In earlier posts, we've restated the definition of "charitable" under the U.S. Treasury Regulations, noting that charities in the U.S. must be organized and operated exclusively for charitable purposes. Understanding the breadth and nuance of the term “charitable,” as defined under U.S. law, is important for organizations seeking an equivalency determination (ED) through NGOsource. Notably, the term often has different connotations in other countries. For example, in some countries, "charitable" may not encompass any income-generating activities, or may only be restricted to activities that benefit the poor or needy. In the U.S., the term is much broader, as we'll explain in this post. We'll also address some common questions we receive on this topic.
The Treasury Regulations define "charitable" to include
- 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
- Promotion of social welfare by organizations designed to accomplish any of the above purposes or
- To lessen neighborhood tensions
- To eliminate prejudice and discrimination
- To defend human and civil rights secured by law
- To combat community deterioration and juvenile delinquency
Most activities are deemed charitable by falling within one or more of the above categories. The advancement of education, for example, is a particularly common charitable purpose: it may include anything from operating a traditional school to an activity that provides educational content to the general public, such as promoting the arts, organizing lectures, or facilitating cultural exchanges.
"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." Treas. Reg. § 1.501(c)(3)–1(d)(3)(i). If an activity is educational under this broad definition, and is otherwise conducted in a noncommercial manner, then it likely qualifies as charitable.
However, not all charitable activities must fit neatly within these categories. According to Treasury Regulation Section 1.501(c)(3)-1(d)(2), "[t]he 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."
What Is the Charitable Class Requirement?
Charities must also be able to demonstrate that they serve a charitable class. To meet this requirement, a charity's activities must either benefit a large enough segment of the population to benefit society as a whole, or it must benefit an identifiable, indefinite class that is in need of assistance. In the words of the U.S. Internal Revenue Service (IRS):
A charitable class is a group of individuals that may properly receive assistance from a charitable organization. A charitable class must be either large enough that the potential beneficiaries cannot be individually identified, or sufficiently indefinite that the community as a whole, rather than a pre-selected group of people, benefits when a charity provides assistance. For example, a charitable class could consist of all individuals located in a city, county, or state. This charitable class is large and benefits to it benefit the entire geographic community.
IRS rulings have found the following groups (among others) to constitute charitable classes when provided certain assistance such as homes, transportation, scholarships, and other forms of support:
- Low-income and poor individuals
- Students (regardless of financial status)
- The elderly
- The terminally ill
- Needy artists, musicians, composers, writers, and scholars otherwise financially unable to complete their projects
- The disabled
- Rural and underprivileged communities in developing countries
- Persons accused of crime, unable to raise bail
- Victims of natural disasters (as opposed to victims of a single, named natural disaster)
The above list is not exhaustive. Importantly, and although it is a charitability requirement in many other countries, "[r]elief of poverty is not a condition of charitable assistance. If the benefit conferred has a sufficiently widespread social value, a charitable purpose exists." In Re Henderson’s Estate, 112 P. 2d 605, 607 (Cal. 1941).
Can an Activity That Generates Income Be Charitable?
Yes! An activity does not lose its charitable nature simply because it is profitable or generates income; it is the type of activity and the beneficiary of that activity that determines its character. A museum, university, or zoo, for example, may earn substantial capital from its programs and still be charitable. For more information on determining when income-generating activities may or may not be charitable, see our post on this topic.
Is an Activity Charitable If All of the Income Is Used to Support Charitable Programs?
No, not necessarily. The income-generating activity itself must be charitable. Therefore, a business that distributes 100 percent of its profits to charities or charitable programs will not itself be charitable simply by virtue of these distributions.
Other Examples of What Is Charitable
The IRS has recognized (PDF) that "[t]he concept of what is charitable is still evolving today." Drawing on tax court cases and prior rulings, the IRS has identified multiple purposes and activities that it deems charitable, in line with the broad definitions originally promulgated. The following nonexhaustive list of examples illustrates the many ways in which an activity may be charitable, even without fitting precisely within the statutory definition. (The linked revenue rulings are all PDF documents.)
- Promotion of health (Rev. Rul. 69-545)
- Environmental preservation and protection (Rev. Rul. 80-279)
- Operation of a public library (Rev. Rul. 74-15)
- Promotion and development of the arts (Rev. Rul. 79-369)
- Maintenance and improvement of public recreational facilities (Rev. Rul. 78-85)
- Assistance in the performance of legitimate government functions (Rev. Rul. 74-246)
- Public interest law firms providing free or below-cost legal aid (Rev. Rul. 69-161 / Rev. Rul. 78-428)
- Substantially below-cost services provided for other charities (Rev. Rul. 71-529)
- Promotion of handicrafts made by disadvantaged artisans in developing societies (Aid to Artisans, Inc. v. Commissioner, 71 T,C. 202 (1978))
- Marketing the cooking and needlework of needy women (Rev. Rul. 68-167)
- Vocational and on-the-job training of unemployed and underemployed individuals (Rev. Rul. 73-128 / Rev. Rul. 73-127)
- Historic or architectural preservation or promotion of the same (Rev. Rul. 86-49 / Rev. Rul. 75-470)
- A library computer network providing bibliographic information for other libraries (Rev. Rul. 81-29)
- Promoting student and cultural exchanges (Rev. Rul. 80-286)
- Development and promotion of a sport for children (Rev. Rul. 80-215)
- Nonprofit adoption agency (Rev. Rul. 80-200)
- Counseling and support for widows (Rev. Rul. 78-99), counseling for women with unwanted pregnancies (Rev. Rul. 73-569), marriage counseling (Rev. Rul. 70-640), vocational counseling (Rev. Rul. 68-71), counseling for immigrants (Rev. Rul. 76-205), and family planning counseling for men seeking sterilization (Rev. Rul. 74-595)
- Promotion of civic pride (Rev. Rul. 78-84)
- Provision of public transportation in isolated areas not previously served (Rev. Rul. 78-68)
- Nonprofit regional health data systems (promoting improvements in health care and facilities) (Rev. Rul. 76-455)
- Noncommercial educational or cultural television and radio programs (Rev. Rul. 66-220 / Rev. Rul. 76-4)
- Provision of interest-free home repair loans to low-income homeowners in blighted residential area (Rev. Rul. 76-408)
- Promotion of the art of filmmaking through film festivals (Rev. Rul. 75-471)
- Operating a free computerized retrieval system to facilitate transplantation of body organs upon a donor's death (Rev. Rul. 75-197)
- Educating the public about the accuracy and fairness of news coverage (Rev. Rul. 74-615)
- Operating a volunteer fire company to provide fire protection, ambulance, and rescue services to a community (Rev. Rul. 74-361)
- Covering spay and neuter costs for pet owners unable to pay (through a program aimed at preventing overbreeding) (Rev. Rul. 74-194)
- Fostering the development in a community of an appreciation for drama and musical arts by sponsoring professional presentations (Rev. Rul. 73-45)
- Residential facility and therapeutic group living program for individuals recently released from a mental institution (Rev. Rul. 72-16)
- Certain volunteer-run, donation-based thrift shops operated to raise funds for other charities (Rev. Rul. 71-581)
- Provision of food and drink to firemen, policemen, and other authorized personnel at the scene of major disasters (Rev. Rul. 71-99)
- Operating a clinic to aid victims of mind-affecting drugs (Rev. Rul. 70-590)
- Promotion of racial integration in housing (Rev. Rul. 68-655)
- Helping the National Park Service improve its educational and scientific programs (Rev. Rul. 68-307)
- Rehabilitation of ex-convicts and parolees (Rev. Rul. 67-150)
This list is far from comprehensive, and, notably, the actual operation of an activity may alter its charitable nature. For example, an educational activity (such as training or counseling) conducted in a commercial manner will generally not be considered charitable. The above list is meant solely to demonstrate the breadth of charitable activities and the ways in which the meaning of "charitable" has evolved and been further defined over the years. As one federal court held in 1974, "an inflexible construction [of the meaning of ‘charitable’] fails to recognize the changing economic, social and technological precepts and values of contemporary society." Eastern Kentucky Welfare Rights Organization v. Simon, 506 F. 2d 1278, 1288 (D.C. Cir. 1974).
As demonstrated by the number and diversity of organizations from around the globe that are currently certified in the NGOsource repository, there is more than one way to be charitable, and there are many ways to make the world a better place.
This article is for general informational purposes only and does not represent legal advice as to any particular set of facts. Please seek legal counsel as you deem necessary.