A “scientific” purpose is one of the seven exempt purposes specified in Section 501(c)(3) of the Internal Revenue Code (the “Code”). There is however little guidance about what qualifies as a scientific purpose. The Treasury Regulations refer to scientific by way of example, namely, the carrying on of scientific research in the public interest. This can be broken down into a three-part inquiry: (1) Is the questioned activity scientific? (2) Is it research? (3) Is it in the public interest?
Without descriptive definitions of either term scientific or research in the Code or Regulations, the first two parts of the inquiry depend primarily on Reg. 1.501(c)(3)-1(d)(5)(ii), which states as follows:
Scientific research does not include activities of a type ordinarily carried on as an incident to commercial or industrial operations, as, for example, the ordinary testing or inspection of materials or products or the designing or construction of equipment, buildings, etc.
The third part of the inquiry is whether the scientific organization is organized and operated in the public interest. More explicitly, the organization must conduct scientific research activities that will benefit the public rather than private, business or other interests. Public interest can be demonstrated if:
- the results of the research are available to the public on a nondiscriminatory basis; or
- the research is performed for the federal government or a state agency.
The IRC also offers a few other examples of qualifying scientific research, the purpose of which is directed toward a public benefit:
- Aiding in the scientific education of university students; or
- Gathering scientific data which is then published and made available to the public; or
- Discovering a cure for a disease, or conducting research that will aid a community in attracting a new industry.
By contrast, an organization is likely not organized or operated to benefit the public if it carries on research that would normally be carried out as part of an industry or if the results of the research are withheld from the public entirely, or delayed beyond the time reasonably necessary to establish ownership rights.
IRS EO CPE Text
“O. Scientific Research Under IRC 501(c)(3) http://www.irs.gov/pub/irs-tege/eotopico86.pdf
- Michele Berger
[Ed. We welcome Michele as a new contributor to the Nonprofit Law Blog.]