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Each year, more utility leaders realize they are playing catch up in providing the online experience their customers expect.  And, each year, the bar gets higher. Easy self-service options, real-time updates, and responsive support have become the norm. As a result, today’s utility customers bring those same expectations to every interaction.

For local government utilities, this shift presents an opportunity to enhance customer service through the alignment of systems that support it. When the Customer Information System (CIS) and Constituent Relationship Management (CRM) platforms are intentionally integrated, they do more than manage billing and service requests. Together, they enable a more connected, customer-centered experience—one that supports frontline staff, improves communication and responsiveness, and helps the organization continuously elevate the level of service it provides.

Why CIS and CRM need each other

CIS and CRM each play critical roles. 

• CIS is the system of record for customer billing and account data. It manages billing, meter data, service orders, and account history with precision and regulatory reliability.
• CRM is the system of engagement. It captures customer interactions, tracks cases, and enables communication across channels.

The challenge arises when these systems operate independently instead of in partnership. Without integration, service teams lack visibility into billing context, customers receive inconsistent information, and departments are forced to rely on manual workarounds.

When CIS and CRM are aligned, utilities close those gaps. Staff gain a full view of the customer, not just an account number, and customers experience service that feels coordinated rather than fragmented.

Meeting utility customers where they are

Utility customers now expect choice in how they interact, whether that’s through:

• Self-service portals and mobile apps
• Text/SMS notifications, IVR, or live chat
• Phone calls, emails, or in-person visits

A well-integrated CIS–CRM ecosystem makes omnichannel service manageable rather than chaotic. For example:

• A missed payment in CIS can automatically trigger a CRM workflow that sends reminders via email or SMS.
• An outage recorded in CIS can generate proactive alerts and populate CRM cases before customers ever call.
• A customer service representative can see billing history, prior complaints, and active service orders in one place—reducing handle time and improving resolution quality.

The result directly improves the customer experience while reducing call volumes and making more efficient use of limited staff resources; outcomes that are essential for public sector utilities.

Customer-centered configuration for utilities

Technology alone does not create a better customer experience. Design decisions often made early and quietly determine whether systems enable service excellence or reinforce silos.

Leading utilities focus on three design principles:

A single source of truth: Disparate systems with conflicting or incomplete data erode trust internally and externally. Strong CIS–CRM integration ensures consistent account, contact, and service data across departments. The result is fewer handoffs, less rework, and greater confidence in every customer interaction.

Workflow alignment with real customer journeys: Utilities deliver better service when workflows are designed around real-world scenarios and support how customers actually engage for issues like reporting a leak, disputing a bill, or requesting a payment plan. Technology should offer intuitive experiences, promote efficient resolution paths for staff, and reflect the customer journey, not how the utility is structured.

Empowered staff through visibility and training: Even well-designed systems fall short without strong adoption. Role-based training, intuitive interfaces, and clear ownership help employees understand not just how to use the tools, but how those tools support better outcomes for customers and the community.

Looking ahead: self-service, AI, and trust

Digital self-service is no longer a convenience; it is a core expectation. Usage dashboards, account management tools, and digital payment options give customers greater control over their accounts while reducing routine inquiries and freeing up staff to focus on more complex needs.

Emerging AI-enabled capabilities—such as high-bill alerts, outage prediction, and customer sentiment analysis—offer even greater potential to improve service and responsiveness. But for public utilities, these tools must be grounded in:

• Clean, well-governed data as the foundation
• Clear policies that prioritize transparency and explainability
• A deliberate focus on assistance and insight, not automation for its own sake

When implemented responsibly, AI enhances—not replaces—the human relationships at the heart of public service, helping utilities respond more proactively while preserving accountability and trust.

Key takeaways for utility leaders

• Prioritize data quality and integration early. It’s harder, and costlier, to fix later.
• Configure with intention. Limit unnecessary customization that adds technical debt and constrains future flexibility.
• Design around customer outcomes. Internal efficiency should support, not compromise, clarity, accessibility, and service quality.
• Treat CIS and CRM as strategic assets. Together, they enable trust, operational resilience, and long-term community relationships.

The goal is not to simply implement systems, but to strengthen the relationship between utilities and the communities they serve. CIS and CRM are not competing platforms; they are complementary tools. When thoughtfully aligned, they provide a foundation for responsive service, informed decision-making, and sustained public trust.

Through intentional CIS–CRM integration, utilities can move beyond reactive service models toward proactive, customer-centered engagement, delivering experiences that are not only more efficient, but genuinely customer-centered.

Interested in exploring how your utility can better align CIS and CRM? Let’s start designing a customer experience that truly connects you and your customers.

About BerryDunn

BerryDunn has a proven methodology for CIS and CRM system selection and implementation—one grounded in public-sector experience and tailored to each client’s unique needs. Our independence from vendors ensures that every recommendation serves the best interests of our clients. From early assessment to go-live support, we guide local governments and utilities through transformative CIS and CRM projects with clarity, rigor, and collaboration.

Focused on inspiring organizations to transform and innovate, our Local Government Practice Group partners with municipal, county, regional, and quasi-governmental entities throughout the US to help them meet their biggest challenges. Learn more about our team and services. 

Most tax professionals know about amended returns. Fewer, however, use the superseded return strategically, and that's a missed opportunity. Here's the key distinction: an amended return supplements your original filing. A superseded return replaces it. Similar paperwork, completely different legal effect. The deciding factor is timing. 

Before the deadline? You're superseding. After? You're amending. As long as you file the second return before the extended due date, including any valid extensions, the IRS treats that second filing as the return. The first one essentially never existed.

Why that matters 

The practical implications are bigger than they might look on the surface. 

Irrevocable elections become revocable. Many tax elections, including Section 179 expensing and installment sale treatment, are locked in once you file. Except they're not, if you haven't passed the deadline yet. Because a superseded return is treated as the original, you can revisit those elections. Once the deadline passes, that window closes. 

The statute of limitations clock doesn't move. This is where it gets interesting, and where a lot of people have an intuition that turns out to be wrong. 

Under IRC § 6501(b)(1), if you file early, the IRS treats your return as filed on the original due date, not your actual filing date. Treasury Reg. § 301.6501(b)-1(a) is explicit that the "last day prescribed by law" is determined without regard to any extension. So, the three-year assessment clock starts on April 15 (for most individual returns), period.

Filing an extension after you've already submitted your return doesn't push that clock. Whether you file on March 1 and then pull an extension on April 15, or you file on April 15 with no extension at all, the IRS's three-year window to assess additional tax ends three years from April 15. The extension doesn't help you there. 

What the extension does do is keep the superseding window open. That's the real value. CCA 202026002 confirms that filing a superseding return during the extension period doesn’t reset the Assessment Statute Expiration Date (ASED) either, so there's no downside from a statute standpoint. You get the flexibility to revise your return without giving the IRS more time to audit it. That's a good trade. 

The strategic play: File taxes early, supersede later 

One of the most underused applications of this tool involves regulatory uncertainty, and we see this more than you might expect. 

When a complex tax issue is in flux (think: IRS hasn't released final guidance yet, but the filing deadline isn't waiting), we'll often file an extension and submit an initial return within days of the original due date. That extension creates a window. If clarifying guidance drops during those six months, we can supersede and adopt the better position as the "original" return.

That's meaningfully better than filing an amended return, which tends to draw more scrutiny and explicitly flags the position change.

The partnership angle: BBA centralized audit regime 

For partnerships under the Bipartisan Budget Act of 2015 (BBA) centralized audit regime, this strategy carries extra weight. The normal path for correcting a prior-year partnership return runs through an Administrative Adjustment Request (AAR), a cumbersome process that can trigger partnership-level tax calculations and push-out elections to partners. 

A superseded partnership return sidesteps the AAR process entirely, as long as you're still within the extension window. Cleaner, faster, and far less administrative overhead. 

One important caveat: Check state tax laws 

Federal treatment is one thing. State treatment is another, and they don't always follow the same rules. 

On the statute of limitations side, many states have their own assessment periods that run independently from the federal ASED (Assessment Statute Expiration Date). Some states do conform to the IRC § 6501 framework, but others use different base periods or have their own deemed-filed rules. You can't assume a federal extension or a federal superseding return has the same clock implications at the state level. 

On the mechanics side, not every state has a formal "superseded return" lane in their processing systems. When you supersede federally, you may still need to file the state's standard amended return form, even if what you're doing at the federal level is a superseding filing. Some states will even require an explanatory statement when the federal original changes without a corresponding state amendment. 

The exposure points to watch: 

• States that don't recognize the superseded return concept may treat your second filing as an amended return, with the penalty and interest implications that come with that.
• State conformity to federal extension rules varies, so a valid Form 4868 or 7004 doesn't automatically extend your state filing window in every jurisdiction.
• A few states start their own assessment clock from the date of actual filing rather than the original due date, which means an early federal filer might face a different state ASED calculation entirely.

The short version: always validate state treatment before relying on this strategy for multistate filers. What's elegant at the federal level can create friction at the state level if you don't check the map.

The superseded tax return: A planning tool 

The superseded return isn't a workaround. It's a legitimate planning tool built into the tax code. Used correctly, it gives taxpayers more flexibility, cleaner penalty exposure, and a more defensible position with the IRS, all without extending the window the IRS has to come after you. If your advisor isn't talking to you about this before extended deadlines, it's worth asking why. 

BerryDunn’s tax consultants offer expertise for large corporations and small businesses alike. We keep abreast of the latest updates, laws, and regulations to make sure our clients are in compliance with all reporting obligations. Learn more about our team and services. 

This article is written for local government IT directors and technology leaders who are tasked with keeping critical systems running while navigating limited budgets and competing priorities.

Imagine a storm hits your community and there is widespread property, infrastructure, and facility damage; the emergency dispatch center goes dark, some facilities have power but most do not, powered computers show no network or internet connectivity, employee paychecks or vendor payments are delayed, and utility infrastructure asset information is not available. All because the technology supporting these mission-essential functions failed.

In local government, whether in city hall, county administration, or town offices, technology is often a critical dependency that keeps essential government services operational. When these systems go down, disruptions are often immediate and public. The stakes are high: lives might be at risk, critical payments can stall, and the public’s trust can quickly diminish.

In the aftermath, tough questions surface: what went wrong, and why were we not ready? Yet, despite these risks, many local governments still rely on informal, outdated, or generic business continuity (BC) and disaster recovery (DR) plans that simply are not up to today’s challenges.

Why business continuity and disaster recovery matters

At its core, BC/DR planning is about ensuring that essential services can continue, or be restored quickly, when disruption occurs. For local governments, these disruptions are not theoretical. Cyberattacks, severe weather, infrastructure failures, power outages, hardware failures, and even the sudden loss of key personnel are increasingly common events. Each of these scenarios has the potential to interrupt services that constituents expect to be available without interruption.

What makes BC/DR planning especially critical for local governments?

Unlike private organizations, local governments cannot simply pause operations, delay service delivery, or shift their focus until systems are restored and operations can continue. Public safety, public health, revenue collection, elections, social services, and regulatory responsibilities must continue, even under degraded conditions.

A BC/DR program provides a structured way to protect sensitive data, maintain service availability, and reduce the overall impact of disruptions. Just as importantly, it demonstrates due diligence and responsible stewardship of public resources, which is an expectation that citizens, auditors, and regulatory agencies increasingly share.

The local government reality: Challenges that shape BC/DR planning

While the need for BC/DR planning is clear, local governments face a set of challenges that make implementation more complex than in many private-sector environments. Through our work with hundreds of local governments, we’ve consistently seen these realities shape both planning efforts and funding decisions.

Budget constraints are often the most visible challenge. IT departments are routinely asked to do more with less, and technology investments must compete with highly visible community priorities such as public safety equipment, infrastructure projects, and staffing needs. Because BC/DR initiatives are preventive by nature, their value can be difficult to articulate when systems are functioning normally. The absence of recent incidents can create a false sense of security, even as risks continue to grow.

Many local governments are also managing significant technical debt. Core systems supporting finance, payroll, permitting, utilities, and public safety are often built on legacy platforms that were not designed with modern resiliency in mind. These systems may lack robust backup or replication capabilities or may require specialized knowledge to restore.

Adding to this complexity is the high level of public and political visibility local governments face. When systems fail, the disruption is immediately apparent to constituents and often amplified through media coverage and social channels. As a result, BC/DR planning is not just a technical concern; it is a matter of governance, accountability, and public trust.

Making the business case

For IT directors seeking funding, the most effective BC/DR business cases move beyond technical details and focus on organizational risk. Senior leadership and governing boards are less concerned with specific technologies than they are with the potential impact on services, finances, and reputation.

Framing the conversation in terms of service availability helps decision-makers understand what is truly at stake. Questions such as how long payroll can be unavailable, how long emergency dispatch systems can tolerate downtime, or what happens if utility billing is delayed are far more effective than discussions about backup schedules or infrastructure components.

Financial considerations are equally important. Downtime can lead to lost revenue, overtime costs, emergency contracts, and regulatory penalties, all of which directly affect the organization’s fiscal health.

Legal, compliance, and reputational risks represent a significant role in the business case. Data loss, missed statutory deadlines, or failures in public records systems can expose local governments to audits, litigation, and public scrutiny. By translating technical vulnerabilities into operational and financial terms, IT leaders can help stakeholders see BC/DR not as an IT expense, but as a core risk management investment.

While not every risk can be precisely quantified, even reasonable estimates can be powerful. Understanding the cost of downtime, the number of employees or constituents affected by an outage, and the frequency of incidents in peer communities provides valuable context for funding discussions. BerryDunn’s consulting team regularly works with local governments to bridge this gap, helping leaders communicate risk in ways that align with executive and board-level priorities.

What a formal BC/DR program looks like in practice

A formal business continuity and disaster recovery program is an ongoing, governance‑driven effort, not a one‑time plan or technology purchase. Effective programs share several core components:

Clear ownership and governance

• Designated program ownership and executive sponsorship
• A defined governance structure and regular review cadence
• Alignment with organizational priorities and decision‑making processes

Business impact–driven planning

• A business impact analysis (BIA) that identifies critical services based on defined financial, regulatory, and operational impact criteria
• Documentation of key dependencies across systems, vendors, and staff
• Defined recovery targets, including acceptable downtime and data loss

Risk and continuity strategies

• Risk treatment and continuity strategies tailored to priority services
• Coverage across facilities, staffing, technology, third‑party providers, and communications
• Practical strategies aligned with available resources and constraints

Actionable recovery documentation

• Disaster recovery runbooks that translate strategy into step‑by‑step recovery actions
• Clearly assigned roles and responsibilities
• Current, accessible documentation that reflects the environment as it exists today

Testing, measurement, and improvement

• Regular exercises, from tabletop scenarios to full recovery tests
• Structured tracking and resolution of gaps identified during exercises
• Ongoing measurement using metrics such as recovery time objectives (RTOs), recovery point objectives (RPOs), test success rates, and mean time to recovery (MTR)

Over time, these elements work together to create accountability, validate readiness, and support continuous improvement—ensuring the program evolves alongside organizational and technology changes.

How BerryDunn can help

BerryDunn works with local governments across the country and understands that successful BC/DR programs must be practical, scalable, and aligned with the individual local government’s priorities. Our approach is grounded in a combination of our local government knowledge and application of best practice frameworks.

We work collaboratively with IT leaders, department heads, and executive teams to identify what truly matters to their communities, prioritize investments based on risk and impact, and communicate clearly with leadership and governing bodies. By right-sizing solutions and aligning them with governance and budgeting processes, we help local governments build BC/DR programs that are sustainable over time. Learn more about our team and services.

According to the US Department of Housing and Urban Development’s (HUD’s) 2024 Annual Homelessness Assessment Report, nearly 770,000 people experienced homelessness on a single night in January 2024, an 18% increase from the prior year and the highest total since point-in-time counts began in 2007. Family homelessness surged by almost 40%, and unsheltered homelessness grew in parallel, with more than one-third of all unhoused individuals living in tents, vehicles, encampments, or other places not meant for human habitation. Chronic homelessness also reached a record high, with over 152,000 people experiencing long-term or repeated episodes of homelessness; nearly two-thirds were unsheltered.

The Supplemental Nutrition Assistance Program (SNAP) is one of the most effective stabilizers for extremely low-income households, reducing food insecurity by up to 30% and lowering downstream healthcare costs, according to research from the University of Pennsylvania Leonard Davis Institute of Health Economics and Harvard Public Health scholars. For people experiencing homelessness, particularly those who are unsheltered, SNAP access often determines whether limited resources can be redirected toward transportation, medical care, or pathways into housing.

The H.R. 1 One Big Beautiful Bill Act (OBBBA) marks a critical turning point. By expanding Able Bodied Adults Without Dependents (ABAWD) requirements and tightening SNAP and Medicaid eligibility, the bill reshapes access to public assistance programs that help prevent people from falling deeper into homelessness. New compliance hurdles threaten food security for many unsheltered individuals who cannot realistically meet the documentation and work requirements. The OBBBA ABAWD expansion points to the need for a new statewide approach to unsheltered homelessness that better supports the safety and health of unsheltered families.  

Why unsheltered adults are most at risk under ABAWD rules 

Under OBBBA, SNAP eligibility and participation rules are significantly tightened through an expansion of ABAWD requirements. The law extends SNAP time limits to all adults ages 18-64 and eliminates the longstanding exemption for people experiencing homelessness. Individuals subject to ABAWD rules must now document at least 80 hours per month of work, job training, or qualifying volunteer activities to maintain benefits. OBBBA also narrows overall SNAP eligibility, resulting in benefit losses for additional groups, including certain immigrants, such as asylees and parolees, individuals with deportation withheld, and individuals exiting the foster care system.

These changes have particular implications for people experiencing homelessness, for whom meeting work and reporting requirements is often far more difficult. Unhoused individuals frequently lack a permanent address, reliable transportation, or consistent access to phones, internet, or mail. Lost identification documents, irregular schedules, and high rates of chronic physical and behavioral health conditions further limit their ability to document hours or navigate verification systems. Older unhoused adults, now newly subject to ABAWD rules, often face compounded barriers due to health conditions or unstable work histories. 

At the same time, OBBBA increases administrative and reporting demands across SNAP. For individuals without stable housing, these added requirements raise the risk of procedural disenrollment even when eligibility criteria are technically met. As SNAP access declines, food insecurity among people experiencing homelessness is expected to increase, shifting greater demand onto food pantries, shelters, and other emergency food providers. Estimates from the Urban Institute suggest that nearly 700,000 young adults could lose some or all SNAP benefits each month under expanded work‑reporting rules, underscoring the scale of potential impact.

SNAP ABAWD requirements: Before and after OBBBA 

OBBBA significantly expands SNAP ABAWD requirements, removing the longstanding homelessness exemption and increasing documentation and work reporting expectations. 

What states can expect 

States must now implement expanded ABAWD rules under far tighter federal expectations. OBBBA increases state administrative cost‑sharing for SNAP and adds new sanctions, reporting mandates, and verification requirements, creating significant fiscal and operational strain for human services agencies already managing complex caseloads. 

OBBBA’s SNAP changes result in: 

• Increased administrative costs and cost-sharing 
• Need to modify systems and technologies 
• Close workforce and provider capacity gaps, such as workforce training slots, subsidized employment programs 
• Documentation bottlenecks and backlog due to increased reporting and verification requirements 
• Concerns over equity impact, including older adults, individuals with disabilities, and vulnerable populations 
• Increased pressure on emergency services 
• Additional pressure on community partners and systems as more people lose benefits 

Collectively, states face greater fiscal pressure: increased responsibility for SNAP administration and rising demand from individuals who have become newly food‑insecure. 

What can states do? 

States can consider the following strategies across eligibility, workforce, and employment programs to mitigate these risks. 

1. Strengthen ABAWD Screening and Exemption Identification 

With the elimination of the homelessness exemption, states must ensure all remaining exemptions are identified early and accurately, particularly physical or mental unfitness for work, which is highly prevalent among unsheltered adults. States can: 

• Partner with community health centers and behavioral health providers to rapidly document qualifying impairments

• Train eligibility workers, outreach teams, shelter staff, and case managers to flag individuals likely to qualify for exemptions

2. Build Direct Pathways into SNAP Employment & Training (E&T) 

For individuals unable to secure consistent work hours, E&T will become a primary compliance pathway. States can: 

• Co-design low-barrier, trauma-informed E&T tracks with homelessness providers

• Ensure programs are flexible, accessible, and supported by transportation or virtual options

3. Co-locate Eligibility Services in Homelessness Settings 

Preventing procedural terminations will require bringing eligibility services directly to people experiencing homelessness. States can: 

• Deploy mobile eligibility teams to shelters, encampments, day centers, meal sites, and transitional housing
• Embed SNAP, Medicaid, and workforce eligibility staff in high-volume service providers, including behavioral health clinics and social service providers
• Establish rapid recertification stations to assist with reporting, documentation, and renewals
• Partner with libraries and community centers to provide digital access, printing, and identity verification support

4. Coordinate SNAP, Medicaid, and housing systems 

Because OBBBA also imposes Medicaid cuts and work requirements, cross-program coordination is essential to maintain stability. States can: 

• Integrate data systems to trigger alerts when individuals lose benefits or fall out of compliance

• Create unified outreach teams spanning SNAP, Medicaid, and housing services

5. Strengthen housing placement infrastructure 

Loss of nutrition and health benefits increases the risk of prolonged homelessness, making housing exits more urgent. States can: 

• Expand supportive housing for chronically homeless adults newly subject to ABAWD requirements. 

• Increase landlord engagement and mitigation funds to shorten placement timelines. 

• Integrate housing navigation into SNAP and Medicaid case management. 

6. Reduce administrative burden 

Expanded ABAWD rules significantly increase administrative demands. To reduce churn and unnecessary benefit loss, states can: 

• Automate work hour reporting and simplify notices. 
• Implement presumptive eligibility for high-risk populations while documentation is gathered. 
• Expedite renewals and recertifications for individuals facing termination due to administrative barriers. 

State strategies to mitigate ABAWD-related risk 

States can mitigate the impact of expanded ABAWD requirements through coordinated eligibility, workforce, housing, and administrative strategies. 

OBBBA’s expanded ABAWD time limits and massive cuts to SNAP arrive at a moment of rising unsheltered homelessness, shrinking safety nets, and deepening public health risks. The combination threatens to push thousands of adults into homelessness while overwhelming state systems. By recognizing the convergence of ABAWD rules and unsheltered homelessness and responding proactively, states can prevent avoidable harm, reduce long-term costs, and stabilize residents on the brink. 

BerryDunn can help

Our human services consulting team works with you to help build sustainable programs that support the safety and well-being of children, youth, and families, while supporting the professionals who serve them. We work with agencies to leverage information and drive data-based decision-making for interested parties to create more stable environments that support the reduction in vulnerability among children, youth, and families. Learn more about our team and services. 

Read this if you are a finance director or executive director at a public housing agency.

Beginning with calendar year 2026, public housing agencies (PHAs) will be required to submit an annual Federal Financial Report (SF-425) for each operating subsidy grant. Reporting will continue annually until all funds are fully expended or returned to HUD. These changes reflect HUD’s increased focus on transparency, grant life cycle oversight, and compliance monitoring. 

Key changes to SF-425 

Under the updated guidance: 

• PHAs must submit annual SF-425s at the Asset Management Project (AMP) level, due annually on April 30, throughout the seven-year period of performance. 
• The order of operating expenditures has been reaffirmed, requiring rental income to be expended before operating subsidy. 
• Monthly operating subsidy draws remain permitted, but unspent subsidy may be reported as unearned revenue until eligible costs are incurred. 
• Nonrental program income may be retained and used flexibly, including for Section 8 purposes or to benefit residents. 
• PHAs must perform annual interest calculations on federal funds, retaining up to $500 and returning excess interest to HUD. 
• Record retention and compliance requirements have expanded, with sanctions possible for noncompliance. 

Increased visibility into Operating Fund dollars for HUD 

These changes significantly expand HUD’s visibility into how Operating Fund dollars are drawn, spent, and retained over time. PHAs that do not align their accounting practices, grant tracking, and documentation with the updated SF-425 framework may face increased monitoring, reporting burdens, or enforcement actions. Early preparation can help agencies preserve liquidity, reduce compliance risk, and avoid operational disruption as HUD enhances oversight.

Action steps for PHAs 

PHAs should begin preparing now by taking the following steps: 

• Review accounting policies to ensure rental income, nonrental income, and operating subsidy are properly tracked and reported. 
• Evaluate grant tracking systems to support multiyear SF-425 reporting through the full period of performance. 
• Confirm interest calculation methodologies and establish processes to return excess interest timely. 
• Train finance and program staff on the revised order of operating expenditures and reporting requirements. 
• Assess record retention practices to ensure compliance with extended retention timelines tied to final SF-425 submission. 

BerryDunn can help 

We understand that affordable housing organizations are unique and dynamic organizations with specific challenges and opportunities. Our commitment to specialization provides our clients with a team of specialists who understand the complex accounting, regulatory, and tax issues of affordable housing organizations. We have experience with affordable housing agencies subject to audits under both FASB and GASB, as well as the various tax credits available, HUD compliance, annual Real Estate Assessment Center (REAC) submissions, and other compliance matters. Learn more about our team and services. Reach out to discuss how your organization can prepare for the upcoming changes. 

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.