of professionals serves a range of nonprofit organizations, including but not limited to educational institutions, foundations, behavioral health organizations, community action programs, conservation organizations, and social services agencies. We provide the vital strategic, financial, and operational support necessary to help NFPs fulfill their missions. Learn more about our team and services. 

Read this article if your role includes hiring, contracting, or credentialing licensed healthcare providers, healthcare professionals, and support staff across the healthcare spectrum, as well as those who work with interim staffing, locum agencies, and third-party healthcare vendors and suppliers. 

Exclusion screening is one of those healthcare requirements that can feel routine—until it isn’t. An essential element of credentialing, it is the process of regularly checking whether individuals or entities that are connected to your organization appear on federal exclusion lists, created and maintained by the US Department of Health & Human Services Office of the Inspector General (OIG) and the System for Award Management (SAM). Individuals or entities on the list may be prohibited from participating in federally funded healthcare programs. When a match is overlooked, the consequences can lead to financial, legal, operational, and reputational risk for an organization.

The challenges of exclusion screening 

Even the best-run organizations might let exclusion screening fall through the cracks—particularly when it is treated as a one-time onboarding step instead of a recurring monitoring process. From limited staffing to competing priorities across credentialing, compliance, medical staff offices, human resources, and operations, it’s a crucial task that needs to be owned by someone in the organization to help ensure it happens routinely. 

The consequences of missing an exclusion 

If your organization employs or contracts with an excluded individual or entity, the risk can extend well beyond initial oversight. Potential consequences may include significant civil monetary penalties, overpayment liability, required corrective actions, and reputational damage. More importantly, exclusions often relate to serious underlying issues such as healthcare fraud, patient abuse or neglect, licensing problems, financial crimes, or drug-related violations, which means missing a listing can undermine patient safety and trust. 

While most professionals act in good faith, you can’t rely on individuals or entities to self-disclose their exclusion status. In some cases, individuals might not disclose because they need the job, don’t fully understand their status, or the exclusion happened after they were screened at the point of hire.  

Ongoing exclusion screening is key 

Exclusion screening isn’t a “set it and forget it” compliance regulation. Even if there are no findings today, that does not guarantee a clean result next month. A status can change, new records could be added, or there could be a delay in reporting. That’s why it’s essential for healthcare organizations to treat exclusion training as an ongoing monitoring commitment and have a clear process for reviewing results and flagging potential findings. 

Practical guidance for exclusion screening  

• Be proactive: Understand the regulations that apply to your organization.  
• Define ownership: Assign exclusion screening oversight responsibilities to a specific role or team—and ensure there is a backup so the process happens even when someone is out.  
• Develop an internal process: Identify what cadence (monthly is recommended), which databases you check (i.e., OIG, SAM), and how to document results.  
• Use strong identifiers: Collect and maintain the necessary information to reduce false positives and confirm accurate matches.  
• Create a plan: Define a clear process for how you’ll handle a potential match, including who needs to be involved (compliance, HR, etc.) and how to investigate. 

Don’t underestimate the importance of exclusion screening or the potential consequences of missing excluded or sanctioned individuals or entities.

BerryDunn can help with exclusion screening 

Recognize when it’s time to seek help. If your team is stretched, unsure of how consistently you are screening, or investing too much time in investigating potential matches, it may be time to bring in help. 

BerryDunn’s credentialing professionals are adept at navigating the challenges providers face. As an organization certified by NCQA in Credentialing (CR) across all 11 credentialing elements, we help clients streamline processes with strict adherence to compliance and regulatory standards. We equip organizations with resources to manage credentialing and compliance risks by performing continuous monitoring of federal exclusion lists. These monitoring activities help our clients comply with federal mandates prohibiting healthcare organizations from hiring or doing business with excluded or sanctioned individuals or entities. Learn more about our team and services. 

Procurement is often described as “ground zero” for audit findings—and for good reason. In single audits and other compliance reviews, procurement files are one of the first places auditors look. Not because organizations are acting in bad faith, but because procurement is where documentation, judgment, and regulatory requirements collide. 

The good news? Most procurement findings are preventable. With the right structure, controls, and habits in place, organizations can significantly reduce risk while making procurement more efficient and defensible. Below are practical, hands‑on steps organizations can take to move toward truly audit‑ready procurement. 

What “audit‑ready” really means 

Audit‑ready procurement isn’t about having a great explanation when questions arise. Auditors don’t audit intent or institutional knowledge—they audit files. 

An audit‑ready procurement file clearly and completely demonstrates that: 

• The procurement method was appropriate 
• Competition was real and fair (or properly justified when not) 
• Prices were reasonable 
• Vendors were eligible and responsible 
• Required approvals and controls were followed 

All of this must be documented in a way that aligns with 2 CFR 200.317–327 and tells a clear procurement story from start to finish. 

If that story isn’t obvious from the file itself, risk increases quickly. 

Use the 5‑Pane File Model to organize every procurement 

One of the most effective ways to reduce procurement risk is to structure files around the questions auditors actually ask. The 5‑Pane File Model does exactly that: 

1. Plan – Why this method? 
   Document the procurement method selected, the applicable thresholds, and why that method was appropriate at the time. 

2. Compete – Was competition real? 
   Include solicitations, bid lists, evaluation criteria, and justification when competition is limited or not feasible. 

3. Analyze – Is the price reasonable? 
   Cost or price analysis is required for all procurements—regardless of dollar value or method. This is a frequent gap. 

4. Award – Was the vendor eligible? 
   Responsibility checks, including SAM.gov verification, conflict‑of‑interest disclosures, and required contract clauses, belong here. 

5. Administer – Was the contract managed? 
   Post‑award monitoring, amendments, approvals, and performance oversight are often overlooked—but auditors expect to see them. 

Using this structure consistently creates files that are easier to maintain, easier to review, and far easier to defend. 

Watch for these common (and costly) pitfalls 

Across municipalities, nonprofits, and other federally funded organizations, certain procurement issues show up again and again: 

• Artificially splitting procurements to stay under thresholds 
• Selecting the wrong procurement method—or failing to reassess it 
• Weak or missing competition documentation 
• No cost or price analysis 
• Missing or outdated federal contract clauses 
• Assuming responsibility checks were completed, without evidence 
• Poor post‑award contract administration 

Individually, these gaps may seem minor. In an audit, they often snowball into findings, questioned costs, and funding risk. 

Learn from real‑world audit findings 

Consider two scenarios we see frequently in audits: 

1. Emergency procurements that never transition 
   An emergency justifies noncompetitive procurement—but only for as long as the emergency exists. When work continues after exigent conditions end, organizations must reassess the procurement method, document justification, and perform cost or price analysis. Failure to do so often results in invalidated sole‑source determinations and questioned costs. 

2. Contracts that follow internal policy—but violate federal rules 
   Internal procurement policies don’t override federal requirements. Percentage‑based contracts, for example, are prohibited under Uniform Guidance regardless of entity type. Without documented review of contract type compliance, organizations can unknowingly create audit findings—even when they believe they followed their own rules. 

The lesson is clear: documentation and reassessment matter just as much as initial decisions. 

Build controls that actually work in practice 

Strong procurement controls don’t have to be complex—but they do need to be consistent and practical. High‑performing organizations often implement the following: 

• Standardized procurement file checklists aligned to federal requirements 
• Required approvals at each stage of the 5‑Pane File 
• Triggers to reassess emergency or sole‑source procurements 
• Standard templates for:  
  • Sole‑source justifications 
  • Cost or price analyses 
  • Conflict‑of‑interest disclosures 
• Centralized digital file storage with consistent naming conventions 
• Periodic self‑reviews of procurement files using an auditor’s lens 

These controls shift procurement from a reactive process to a proactive one. 

Make audit readiness part of everyday procurement 

The most important takeaway is also the simplest: If it isn’t documented, it didn’t happen. 

Audit‑ready procurement isn’t about perfection—it’s about consistency. Small documentation gaps create big audit risks, but they’re also the easiest risks to fix when organizations know where to look. 

By structuring procurement files intentionally, reassessing decisions as conditions change, and embedding practical controls into daily workflows, organizations can protect federal funding, reduce audit stress, and strengthen overall governance. 

How BerryDunn can help 

At BerryDunn, we work hands‑on with organizations to identify procurement gaps, strengthen internal controls, and build audit‑ready processes that stand up to scrutiny. Our approach is practical, regulatory‑informed, and grounded in real audit experience—helping clients close gaps before auditors ever find them. Learn more about our services and team.  

When a company is operating successfully and seeking liquidity—whether to fund growth or return value to shareholders—two primary pathways or “tracks” exist: the public market (IPO), and the private market (a sales transaction). 

The private market track can take several forms: 

• A full or partial sale to a strategic buyer 
• A full or partial sale to a private equity fund (a financial buyer)  
• A hybrid approach involving both strategic and financial buyers 

Why consider both tracks at once? 

Companies can increase their valuation by investing in the dual-track process. Private markets understand that well-run, high-growth, prepared companies have a public market option and can go either way. The primary advantage of this dual process is to maximize shareholder value. Additional benefits include: 

• Saving time and resources—running both tracks concurrently is more efficient than running them separately or in series 
• Managing bandwidth issues—by utilizing incentive units or other forms of compensation for key team members, and by outsourcing critical components of each process to experts 
• Preserving optionality—retaining the ability to cross tracks when the time is right creates additional value 

What goes into a dual-track process? 

Significant analytical and structural work is required to prepare for both tracks simultaneously. Key workstreams include: 

• Financial modeling across exit scenarios 
• Tax structuring to optimize shareholder outcomes 
• Obtaining bids from capital markets for either track 
• Pre-transaction readiness to ensure internal operations, reporting, and governance are prepared for scrutiny 

Consulting with your trusted advisors who are experienced with IPO readiness, capital raises, and M&A transactions early in the process is a great first step.  When feasibility level financial analysis steps are complete, shareholders and management can pursue and push further into the dual-track process. 

Managing the demands of due diligence 

Before initiating a dual-track process, detailed planning will be required to ensure the proper resources are in place—both to keep the company’s core operations running uninterrupted and to provide timely support to due diligence efforts.  

Due diligence for a sell-side transaction involves the company’s internal team providing a significant amount of data and responding to advisor inquiries, including: 

• Internal reporting 
• Contracts 
• Historical information about the company 

An IPO process includes all of this work, plus working with outside counsel to handle the regulatory and compliance requirements of the Securities and Exchange Commission (SEC). 

How BerryDunn can help 

If you are considering either an IPO or a minority/majority sale transaction, BerryDunn professionals can help you assess your options and build a clear path forward. Our services include: 

• Valuations based on a myriad of exit options  
• Private market sale readiness (Quality of Earnings)  
• Management's Discussion and Analysis (MD&A)  
• Governance and control assessments for the Public Company Accounting Oversight Board (PCAOB) and Sarbanes-Oxley (SOX)  
• Compliance consulting with respect to disclosure  
• Dual-track readiness scorecard construction 

Learn more about our services and team. 

Read this if you are a compliance officer, revenue integrity director, clinical documentation improvement specialist, clinical documentation and coding auditor, or telehealth provider at a healthcare facility or medical practice.

The telehealth field is steadily changing as federal policymakers aim to keep patient access open while shaping long-term regulations. The Consolidated Appropriations Act of 2026 (H.R. 7148), signed into law on February 3, 2026, brought the biggest changes by extending major Medicare telehealth benefits for most services until December 31, 2027. Additionally, the US Department of Health and Human Services (HHS) updated its telehealth guidance, confirming these extensions and ensuring that Medicare beneficiaries in all regions continue to have broad access. 

Summary of telehealth extensions 

The new law and updated federal guidance preserve several significant telehealth flexibilities: 

• Home as an originating site: Medicare beneficiaries may continue to receive non-behavioral telehealth services from their residences, without geographic limitations, through 2027. 
• Expansion of eligible providers: Physical therapists, occupational therapists, speech-language pathologists, audiologists, and other qualified clinicians remain authorized to deliver telehealth services under Medicare. 
• FQHCs and RHCs as distant-site providers: Federally Qualified Health Centers (FQHCs) and Rural Health Clinics (RHCs) retain the ability to provide telehealth services, enhancing access for rural and underserved communities. 
• Audio-only telehealth options: Certain services may still be delivered via audio-only communication, supporting patients without reliable broadband or digital devices. 
• Behavioral health flexibilities: The requirement for in-person visits for tele-mental health services is waived until January 1, 2028, allowing continued virtual access to behavioral healthcare. 

Compliance requirements for telehealth providers 

While the extensions offer substantial continuity, providers must stay vigilant in meeting federal compliance expectations: 

1. Maintain documentation standards: Telehealth sessions are required to comply with Medicare's documentation standards. These include verification of patient identity, specification of the modality utilized, documentation of patient consent where applicable, and comprehensive clinical notes. Extensions do not alter or diminish these documentation requirements. 
2. Use approved platforms: Providers are required to utilize HIPAA-compliant technology whenever feasible, despite the expiration of certain enforcement flexibilities implemented during the COVID-19 era. Accordingly, the use of encrypted and secure platforms remains imperative. 
3. Track modality requirements: Since audio-only is allowed for specific services, clinicians need to carefully follow Medicare guidelines and choose the right method for each service. It's important to stay up to date by checking CMS bulletins and HHS telehealth policy updates regularly. 
4. Monitor state-level rules: Although federal extensions cover Medicare, state-specific telehealth laws, licensure agreements, and prescribing rules can vary. Healthcare providers delivering care across multiple states need to make sure they follow all relevant regulations in each jurisdiction. 

BerryDunn can help 

Recent telehealth extensions show that both political parties continue to back virtual care, ensuring its stability until at least the end of 2027. Healthcare providers should take advantage of these new flexibilities while continuing to carefully follow updated federal and state regulations. 

Our healthcare compliance team can help. We incorporate deep, hands-on knowledge with industry best practices to help your organization manage compliance and revenue integrity risks. Learn more about BerryDunn’s healthcare compliance consulting team and services. 

Read this article if you are a CFO, business owner, tax director, controller, investor, or CTO at a company with research and development expenses, and you want to help ensure compliance while maximizing your tax benefits.  

The research and development (R&D) tax landscape is undergoing significant transformation in 2026. While some provisions restore previous benefits, others introduce heightened compliance requirements that demand immediate attention from businesses claiming R&D deductions and credits.

The return of immediate expensing

Beginning with tax years after December 31, 2024, the One Big Beautiful Bill Act (OBBBA), passed in July 2025, reverses the five-year amortization requirement for domestic research expenses that had been in effect since 2022. Companies can once again deduct domestic R&D costs immediately, restoring a critical cash-flow advantage and eliminating one of the most burdensome compliance challenges of recent years. 

However, this relief comes with an important caveat: foreign research expenses remain subject to 15-year amortization. Businesses must continue to maintain separate tracking systems to distinguish between domestic and foreign R&D activities—a requirement that adds complexity to what might otherwise seem like a straightforward regulatory rollback.

Heightened IRS scrutiny and documentation standards 

While immediate expensing returns, the documentation burden intensifies. The IRS has significantly increased its scrutiny of R&D claims, and this trend shows no signs of abating in 2026. Companies must now provide more detailed, specific explanations of their research activities, demonstrate how each project qualifies for the tax credit, and clearly link expenses to qualifying activities. 

The agency now expects documentation that is: 

• Specific and organized 
• Based on robust, contemporaneous data collection throughout the research process 
• Supported by comprehensive records that can substantiate claims 

With audit activity on the rise, insufficient or vague records carry substantially higher risk than in previous years. While year-end compilation of documentation remains acceptable, it must be grounded in thorough, ongoing data collection and record-keeping systems established during the actual research activities. The key is ensuring that supporting documentation is comprehensive and can withstand scrutiny, regardless of when it is formally assembled. 

Updated Form 6765 requirements

Critical reporting changes have been incorporated into Form 6765, which now requires more upfront disclosure. After years of reviewing weak refund claims and resolving disputes, the IRS has pushed for clearer descriptions, better substantiation, and greater transparency. As of 2026, these enhanced expectations are the standard. 

Businesses must provide a comprehensive explanation of their R&D components, activities, and qualified expenses with their filing—not after questions arise. While the IRS extended the transition period for meeting updated R&D credit documentation standards to January 10, 2026, this grace period doesn't soften the underlying requirements. The new standards are permanent, and claims that fail to meet them will face greater pushback. 

Retroactive relief for 2022 – 2024

The legislation doesn't ignore businesses that were forced to amortize domestic R&D expenses during 2022 through 2024. Companies can take advantage of retroactive relief by deducting all remaining unamortized amounts in 2025, or by splitting the deduction between 2025 and 2026. 

Small businesses—defined as those with average gross receipts of $31 million or less—receive an additional option: they can amend their 2022 – 2024 returns to apply immediate expensing retroactively. This window remains open until the earlier of July 4, 2026, or statute of limitations, providing small businesses with meaningful opportunities to recapture lost cash flow from prior years. 

Strategic implications 

The 2026 changes present a dual reality: improved cash flow through immediate expensing, coupled with a substantially more rigorous compliance environment. The financial benefit is clear, but it comes with strings attached. 

Companies that invest in robust tracking systems and maintain contemporaneous documentation will be best positioned to maximize available incentives while withstanding IRS scrutiny. Those who delay implementing stronger documentation practices risk disallowances, penalties, and significant compliance costs down the road. 

The message is clear: take advantage of the restored immediate expensing benefit but do so with meticulous attention to documentation. The era of informal R&D record-keeping is definitively over. 

Payroll tax credit for early-stage startups

For early-stage startups that may not yet have federal income tax liability, the Section 41(h) payroll tax credit provides an essential mechanism to monetize research activities immediately. A Qualified Small Business (QSB)—defined as an entity with less than $5 million in gross receipts for the current year and no gross receipts dating back more than five years—can elect to apply up to $500,000 of its federal R&D credit against the employer's portion of payroll taxes. 

Following the passage of the Inflation Reduction Act, this credit first offsets the 6.2% Social Security (OASDI) tax and then applies to the 1.45% Medicare tax. To secure this benefit, the election must be made on the company's timely filed income tax return using Form 6765, and the credit is subsequently claimed on a quarterly basis via Form 8974 attached to the payroll tax return (e.g., Form 941). 

Key eligibility summary 

Gross receipts: Must be under $5 million for the tax year 

Five-year rule: No gross receipts for any year preceding the five-taxable-year period ending with the current year 

Annual cap: Up to $500,000 (increased from $250,000 for tax years beginning after December 31, 2022) 

Duration: The election can be made for a maximum of five taxable years

Alternative minimum tax relief for pass-through entities 

For pass-through entities such as S corporations and partnerships, the Alternative Minimum Tax (AMT) was historically a major barrier to utilizing the R&D tax credit. Because the credit is part of the General Business Credit, it generally cannot be used to reduce a taxpayer's tax liability below their Tentative Minimum Tax (TMT). This often meant that business owners who fell into the AMT net would see their R&D credits trapped as carryforwards, providing no immediate cash-flow benefit. 

The eligible small business exception 

Since 2016, the Protecting Americans from Tax Hikes (PATH) Act has provided critical relief for Eligible Small Businesses (ESBs). R&D credits for an ESB are treated as "specified credits," meaning they can be used to offset both regular tax and AMT. This is a "look-through" provision for pass-through owners with specific requirements: 

Entity qualification: The entity must be a non-publicly traded corporation, partnership, or sole proprietorship. 

The $50 million test: The business must have average annual gross receipts of $50 million or less for the three preceding taxable years. 

Shareholder/partner level: For the credit to offset AMT at the individual level, the owner must also separately meet the $50 million gross receipts test for that taxable year.

The 25/25 limitation 

While the AMT relief is a significant advantage, it does not allow the credit to eliminate tax liability entirely. The credit remains subject to a general limitation designed to ensure taxpayers maintain a minimum level of tax payment. Specifically, the R&D credit cannot reduce your tax below a calculated threshold based on your tax liability. In practical terms, this means that even qualifying businesses will retain some tax obligation after applying the credit—it cannot reduce your tax bill to zero. 

Next steps for R&D tax planning 

The convergence of beneficial tax treatment with stringent documentation requirements makes 2026 a pivotal year for R&D tax planning. Companies should: 

• Review and strengthen R&D documentation processes immediately. 
• Implement contemporaneous tracking systems for all research activities. 
• Assess eligibility for retroactive relief opportunities. 
• Ensure clear segregation between domestic and foreign R&D expenses. 
• Update Form 6765 preparation procedures to meet enhanced standards. 
• Evaluate eligibility for the payroll tax credit if your startup qualifies as a QSB. 
• Determine whether your pass-through entity and its owners meet the ESB criteria for AMT relief. 

BerryDunn can help 

To ensure compliance and maximize your R&D tax benefits under the new 2026 framework, contact your BerryDunn accounting and tax advisors today. Learn more about our team and services.  

Read this if you are a manager, executive director, or CFO at a private foundation. 

Charitable organizations play a vital role in addressing social issues, supporting communities, and promoting public welfare. As part of their mission, these organizations often make direct charitable expenditures to fund projects, provide services, and support individuals in need. However, with the privilege of tax-exempt status comes the responsibility to ensure that funds are used appropriately and in compliance with regulatory requirements. One crucial aspect of this compliance is expenditure responsibility, a concept that ensures charitable resources are used for their intended purposes. 

In the third and final installment of our trilogy, we will follow the McQueen Family Foundation in making their charitable expenditures to ensure that they meet their qualifying distributions.

What counts as a charitable expenditure? 

A private foundation may spend money on a wide range of activities that support its charitable mission. The IRS allows expenditures that advance the foundation’s exempt purposes, including grants, program activities, and necessary administrative costs. 

All expenditures, whether grantmaking or operational, must be reasonable and necessary to advance the charitable mission. While the IRS does not define these terms precisely, foundations typically evaluate reasonableness by comparing expenses to those of similar organizations. 

Qualified expenditures may include: 

• Program‑related investments 
• Administrative expenses necessary to support grantmaking or charitable activities 
• Professional fees essential for compliance and operations 

Such expenditures also help satisfy the foundation’s annual minimum distribution requirement. 

Planning tip for private foundations 

Donating appreciated stock is a common and effective strategy for private foundations to fulfill their qualifying distribution requirements. When a private foundation donates publicly traded securities or other appreciated assets directly to a qualifying charitable organization, the transaction can count as a qualifying distribution, provided it meets all IRS guidelines. By donating stock, the foundation not only satisfies its minimum payout obligations but also avoids realizing capital gains, maximizing the value of the charitable gift. 

To ensure the donation is properly treated as a qualifying distribution, the foundation must transfer the stock outright to a public charity or another eligible recipient, without imposing restrictions that would prevent the recipient from fully enjoying the asset. The value of the distribution is generally the fair market value of the stock on the date of transfer, and appropriate documentation—such as transfer records and acknowledgment from the recipient organization—must be maintained for compliance. This approach allows foundations to leverage their investment assets for greater philanthropic impact while aligning with IRS requirements. 

Prohibited and taxable expenditures 

Not all spending is permissible. Certain expenditures are classified as taxable expenditures under IRC § 4945, and engaging in them can result in substantial penalties for both the foundation and its managers. 

Examples of taxable expenditures: 

• Lobbying or attempts to influence legislation 
• Political campaign intervention 
• Grants to individuals or organizations without following expenditure responsibility rules 
• Activities providing private benefit or self-dealing 
• Non-charitable purposes not aligned with the foundation’s exempt mission 

Expenditure responsibility: Ensuring proper use of funds 

Expenditure responsibility is a legal and ethical obligation imposed on charitable organizations, particularly private foundations, when paying grants and expenditures to entities that are not public charities. The purpose is to ensure that grant funds are used solely for charitable purposes and not diverted for personal or non-charitable use. 

The Internal Revenue Service (IRS) requires private foundations to exercise expenditure responsibility by following a series of steps when making such grants. By exerting all reasonable efforts and establishing adequate procedures that (1) see the expenditure is spent solely for charitable or other permissible purpose which it was made, (2) obtain full and complete reports from the grantee demonstrating how funds were spent, and (3) make full and detailed reports to the IRS a private foundation can be considered to be exercising expenditure responsibility. Failure to meet these requirements can result in penalties or loss of tax-exempt status.

Key steps in exercising expenditure responsibility 

1. Pre-grant inquiry: Before making a grant, the foundation must assess the grantee's ability to use funds for charitable purposes. This may involve reviewing the grantee's mission, financials, and past performance. 
2. Written agreement: The foundation must enter into a written agreement with the grantee, specifying the charitable purpose of the grant, prohibiting non-charitable uses, and outlining reporting requirements. 
3. Monitoring and reporting: The grantee is required to submit periodic reports detailing how the funds were used and the progress of the funded project. The foundation must review these reports to ensure compliance. 
4. Recordkeeping: The foundation must keep detailed records of the grant, the agreement, reports received, and any actions taken in response to issues or concerns. 
5. IRS reporting: The foundation must report the grant and its expenditure responsibility activities on its annual tax filings, such as IRS Form 990-PF. 

Best practices for charitable organizations 

To maximize impact and comply with legal requirements, charitable organizations should: 

• Develop clear policies for direct charitable expenditures and grants. 
• Train staff in compliance and expenditure responsibility. 
• Maintain transparent and accurate records. 
• Regularly review and update agreements and reporting procedures. 
• Engage with legal and financial experts as needed. 

The McQueen Family Foundation accepts grant applications to help them decide which organizations they should grant money to each year. The grant applications include the ways in which the grant funds will be used by the grantee. Once the McQueen Family Foundation approves a grant, there is a written contract where the grantee agrees to use the funds for the intended purpose. The contract also requires that the grantee submit a quarterly report detailing how grant funds have been spent. If the grantee ultimately determines that they cannot spend all the grant funds as intended, the remaining funds are returned to The McQueen Family Foundation. The foundation then includes these statements with their annually filed Form 990-PF for grantees that are not public charities. 

Strengthening your charitable expenditure compliance 

Charitable expenditures are central to a private foundation’s mission, but they must be made within a detailed IRS regulatory structure. Permissible expenditures include grants, operational activities, and reasonable administrative costs—all aimed at advancing charitable goals. Foundations must also adhere to annual distribution rules and avoid taxable expenditures that could trigger excise taxes and jeopardize their exempt status. By exercising expenditure responsibility, organizations not only comply with legal standards but also build trust with donors, beneficiaries, and the public. Adhering to best practices ensures that charitable resources make the greatest possible impact while safeguarding the integrity of the organization. 

Our nonprofit tax team has deep expertise in private foundation compliance and strategy and understands the unique challenges that come with tax planning, governance, and financial sustainability. We provide specialized guidance on IRS regulations, minimum distribution requirements, excise taxes, and complex accounting matters, ensuring foundations remain compliant while optimizing their financial strategies. Learn more about our team and services. 

On February 20, 2026, the US Supreme Court issued a ruling on Learning Resources, Inc. v. Trump, a case challenging President Trump’s authority to impose tariffs under the International Emergency Economic Powers Act (IEEPA). In a 6-3 vote, the US Supreme Court ruled that IEEPA does not permit the President to impose tariffs.

Tariffs imposed under IEEPA

Prior to this ruling, the Trump Administration imposed significant tariffs under IEEPA. This law authorizes the President to act to address any unusual or extraordinary foreign threat that endangers national security, foreign policy, or the economy in the US if a national emergency is declared. President Trump declared such an emergency on April 2, 2025, citing the trade deficit and illegal immigration. The subsequent tariffs include:

• 10% minimum tariff on most imports
• 50% tariff on copper, steel, and aluminum
• 20 – 40% tariffs on most goods from Brazil, India, Canada, Mexico, and China

How can importers request refunds?

These tariffs are estimated to generate $175 billion in refunds for affected importers. Although the Court’s decision does not provide guidance on how importers should be refunded for these previously paid tariffs, it is expected that a refund procedure will be established through either the US Court of International Trade or US Customs and Border Protection (CBP). To prepare for these refunds, importers should:

• Compile entries and payment records related to IEEPA duties.
• Submit CBP Form 19 protests within 180 days of each entry’s liquidation, if not done so already. This 180-day deadline may be waived when refund procedures are established.
• Prepare for possible litigation in the US Court of International Trade.

What's next? 

While this is a significant “win” for US importers, Trump has asserted that he will continue to impose tariffs via alternative statutes that allow him to act. While these statutes may authorize the President to impose tariffs, these authorities are limited by time-based restrictions or approval from other governmental parties.

How BerryDunn can help

Our dedicated audit, tax, and consulting professionals understand the impact of tariffs and can assist with developing strategies for refunds as they become available. Learn more about our team and services.