1.501(c)(3)-1. Organizations organized and operated
for religious, charitable, scientific, testing for public safety,
literary, or educational purposes, or for the prevention of
cruelty to children or animals
(a) Organizational and operational tests
(1) In order to be exempt as an organization
described in section 501(c)(3), an organization must be both
organized and operated exclusively for one or more of the purposes
specified in such section. If an organization fails to meet
either the organizational test or the operational test, it is
not exempt.
(2) The term "exempt purpose or purposes",
as used in this section, means any purpose or purposes specified
in section 501(c)(3), as defined and elaborated in paragraph
(d) of this section.
(b) Organizational test
(1) In general
(i) An organization is organized exclusively
for one or more exempt purposes only if its articles of organization
(referred to in this section as its "articles") as
defined in subparagraph (2) of this paragraph:
(a) Limit the purposes of such organization
to one or more exempt purposes; and
(b) Do not expressly empower the organization
to engage, otherwise than as an insubstantial part of its activities,
in activities which in themselves are not in furtherance of
one or more exempt purposes.
(ii) In meeting the organizational test, the
organization's purposes, as stated in its articles, may be as
broad as, or more specific than, the purposes stated in section
501(c)(3). Therefore, an organization which, by the terms of
its articles, is formed "for literary and scientific purposes
within the meaning of section 501(c)(3) of the Code shall, if
it otherwise meets the requirements in this paragraph, be considered
to have met the organizational test. Similarly, articles stating
that the organization is created solely "to receive contributions
and pay them over to organizations which are described in section
501(c)(3) and exempt from taxation under section 501(a)"
are sufficient for purposes of the organizational test. Moreover,
it is sufficient if the articles set forth the purpose of the
organization to be the operation of a school for adult education
and describe in detail the manner of the operation of such school.
In addition, if the articles state that the organization is
formed for "charitable purposes", such articles ordinarily
shall be sufficient for purposes of the organizational test
(see subparagraph (5) of this paragraph for rules relating to
construction of terms).
(iii) An organization is not organized exclusively
for one or more exempt purposes if its articles expressly empower
it to carry on, otherwise than as an insubstantial part of its
activities, activities which are not in furtherance of one or
more exempt purposes, even though such organization is, by the
terms of such articles, created for a purpose that is no broader
than the purposes specified in section 501(c)(3). Thus, an organization
that is empowered by its articles "to engage in a manufacturing
business", or "to engage in the operation of a social
club" does not meet the organizational test regardless
of the fact that its articles may state that such organization
is created "for charitable purposes within the meaning
of section 501(c)(3) of the Code."
(iv) In no case shall an organization be considered
to be organized exclusively for one or more exempt purposes,
if, by the terms of its articles, the purposes for which such
organization is created are broader than the purposes specified
in section 501(c)(3). The fact that the actual operations of
such an organization have been exclusively in furtherance of
one or more exempt purposes shall not be sufficient to permit
the organization to meet the organizational test. Similarly,
such an organization will not meet the organizational test as
a result of statements or other evidence that the members thereof
intend to operate only in furtherance of one or more exempt
purposes.
(v) An organization must, in order to establish
its exemption, submit a detailed statement of its proposed activities
with and as a part of its application for exemption (see paragraph
(b) of §1.501(a)-1).
(2) Articles of organization. --For purposes
of this section, the term "articles of organization"
or "articles" includes the trust instrument, the corporate
charter, the articles of association, or any other written instrument
by which an organization is created.
(3) Authorization of legislative or political
activities. --An organization is not organized exclusively for
one or more exempt purposes if its articles expressly empower
it --
(i) To devote more than an insubstantial part
of its activities to attempting to influence legislation by
propaganda or otherwise; or
(ii) Directly or indirectly to participate in,
or intervene in (including the publishing or distributing of
statements), any political campaign on behalf of or in opposition
to any candidate for public office; or
(iii) To have objectives and to engage in activities
which characterize it as an "action" organization
as defined in paragraph (c)(3) of this section.
The terms used in subdivisions (i), (ii), and
(iii) of this subparagraph shall have the meanings provided
in paragraph (c)(3) of this section. An organization's articles
will not violate the provisions of paragraph (b)(3)(i) of this
section even though the organization's articles expressly empower
it to make the election provided for in section 501(h) with
respect to influencing legislation and, only if it so elects,
to make lobbying or grass roots expenditures that do not normally
exceed the ceiling amounts prescribed by section 501(h)(2)(B)
and (D).
(4) Distribution of assets on dissolution. --An
organization is not organized exclusively for one or more exempt
purposes unless its assets are dedicated to an exempt purpose.
An organization's assets will be considered dedicated to an
exempt purpose, for example, if, upon dissolution, such assets
would, by reason of a provision in the organization's articles
or by operation of law, be distributed for one or more exempt
purposes, or to the Federal government, or to a State or local
government, for a public purpose, or would be distributed by
a court to another organization to be used in such manner as
in the judgment of the court will best accomplish the general
purposes for which the dissolved organization was organized.
However, an organization does not meet the organizational test
if its articles or the law of the State in which it was created
provide that its assets would, upon dissolution, be distributed
to its members or shareholders.
(5) Construction of terms. --The law of the
State in which an organization is created shall be controlling
in construing the terms of its articles. However, any organization
which contends that such terms have under State law a different
meaning from their generally accepted meaning must establish
such special meaning by clear and convincing reference to relevant
court decisions, opinions of the State attorney-general, or
other evidence of applicable State law.
(6) Applicability of the organizational test.
--A determination by the Commissioner or a district director
that an organization is described in section 501(c)(3) and exempt
under section 501(a) will not be granted after July 26, 1959
(regardless of when the application is filed), unless such organization
meets the organizational test prescribed by this paragraph.
If, before July 27, 1959, an organization has been determined
by the Commissioner or district director to be exempt as an
organization described in section 501(c)(3) or in a corresponding
provision of prior law and such determination has not been revoked
before such date, the fact that such organization does not meet
the organizational test prescribed by this paragraph shall not
be a basis for revoking such determination. Accordingly, an
organization which has been determined to be exempt before July
27, 1959, and which does not seek a new determination of exemption
is not required to amend its articles of organization to conform
to the rules of this paragraph, but any organization which seeks
a determination of exemption after July 26, 1959, must have
articles of organization which meet the rules of this paragraph.
For the rules relating to whether an organization determined
to be exempt before July 27, 1959, is organized exclusively
for one or more exempt purposes, see 26 CFR (1939) 39.101(6)-1
(Regulation 118) as made applicable to the Code by Treasury
Decision 6091, approved August 16, 1954 (19 F.R. 5167; C.B.
1954-2, 47).
(c) Operational test
(1) Primary activities. --An organization will
be regarded as "operated exclusively" for one or more
exempt purposes only if it engages primarily in activities which
accomplish one or more of such exempt purposes specified in
section 501(c)(3). An organization will not be so regarded if
more than an insubstantial part of its activities is not in
furtherance of an exempt purpose.
(2) Distribution of earnings. --An organization
is not operated exclusively for one or more exempt purposes
of its net earnings inure in whole or in part to the benefit
of private shareholders or individuals. For the definition of
the words "private shareholder or individual", see
paragraph (c) of §1.501(a)-1.
(3) "Action" organizations
(i) An organization is not operated exclusively
for one or more exempt purposes if it is an "action"
organization as defined in subdivisions (ii), (iii), or (iv)
of this subparagraph.
(ii) An organization is an "action"
organization if a substantial part of its activities is attempting
to influence legislation by propaganda or otherwise. For this
purpose, an organization will be regarded as attempting to influence
legislation if the organization --
(a) Contacts, or urges the public to contact,
members of a legislative body for the purpose of proposing,
supporting, or opposing legislation; or
(b) Advocates the adoption or rejection of legislation.
The term "legislation", as used in
this subdivision, includes action by the Congress, by any State
legislature, by any local council or similar governing body,
or by the public in a referendum, initiative, constitutional
amendment, or similar procedure. An organization will not fail
to meet the operational test merely because it advocates, as
an insubstantial part of its activities, the adoption or rejection
of legislation. An organization for which the expenditure test
election of section 501(h) is in effect for a taxable year will
not be considered an "action" organization by reason
of this paragraph (c)(3)(ii) for that year if it is not denied
exemption from taxation under section 501(a) by reason of section
501(h).
(iii) An organization is an "action"
organization if it participates or intervenes, directly or indirectly,
in any political campaign on behalf of or in opposition to any
candidate for public office. The term "candidate for public
office" means an individual who offers himself, or is proposed
by others, as a contestant for an elective public office, whether
such office be national, State, or local. Activities which constitute
participation or intervention in a political campaign on behalf
of or in opposition to a candidate include, but are not limited
to, the publication or distribution of written or printed statements
or the making of oral statements on behalf of or in opposition
to such a candidate.
(iv) An organization is an "action"
organization if it has the following two characteristics: (a)
Its main or primary objective or objectives (as distinguished
from its incidental or secondary objectives) may be attained
only by legislation or a defeat of proposed legislation; and
(b) it advocates, or campaigns for, the attainment of such main
or primary objective or objectives as distinguished from engaging
in nonpartisan analysis, study, or research and making the results
thereof available to the public. In determining whether an organization
has such characteristics, all the surrounding facts and circumstances,
including the articles and all activities of the organization,
are to be considered.
(v) An "action" organization, described
in subdivisions (ii) or (iv) of this subparagraph, though it
cannot qualify under section 501(c)(3), may nevertheless qualify
as a social welfare organization under section 501(c)(4) if
it meets the requirements set out in paragraph (a) of §1.501(c)(4)-1.
(d) Exempt purposes
(1) In general
(i) An organization may be exempt as an organization
described in section 501(c)(3) if it is organized and operated
exclusively for one or more of the following purposes:
(a) Religious,
(b) Charitable,
(c) Scientific,
(d) Testing for public safety,
(e) Literary,
(f) Educational, or
(g) Prevention of cruelty to children or animals.
(ii) An organization is not organized or operated
exclusively for one or more of the purposes specified in subdivision
(i) of this subparagraph unless it serves a public rather than
a private interest. Thus, to meet the requirement of this subdivision,
it is necessary for an organization to establish that it is
not organized or operated for the benefit of private interests
such as designated individuals, the creator or his family, shareholders
of the organization, or persons controlled, directly or indirectly,
by such private interests.
(iii) Since each of the purposes specified in
subdivision (i) of this subparagraph is an exempt purpose in
itself, an organization may be exempt if it is organized and
operated exclusively for any one or more of such purposes. If,
in fact, an organization is organized and operated exclusively
for an exempt purpose or purposes, exemption will be granted
to such an organization regardless of the purpose or purposes
specified in its application for exemption. For example, if
an organization claims exemption on the ground that it is "educational",
exemption will not be denied if, in fact, it is "charitable".
(2) Charitable defined. --The term "charitable"
is used in section 501(c)(3) in its generally accepted legal
sense and is, therefore, not to be construed as limited by the
separate enumeration in section 501(c)(3) of other tax-exempt
purposes which may fall within the broad outlines of "charity"
as developed by judicial decisions. Such term includes: relief
of the poor and distressed or of the underprivileged; advancement
of religion; advancement of education or science; erection or
maintenance of public buildings, monuments, or works; lessening
of the burdens of Government; and promotion of social welfare
by organizations designed to accomplish any of the above purposes,
or (i) to lessen neighborhood tensions; (ii) to eliminate prejudice
and discrimination; (iii) to defend human and civil rights secured
by law; or (iv) to combat community deterioration and juvenile
delinquency. The fact that an organization which is organized
and operated for the relief of indigent persons may receive
voluntary contributions from the persons intended to be relieved
will not necessarily prevent such organization from being exempt
as an organization organized and operated exclusively for charitable
purposes. The fact that an organization, in carrying out its
primary purpose, advocates social or civic changes or presents
opinion on controversial issues with the intention of molding
public opinion or creating public sentiment to an acceptance
of its views does not preclude such organization from qualifying
under section 501(c)(3) so long as it is not an "action"
organization of any one of the types described in paragraph
(c)(3) of this section.
(3) Educational defined
(i) In general. --The term "educational",
as used in section 501(c)(3), relates to --
(a) The instruction or training of the individual
for the purpose of improving or developing his capabilities;
or
(b) The instruction of the public on subjects
useful to the individual and beneficial to the community.
An organization may be educational even though
it advocates a particular position or viewpoint so long as it
presents a sufficiently full and fair exposition of the pertinent
facts as to permit an individual or the public to form an independent
opinion or conclusion. On the other hand, an organization is
not educational if its principal function is the mere presentation
of unsupported opinion.
(ii) Examples of educational organizations.
--The following are examples of organizations which, if they
otherwise meet the requirements of this section, are educational:
Example (1). An organization, such as a primary
or secondary school, a college, or a professional or trade school,
which has a regularly scheduled curriculum, a regular faculty,
and a regularly enrolled body of students in attendance at a
place where the educational activities are regularly carried
on.
Example (2). An organization whose activities
consist of presenting public discussion groups, forums, panels,
lectures, or other similar programs. Such programs may be on
radio or television.
Example (3). An organization which presents
a course of instruction by means of correspondence or through
the utilization of television or radio.
Example (4). Museums, zoos, planetariums, symphony
orchestras, and other similar organizations.
(4) Testing for public safety defined. --The
term "testing for public safety", as used in section
501(c)(3), includes the testing of consumer products, such as
electrical products, to determine whether they are safe for
use by the general public.
(5) Scientific defined
(i) Since an organization may meet the requirements
of section 501(c)(3) only if it serves a public rather than
a private interest, a "scientific" organization must
be organized and operated in the public interest (see subparagraph
(1)(ii) of this paragraph). Therefore, the term "scientific",
as used in section 501(c)(3), includes the carrying on of scientific
research in the public interest. Research when taken alone is
a word with various meanings; it is not synonymous with "scientific";
and the nature of particular research depends upon the purpose
which it serves. For research to be "scientific",
within the meaning of section 501(c)(3), it must be carried
on in furtherance of a "scientific" purpose. The determination
as to whether research is "scientific" does not depend
on whether such research is classified as "fundamental"
or "basic" as contrasted with "applied"
or "practical". On the other hand, for purposes of
the exclusion from unrelated business taxable income provided
by section 512(b)(9), it is necessary to determine whether the
organization is operated primarily for purposes of carrying
on "fundamental", as contrasted with "applied",
research.
(ii) 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.
(iii) Scientific research will be regarded as
carried on in the public interest --
(a) If the results of such research (including
any patents, copyrights, processes, or formulae resulting from
such research) are made available to the public on a nondiscriminatory
basis;
(b) If such research is performed for the United
States, or any of its agencies or instrumentalities, or for
a State or political subdivision thereof; or
(c) If such research is directed toward benefiting
the public. The following are examples of scientific research
which will be considered as directed toward benefiting the public,
and, therefore, which will be regarded as carried on in the
public interest:
(1) Scientific research carried on for the purpose
of aiding in the scientific education of college or university
students;
(2) scientific research carried on for the purpose
of obtaining scientific information, which is published in a
treatise, thesis, trade publication, or in any other form that
is available to the interested public;
(3) scientific research carried on for the purpose
of discovering a cure for a disease; or
(4) scientific research carried on for the purpose
of aiding a community or geographical area by attracting new
industry to the community or area or by encouraging the development
of, or retention of, an industry in the community or area. Scientific
research described in this subdivision (c) will be regarded
as carried on in the public interest even though such research
is performed pursuant to a contract or agreement under which
the sponsor or sponsors of the research have the right to obtain
ownership or control of any patents, copyrights, processes,
or formulae resulting from such research.
(iv) An organization will not be regarded as
organized and operated for the purpose of carrying on scientific
research in the public interest and, consequently, will not
qualify under section 501(c)(3) as a "scientific"
organization, if --
(a) Such organization will perform research
only for persons which are (directly or indirectly) its creators
and which are not described in section 501(c)(3), or
(b) Such organization retains (directly or indirectly)
the ownership or control of more than an insubstantial portion
of the patents, copyrights, processes, or formulae resulting
from its research and does not make such patents, copyrights,
processes, or formulae available to the public. For purposes
of this subdivision, a patent, copyright, process, or formula
shall be considered as made available to the public if such
patent, copyright, process, or formula is made available to
the public on a nondiscriminatory basis. In addition, although
one person is granted the exclusive right to the use of a patent,
copyright, process, or formula, such patent, copyright, process,
or formula shall be considered as made available to the public
if the granting of such exclusive right is the only practicable
manner in which the patent, copyright, process, or formula can
be utilized to benefit the public. In such a case, however,
the research from which the patent, copyright, process, or formula
resulted will be regarded as carried on in the public interest
(within the meaning of subdivision (iii) of this subparagraph)
only if it is carried on for a person described in subdivision
(iii)(b) of this subparagraph or if it is scientific research
described in subdivision (iii)(c) of this subparagraph.
(v) The fact that any organization (including
a college, university, or hospital) carries on research which
is not in furtherance of an exempt purpose described in section
501(c)(3) will not preclude such organization from meeting the
requirements of section 501(c)(3) so long as the organization
meets the organizational test and is not operated for the primary
purpose of carrying on such research (see paragraph (e) of this
section, relating to organizations carrying on a trade or business).
See paragraph (a)(5) of §1.513-2, with respect to research
which constitutes an unrelated trade or business, and section
512(b)(7), (8), and (9), with respect to income derived from
research which is excludable from the tax on unrelated business
income.
(vi) The regulations in this subparagraph are
applicable with respect to taxable years beginning after December
31, 1960.
(e) Organizations carrying on trade or business
(1) In general. --An organization may meet the
requirements of section 501(c)(3) although it operates a trade
or business as a substantial part of its activities, if the
operation of such trade or business is in furtherance of the
organization's exempt purpose or purposes and if the organization
is not organized or operated for the primary purpose of carrying
on an unrelated trade or business, as defined in section 513.
In determining the existence or nonexistence of such primary
purpose, all the circumstances must be considered, including
the size and extent of the trade or business and the size and
extent of the activities which are in furtherance of one or
more exempt purposes. An organization which is organized and
operated for the primary purpose of carrying on an unrelated
trade or business is not exempt under section 501(c)(3) even
though it has certain religious purposes, its property is held
in common, and its profits do not inure to the benefit of individual
members of the organization. See, however, section 501(d) and
§1.501(d)-1, relating to religious and apostolic organizations.
(2) Taxation of unrelated business income. --For
provisions relating to the taxation of unrelated business income
of certain organizations described in section 501(c)(3), see
sections 511 to 515, inclusive, and the regulations thereunder.
(f) Applicability of regulations in this section.
--The regulations in this section are, except as otherwise expressly
provided, applicable with respect to taxable years beginning
after July 26, 1959. For the rules applicable with respect to
taxable years beginning before July 27, 1959, see 26 CFR (1939)
39.101(6)-1 (Regulations 118) as made applicable to the Code
by Treasury Decision 6091, approved August 16, 1954 (19 F.R.
5167; C.B. 1954-2, 47). [Reg. §1.501(c)(3)-1.]
Presented by Alvin Brown and Associates,
tax attorney, formerly with the Office of the Chief Counsel of the
IRS.
Call us for all IRS tax issues, problems and emergencies
Protect yourself from IRS intimidation, errors, and penalties.
www.irstaxattorney.com- ab@irstaxattorney.com -
(888)
712-7690 - (703) 425-1400