What Is the 33% Rule for Nonprofits?

If you run or manage a nonprofit organization, you may have heard about the “33% rule” and wondered what it actually means for your compliance, fundraising, and financial reporting.

The short answer:
the 33% rule is not a single federal law. Instead, it is an informal term used to describe two different compliance concepts that nonprofits commonly encounter:

Public support testing under IRS rules.
State charitable solicitation oversight related to fundraising efficiency.
Understanding both is important, because misunderstandings can lead to IRS classification problems or state regulatory scrutiny.

Below is a clear, factual breakdown.

1. The 33% Public Support Test (IRS)

For organizations classified as public charities (rather than private foundations), the IRS requires that a significant portion of support come from the general public.

Under Internal Revenue Code §509(a)(1) and §170(b)(1)(A)(vi):

A nonprofit generally must receive at least 33⅓% of its total support from public sources over a rolling five-year period to automatically qualify as a publicly supported charity.

What counts as “public support”?

Public support typically includes:

Individual donations
Small contributions from many donors
Government grants
Gifts from other public charities
It excludes or limits:

Large donations from a single donor
Support from disqualified persons
Investment income
Why this matters

Failing this test can cause the IRS to reclassify an organization as a private foundation, which triggers:

Mandatory minimum distributions
Excise taxes
Increased reporting obligations
Greater donor restrictions
Many nonprofits are surprised by this shift because it can happen quietly over time if fundraising becomes too concentrated.

2. The “33% Rule” in State Fundraising Oversight

Separately from the IRS, many state charity regulators monitor how nonprofits spend donated funds.

While rules vary by state, regulators commonly examine whether an organization is directing a reasonable portion of contributions toward its charitable mission rather than administrative or fundraising costs.

Some practitioners loosely refer to a “33% rule” to describe situations where:

Fundraising expenses exceed roughly one-third of revenue, or
Program spending falls too low compared to overhead
Important:
There is no universal national 33% fundraising law.

Instead, states evaluate:

Financial efficiency
Program service ratios
Whether solicitations may be misleading
Whether donors are receiving proper disclosures
High fundraising costs do not automatically violate the law, but they can trigger audits, deficiency letters, or registration delays.

Common Misconceptions

❌ “It’s illegal to spend more than 33% on fundraising.”

False. There is no federal statute setting a hard 33% cap.

❌ “The 33% rule applies to all nonprofits.”

Incorrect. The IRS public support test only applies to organizations seeking public charity status.

❌ “Charity watchdog ratings determine legality.”

Watchdog scores are not regulators. Only the IRS and state agencies enforce compliance.

How This Impacts Your Organization

If your nonprofit:

Fundraises in multiple states
Has a small donor base
Relies heavily on one or two major contributors
Uses professional fundraisers
Is growing rapidly
you should actively monitor:

Public support percentages
Program vs. fundraising ratios
State charitable registration filings
Required financial disclosures on your website and donation pages
These issues often surface during annual renewals or state reviews, not when donations are first received.

How Nonprofit Compliance Pros Helps

At Nonprofit Compliance Pros, we work directly with organizations nationwide to:

Monitor IRS public support thresholds
Prepare and file charitable solicitation registrations and renewals
Review fundraising structures for compliance risk
Track state-specific disclosure requirements
Support remediation when ratios or registrations fall out of compliance
Many nonprofits only discover problems after receiving a regulator notice. Our goal is to prevent that.

Final Takeaway

The “33% rule” is not a single regulation. It usually refers to:

The IRS public support test for public charities.
State scrutiny of fundraising efficiency.
Both affect your legal standing, donor confidence, and long-term sustainability.

If you are unsure where your organization stands, a compliance review now is far easier than repairing deficiencies later.