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(b) Charitable Organizations—Criteria

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A summary of the law of charitable organizations, for purposes of the law of charitable giving, is difficult because the term charitable is used in many ways. This portion of the analysis is confined to a summary of the law pertaining to those organizations that are charitable in the sense that they are also charitable organizations for federal tax exemption purposes.305

This type of organization is a charitable donee if it is organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals.306

In addition, the following criteria must be met for an organization to be considered a charitable donee:

 It is created or organized in the United States or in a possession of the United States, or under the law of the United States, a state, the District of Columbia, or a possession of the United States.307

 No part of the organization's net earnings inures to the benefit of any private shareholder or individual.308

 It does not have as a substantial part of its activities attempts to influence legislation. The amount of permissible lobbying in this context is defined by the substantial part test or, if the charitable organization makes an election, the expenditure test.309 The federal tax law concerning attempts to influence legislation by charitable organizations is discussed extensively elsewhere.310

 It does not 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.311 The prohibition on efforts to engage in political campaign activities by charitable organizations is discussed extensively elsewhere.312

There are, therefore, two dimensions to the term charitable in this context. One is the definition of the term charitable as one of seven categories of charitable donee status (as reflected in the preceding discussion). The other is a definition of the term charitable that embraces all categories of charitable donees.

As to the latter definition, the law is clear that the concept of charity is an overarching one that encompasses all of the specific categories, such as religion and education. This is because U.S. tax law precepts of charity are based on common law standards, which the courts have held must inform the statutory uses of the term. For example, one court observed that “we must look to established [trust] law to determine the meaning of the word ‘charitable.’”313 Likewise, the court subsequently wrote that Congress intended to apply these tax rules “to those organizations commonly designated charitable in the law of trusts.”314 Another court noted that “the term ‘charitable’ is a generic term and includes literary, religious, scientific, and educational institutions.”315 The U.S. Supreme Court held that “Congress, in order to encourage gifts to religious, educational, and other charitable objects, granted the privilege of deducting . . . gifts from gross income.”316

One of the reasons that the term charitable has such an all-inclusive gloss in this definitional setting is that the Supreme Court has held that all organizations that wish to qualify as charitable entities—both for tax exemption and for charitable donee purposes—must adhere to a public policy doctrine. In so doing, the Court wrote that each of these entities must meet “certain common law standards of charity” and that “[t]he form and history of the charitable exemption and deduction sections of the various income tax acts reveal that Congress was guided by the common law of charitable trusts.”317 The Court said that charitable organizations must “be in harmony with the public interest” and “must not be so at odds with the common community conscience as to undermine any public benefit that might otherwise be conferred.”318 While recognizing the IRS's authority to determine what is public policy, the Court held that “a declaration that a given institution is not ‘charitable’ should be made only where there can be no doubt that the activity involved is contrary to a fundamental public policy.”319 (In the factual setting of the case, the Court concluded that racial discrimination in education is contrary to public policy and that an educational institution that does not conform to this policy is not charitable.)

These findings were presaged in a Supreme Court observation made more than 100 years earlier: “A charitable use, where neither law nor public policy forbids, may be applied to almost anything that tends to promote the well-doing and well-being of social man.”320

Nonetheless, the specific legal meanings of the term charitable are to be found in the narrower of the two definitions, which is an amalgam of court opinions, Department of Treasury regulations, and IRS rulings. Other bodies of law, although not as extensive, have evolved from use of the other terms, principally religious, educational, and scientific.

Charitable Organizations. There are several ways for an organization to be considered a charitable entity for purposes of the law of charitable giving.321 These include:

 Relief of poverty. This is the most basic and historically founded form of charitable activity. The tax regulations define the term charitable to include “[r]elief of the poor and distressed or of the underprivileged.”322 Assistance to the indigent is undoubtedly the most generally understood and accepted form of charitable endeavor.

 Advancement of religion. The scope of this category of charitable activity is imprecise, due to the recognition of religious activities as a separate basis for tax-exempt status.323 Organizations that are charitable because they advance religion generally are those that support or otherwise assist religious organizations.324

 Advancement of education. Likewise, the scope of this category of charitable activity is imprecise, due to the recognition of educational activities as a separate basis for tax-exempt status.325 Organizations that are charitable because they advance education generally are those that support or otherwise assist educational organizations.326

 Advancement of science. Similarly, the scope of this category of charitable activity is imprecise, due to the recognition of scientific activities as a separate basis for tax-exempt status.327 Organizations that are charitable because they advance science generally are those that support or otherwise assist scientific organizations.328

 Lessening of the burdens of government. An organization can be charitable if it lessens the burden of a government, where the governmental unit considers the burden to be lessened to be among the various burdens it has assumed. Organizations of this type either provide services directly in the context of government activity or provide support to a governmental agency or department.329

 Promotion of social welfare. An organization can be charitable if it promotes social welfare; this is one of the broadest categories of charitable organizations. This purpose includes activities such as lessening neighborhood tensions, eliminating prejudice and discrimination, defending human and civil rights secured by law, and combating community deterioration and juvenile delinquency.330

 Community beautification and maintenance. An organization can be charitable by reason of the fact that its purpose is community beautification and maintenance and the preservation of natural beauty.331

 Promotion of health. An organization can be charitable because it engages in activities that promote health.332 This purpose embraces the establishment and maintenance of hospitals, clinics, homes for the aged, and the like.

 Promotion of the arts. An organization may be charitable because it engages in one or more activities that promote the arts. This purpose includes the establishment and maintenance of theaters, the promotion of public appreciation of one of the arts, and the promotion and encouragement of the talent and ability of young artists.333

 Promotion of the public interest through law. An organization can be charitable by functioning as a public interest law firm.334 These firms provide legal representation for important citizen interests that are unrepresented because the cases are not economically feasible for private law firms.

 Local economic development. One of the forms of charitable organizations is the local economic development corporation, which engages in a variety of activities, including investment in local businesses, creation of housing opportunities, and encouragement of established businesses to open offices and plants in economically depressed areas.335

 Other. Other categories of charitable organizations are organizations established to promote environmental conservancy,336 organizations established to promote patriotism,337 organizations that provide care for orphans,338 organizations that facilitate student and cultural exchanges,339 organizations that promote, advance, and sponsor recreational and amateur sports,340 and organizations that maintain public confidence in the legal system.341

Educational Organizations. Organizations that are considered educational for purposes of the law of charitable giving342 are:

 Formal educational institutions, such as primary, secondary, and postsecondary schools; colleges and universities; early childhood centers; and trade schools.343 These entities have a regularly scheduled curriculum, a regular faculty, and a regularly enrolled body of students in attendance at the place where the educational activities are regularly carried on.344

 Other types of formal organizations, such as museums, zoos, planetariums, and symphony orchestras.345

 Organizations that have programs related to instruction or training of individuals for the purpose of improving or developing their capabilities.346 These entities include a wide variety of training organizations and study and research organizations.

 Organizations that have programs related to instruction of the public on subjects useful to the individual and beneficial to the community.347 These organizations provide a range of personal services, instruct the public in the field of civic betterment, and (again) engage in study and research.

Religious Organizations. Organizations that are considered religious for purposes of the law of charitable giving348 include:

 Churches, synagogues, and similar places of worship349

 Conventions and associations of churches350

 Integrated auxiliaries of churches351

 Church-run organizations, such as schools, hospitals, orphanages, nursing homes, publishing entities, broadcasting entities, and cemeteries

 Religious orders

 Apostolic groups352

 Missionary organizations

 Bible and tract societies

The courts and the IRS traditionally have been reluctant to rule on whether an organization is a church or the like or a religious entity, if only because of concern about constitutional law constraints. This reluctance is dissipating, however, and the IRS and the courts are developing criteria for defining churches and other religious organizations.

Scientific Organizations. Organizations that are considered scientific for purposes of the law of charitable giving353 include:

 Organizations that are engaged in scientific research354

 Organizations that are otherwise operated for the dissemination of scientific knowledge (such as publishing entities)355

Other Charitable Organizations. There are several other categories of charitable organizations:356 literary organizations,357 organizations that seek to prevent cruelty to children or animals,358 cooperative hospital service organizations,359 cooperative educational service organizations,360 and amateur sports organizations.361

Consequently, the organizations that are eligible charitable donees for purposes of the law of charitable giving are those that are charitable in the common law sense (most of which have been rendered charitable by statute, regulation, or IRS ruling) and those that have been encompassed by statutory definition.

In one instance, however, the IRS refused to allow a charitable contribution deduction for a gift made to a charitable organization that had as its exempt purpose the preservation of local landmarks, because it was determined that the gift was “earmarked for and primarily benefit[ed]” a noncharitable recipient (a college fraternity).362

Requirement of Charitable Class. It is generally a requirement as to tax deductibility of contributions that those who are to benefit from a charitable activity must constitute a sufficiently large or indefinite class (often referred to as a charitable class), unless the benefits to a smaller class are incidental.363 This is another way of saying that a charitable organization may not be operated for private benefit, other than insubstantially. Thus, for example, the requirement is not met if the beneficiaries of the alleged charitable activities are specifically named or are solely relatives of the donor.364 An organization established to benefit one individual cannot be charitable even if it would be charitable if the same activities were undertaken for a charitable class.365

 A trust created for the benefit of an aged clergyman and his spouse was held to be a private trust that did not involve exempt activities, irrespective of the fact that the two beneficiaries served were needy.366

 A trust the purpose of which was to pay a certain sum to all individuals enrolled in a certain school on a certain date was held to be a private entity.367

 A bequest to a trust for scholarships at two universities, where the only potential recipients were individuals with the same surname as the decedent (about 600 families), was held not to be a charitable bequest.368

By contrast, a charitable organization established to award scholarships solely to members of a national fraternity or sorority was ruled to be exempt as an educational organization.369 Basically, when a class of individuals is involved as beneficiaries, the sufficiency of the class for purposes of ascertaining whether charitable activities are being engaged in is a matter of degree to be assessed on a case-by-case basis.370 Traditional charitable classes include the impoverished, students, the elderly, and the disabled371; sometimes, the IRS looks to see whether a “broad public interest” is being served.372 There are, of course, limitations within the bounds of reason on the IRS's reach in applying this doctrine. As one court observed: “To our knowledge, no charity has ever succeeded in benefiting every member of the community. If to fail to so benefit everyone renders an organization noncharitable, then dire times must lie ahead for this nation's charities.”373

The Tax Law of Charitable Giving

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