A “charitable” purpose is one of the seven exempt purposes specified in Section 501(c)(3) of the Internal Revenue Code (the “Code”). According to the Treasury Regulations, the term charitable is to be interpreted in its generally accepted legal sense and includes, but is not limited to:
- Relief of the poor, distressed or underprivileged;
- Advancement of religion, education, or science;
- Erection or maintenance of public buildings, monuments, or works; and
- Lessening of the burdens of government.
(See Treas. Reg. section 1.501(c)(3)-1(d)(2)).
The promotion of social welfare can also be charitable when conducted by an organization designed to accomplish one of the enumerated charitable examples listed above or to:
- Lessen neighborhood tensions;
- Eliminate prejudice and discrimination;
- Defend human and civil rights secured by law; or
- Combat community deterioration and juvenile delinquency.
The IRS has also recognized 501(c)(3) exemption for organizations that promote health or protect and promote the preservation of the environment.
The following are examples of activities furthering a charitable purpose:
- Teaching a specific sport to children;
- Preserving and maintaining a historic or scenic area for the benefit and education of the public;
- Creating a scholarship program to benefit a disadvantaged class of individuals;
- Stimulating economic development in high density urban areas by low-income minorities by providing financial assistance to businesses to obtain funds not available through commercial sources; or
- Providing general management consulting and administrative services to nonprofits for substantially below cost.
The following are examples of activities that are likely not to qualify as charitable:
- Organizing recreational sports activities for a general adult population;
- Preserving and maintaining a historic or scenic area solely or primarily for the residents of a private community;
- Creating a scholarship program to benefit one disadvantaged individual;
- Stimulating economic development by providing financial assistance to businesses that are selected based on commercial criteria and at commercial rates; or
- Providing general management consulting and administrative services (not specifically related to a charitable activity – e.g., payroll) to nonprofits in a commercial manner and at commercial rates.
The concept of charity under these regulations has continued to evolve and expand over time. As the needs of society change, so will the concept of charity. And as organizations are developed to address these new societal concerns, the charitable exemption under 501(c)(3) is likely to evolve as well.
By Michele Berger
