Client: 501(c)(3) organization that regularly checks Box 10 on Schedule A (> 33-1/3% public support and < 33-1/3% from investment and UBI).

In 2020, it sold a large position in its mutual funds and had over $500K of capital gains.

Its program income was $450K.

Question 1: Form 990, Page 9, Part VIII, Statement of Revenue.  My understand is to classify the capital gains under Col (D) Revenue excluded from Tax under Sections 512-514, Exception 18 (Gain from the sale of investments).  Is this a correct understanding?  Comments?

Question 2: Schedule A, Page 3, Part III Section B, Total Support.  Line 10a is for Gross income from "interest, dividends, payments received on securities loans, rents royalties and income from similar sources".  My understanding is NOT to include the capital gains on Line 10a.  Instead, disclose the gains with a narrative under Part VI on Page 8.  Is this a correct understanding?

If the gains were to be included in Line 10a, the investment income percentage for 2020 would still be under 33-1/3% for 2020, but not for 2021 (similar gains were recognized in 2021 also) .  In any case, just wanted to make sure the gains are NOT includable in Line 10a.  Any comments would be appreciated.  

Question 3:  If my understanding is correct for Question 2, the total support Line 13 for the year would be different from its total revenue.  Comments?  Any problem?

(Note, the instructions specifically state NOT to include gain or loss from the sale of capital assets on Line 12, Section B.  However, it does not spell out NOT to include the gains on Line 10a.  I don't think "and income from similar sources" for Line 10a meant gains on sale of investments.  However, would like to make sure.)

Thanks.