7.25.3  Religious, Charitable, Educational, Etc., Organizations (Cont. 1)

7.25.3.6 
Religion or Advancement of Religion

7.25.3.6.7  (02-23-1999)
Substantial Nonexempt Purposes

  1. An organization’s activities in furtherance of a religious belief must serve exclusively exempt purposes. See Reg. 1.501(c)(3)–1(c)(1). If the organization’s activities promote a substantial nonexempt purpose, exemption under IRC 501(c)(3) is precluded.

  2. In one case, the Tax Court held that an organization dominated by one individual was not exempt as a religious organization because its purpose was to carry on the founder’s personal feud with a local newspaper. The court did not examine the validity or sincerity of the beliefs held. Rather, it found that the actual activities had little relation to the observance of those beliefs. Puritan Church of America, 10 T.C.M. 485 (1951), aff’d per curiam, 209 F.2d 306 (D.C. Cir. 1953), cert. den., 350 U.S. 810 (1955).

  3. In First Libertarian Church v. Commissioner, 74 T.C. 396 (1980), the court held that an organization that was the outgrowth of a supper club and whose primary activities were holding meetings before supper, sponsoring the supper club, and publishing a newsletter did not qualify for exemption under IRC 501(c)(3). The organization failed to show that it successfully segregated the clearly social and political aspects of its supper club meetings and its publication from its stated purpose of furthering its religious doctrine of "ethical egoism."

  4. Religious organizations that engage in substantial legislative activity are disqualified from tax exemption regardless of the motivation or purpose of that activity. Christian Echoes National Ministry, Inc. v. U.S., 470 F.2d 849 (10th Cir. 1972), cert. den., 414 U.S. 864 (1973).

  5. In The Schoger Foundation v. Commissioner, 76 T.C. 380 (1981), an organization operating a religious retreat facility did not qualify for exemption under IRC 501(c)(3) because it failed to show that the retreat facility was operated exclusively for religious purposes. Although the organization’s mountain lodge offered guests religious, recreational, and social activities; however, none were regularly scheduled or required. The court concluded that the organization had not met its burden of proof to show that the lodge was operated primarily for an exempt religious purpose and that the recreational and social activities at the lodge were only incidental to a religious purpose.

  6. The Tax Court held an organization formed to arrange for the construction of housing for sale to individuals associated with a religious denomination to be exempt under IRC 501(c)(3) in Janaluska Assembly Housing Inc. v. Commissioner, 86 T.C. 1114 (1986). The housing was to be constructed on the grounds of a retreat center owned by a conference of the United Methodist Church. The Service concluded that the housing would substantially further the nonexempt purpose of providing recreational and vacation opportunities to the purchasers. In a declaratory judgment action, the Tax Court concluded that because only active participants in the religious activities conducted at the center would be permitted to purchase the housing, the organization was organized and operated exclusively to further religious purposes.

  7. An organization will not qualify for exemption under IRC 501(c)(3) if its net earnings inure to the benefit of private shareholders or individuals.

    1. In The Founding Church of Scientology v. United States, 412 F.2d 1197 (Ct. Cl. 1969), cert. den., 397 U.S. 1009 (1970), the court, without considering the organization’s beliefs, held that it did not qualify for exemption under IRC 501(c)(3) because its net earnings inured to the organization’s founder and members of his family. See also People of God Community v. Commissioner, 75 T.C. No. 8 (1980); Bubbling Well Church of Universal Love v. Commissioner, 74T.C. 531 (1980); Unitary Mission Church of Long Island, Inc. v. Commissioner, 74 T.C. 507 (1980); Western Catholic Church v. Commissioner, 73 T.C. 196 (1979); The Basic Unit Ministry of Schurig v. U. S., 81–1 USTC S9188 (D.D.C. 1981); Church of the Transfiguring Spirit. Inc. v. Commissioner, 76 T.C. 1 (1981); Church of Scientology of California v. Commissioner, 823 F.2d 1310 (9th Cir. 1987).

    2. In Basic Bible Church v. Commissioner, 74 T.C. 846 (1980), the organization’s founder and his wife executed vows of poverty and transferred all their possessions and income to the organization on the condition that it qualified under IRC 501(c)(3). The founder controlled all financial decisions of the organization. The court found that a substantial purpose of the organization was to serve the private interests of the founder and his wife. Over 96 percent of the contributions the organization received (mostly from the founder and his wife) were spent on the founder’s and his wife’s subsistence, their unsubstantiated travel, and upkeep and utilities of their home, which was labeled their "parsonage." Less than one percent of contributions were spent for direct church related expenses. Accordingly, the court held that the organization did not qualify under IRC 501(c)(3). See also The Church in Boston v. Commissioner, 71 T.C. 102 (1978); and Southern Church of Universal Brotherhood Assembled v. Commissioner, 74 T.C. No. 89 (1980).

    3. In Beth-El Ministries. Inc. v. United States, 79–2 USTC § 9412, an organization whose members donated all their possessions and, if employed outside the organization, their salaries, to the organization, and which provided its members benefits in the form of food, clothing, shelter, medical care, recreational facilities, and educational services, was held not to be exempt as a religious organization. The court concluded that private benefits inured to the organization’s members because the organization paid their living expenses. See also Martinsyille Ministries, Inc. v. United States, 80–2 USTC § 9710 (D.D.C. 1979). But see Alive Fellowship of Harmonious Living v. Commissioner, T.C. Memo. 1984–87. The Tax Court held that no inurement resulted when an organization’s members received benefits on the basis of need. However, in approving this "unconventional" compensation arrangement, the court based its decision on the fact that members received less than modest assistance that did not exceed the value of the required services that they performed.

  8. For a discussion of the attributes that are necessary for a religious organization to be classified as a church or a convention or association of churches, see Private Foundations Manual, IRM 7.26.2.

7.25.3.6.8  (02-23-1999)
Religious Publishing

  1. Publishing literature is an important method of disseminating religious views. However, publishing may also be a business operating in competition with commercial enterprises. The Service has held that publishing and distributing a monthly newspaper carrying church news of interdenominational interest accomplishes a charitable purpose by contributing to the advancement of religion. In that case subscriptions were obtained through individual churches and church associated groups and revenues did not cover the costs of operation. Rev. Rul. 68–306, 1968–1 C.B. 257.

  2. In a Tax Court case, an organization sold a large volume of literature to the general public by mail. Some of the literature had little or no connection to the beliefs held by the organization. The surrounding circumstances tended to show that the individual who dominated the organization regarded the enterprise "simply as a money making operation." The court held that this was not a religious organization, but rather a trade or business. Foundation for Divine Meditation, Inc., 24 T.C.M. 411 (1965), affirmed sub. nom. M.E. Parker v. Commissioner, 365 F.2d 792 (8th Cir. 1966), cert. denied, 385 U.S. 1026 (1967).

  3. In cases where religious literature is published by an organization to promote its beliefs, the activity may further exclusively religious purposes even though it produces an operating profit. Saint Germain Foundation, 26 T.C. 648 (1956); Unity School of Christianity, 4 B.T.A. 61 (1926). See also Pulpit Resource v. Commissioner, 70 T.C. 594 (1978), in which the court reversed the Service’s denial of exemption to an organization that sold a publication containing prepared sermons for use by ministers.

  4. However, in Scripture Press Foundation v. United States, 285 F.2d 800 (1961), cert. den., 363 U.S. 985 (1962), a separately organized publishing corporation sold a large volume of religious literature, periodicals, and Sunday school supplies at a substantial profit was held not exempt. The court found that operating profits and accumulated earnings were disproportionately large and there was no clear purpose to further any particular religious beliefs. The general character of the operation was that of a commercial publishing house catering to religious customers. Thus, the court concluded it was a trade or business and not exempt. The existence of a modest program of expenditures for religious and educational purposes unconnected with the publishing did not have a decisive effect. See also Christian Manner International v. Commissioner, 71 T.C. 661 (1979).

  5. One case places a great weight on the existence of an operating profit and a commercial pricing pattern. In Fides Publishers Association v. United States, 263 F. Supp. 924 (1967), a corporate publisher of religious books priced at commercial levels that showed moderate but consistent operating profits was held not to be exempt. The court said that although the "publishing activities further the exempt purpose of educating the lay apostolate," nevertheless, there was a substantial nonexempt purpose— "the publication and sale of religious literature at a profit."

  6. In another case, an organization that published religious literature was held to no longer qualify as tax exempt in view of an abrupt increase in salaries of top personnel of the organization’s press, a large amount of accumulated profits, and the fact that the press was in direct competition with a number of commercial publishers. The facts showed that the organization’s primary purpose was to operate as a commercial business producing net profits. Incorporated Trustees of the Gospel Workers Society v. U.S., 520 F. Supp. 374 (D.D.C. 1981).

  7. On the other hand, the Third Circuit Court of Appeals upheld the exempt status of another religious publishing organization, concluding that its accumulation of capital for physical expansion and its increased profit due to unexpected increases in popularity of one of the publisher’s authors did not show a substantial non-exempt purpose. Presbyterian and Reformed Publishing Co. v. Commissioner, 743 F.2d 148 (3rd Cir. 1984).

7.25.3.6.9  (02-23-1999)
Religious Broadcasting

  1. Broadcasting is an activity analogous to publishing. In Rev. Rul. 68–513, 1968–2 C.B. 212, a religious broadcasting station was held exempt under IRC 501(c)(3), where broadcast time was devoted to worship services and other programs having religious content. Although the station was operated on a commercial license, it did not sell commercial or advertising time.

  2. Rev. Rul. 68–563 was amplified in Rev. Rul. 78–385, 1978–2 C.B. 174, which held a religious and educational television station exempt under IRC 501(c)(3) even though it devoted an insubstantial amount of broadcast time to commercially sponsored programs. However, the commercially sponsored programs are unrelated trade or business under IRC 513.

7.25.3.6.10  (02-23-1999)
Commercial vs. Religious Activities

  1. A nonprofit organization that supervises the preparation and inspection of food products prepared commercially to insure the compliance of individual members with the tenets and dictates of a particular religion was held to be accomplishing a charitable purpose by engaging in an activity that advances religion and thus the organization is exempt under IRC 501(c)(3) in Rev. Rul. 74–575, 1974–2 C.B. 161.

  2. Similarly, a nonprofit organization formed to compile genealogical research data on its family members in order to perform religious ordinances in accordance with the precepts of the religious denomination was held to be advancing religion. Rev. Rul. 71–580, 1971–2 C.B. 235.

  3. Rev. Rul. 75–282, 1975–2 C.B. 201 held that an organization, formed and controlled by an exempt conference of churches, that borrows funds from individuals and makes mortgage loans at less than the commercial rate of interest to affiliated churches to finance the construction of church buildings qualifies for exemption. By operating under the close supervision and control of the parent church conference, the organization was considered to be advancing religion by carrying out an integral part of the activities of the parent, i.e., aiding member churches in obtaining facilities for their religious purposes.

  4. Rev. Rul. 77–377, 1977–2 C.B. 192, reached a contrary result concerning a nonprofit organization that arranges and conducts winter-time ocean cruises during which activities to further religious and educational purposes are provided in additional to extensive social and recreational activities. This organization is not operated exclusively for exempt purposes under IRC 501(c)(3).

  5. Rev. Rul. 77–430, 1977–2 C.B. 194, held that an otherwise qualifying organization that conducts weekend religious retreats, open to individuals of diverse Christian denominations, at a rural lakeshore site at which the participants may enjoy the recreational facilities in their limited amount of free time and that charges no fees qualifies for exemption under IRC 501(c)(3) as an organization operated exclusively for religious purposes. This organization is clearly distinguishable from the one in Rev. Rul. 77–366 because the facts show the primary emphasis was on religious, not recreational, activities.

  6. Rev. Rul. 79–359, 1979–2 C.B. 226, held that an organization whose purpose is to provide traditional burial services that directly support and maintain basic tenets and beliefs of a religion regarding burial of its members is operated exclusively for charitable purposes and is exempt under IRC 501(c)(3).

  7. An organization that operated a medical aid plan for its church members was held to be furthering the church’s religious tenet that members should bear one another’s burdens and thus was entitled to exemption under IRC 501(c)(3). Bethel Conservative Mennonite Church v. Commissioner, 84–2 USTC 9195 (CA 7), rev’g 80 T.C. 352 (1983).

  8. Compare Living Faith v. Commissioner, 950 F.2d 365 (7th Cir. 1991), aff’g T.C.M. 1990–484, in which an organization that operated vegetarian restaurants and health food stores in a manner consistent with the religious beliefs of the Seventh-Day Adventist religion did not qualify for recognition of exemption under IRC 501(c)(3). The court concluded its operations evidenced a substantial nonexempt commercial purpose.

7.25.3.6.11  (02-23-1999)
Mail Order Churches

  1. The term "mail order church" refers to organizations set up pursuant to "church charters" purchased through the mail from organizations that claim that the charters and other "ministerial credentials" can be used to reduce or eliminate an individual’s federal income tax liability. Although a "mail order church" is not precluded from exemption, because it is possible for one to be organized operated exclusively for religious purposes, Service experience, as reflected in numerous court decisions, has shown that many are operated for the private benefit of those who control the organization. See IRM 4.70, for procedures regarding coordination with Examination function of IRC 170(c) deduction cases and assignment of income cases; and also for a general discussion of examination procedures for mail order churches; churches or conventions or associations of churches; and a discussion of IRC 7611, which sets forth certain restrictions on the examination of churches.

  2. Service position regarding a common form of operation for many mail order churches is set forth in Rev. Rul. 81–94, 1981–1 C.B. 330. In Rev. Rul. 81–94 a professional nurse founded an organization under the name of ABC Church after purchasing a "certificate of ordination" from an organization selling such certificates and church charters. The nurse was the organization’s minister, director, and principal officer. The nurse executed a vow of poverty and transferred all of her assets, including a home and an automobile, and income to the organization. The organization also assumed all of her liabilities, including a home mortgage and credit card balances. The organization paid all her living expenses, and she continued to use the house and automobile for personal purposes. Rev. Rul. 81–94 concludes that, based on these facts, the organization does not qualify for exemption under IRC 501(c)(3) because it operates to serve the private interests of a designated individual rather than a public interest.

  3. Numerous court cases have held that, in situations similar to that described in Rev. Rul. 81–94, an organization that serves the private interests of a designated individual rather than a public interest does not qualify for exemption under IRC 501(c)(3). See, for example, Basic Bible Church v. Commissioner, 74 T.C. 846 (1980); Church of the Transfiguring Spirit, Inc. v. Commissioner, 76 T.C. 1 (1981); People of God Community v. Commissioner, 75 T.C. 127 (1980); The Southern Church of Universal Brotherhood Assembled, Inc. v. Commissioner, 74 T.C. 1223 (1980); Bubbling Well Church of Universal Love v. Commissioner, 74 T.C. 531 (1980); and Unitary Mission Church of Long Island v. Commissioner, 74 T.C. 507 (1980); aff’d, 647 F. 2d 163 (2d Cir. 1981).

  4. On a related issue, the Service has denied a charitable contribution deduction under IRC 170 for amounts contributed by an individual to an organization formed under the name of the ABC Church but operated for the individual’s private benefit. See Rev. Rul. 78–232, 1978–1 C.B. 69. Numerous court cases have also held that, in situations similar to the one described in Rev. Rul. 78–232, a charitable contribution deduction under section 170 was properly denied by the Service. See, for example, McGahen v. Commissioner, 76 T.C. No. 41 (March 26, 1981); Hall v. Commissioner, T.C.M. 1981–143; Baker v. Commissioner, T.C.M. 1980–367; Manson v. Commissioner, T.C.M. 1980–315, aff’d, 628 F. 2d. 1353 (5th Cir. 1980); Abney v. Commissioner, T.C.M. 1980–27; Push v. Commissioner, T.C.M. 1980–4; Heller v. Commissioner, T.C.M. 1978–149; and Clippinger v. Commissioner, T.C.M. 1978–107.

  5. In many situations where the organization selling the church charters and ministerial credentials has been recognized as exempt under IRC 501(c)(3) (but has not received a group exemption), the organization purchasing the charter claims that it is covered by the selling organization’s exempt status. This argument was made in Basic Bible Church, discussed above, where the petitioner contended that as an auxiliary of the Basic Bible Church, it shared that organization’s tax exempt status (The organization had not received a group ruling). The court concluded, however, that the petitioner was legally separate and distinct from the parent church and, therefore, had to qualify for exemption under IRC 501(c)(3) on its own merits. See also United States v. Toy National Bank, 79–1 USTC ¶ 9344 (N.D.lowa 1979), and Brown v. Commissioner, T.C.M. 1980–553, which held that organizations that had obtained a charter from the Universal Life Church, Inc. (ULC) were not covered by that organization’s individual exemption. The courts in these cases concluded that because ULC had an individual rather than a group exemption, the chartered organizations had to qualify for exemption on their own merits.

7.25.3.6.12  (02-23-1999)
Digests of Precedent Rulings

  1. Coffee house— A nonprofit organization formed by local churches to operate a supervised facility known as a "coffee house," in which persons of college age are brought together with church leaders, educators and leading businessmen of the community for discussions and counseling on religion, current events, social, and vocational problems was held to be advancing religion and thus exempt as a charitable organization. Rev. Rul. 68–72, 1968–1 C.B. 250.

  2. Religious publishing— A nonprofit organization that publishes a newspaper primarily devoted to news, articles, and editorials relating to church and religious matters is exempt. Rev. Rul. 68–306, 1968–1 C.B. 257.

  3. Religious broadcasting— A nonprofit religious broadcasting station that does not sell commercial or advertising time is exempt under IRC 501(c)(3) even though it operates on a commercial license. Rev. Rul. 68–563, 1968–2 C.B. 212.

  4. Genealogical research— A nonprofit organization formed to compile genealogical research data on its family members in order to perform religious ordinances in accordance with the precepts of the religious denomination to which family members belong is advancing religion and thus exempt. Rev. Rul. 71–580, 1971–2 C.B. 235.

  5. Supervision and inspection of commercially prepared food products— A nonprofit organization that supervises the preparation and inspection of food products prepared commercially in a particular locality to insure that they satisfy the dietary rules of a particular religion, thereby assisting the individual members of the religion to comply with its tenets and dictates, qualifies for exemption. Rev. Rul. 74–575, 1974–2 C.B. 161.

  6. Mortgage loans to conference churches--An organization formed and controlled by an exempt conference of churches that borrows funds from individuals and makes mortgage loans at less than the commercial rate of interest to affiliated churches to finance the construction of church buildings qualifies for exemption. Rev. Rul. 75–282, 1975–2 C.B. 201.

  7. Missionary housing— An organization established to provide temporary low-cost housing and related services for missionary families on furlough for recuperation or training in the U.S. from their assignments abroad is operated exclusively for charitable purposes. Rev. Rul. 75–434, 1975–2 C.B. 205.

  8. Religious tours— A nonprofit organization that arranges and conducts winter cruises during which activities to further religious and educational purposes are provided in addition to extensive social and recreational activities is not operated exclusively for exempt purposes and does not qualify for exemption. Rev. Rul. 77–366, 1977–2 C.B. 192.

  9. Religious retreats— An otherwise qualifying organization that conducts weekend religious retreats, open to individuals of diverse Christian denominations, at a rural lakeshore site at which the participants may enjoy the recreational facilities in their limited amount of free time and that charges no fees is operated exclusively for religious purposes and qualifies for exemption. Rev. Rul. 77–430, 1977–2 C.B. 194.

  10. Charitable contribution; benefit to contributors— An individual who claims to be a minister, forms an organization under the name ABC Church, deposits salary checks for salary earned from outside employment in the organization’s bank account, and uses the funds of the account for personal living expenses is not entitled to a charitable deduction under IRC 170 for the amount of the salary checks. Rev. Rul. 78–232, 1978–1 C.B. 69.

  11. Religious broadcasting— A nonprofit organization formed to advance education and religion that broadcasts religious and educational programs for all but an insubstantial amount of its broadcast time from a television station it owns and operates under a commercial license qualifies for exemption under IRC 501(c)(3), even though its remaining broadcast time is devoted to commercially sponsored programs. The commercially sponsored programs, however, are unrelated trade or business under IRC 513. Rev. Rul. 78–385, 1978–2 C.B.

  12. Religious burial services— A nonprofit organization whose purpose is to provide traditional burial services that directly support and maintain basic tenets and beliefs of a religion regarding burial of its members is operated exclusively for charitable purposes and qualifies for exemption. Rev. Rul. 79–359, 1979–2 C.B. 226.

  13. Church operated for benefit of founder— A nonprofit organization formed under the name ABC Church by a professional nurse (who is also the organization’s minister, director, and principal officer) that is used as a vehicle for handling the nurse’s personal financial transactions is not exempt under IRC 501(c)(3) because it serves the private interests of a designated individual rather than a public interest. Rev. Rul. 81–94, 1981–1 C.B. 330.

7.25.3.7  (02-23-1999)
Educational Purposes

  1. An organization that is organized and operated exclusively for educational purposes qualifies for exemption under IRC 501(c)(3).

  2. The regulations under Reg. 1.501(c)(3)–1(d)(3)(i) define education as:

    1. "the instruction or training of the individual for the purpose of improving or developing his capabilities"

    2. "the instruction of the public on subjects useful to the individual and beneficial to the community."

7.25.3.7.1  (02-23-1999)
Schools

  1. Schools provide the classic form of individual instruction. For IRC 501(c)(3) purposes, a school includes:

    • primary or secondary school,

    • college, or

    • professional or trade school.

  2. A school is defined in IRC 170(b)(1)(A)(ii). To qualify, a "school" must:

    1. primarily present formal instruction,

    2. maintain a regular faculty and curriculum,

    3. have a regularly enrolled body of students, and

    4. have a facility.

7.25.3.7.2  (02-23-1999)
Racially Nondiscriminatory Requirement for Schools

  1. A private school that does not have a racially nondiscriminatory policy as to students does not qualify for exemption. This position was announced in Rev. Rul. 71–447, 1971–2 C.B. 230.

    1. A "racially nondiscriminatory policy as to students" means that the school admits students of any race to all the rights, privileges, programs, and activities generally accorded or made available to students at that school and that the school does not discriminate on the basis of race in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs.

    2. Rev. Proc. 75–50, 1975–2 C.B. 587, clarified that discrimination on the basis of race includes discrimination on the basis of color and national or ethnic origin.

    3. The requirement is based on the clear federal public policy against racial discrimination in education. Under the common law definition of charitable, purposes that are contrary to public policy are not charitable.

  2. Rev. Proc. 75–50, 1975–2 C.B. 587, provides procedures that a school must follow to establish that it has a racially nondiscriminatory policy as to students. Under Rev. Proc. 75–50, a school must show affirmatively that it—

    1. has adopted a racially nondiscriminatory policy as to students;

    2. is operating under a racially nondiscriminatory policy as to students; and

    3. has made this policy known to all segments of the general community served by the school.

  3. The requirement of racial and ethnic nondiscrimination extends to organizations, including churches or a convention or association of churches, that have secular school operations, whether separately incorporated or operated as part of the organization’s overall operations.

    If a church THEN
    operates a separately incorporated school with a policy of refusing to accept any children from certain racial or ethnic groups the school is not operated exclusively for charitable purposes and does not qualify under IRC 501(c)(3). (Rev. Rul. 75–231, 1975–1 C.B. 158.)
    operates a racially discriminatory school as part of its operations the school will jeopardize the exemption of the organization. (Rev. Rul. 75–231, 1975–1 C.B. 158.)
    is a parochial school that selects students on the basis of membership in a religious denomination as long as the denomination does not restrict its membership to a particular racial or ethnic group, the school is not discriminatory.
    is a seminary or other "purely" religious school, primarily teaching religious subjects, usually with the purpose of training students for the ministry the organization is not subject to the racially and ethnically nondiscriminatory requirements inasmuch as it is considered to be a religious rather than an educational organization.

  4. Rev. Rul. 77–272, 1977–2 C.B. 191, holds that an organization formed to conduct an apprentice training program for Native Americans, in conjunction with the Bureau of Indian Affairs, was charitable and not racially discriminatory.

7.25.3.7.2.1  (02-23-1999)
Significant Cases

  1. In Green v. Connally, 330 F. Supp. 1150 (D.D.C., 1970) aff’d sub nom. Coit v. Green, 404 U.S. 997 (1971), as supplemented and modified by Green v. Miller, 45 AFTR 2d 80–1566, 80–1 USTC 9401 (D.D.C. 1980), the court held that racially discriminatory private schools are not entitled to exemption, and that donations to such schools are non-deductible.

  2. In Prince Edward School Foundation v. Commissioner, 478 F. Supp. 107 (D.D.C. 1979), the court held that a private school did not qualify for exemption because it failed to meet its burden to establish that its policy is to admit black students on the same basis as those of other races. Pertinent facts included:

    1. the school was established because the public school system had been desegregated;

    2. the organization had previously conceded that it practiced a racially discriminatory policy of exclusiveness; and,

    3. although it was subsequently enjoined from such practices by court order, it failed to present any evidence that it had modified the above policy.

  3. In Bob Jones University v. U.S. and Goldsboro Christian Schools, Inc. v. U.S., 461 U.S. 574 (1983), the Supreme Court upheld the revocation of exemption under IRC 501(c)(3) of an educational and religious organization that operated a university whose policies forbade interracial dating by its students. The Court concluded that educational institutions practicing racial discrimination based on religious beliefs are not charitable in the common law sense and thus are not entitled to federal income tax exemption.

    1. However, in a recent case, Bob Jones University Museum and Gallery v. Commissioner, T.C. Memo 1996–247 (1996), the Tax Court ruled against the Service’s denial of the Museum’s charitable status. The Museum absorbed the museum functions of Bob Jones University. The court, limiting its analysis to the case’s specific facts, ruled that the Museum is described in IRC 501(c)(3), as its activities promote education, it is independent of the University, and it pays fair market rates for services provided by the University.

  4. In Calhoun Academy v. Commissioner of Internal Revenue, 94 T.C. 284 (1990), a court applied the racially nondiscriminatory policy in holding that a school was unable to overcome an inference of discrimination resulting from its creation at the time of desegregation of public schools, its failure to adequately publicize a policy of racial nondiscrimination, and its long history of operation without a single black student being enrolled.

7.25.3.7.3  (02-23-1999)
Day Care Centers

  1. A nonprofit day care center may be exempt under IRC 501(c)(3) as an educational organization.

    IF an IRC 501(c)(3) day care center THEN
    meets the requirements for a school it will be classified as an educational organization under IRC 509(a)(1) and 170(b)(1)(A)(ii).
    does not meet the requirements for a school it will most likely be classified as a IRC 509(a)(2) organization.

7.25.3.7.4  (02-23-1999)
Organizations that are Intregal Part of a School

  1. Organizations that are operated for the convenience of students and faculty can qualify for exemption under IRC 501(c)(3) because they promote educational purposes. This category includes:

    • University bookstores. Rev. Rul. 58–194, 1958–1 C.B. 240, and Squire v. Student Book Corp., 191 F.2d 1018 (9th Cir. 1951).

    • Cafeterias. Rev. Rul. 58–194, 1958–1 C.B. 240.

    • Cooperative college book and supply stores. Rev. Rul. 69–538, 1969–2 C.B. 116.

  2. Other school-affiliated organizations and activities that may qualify as educational include:

    1. A law review journal. Rev. Rul. 63–235, 1963–2 C.B. 210.

    2. A high school interscholastic athletic program. Rev. Rul. 55–587, 1955–2 C.B. 261.

    3. Providing meals for coaches and members of a university’s athletic teams. Rev. Rul. 67–291, 1967–2 C.B. 184. However, compare Rev. Rul. 56–13, 1956–1 C.B. 198, which holds that recruiting athletes is not an exclusively educational activity. Thus, an organization formed to assist a school recruit talented athletes to the school does not qualify for exemption under IRC 501(c)(3).

    4. A faculty-run organization that gives business students experience in managing a securities portfolio. Rev. Rul. 68–16, 1968–1 C.B. 246.

    5. An alumni association. Rev. Rul. 60–143, 1960–1 C.B. 192; Estate of Phillip R. Thayer, et al. v. Commissioner, 24 T.C. 384 (1955), acquiescence, 1956–2 C.B. 8; Rev. Rul. 56–486, 1956–2 C.B. 309.

    6. Housing for college students. Rev. Rul. 76–336, 1976–2 C.B. 143.

    7. An organization that promotes alternative education. National Association for the Legal Support of Alternative Schools v. Commissioner, 71 T.C. 118 (1978), acq. 1981–36 I.R.B. 5.

7.25.3.7.5  (02-23-1999)
Fraternities and Student Clubs

  1. College fraternities do not qualify for exemption under IRC 501(c)(3) because they are not operated for exclusively educational purposes. Although many have certain educational aspects, their activities serve substantial social purposes. Rev. Rul. 69–573, 1969–2 C.B. 125; J. Chrys Dougherty v. Phinney, 307 F.2d 357 (5th Cir. 1962); Alfred T. Davison v. Commissioner, 60 F.2d 50 (2nd Cir. 1932).

  2. Similarly, Rev. Rul. 64–118, 1964–1 (Part 1) C.B. 182, holds that fraternity housing corporations are not exempt as educational organizations.

  3. Student clubs and societies may qualify for exemption under IRC 501(c)(3) if they serve exclusively educational purposes, even if they offer incidental social or recreational activities.

    1. The educational purposes of a student club or society that qualifies under IRC 501(c)(3) is reflected by the nature of its programs, the incidental character of its recreational and social activities, and the criteria by which it selects it membership.

    2. The mere limiting of availability of a program to a relatively small membership of a restricted class in the manner described in Rev. Rul. 56–403, 1956–2 C.B. 307, will not preclude exemption for an otherwise qualified student organization.

  4. In contrast, as set out in Rev. Rul. 73–439, 1973–2 C.B. 176, a student club or society is not educational if its activities, membership criteria, or other operational aspects reflect purposes that are not exclusively educational.

7.25.3.7.6  (02-23-1999)
Services for Educational Institutions

  1. Organizations that provide services for educational organizations may be exempt in that they advance education. The following are exempt service organizations consisting of computer networks and organizations:

    1. A regional network of member owned or leased computers, created and controlled by exempt colleges and universities to collect and disseminate only scientific and educational information to exempt members, faculties, and students. Rev. Rul. 74–614, 1974–2 C.B. 164.

    2. A library computer network that provides bibliographic information to member libraries, some of which are not exempt. Rev. Rul. 81–29, 1981–4 I.R.B. 13, amplifying Rev. Rul. 74–614.

  2. Compare:

    • An organization whose membership is limited to organizations that use a specific type of computer and whose activities are designed to keep members informed of current data relating to that computer, is not exempt as an educational organization; it serves the members’ private interests. Rev. Rul. 74–116, 1974–1 C.B. 127.

  3. Other exempt service organizations:

    • Accrediting institutions. Rev. Rul. 74–146, 1974–1 C.B. 129.

    • An organization that brings together instructors and interested students for purposes of instruction. Rev. Rul. 71–413, 1971–2 C.B. 228.

  4. Cooperative service organization of operating educational organizations, which are exempt under IRC 501(f), are discussed in section IRM 7.25.3.7.6.1.

  5. IRM 7.25.25 discusses IRC 502, ( "feeder organizations" ), which provides that an organization, operated for the primary purpose of carrying on a trade or business for profit, is not exempt under IRC 501 on the ground that all of its profits are payable to one or more organizations exempt under IRC 501.

7.25.3.7.6.1  (02-23-1999)
Cooperative Service Organizations of Operating Educational Organizations

  1. IRC 501(f) provides for the exemption of cooperative service organizations, organized and controlled by schools and organizations operated for the benefit of certain state and municipal colleges and universities, for the collective investment of their funds in stocks and securities.

  2. Under IRC 501(f), an organization shall be treated as an organization organized and operated exclusively for charitable purposes, if:

    1. organized and operated solely to hold, commingle, and collectively invest and reinvest (including arranging for and supervising the performance by independent contractors of investment service related thereto) in stocks and securities, the moneys contributed thereto by each of the members of such organization, and to collect income therefrom and turn over the entire amount thereof, less expenses, to such members,

    2. organized and controlled by one or more such members, and

    3. comprised solely of members that are organizations described in clause (ii) or (iv) of IRC 170(b)(1)(A)— which are exempt from taxation under subsection (a), or the income of which is excluded from taxation under IRC 115(a), then such organization shall be treated as an organization organized and operated exclusively for charitable purposes.

  3. IRC 501(f) does not apply to any organization formed to promote the furnishing of investment services by private interests even though those services might be made available only to educational organizations. For example, if a private brokerage company or investment advisory company were to initiate the formation of a cooperative investment organization, in order to obtain customers for its business, such an organization would not be exempt under the provisions of IRC 501(f) even though it were limited to schools. (S. Rept. No. 93-888, 2d Session, 1974–2 C.B. 415.)

7.25.3.7.7  (02-23-1999)
Scholarships

  1. Assistance that allows students to complete their educational programs may serve exclusively educational and charitable purposes, depending on the manner of selection and the class of eligible recipients. The following forms of student aid illustrate the standards of IRC 501(c)(3) that apply to educational assistance programs.

  2. Scholarships and student loans (whether secured as in Rev. Rul. 63–220, 1963–2 C.B. 208 or unsecured as in Rev. Rul. 61–87, 1961–1 C.B. 191) that are granted on the basis of:

    • need, as in Rev. Rul. 66–103, 1966–1 C.B. 134; or

    • merit, as in Rev. Rul. 69–257, 1969–1 C.B. 151.

  3. Free housing, books, or supplies, as in Rev. Rul. 64–274, 1964–2 C.B. 141, and Rev. Rul. 76–336, 1972–2 C.B. 143.

  4. Various forms of student aid and recognition have been determined to further educational purposes, including—

    1. A national honor society that recognizes scholastic achievements at universities and colleges where chapters are established. Rev. Rul. 71–97, 1971–1 C.B. 150.

    2. An organization formed to provide housing and food services exclusively for students and faculty of a university. Rev. Rul. 67–217, 1967–2 C.B. 181.

    3. A nonprofit organization which subsidizes meals for coaches and members of a university’s athletic teams. Rev. Rul. 67–291, 1967–2 C.B. 184.

  5. Student aid does not further exclusively educational purposes if it is provided as compensation. An example of a "scholarship" program that served a substantial non exempt purpose is Miss Georgia Scholarship Fund, Inc. v. Commissioner, 72 T.C. 267 (1979), in which the court held that an organization whose activity was awarding scholarships to contestants in a beauty pageant did not qualify under IRC 501(c)(3) because the scholarships were awarded in consideration of contractual obligations.

  6. An organization that provides educational assistance to pre-selected, specifically-named individuals, it does not qualify for exemption. Rev. Rul. 67–367, 1967–2 C.B. 188.

  7. Scholarships may serve exclusively educational purposes even though eligibility is limited to members of a single fraternity, as in Rev. Rul. 56–403, 1956–2 C.B. 307.

7.25.3.7.8  (02-23-1999)
Vocational Training

  1. Organizations that provide vocational training may be exempt as educational organizations, provided that any commercial operations are not larger than needed for the training program. In other words, commercial activity must be incidental to the educational activity. Cases that illustrate this principle include:

    1. Rev. Rul. 73–128, 1973–1 C.B. 222, in which an organization that provides vocational training to unemployed individuals by manufacturing and selling toys was held exempt under IRC 501(c)(3). The organization’s purpose was educational, and its commercial operations were limited to sales of toys produced in the training program.

    2. In contrast, Rev. Rul. 73–127, 1973–1 C.B. 221, held that an organization operating a grocery store that conducted a training program for hard-core unemployed individuals as a part of its operations does not qualify for exemption. The commercial grocery store operations exceeded the needs of the training program.

    3. Rev. Rul. 76–37, 1976–1 C.B. 148, held that an organization that assists a public vocational training center in its home construction training program, and uses the income from home sales to finance new projects and equipment for the public school system qualifies for exemption under IRC 501(c)(3). The completed houses the organization sells are products of its training program, and are sold in substantially the same state they are in upon completion of the training program. Further, the organization built only as many houses as needed for its on-the-job training program.

    4. Rev. Rul. 75–284, 1975–2 C.B. 202, held an organization that provides high school graduates and college students with work experience in selected trades or professions, for which they receive no compensation, qualifies for exemption under IRC 501(c)(3). The organization, which is supported by tuition and contributions, contracts with skilled craft workers and professionals to provide one-on-one training to students. Accordingly, the organization furthered educational purposes by familiarizing students with various career fields, and by training individuals for the purpose of developing their capabilities.

    5. Rev. Rul. 72–101, 1972–1 C.B. 144, held that an organization created through collective bargaining agreements to train individuals desiring to acquire skills in a particular industry qualifies for exemption under IRC 501(c)(3). The organization, which is run by trustees selected by both labor and management, and is funded by participating employers based on the hours worked by their respective employees, conducts full-time, six week course that covered the various crafts and skills needed to work in the industry.

    6. Rev. Rul. 77–272, 1977–2 C.B. 191, recognized exemption under IRC 501(c)(3) of an organization formed and operated by a labor union in conjunction with a Bureau of Indian Affairs program to provide apprentice training in a skilled trade to Native Americans. The organization conducts an intensive course in the skilled trade for adults selected by the Bureau of Indian Affairs. The course was conducted in accordance with the Adult Vocational Training Act to provide members of a disadvantage group with skills needed to be gainfully employed.

    7. An organization that assists law students, chosen by merit and interests, to obtain practical experience with exempt public interest law firms and legal aid societies. Rev. Rul. 78–310, 1978–2 C.B. 173.

    8. An organization that marketed products made by the blind and distributed the net profits to the blind workers. Industrial Aid for the Blind v. Commissioner, 73 T.C. 96 (1979), acq. 1980-2 C.B. 1.

7.25.3.7.9  (02-23-1999)
Organizations Affiliated with Businesses or Professions

  1. Organizations may be educational even if their educational activities are geared toward a certain business or profession. Exempt business-affiliated organizations include:

    1. An organization that conducted study courses for employees of banking institutions. Rev. Rul. 68–504, 1968–2 C.B. 211.

    2. An organization that conducted post-graduate education medical seminars for practicing physicians. Rev. Rul. 65–298, 1965–2 C.B. 163.

    3. Compare: An organization formed to provide continuing education seminars for physicians was not exempt because of: 1) private benefit to the for-profit travel agency that arranged tours for the organization’s seminars; and 2) the provision of extensive sightseeing and recreational activities that were not incidental to educational purposes. International Postgraduate Medical Foundation v. Commissioner, T.C.M. 1989–36.

    4. An organization created by representatives of both labor and management to select individuals for apprentice training, arrange their classroom and on-the-job training and provide books and supplies used for the training. Rev. Rul. 67–72, 1967–1 C.B. 125.

  2. An educational program must be conducted for exclusively educational purposes, with only incidental nonexempt purposes. In Rev. Rul. 59–6, 1959–1 C.B. 121, an professional association was held not exempt under IRC 501(c)(3) where its educational program is only an incidental part of activities that had as a principal purpose the professional advancement of the members as a group.

  3. An organization that operates a school to train individuals to fill responsible positions in political campaigns does not qualify for exemption under IRC 501(c)(3) where it fails to establish that it operates on a nonpartisan basis. In American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989), the court concluded that the organization, an outgrowth of similar training programs sponsored by the National Republican Congressional Committee, operated for the private benefit of Republican entities and candidates, who were not members of a charitable class. Although the organization had no formal requirement that candidates for admission be affiliated with any particular political party, the evidence suggested that most of its graduates went on to work in Republican campaigns, and the organization offered no evidence of an graduate who was affiliated with a domestic political party other than the Republican party.

7.25.3.7.10  (02-23-1999)
Promotion of the Arts

  1. The promotion of the arts and of culture is generally recognized as an educational activity. See Reg. 1.501(c)(3)–1(d)(3)(ii). The following are exempt educational activities dedicated to such pursuits:

    1. Promoting the dramatic arts. Rev. Rul. 64–175, 1964–1 (Part 1) C.B. 185.

    2. Operating a nonprofit school of contemporary dance. Rev. Rul. 65–270, 1965–2 C.B. 160.

    3. Promoting jazz festivals and jazz concerts. Rev. Rul. 65–271, 1965–2 C.B. 161.

    4. Group harmony singing. Rev. Rul. 66–46, 1966–1 C.B. 133.

    5. Fellowship grants to students or to qualified writers and artists. Rev. Rul. 66–103, 1966–1 C.B. 134.

    6. Aiding young musicians and singers interested in acquiring concert experience. Rev. Rul. 67–392, 1967–2 C.B. 191.

    7. Conducting annual festivals to provide unknown film makers with opportunities to display their films. Rev. Rul. 75–471, 1975–2 C.B. 207.

    8. Recording and selling, primarily to educational institutions, new works of unrecognized composers of contemporary symphonic and chamber music as well as neglected works of more established composers. Rev. Rul. 79–369, 1979–2 C.B. 226.

    9. Historic preservation of buildings for viewing by the general public. Rev. Rul. 75–470, 1975–2 C.B. 207.

  2. Organizations that sponsor art exhibits may or may not be exempt, depending on the particular facts and circumstances:

    1. For a description of an exempt art exhibit, see Rev. Rul. 66–178, 1966–1 C.B. 138.

    2. A cooperative art gallery formed by artists to exhibit and sell their works does not qualify for exemption. Rev. Rul. 71–395, 1971–2 C.B. 228.

    3. An organization that sold works of art and turned most of the proceeds over to the individual artists was not exempt. Rev. Rul. 76–152, 1976–1 C.B. 151.

    4. An organization that sold works of art and turned most of the proceeds over to the individual artists was exempt. It operated in a part of the country where there were no nearby art museums. Goldsboro Art League v. Commissioner, 75 T.C. 337 (1980).

  3. The promotion of theatrical productions can be an educational activity. See, for example:

    • Community repertory theaters. Rev. Rul. 64–175, 1964–1 (Part 1) C.B. 185; and Rev. Rul. 64–174, 1964–1 (Part 1) C.B. 183.

    • Sponsoring plays, musicals, and concerts. Rev. Rul. 73–45, 1973–1 C.B. 220.

  4. Plumstead Theatre Society, Inc. v. Commissioner , 74 T.C. 1324 (1980), aff’d 675 F.2d 244 (9th Cir. 1982), involved an organization formed to promote theatre. The issue was whether an IRC 501(c)(3) organization can serve as a general partner to non-exempt limited partners in a limited partnership. The court, in holding that the organization was exempt, found that the organization’s assets were shielded from the limited partners, the limited partners had no control over the organization, and the organization operated for charitable purposes.

  5. Organizations that sponsor the performing arts must be nonprofit organizations in the sense that the earnings may not be distributed to individuals. For example:

    1. An organization that generated community interest in classical music by a for-profit radio station did not qualify for exemption; the organization’s activities benefited the radio station in more than an incidental way. Rev. Rul. 76–206, 1976–1 C.B. 154.

    2. However, admission fees are not a bar to exemption. Reg. 1.501(c)(3)–1(d)(3)(ii) provide specifically for the exemption of symphony orchestras, which have traditionally charged substantial admission fees.

  6. The Tax Court determined that an organization that purchased, imported and sold handicrafts of disadvantaged artisans was exempt, in that it alleviated economic deficiencies in objectively determined communities of disadvantaged artisans in the United States and abroad. Aid to Artisans, Inc. v. Commissioner, 71 T.C. 202 (1978), acq. in result only 1981-2 C.B. 1.

7.25.3.7.11  (02-23-1999)
Education of the Public

  1. Reg. 1.501(c)(3)–1(d)(3)(i) provide that the term educational includes the instruction of the public on subjects useful to the individual and beneficial to the community.

7.25.3.7.11.1  (02-23-1999)
Publishing

  1. Publishing printed material may be educational if:

    1. the content of the publication is educational;

    2. the preparation of material follows methods generally accepted as "educational" in character;

    3. the distribution of materials is necessary or valuable in achieving the organization’s educational and scientific purposes; and

    4. the manner in which the distribution is accomplished is distinguishable from ordinary commercial publishing practices. Rev. Rul. 67–4, 1967–1 C.B. 121 (involving a journal of scientific and medical data).

  2. Examples of exempt publishing activities:

    1. Preparing, publishing and distributing abstracts of scientific and medical literature without charge. Rev. Rul. 66–147, 1966–1 C.B. 137.

    2. Preparing, publishing, and distributing literature concerning a specific park in conjunction with the National Park Service. Rev. Rul. 68–307, 1968–1 C.B. 258.

    3. Publishing an authoritative manual on the standard library cataloguing system. Forest Press, Inc. 22 T.C. 265 (1954), acq., 1954–2 C.B. 4.

    4. Publishing and selling below cost a bulletin of translations from foreign news media. People Translation Service/Newsfront International v. Commissioner, 72 T.C. 42 (1979), acq. 1981–36 I.R.B. 5.

  3. Where the dissemination of published material has the characteristics of a trade or business, it is not in furtherance of an exempt purpose. Non-exempt publishing rulings include:

    1. Magazine operated in a manner indistinguishable from ordinary commercial publishing practices. Rev. Rul. 60–351, 1960–2 C.B. 169.

    2. Publishing ethnic newspaper similar to that of forprofit publishers. Rev. Rul. 77–4, 1977–1 C.B. 141. IRM 7.25.3.6.8 for a discussion of religious publishing.

7.25.3.7.11.2  (02-23-1999)
Other

  1. Education of the public may be carried on outside the classroom. The regulations provide examples including: public discussions, forums, panels, lectures, museums, zoos, and planetariums. Reg. 1.501(c)(3)–1(d)(3)(ii). Other examples include:

    1. An organization that disseminated information on painless childbirth. Rev. Rul. 66–255, 1966–2 C.B. 210. See also Rev. Rul. 73–543, 1973–2 C.B. 343 (education on natural childbirth).

    2. An organization that disseminated newsletters and study kits on the quality of radio and television broadcasts. Rev. Rul. 64–192, 1964–2 C.B. 136.

    3. Collecting documentation on a candidate for higher elective office for donation to a university or library. Rev. Rul. 70–321, 1970–1 C.B. 129.

    4. Counseling activities: Marriage counseling, Rev. Rul. 70–640, 1970–2 C.B. 117; counseling women with unwanted pregnancies, Rev. Rul. 73–569, 1973–2 C.B. 178; counseling on voluntary sterilization methods, Rev. Rul. 74–595, 1974–2 C.B. 164; and counseling widows, Rev. Rul. 78–99, 1978–1 C.B. 152.

    5. Conducting a fair with exhibitions of livestock, poultry, and farm products. Rev. Rul. 67–216, 1967–2 C.B. 180.

    6. Exhibiting historical events, cultural achievements, and products of various nations. Rev. Rul. 71–545, 1971–2 C.B. 235.

    7. Producing films on the need for international cooperation. Rev. Rul. 67–342, 1967–2 C.B. 187.

    8. A nonprofit radio station that broadcasts educational material with no commercial sponsorship. Rev. Rul. 66–220, 1966–2 C.B. 209.

    9. Providing senior citizens an opportunity to listen, through closed-circuit radio, to free noncommercial and educational broadcasts concerning their special needs. Rev. Rul. 77–42, 1977–1 C.B. 141.

    10. An organization that conducts studies into the quality, utilization, and effectiveness of health care and educates persons who furnish and administer health care. Rev. Rul. 76–455, 1976–2 C.B. 150. Rev. Rul. 74–553 distinguished (IRC 501(c)(6) peer review organization).

    11. An organization that encourages understanding and tolerance of homosexuals. Rev. Rul. 78–305, 1978–2 C.B. 172.

    12. Certain genealogical societies. Rev. Rul. 80–301, 1980–2 C.B. 180; Rev. Rul. 71–580, 1971–2 C.B. 235 (genealogical research for religious purposes). Compare Rev. Rul. 80–302, 1980–2 C.B. 182, a nonexempt genealogical society that benefitted only a particular family. See also, The Callaway Family Association, Inc. v. Commissioner, 71 T.C. 340 (1978) and Benjamin Price Genealogical Association v. Commissioner, 44 AFTR 2d 79–5024 (D.D.C. 1979).

    13. Instructing individuals in a particular sport in municipal parks and recreational areas. Rev. Rul. 77–365, 1977–2 C.B. 192.

    14. Arranging the temporary exchange of children between families of a foreign country and the United States to foster the cultural and educational development of children. Rev. Rul. 80–286, 1980–2 C.B. 1979. Rev. Rul. 67–327 (arranging group tours abroad) distinguished.

  2. Organizations that devote most of their effort to research and the development of a new body of knowledge may be educational. The results of the study and research must be available to the public even though it may not be extensively disseminated.

    1. A social science research organization was exempt that disseminated the results of its research through seminars and lectures, and by placing material in libraries. Rev. Rul. 65–60, 1965–1 C.B. 231.

  3. An organization engaged in activities relating to "est" programs involving training, seminars, lectures, etc., in areas of intrapersonal awareness and communication which were conducted under licensing arrangements with a for-profit corporation, was held not to be exempt under IRC 501(c)(3). The court held that although the organization was educational in nature, it served the commercial purposes of the for-profit corporation and, therefore, was not operated exclusively for exempt purposes. est of Hawaii, A Hawaiian Corporation v. Commissioner, 71 T.C. 1067 (1979).

  4. An organization, the primary purpose of which was to train dogs, did not qualify for exemption. Although the dog owners received some instruction as to the training of the dogs, the dogs were the primary objects of the organization’s training classes and evaluation. Since training dogs is not an educational purpose described in IRC 501(c)(3), the organization did not qualify for exemption. Ann Arbor Dog Training Club, Inc. v. Commissioner, 74 T.C. 207 (1980).

  5. An organization composed of consumer counseling agencies qualified for exemption under IRC 501(c)(3). Its principal activities were free information to the general public on budgeting, buying practices, and the sound use of credit; and counseling on budgeting and the use of credit to debt-distressed individuals and families. The agencies were free to charge a nominal fee for the credit counseling. Consumer Credit Counseling Service of Ala., Inc., et al. v. U.S., 44 AFTR 2d 79–5122 (D.D.C. 1978). See also, Credit Counseling Center of Oklahoma, Inc. v. U.S. 45 AFTR 2d 80–1401 (D.D.C. 1979).

  6. An organization which primarily conducted an adoption service was held not to qualify for exemption. The organization’s adoption service was operated in a commercial manner and was more than insubstantial in relation to its charitable and educational activities of providing counseling services to unwed mothers. Indicia of commercial operations included the existence of substantial profits, funds raised exclusively from fixed adoption fees, fixed fees which were prohibitive to a large segment of the community, and medical expenses charged to mothers who decided not to put their babies up for adoption. A further ground for denial was the existence of private benefit to the organization’s sole life member. Easter House v. U.S., 60 AFTR 2d 87–5119 (Ct. Cl. 1987).

7.25.3.7.11.3  (02-23-1999)
Education of Youth

  1. Programs for young people may be either educational, as forming the character of youth, or charitable in the broader sense, in that they prevent juvenile delinquency. See Reg. 1.501(c)(3)–1(d)(2). Examples of education of youth are:

    1. Teaching a particular sport to children. Rev. Rul. 65–2, 1965–1 C.B. 227.

    2. Maintaining a supervised drag strip for youth. Lions Associated Drag Strip v. United States, 13 A.F.T.R. 2d 973 (1963), 64–1 U.S.T.C. 9283.

  2. An organization, the principal activity of which is the owning and operation of an amateur baseball team that competes in a semi-professional league is exempt. The organization furnishes instructors and coaches for a baseball camp, provides coaches for little league teams, and seeks employment for the members of the baseball team that it owns. The organization’s purpose of promoting, advancing and sponsoring baseball as an amateur sport was not defeated since the team members were amateurs who received no pay and did not share in gate receipts. Hutchinson Baseball Enterprises, Inc. v. Commissioner, 73 T.C. 144 (1980), nonacq. 1980–2 C.B.

7.25.3.7.11.4  (02-23-1999)
Child Care Organizations

  1. Before enactment of IRC 501(k), the Service position was that a nonprofit day care center qualified for exemption under IRC 501(c)(3) only if it was operated in a charitable or educational manner.

    1. To be considered charitable, enrollment in a day care center would generally have to be limited to children from low-income families. See Rev. Rul. 68–166, 1968–1 C.B. 255, and Rev. Rul. 70–533, 1970–2 C.B. 112.

    2. To be considered educational, a day care center would have to provide a comprehensive educational program through a professional staff of qualified teachers. See Rev. Rul. 73–430, 1973–2 C.B. 362, and San Francisco Infant School, Inc. v. Commissioner, 69 T.C. 957 (1978), acq. 1978–2 C.B. 2.

  2. IRC 501(k), added to the Code by the Deficit Reduction Act of 1984, provides that organizations providing for the care of children away from their homes are deemed to have "educational purposes" under IRC 501(c)(3), 170(c)(2), 2055(a)(2), and 2522(a)(2) if:

    1. substantially all of the care provided by the organization is for the purpose of enabling individuals to be gainfully employed, and

    2. the services provided by the organization are available to the general public.

  3. The enactment of IRC 501(k) has no effect on the existing precedents mentioned in paragraph (1) above, and child care organizations covered by those precedents will qualify for exemption under IRC 501(c)(3) without consideration of IRC 501(k).

  4. IRC 501(k) requires that child care be provided for the purpose of "enabling individuals to be gainfully employed." The classes of individuals contemplated by the statute would include any employee or self-employed individual, any enrolled student or vocational trainee, and any individual who is actively seeking employment.

  5. IRC 501(k) requires that "substantially all" of the services of the organization be provided to the children of individuals described in paragraph (4) above. This requirement should be deemed to be satisfied if the parents or guardians of at least 85 percent of the children served fall within the designated classes of individuals. Where the 85 percent test is not met, the case should be referred to the National Office.

  6. IRC 501(k) requires that services be "available to the general public." This statutory requirement would normally be satisfied even though the organization has an enrollment restriction based on political boundaries (e.g., enrollment limited to person residing in a particular county, city, or school district). On the other hand, a restriction that limits enrollment to children of a particular employer would normally violate the requirement that services be "available to the general public." However, in such cases an alternative basis for exemption may be available. For example, if enrollment was limited to children of employees of a governmental agency, it might be shown that the organization is "lessening the burdens of government" within the meaning of Reg. 1.501(c)(3)–1(d)(2); or, if enrollment was limited to children of employees of a private employer, the organization might qualify as a voluntary employees’ beneficiary association under IRC 501(c)(9).

  7. A child care organization that has educational purposes solely by virtue of IRC 501(k) is not a private school subject to the requirements of Rev. Proc. 75–50, 1975–2 C.B. 587. Nevertheless, although a child care organization need not meet the specific requirements of Rev. Proc. 75–50, supra, pursuant to the requirements of the law of charity, as applied to educational organizations (and to child care organizations through IRC 501(k)), such an organization cannot be racially discriminatory. See Bob Jones University v. United States, 461 U.S. 574 (1983). All the facts and circumstances must be evaluated to determine if an IRC 501(k) organization is racially discriminatory. An application for exemption containing indicia of racial discrimination or questionable selective admissions criteria should be referred to the Washington POD. A child care organization seeking and meeting the requirements of IRC 170(b)(1)(A)(ii) is subject to the requirements of Rev. Proc. 75–50, supra.

  8. Determinations under IRC 501(c)(3) for IRC 501(k) child care organizations are subject to the same requirements for exemption and foundation status classification as other IRC 501(c)(3) organizations. In most cases, an IRC 501(k) organization which receives the majority of its funding from fees for child care services, will satisfy the requirements for either an advance or definitive non-private foundation ruling under IRC 509(a)(2).

7.25.3.7.11.5  (02-23-1999)
Political/Controversial Issues or Advocating a Position

  1. Public education through the mass media frequently gets into areas that are controversial. While the term educational includes the instruction of the public on subjects useful to the individual and beneficial to the community, what an organization claims to be educational may in fact be political or legislative activities. Generally, exemption under IRC 501(c)(3) is precluded for those organizations which are substantially engaged in attempting to influence legislation or those which participate in or intervene in any political campaign on behalf of any candidate for public office.

  2. Certain activities that touch on the political and/or legislative scenes have been held to be outside the scope of the statutory prohibitions. In one instance, for example, a nonprofit educational organization exempt under IRC 501(c)(3) became interested in the question of court reform at the same time the State legislature was considering amending the State constitution. In that case, however, the organization’s activity was limited to the study, research and assembly of materials and the presentation of an objective analysis to those interested in court reform including those who oppose it as well as those who favor it, and to the general public. Accordingly, it was held that such activity was not an attempt to influence legislation and thus did not affect the organization’s exempt status. (Rev. Rul. 64–195, 1964–2 C.B. 138.) In another instance a nonprofit organization formed to elevate the standards of ethics and morality in the conduct of political campaigns by disseminating information concerning general campaign practices, furnishing teaching aids to political science and civics teachers, and publicizing its proposed code of fair campaign practices without soliciting the signing or endorsement of the code by candidates was held to qualify for exemption as an educational organization. Rev. Rul. 76–456, 1976–2 C.B. 151.

  3. The extent to which partisan political topics may be considered educational has long been a problem. The problem first arose in the context of attempts to influence legislation. Organizations using the mass media to persuade voters to a certain political view and to bring about particular legislation were sometimes held to be noneducational. (See Noah Slee v. Commissioner, 42 F.2d 184 (2nd Cir. 1930).) However in Bertha Poole Weyl v. Commissioner, 48 F.2d 811(2nd Cir. 1931), a distinction was made for the discussion of controversial topics with legislative implications, if the discussion was not primarily directed toward the enactment of particular legislation. Also, in Rev. Rul. 74–574, 1974–2 C.B. 160, a distinction is made where an organization exempt under IRC 501(c)(3) operates a broadcasting station presenting religious, educational, and public interest programs, and provides reasonable air time equally available to all legally qualified candidates for election to public office in compliance with section 312(a)(7) of the Federal Communications Act of 1934, as amended. The organization endorsed no candidate or viewpoint and was held not to be participating in political campaigns on behalf of public candidates in violation of IRC 501(c)(3).

  4. Attempts to influence legislation are now specifically covered by statute. The problem relating to the definition of "educational" is now a comparatively narrow one— how to classify public discussion of controversial topics. Rev. Rul. 68–263, 1968–1 C.B. 256, holds that the publication of material which discredits particular institutions and individuals on the basis of unsupported opinions and incomplete information about their affiliations is not educational. In Rev. Rul. 66–256, 1966–2 C.B. 210, however, an organization that conducted public forums, lectures, and debates on controversial social, political, and international questions was held to be educational. Although the speakers were frequently controversial, the organization adopted an unbiased position. Organizations doing research or educating the public on controversial public issues must stick to the reasoned approach and avoid unsupported opinion. They must also avoid the advocacy of specific legislation as a substantial part of their activity.

  5. A nonprofit organization whose purpose is to educate the public concerning the accuracy and fairness of news coverage by local newspapers was held to be exempt. (See Rev. Rul. 74–615, 1974–2 C.B. 165.) By educational methods, the organization encouraged the newspapers to meet high standards of journalism.

  6. An organization that provides information to the public about the public’s right of access to the broadcast media and objectively evaluates the performance of local broadcasters in fulfilling their public service obligations is operated exclusively for charitable and educational purposes as an organization described in IRC 501(c)(3). Rev. Rul. 79–26, 1979–1 C.B. 196.

  7. Certain publications of congressional incumbents’ voting records on selected issues in a nonpartisan newsletter do not constitute participation or intervention in any political campaign within the meaning of IRC 501(c)(3). Rev. Rul. 78–248 amplified by Rev. Rul. 80–282, 1980–2 C.B. 178.

  8. The Service has published the criteria used to determine the circumstances under which advocacy of a particular viewpoint or position by an organization is considered educational within the meaning of Reg. 1.501(c)(3)–1(d)(3). This criteria is set forth in Rev. Proc. 86–43, 1986–2 C.B. 729, sec. 3. Two court decisions have considered challenges to the constitutionality of Reg. 1.501(c)(3)–1(d)(3). One decision held that the regulation was unconstitutionally vague. Big Mama Rag v. U.S., 631 F.2d 1030 (D.C. Cir. 1980). However, in National Alliance v. U.S., 710 F.2d 868 (D.C. Cir. 1983), the court upheld the Service’s position that the organization in question was not educational. Although the latter decision did not reach the question of the constitutionality of Reg. 1.501(c)(3)–1(d)(3), it did note that the methodology test used by the Service when applying the regulation "tends toward ensuring that the educational exemption be restricted to material which substantially helps a reader or listener in a learning process." The court also noted that the application of this test reduced the vagueness found in the earlier Big Mama Rag decision. The methodology test cited by the court in National Alliance reflects the longstanding Service position that the method used by an organization in communicating its position, rather than the viewpoint or position itself, is the standard for determining whether an organization has educational purposes. This methodology test is used in all situations where the educational purposes of an organization that advocates a particular viewpoint or position are in question.

7.25.3.7.11.6  (02-23-1999)
Hobby Clubs

  1. Hobby clubs may be exempt if their principal purpose is educational, and the Service has recognized certain garden clubs and mineralogical societies as educational. (See Rev. Rul. 66–179, 1966–1 C.B. 139, and Rev. Rul. 67–139, 1967–1 C.B. 129.)

  2. Generally, hobby clubs exempt under 501(c)(3) are ones that conduct structured educational programs for members and the public, issue newsletters or bulletins containing educational material, maintain reference libraries and prepare displays and exhibits for the public. Recreational and social activities must be insubstantial. The way in which the clubs select their members must be consistent with an educational (as opposed to social or recreational) purpose.

7.25.3.7.11.7  (02-23-1999)
Digests of Precedent Rulings

  1. Repertory theater— A nonprofit corporation which is organized exclusively for charitable, scientific, literary, or educational purposes and more specifically to stimulate, promote, and develop the interest of the American public in the dramatic arts, and which operates a permanent repertory theater, is exempt under IRC 501(c)(3). Rev. Rul. 61–175, 1964–1 (Part 1) C.B., 185.

  2. Fraternity chapter house— An organization does not qualify for exemption under IRC 501(c)(3) as an educational organization where its primary activity is to furnish, on a rental basis, a chapter house to a fraternity. However, a corporation, fund, or foundation so organized may, under proper circumstances, be classified as a club organized and operated exclusively for pleasure, recreation and other nonprofitable purposes and exempt under IRC 501(c)(7). Rev. Rul. 64–118, 1964–1 (Part 1) C.B. 182.

  3. Repertory theater— A foundation was formed for charitable, educational, and literary purposes. In furtherance of its purposes, it creates interest in the development of the American theater by aiding local communities to establish their own charitable and educational repertory theaters. It also contributes part of its funds to exempt charitable organizations. No part of its net income inures to the benefit of any private individual. Such a foundation is held to be an exempt organization described in IRC 501(c)(3). Rev. Rul. 64–174, 1964–1 (Part 1) C.B., 183.

  4. Educational; evaluating radio and television programs— A nonprofit organization formed for the purpose of educating the public as to the quality of radio and television programs by means of opinion polls, teaching evaluation guides, newsletters, and study kits to better their understanding and judgment of radio and television programs and thereby encourage broadcasters to fulfill their obligations to better serve the public interest may qualify for exemption under IRC 501(c)(3). Rev. Rul. 64–192, 1964–2 C.B. 136.

  5. Educational; evaluating prospective legislation— The IRC 501(c)(3) status of a nonprofit educational organization is not affected by its nonpartisan study, research, and assembly of materials in connection with prospective legislation relating to court reform and the dissemination of such materials to the public. Rev. Rul. 64–195, 1964–2 C.B. 138.

  6. Student aid corporations— An organization which provides housing, books and educational supplies, as a gift or on an interest-free loan basis, to qualified students who would otherwise have to discontinue their education for lack of funds, is exempt as a charitable organization. Rev. Rul. 64–274, 1964–2 C.B. 141.

  7. Sailboat racing training— An organization formed for the purpose of training suitable candidates in the techniques of racing sailboats in national and international competition, and thereby improving the caliber of candidates representing the United States in Olympic and Pan-American games, qualifies for exemption from Federal income tax as an educational organization described in IRC 501(c)(3). Rev. Rul. 64–275, 1964–2 C.B. 142.

  8. Educational; community sports foundation— A foundation operated exclusively to teach children a sport by holding clinics conducted by qualified instructors in schools, playgrounds, and parks and by providing free instruction, equipment, and facilities qualifies for exemption under IRC 501(c)(3). Rev. Rul. 65–2, 1965–1 C.B. 227.

  9. Educational research in social sciences— An organization formed for the primary purpose of developing and disseminating a body of new knowledge relating to the social sciences, whose activities consist of the performance of scientific research under contracts with governmental agencies, the results being communicated to the public through seminar courses, lectures, and public discussions, and through publications distributed free to depositary libraries qualifies for exemption under IRC 501(c)(3). Rev. Rul. 65–60, 1965–1 C.B. 231.

  10. Foreign students and visitors hospitality center— A nonprofit corporation organized to extend hospitality to foreign visitors and students, promote cultural and educational programs, and provide an environment for social contact between American citizens and foreign visitors and students that accomplishes these purposes by maintaining and operating a community or hospitality center is, under the circumstances, exempt from tax under IRC 501(c)(3). Rev. Rul. 65–191, 1965–2 C.B. 157.

  11. Dancing school— A nonprofit organization formed to operate a school to teach the art of dancing, particularly contemporary dancing, that maintains a regular faculty and curriculum with a regularly enrolled body of students, is exempt from tax under IRC 501(c)(3). Rev. Rul. 65–270, 1965–2 C.B. 160.

  12. Jazz music appreciation— A nonprofit organization created to develop and promote an appreciation of jazz music as an American art form through the presentation of public jazz festivals or concerts is exempt from tax under IRC 501(c)(3). Rev. Rul. 65–271, 1965–2 C.B. 161.

  13. Medical research and education— A nonprofit organization, organized and operated on a non-membership basis exclusively for the purpose of carrying on research as to diseases and other disorders of the human body and to develop scientific methods for diagnosis, prevention, and treatment thereof, and then to demonstrate the results of such research to other physicians and the public through means of seminars, qualifies for exemption under IRC 501(c)(3). Rev. Rul. 65–298, 1965–2 C.B. 163.

  14. Group harmony singing— A nonprofit organization formed to promote public appreciation of group harmony singing and to educate its members and the general public in this type of music may qualify for exemption from Federal income tax under IRC 501(c)(3) as an educational organization. Rev. Rul. 66–46, 1966–1 C.B. 133.

  15. Creative arts awards— A nonprofit organization providing awards and grants, including scholarships and fellowships, to needy individuals to continue their education or their work in the creative arts with no monetary benefit to the donor is exempt from tax. Rev. Rul. 66–103, 1966–1 C.B. 134.

  16. Publishing teaching materials and textbooks— A nonprofit organization which makes funds available to authors and editors for preparing teaching materials and writing textbooks, and, under the terms of the contract with the publisher, receives royalties from sales of the published materials and then shares them with the editors and authors, does not qualify for exemption under IRC 501(c)(3). Rev. Rul. 66–104, 1966–1 C.B. 135.

  17. Evaluating scientific and medical literature— An organization formed to survey medical and scientific articles published throughout the world and to abstract selected articles of note in a monthly publication that is distributed free to interested parties requesting to be put on the mailing list is exempt from tax under IRC 501(c)(3). Rev. Rul. 66–147, 1966–1 C.B. 137.

  18. Art exhibit sponsorship— A nonprofit organization created to foster and develop the arts by sponsoring a public art exhibit at which the works of unknown but promising artists are selected by a panel of qualified judges for viewing and are gratuitously displayed is exempt from tax under IRC 501(c)(3). Rev. Rul 66–178, 1966–1 C.B. 138.

  19. Garden clubs— Illustrations under which garden clubs may establish exemption as charitable or educational organizations, civic organizations, horticultural organizations, or as social clubs. Rev. Rul. 66–179, 1966–1 C.B. 139.

  20. Broadcasting station; noncommercial— A nonprofit corporation organized exclusively for educational purposes to operate a noncommercial educational broadcasting station presenting educational, cultural, and public interest programs is exempt from Federal income tax under IRC 501(c)(3). Rev. Rul. 66–220, 1966–2 C.B. 209.

  21. Painless childbirth— A nonprofit organization which through meetings, films, forums, and publications educates the public in a particular method of painless childbirth, is entitled to exemption from Federal income tax under IRC 501(c)(3). Rev. Rul. 66–255, 1966–2 C.B. 210.

  22. Political education— A nonprofit organization created to elevate the standards of ethics and morality in the conduct of campaigns for election to political office by publishing its code of fair campaign practices through newspapers, radio and television and by furnishing aids to political science and civics teachers for use in school classes may qualify for exemption as an educational organization. Rev. Rul. 60–193 modified. Rev. Rul. 76–456, 1976–2 C.B. 151.

  23. Accreditation of animal care facilities— A nonprofit organization which promotes humane treatment of laboratory animals by carrying on a program for the accreditation of animal care facilities that supply, keep, and care for animals used by medical and scientific researchers is advancing education and science and thus exempt as a charitable organization. Rev. Rul. 66–359, 1966–2 C.B. 219.

  24. Apprentice training program— An organization created by representatives of both labor and management to select individuals for apprentice training, arrange their classroom and on-the-job training, and provide books and supplies used in the training is exempt from tax under IRC 501(c)(3). Rev. Rul. 67–72, 1967–1 C.B. 125.

  25. Housing guidance to low-income families— A nonprofit organization created to provide instruction and guidance to low-income families in need of adequate housing and interested in building their own homes is exempt from tax under IRC 501(c)(3). Rev. Rul. 67–138, 1967–1 C.B. 129.

  26. Civil War research— A nonprofit organization formed to increase the knowledge of its members and the public about historic events of the Civil War by researching, studying, and involving its members in historically accurate reenactments of Civil War battles to which the public is invited may be exempt under IRC 501(c)(3). Rev. Rul. 67–148, 1967–1 C.B. 132.

  27. Rehabilitating ex-convicts and parolees— A nonprofit organization which furthers the rehabilitation of ex-convicts and parolees in order to make them self-supporting and useful citizens may be exempt from tax under IRC 501(c)(3). Rev. Rul. 67–150, 1967–1 C.B. 133.

  28. Agricultural; fairs— A nonprofit organization formed and operated exclusively to instruct the public on agricultural matters by conducting annual public fairs and exhibitions of livestock, poultry, and farm products may be exempt from tax under IRC 501(c)(3). Rev. Rul. 67–216, 1967–2 C.B. 180.

  29. University housing and food service— A nonprofit organization may qualify for exemption under IRC 501(c)(3) where it is formed to provide housing and food service exclusively for students and faculty of a university in accordance with the rules and regulations of the university and offers the university an option to acquire the property at any time upon payment of an amount equal to the outstanding indebtedness. Rev. Rul. 67–217, 1967–2 C.B. 181.

  30. Promoting nondiscriminatory housing— An organization formed to educate the public about the need for making housing available to members of the public on a nondiscriminatory basis and to encourage investment in such housing may be exempt from tax under IRC 501(c)(3). Rev. Rul. 67–250, 1967–2 C.B. 182.

  31. Training table for university’s athletic teams— A nonprofit organization which subsidizes a training table for coaches and members of a university’s athletic teams furthers the educational program of the university and may be exempt under IRC 501(c)(3). Rev. Rul. 67–291, 1967–2 C.B. 184.

  32. Educational; wild bird and animal sanctuary— An organization formed for the purpose of developing a sanctuary for wild birds and animals for the education of the public may be exempt as an educational organization under IRC 501(c)(3). Rev. Rul. 67–292. 1967–2 C.B. 184.

  33. International cooperation for peace; commercial television— A nonprofit organization which is formed and operated to educate the public on the need for international cooperation in order to create and maintain a peaceful world and which disseminates its educational material by means of commercial television may qualify for exemption under IRC 501(c)(3). Rev. Rul. 67–342, 1967–2 C.B. 187.

  34. Community land-use plan— A nonprofit organization formed to develop and distribute a community land-use plan may be exempt from tax under IRC 501(c)(3). Rev. Rul. 67–391, 1967–2 C.B. 190.

  35. Sponsoring young musical artists— A nonprofit organization which encourages and promotes the advancement of young musical artists by conducting weekly workshops, sponsoring public concerts by the artists, and securing paid engagements for the artists to improve their professional standing may be exempt from tax under IRC 501(c)(3). Rev. Rul. 67–392, 1967–2 C.B. 191.

  36. Career planning and occupational adjustment— A nonprofit organization that helps people in planning their careers and in achieving occupational adjustment by distributing educational publications at a nominal charge and providing free vocational counseling qualifies for exemption under IRC 501(c)(3). Rev. Rul. 68–71, 1968–1 C.B. 249.

  37. Coffee house— A nonprofit organization formed by local churches to operate a supervised facility, known as a "coffee house," in which persons of college age are brought together with church leaders, educators, and leading businessmen of the community for discussions and counseling on religion, current events, social and vocational problems, may be exempt as a charitable organization under IRC 501(c)(3) since it is advancing both education and religion. Rev. Rul. 68–72, 1968–1 C.B. 250.

  38. Aiding needy in developing countries— A nonprofit organization formed and operated to assist needy families in "developing" countries by teaching modern farming methods and furnishing other technical assistance is advancing education and thus exempt under IRC 501(c)(3) as a charitable organization. Rev. Rul. 68–117, 1968–1 C.B. 251.

  39. Small boat safety— An organization formed to develop and disseminate standards of safety in small boat design, construction, and operation is instructing the public on subjects useful to the individual and beneficial to the community and may be exempt under IRC 501(c)(3). Rev. Rul. 68–164 1968–1 C.B. 252.

  40. Publication; discrediting institutions and individuals— An organization formed to promote the education of the public on patriotic, political and civic matters, and to inform and alert the public on the dangers of an extreme political doctrine is not exempt under IRC 501(c)(3) because, as a substantial part of its activities, it distributes publications that seek to discredit particular institutions and individuals on the basis of unsupported opinions and incomplete information about their affiliations and activities. Rev. Rul. 68–263, 1968–1 C.B. 256.

  41. National Park Service programs— A nonprofit organization formed to assist the National Park Service, Department of the Interior, in furthering its educational and scientific programs may be exempt from tax under IRC 501(c)(3). Rev. Rul. 68–307, 1968–1 C.B. 258.

  42. Sports museum— A nonprofit organization that procures, cares for, and displays objects of lasting interest or value relating to a particular sport may be exempt under IRC 501(c)(3). Rev. Rul. 68–372, 1968–2 C.B. 205.

  43. Study courses provided— An organization formed to conduct an educational program for bank employees, whose courses are limited to its members and whose membership is open to area bank employees, qualifies for exemption under IRC 501(c)(3). Rev. Rul. 68–504, 1968–2 C.B. 211.

  44. Bus transportation for private school children— A nonprofit organization, formed by parents of pupils attending a private school, that provides school bus transportation for its members’ children serves a private rather than a public interest and does not qualify for exemption under IRC 501(c)(3). Rev. Rul. 69–175, 1969–1 C.B. 149.

  45. College; employment furnished students— An organization wholly owned by a tax-exempt college is not eligible for exemption under IRC 501(c)(3) if it manufactures and sells wood products primarily to employ students of the college to enable them to continue their education. Rev. Rul. 69–177, 1969–1 C.B. 150.

  46. Scholarships— A nonprofit organization awarding scholarships based on scholastic ability, without regard to financial need, may qualify for exemption under IRC 501(c)(3). Rev. Rul. 69–257, 1969–1 C.B. 151; Rev. Rul. 66–103, 1966–1 C.B. 134; Rev. Rul. 56–403, 1956–2 C.B. 307; Rev. Rul. 67–367, 1967–2 C.B. 188; Rev. Rul. 63–220, 1963–2 C.B. 208; and Rev. Rul. 61–87, 1961–1 C.B. 191.

  47. Foreign educational program— A nonprofit organization that selects students and faculty members who are interested in a particular foreign history and culture and enrolls them in foreign universities, transports them to and from that country, and conducts on-site tours qualifies for exemption under IRC 501(c)(3). Rev. Rul. 69–400, 1969–2 C.B. 114. See also, however, Rev. Rul. 67–327, 1967–2 C.B. 187.

  48. College; book and supply store— An organization that operates a college book and supply store serving exclusively members of the faculty and student body of the college and refunds its excess earnings to members in proportion to their purchases qualifies for exemption under IRC 501(c)(3). Rev. Rul. 69–538, 1969–2 C.B. 116.

  49. Fraternity— An organization built a chapter house with proceeds from contributions from students and alumni. The house serves as a social center for members and has living quarters, study rooms and a library. The organization is not exempt under IRC 501(c)(3) but is exempt under IRC 501(c)(7). Since the fraternity is not organized and operated exclusively for IRC 170(c) purposes contributions to it are not deductible. Rev. Rul. 69–573. 1969–2 C.B. 125.

  50. Research in anthropology— An organization formed to support research in anthropology by manufacturing quality cast reproductions of anthropological specimens which are sold to scholars and educational institutions in a noncommercial manner was held to be advancing education and science. Rev. Rul. 70–129, 1970–1 C.B. 128.

  51. Campaign materials— An organization formed to collect and collate campaign materials of a candidate for an historically important elective office for donation to a university or public library was held to qualify under IRC 501(c)(3) as an educational and charitable organization. Rev. Rul. 70–321, 1970–1 C.B. 129.

  52. Children’s day care center— An educational day care center operated in conjunction with an industrial company that enrolls children on the basis of family financial need and the child’s need for the care and development program of the center qualifies for exemption. Rev. Rul. 70–533, 1970–2 C.B. 112.

  53. Travel study tours— A nonprofit organization whose primary activity is conducting travel study tours that include courses on the culture of the U.S., foreign countries, and nature studies taught by certified personnel qualifies for exemption under IRC 501(c)(3). Rev. Rul. 70–534, 1970–2 C.B. 113.

  54. College students; internship programs— A nonprofit organization that recruits college students for internship programs providing work experience in various phases of government related to their studies while enabling them to contribute to the community furthers a charitable purpose by advancing education and relieving the burdens of government. Rev. Rul. 70–584, 1970–2 C.B. 114.

  55. Marriage counseling service— A nonprofit organization that provides personal marriage counseling services and conducts workshops and seminars on the subject of marital adjustment qualifies for exemption under IRC 501(c)(3). Rev. Rul. 70–640, 1970–2 C.B. 117.

  56. Honor Society for women— A national honor society for women organized to recognize scholastic achievements and to serve various universities and colleges where chapters are established in furthering education qualifies for exemption. Rev. Rul. 71–97, 1971–1 C.B. 150.

  57. Art gallery— A cooperative art gallery formed and operated by a group of artists for the purpose of exhibiting and selling their works does not qualify for exemption under IRC 501(c)(3). Rev. Rul. 71–395, 1971–2 C.B. 228.

  58. Clearinghouse and course coordinator; classes in community— A nonprofit organization acting as a clearinghouse and course coordinator by bringing together instructors and interested students in a community for purposes of instruction on subjects useful to individuals and beneficial to the community is exempt from tax under IRC 501(c)(3). Rev. Rul. 71–413, 1971–2 C.B. 228.

  59. Private school; racially nondiscriminatory policy— A private school that does not have a racially nondiscriminatory policy as to students does not qualify for exemption. Rev. Rul. 71–447, 1971–2 C.B. 230.

  60. International exposition— An organization that conducts an international exposition commemorating certain historical events and cultural achievements and exhibiting products of various nations, qualifies for exemption under IRC 501(c)(3). Rev. Rul. 71–545, 1971–2 C.B. 235.

  61. Community welfare; solid waste pollution— An organization formed to educate the public regarding environmental deterioration due to solid waste pollution and operated with contributions and proceeds from sale of collected solid waste such as old newspapers, glass containers, and metal cans for recycling qualifies for exemption under IRC 501(c)(3). Rev. Rul. 72–560, 1972–2 C.B. 248.

  62. Drama and musical arts appreciation— A nonprofit organization created to develop a community appreciation for drama and musical arts by sponsoring professional presentations such as plays, musicals, and concerts, qualifies for exemption under IRC 501(c)(3). Rev. Rul. 73–45, 1973–1 C.B. 220.

  63. On-the-job training— An organization that is otherwise qualified for exemption under IRC 501(c)(3) will not fail to qualify because its educational and vocational training of unemployed and underemployed persons is carried out through the manufacturing and selling of toy products. Rev. Rul. 73–128, 1973–1 C.B. 222; see also, however, Rev. Rul. 73–127, 1973–1 C.B. 221.

  64. Educational organization; membership based on compatibility— An organization that selects its membership from the junior class of a college primarily on the basis of compatibility without regard to scholarship, and that holds closed meetings at which personally oriented speeches and discussions are carried on by the speaker-members, is not operated for exclusively educational purposes and does not qualify for exemption under IRC 501(c)(3). Rev. Rul. 64–117 superseded. Rev. Rul. 73–439, 1973–2 C.B. 176.

  65. Counseling women on unwanted pregnancies— An organization that provides free counseling to women on methods of resolving unwanted pregnancies, including lawful abortion, delivering and placing the child for adoption, and delivering and keeping the child, qualifies for exemption as an educational organization. Rev. Rul. 73–569, 1973–2 C.B. 178.

  66. Credit unions in developing nations— An organization formed to assist individuals in developing nations to improve their living conditions through educational programs on credit problems and to instruct and train individuals from those nations in the techniques of organizing and managing credit unions qualifies for exemption as an educational organization. Rev. Rul. 74–16, 1974–1 C.B. 126.

  67. Computer users— An organization whose membership is limited to organizations that own, rent, or use a specific type of computer and whose activities are designed to keep members informed of current scientific and technical data of special interest to them as users of the computer is not exempt under IRC 501(c)(3). Rev. Rul. 74–116, 1974–1 C.B. 127.

  68. Accreditation of educational institutions— A nonprofit organization of accredited educational institutions, whose membership includes a small number of proprietary schools, and whose activities include the preparation of accreditation standards, identification of schools and colleges meeting these standards, and the dissemination of accredited institution lists is exempt as an educational organization. Rev. Rul. 74–146, 1974–1 C.B. 129.

  69. Broadcasting station; free air time to political candidates— An organization exempt under IRC 501(c)(3), operating a broadcasting station presenting religious, educational, and public interest programs, is not participating in political campaigns on behalf of public candidates in violation of the provisions of that section by providing reasonable air time equally available to all legally qualified candidates for election to public office in compliance with section 312(a)(7) of the Federal Communications Act of 1934, as amended, and endorsing no candidate or viewpoint. Rev. Rul. 74–574, 1974–2 C.B. 160.

  70. Counseling men on voluntary sterilization methods— An organization that provides free counseling to men concerning methods of voluntary sterilization, assists them in obtaining sterilization operations, and distributes pamphlets and brochures explaining the effectiveness of sterilization in family planning is exempt under IRC 501(c)(3). Rev. Rul. 74–595, 1974–2 C.B. 164.

  71. Regional computer network— An otherwise exempt organization of exempt colleges and universities that devises, operates, and provides the organizational structure for a regional network of member owned or leased computers to collect and disseminate scientific and educational information to exempt members’ faculties and students is operated exclusively for charitable purposes and exempt under IRC 501(c)(3). Rev. Rul. 74–614, 1974–2 C.B. 164. See also, however, Rev. Rul. 74–116, 1974–1 C.B. 127.

  72. Church operated schools with discriminatory policies.— Organizations, including churches, that conduct schools with a policy of refusing to accept children from certain racial and ethnic groups will not be recognized as tax-exempt charities under IRC 170 and 501(c)(3). Rev. Rul. 75–231, 1975–1 C.B. 158.

  73. Training program for high school graduates and college students— A nonprofit organization that was formed to provide high school graduates and college students with work experience, for which they receive no compensation, in selected trades or professions, and that is financed by tuition and contributions from the general public, is an organization operated exclusively for charitable and educational purposes and qualifies for exemption under IRC 501(c)(3). Rev. Rul. 75–284, 1975–2 C.B. 202.

  74. Preservation of buildings having historical or architectural significance— A nonprofit organization formed to promote an appreciation of history through the acquisition, restoration, and preservation of homes, churches, and public buildings having special historical or architectural significance and to open the structures for viewing by the general public qualifies for exemption under IRC 501(c)(3). Rev. Rul. 75–470, 1975–2 C.B. 207.

  75. Film festival sponsorship— A nonprofit organization formed to promote the art of film making by conducting annual festivals to provide unknown independent film makers with opportunities to display their films and by sponsoring symposiums on film making qualifies for exemption under IRC 501(c)(3). Rev. Rul. 75–471, 1975–2 C.B. 207.

  76. Educational television; program producer— An otherwise qualifying organization that produces and distributes free (or at small cost-defraying fees) educational, cultural, and public interest programs for public viewing via public-educational channels of commercial cable television companies is operated exclusively for educational purposes and is exempt from Federal income taxes under IRC 501(c)(3). Rev. Rul. 76–4, 1976–1 C.B. 145.

  77. Construction trades training center; sale of homes— A nonprofit organization that purchases building lots, furnishes funds to a public vocational training center for use in its on-the-job home construction training program, sells the completed homes to the general public at fair market value, and uses the income from home sales to finance new projects and obtain vocational training equipment for the public school system, qualifies for exemption under IRC 501(c)(3). The income from the sale of the homes is not unrelated business income. Rev. Rul. 76–37, 1976–1 C.B. 148.

  78. Art gallery— A nonprofit organization formed by art patrons to promote community understanding of modern art trends by selecting for exhibit, exhibiting, and selling art works of local artists, retaining a commission on sales less than customary commercial charges and not sufficient to cover the cost of operating the gallery, does not qualify for exemption under IRC 501(c)(3); Rev. Rul. 71–395 clarified. Rev. Rul. 76–152, 1976–1 C.B. 151.

  79. Aid to immigrants— A nonprofit organization formed to aid immigrants in overcoming social, cultural, and economic problems by providing personal counseling, referrals to helpful agencies, social and recreational activities, instruction in English, and distributing a newsletter containing information on attaining citizenship, securing housing, and obtaining medical care is operated exclusively for charitable and educational purposes and qualifies for exemption under IRC 501(c)(3). Rev. Rul. 76–205, 1976–1 C.B. 154.

  80. Promotion of classical music radio programs— A nonprofit organization formed to generate community interest in the retention of classical music programs by a local for-profit radio station by seeking program sponsors, encouraging continuation of contracts by existing sponsors, urging the public to patronize the sponsors, soliciting subscriptions to the station’s program guide, and distributing materials promoting the classical music programs, all of which activities tend to increase the station’s revenues, does not qualify for exemption under IRC 501(c)(3). Rev. Rul. 76–206, 1976–1 C.B. 154.

  81. Noncommercial television programs— A nonprofit organization that makes facilities and equipment available to the general public for the production of noncommercial educational or cultural television programs for communication to the public via public and educational channels of a commercial cable television company qualifies for exemption under IRC 501(c)(3). Rev. Rul. 76–443, 1976–2 C.B. 149.

  82. Health care improvements— A nonprofit organization formed to encourage and assist in establishment of nonprofit regional health data systems, to conduct studies and propose improvements with regard to quality, utilization, and effectiveness of health care and health care agencies, and to educate those involved in furnishing, administering, and financing health care is operated exclusively for scientific and educational purposes and qualifies for exemption under IRC 501(c)(3). Rev. Rul. 76–455, 1976–2 C.B. 150. Rev. Rul. 74–553 distinguished.

  83. Closed-circuit radio broadcasting system— A non-profit organization that sets up closed-circuit radio transmitting equipment in multiple residence structures such as nursing homes, rest homes, and convalescent homes, providing senior citizens within the building an opportunity to listen to free, noncommercial and educational broadcasts concerning their special needs, is operated exclusively for charitable and educational purposes and qualifies for exemption under IRC 501(c)(3). Rev. Rul. 77–42, 1977–1 C.B. 142.

  84. Children and adolescents with learning disabilities— A nonprofit organization formed to provide individual psychological and educational evaluations, as well as tutoring and therapy, for children and adolescents with learning disabilities is operated exclusively for charitable purposes under IRC 501(c)(3). Rev. Rul. 77–68, 1977–1 C.B. 142.

  85. Community sport activity— A nonprofit organization that conducts clinics, workshops, lessons, and seminars at municipal parks and recreational areas to instruct and educate individuals in a particular sport is operated exclusively for educational purposes and qualifies for exemption under IRC 501(c)(3). Rev. Rul. 77–365, 1977–2 C.B. 192.

  86. Counseling widows— A nonprofit organization formed to provide individual and group counseling to widows to assist them in legal, financial, and emotional problems caused by the death of their husbands and that provides the widows with information on available benefits and services is considered to be operated exclusively for educational purposes and qualifies for exemption under IRC 501(c)(3). Rev. Rul. 78–99, 1978–1 C.B. 152.

  87. Homosexuality— A nonprofit organization formed to educate the public about homosexuality in order to foster an understanding and tolerance of homosexuals and their problems qualifies for exemption under IRC 501(c)(3). Rev. Rul. 78–305, 1978–2 C.B. 172.

  88. Law student’s work in legal aid— A nonprofit organization formed for the purpose of assisting a school’s law students, chosen on the basis of merit and interest, to obtain practical experience with exempt public interest law firms and legal aid societies and that supplements the nominal salaries paid to the students by the participating firms and societies and obtains its funds from contributions of students and alumni is operated exclusively for charitable and educational purposes as described in IRC 501(c)(3). Rev. Rul. 78–310, 1978–2 C.B. 173.

  89. Promoting sports for children— An organization formed to develop, promote, and regulate a sport for individuals under 18 years of age by organizing local and statewide competitions, promulgating rules, organizing officials, presenting seminars, distributing a newsletter, and otherwise encouraging growth of the sport qualified for exemption under IRC 501(c)(3). Rev. Rul. 70–4 distinguished by Rev. Rul. 80–215, 1980–2 C.B. 174.

  90. Publication of voting records— Certain publications of congressional incumbents’ records on selected issues in a nonpartisan newsletter do not constitute participation or intervention in any political campaign within the meaning of IRC 501(c)(3). Rev. Rul. 80–282, 1980–2 C.B. 178. Rev. Rul. 78–248 amplified.

  91. Genealogical research (public interest)— A genealogical society that (1) opens its membership to all persons in a particular area, (2) provides instruction in genealogical research techniques to its members and to the general public, but does not research genealogies for its members, (3) conducts research projects and makes the results available to the state historical society, (4) provides materials for libraries and community displays, and (5) promotes various other related activities for the public qualifies for exemption under IRC 501(c)(3). Rev. Rul. 80–301, 1980–2 C.B. 180. Rev. Rul. 80–302 distinguished.

  92. Genealogical research (private interest)— An organization that (1) limits its membership to descendants of a particular family (2) compiles family genealogical research data for use by its members for reasons other than to conform to the religious precepts of the family’s denomination, (3) presents the data to designated libraries, (4) publishes volumes of family history, and (5) promotes social activities among family members does not qualify for exemption under IRC 501(c)(3). Rev. Rul. 80–302, 1980–2 C.B. 182. Rev. Ruls. 71–580 and 80–301 distinguished.

  93. Training for political campaign workers; limited to one political party— An organization that operates a school to train individuals to fill responsible positions in political campaigns does not qualify for exemption under IRC 501(c)(3) where it fails to establish that it operates on a nonpartisan basis. In American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989), the court concluded that the organization, an outgrowth of similar training programs sponsored by the National Republican Congressional Committee, operated for the private benefit of Republican entities and candidates, who were not members of a charitable class. Although the organization had no formal requirement that candidates for admission be affiliated with any particular political party, the evidence suggested that most of its graduates went on to work in Republican campaigns, and the organization offered no evidence of an graduate who was affiliated with a domestic political party other than the Republican party.

7.25.3.8  (02-23-1999)
Public Works and Recreation as a Charitable Purpose

  1. In the general law of charity, the promotion of the happiness and enjoyment of the members of the community is a charitable purpose. Restatement (Second) of Trusts §374 (1959); IV A. Scott, The Law of Trusts § 374.10 (3d ed. 1967).

  2. Maintaining public parks, public monuments, and other kinds of public works, and the providing community recreational facilities for the entire community furthers charitable purposes. See, Isabel Peters, 21 T.C. 55 (1953), acq. 1950–2 C.B. 6.

  3. However, providing public parks and recreational facilities is not a per se charitable activity. They are charitable only if they provide a community-wide benefit.

7.25.3.8.1  (02-23-1999)
Community Benefit Requirement Precludes Irrelevant Restrictions

  1. Providing or maintaining recreation facilities for an entire community is a charitable activity.

    1. A nonprofit corporation operating a swimming pool and playground for all residents of a community was held exempt under IRC 501(c)(3) in Rev. Rul. 59–310, 1959–2 C.B. 146.

    2. Similarly, an organization formed by residents of a city to preserve, beautify, and maintain a public park located in the center of the city was held exempt under IRC 501(c)(3). The park was open to the general public and commonly used by all residents. Rev. Rul. 78–85, 1978–1 C.B. 150.

  2. The applicable community must be defined in a manner that does not confer excessive private benefit that outweighs a community benefit.

    1. In Rev. Rul. 75–286, 1975–2 C.B. 210, an organization with membership limited to residents and businesses on a city block formed to preserve and beautify public areas in the block was held not exempt under IRC 501(c)(3) because the benefits to private individuals whose property abutted the public property outweighed benefits to the general public. Rev. Rul. 75–286 also held, however, that the organization may qualify for exemption under IRC 501(c)(4) as an organization formed to promote social welfare.

    2. Size alone does not define a community. In Columbia Park and Recreation Association, Inc. v. Commissioner, 88 T.C. 1 (1987), aff’d in unpublished opinion 838 F. 2d 465 (4 th Cir. 1988), the court upheld denial of exemption under IRC 501(c)(3) to an organization formed to develop and operate utilities, systems, services, and facilities "for the common good and social welfare" for a private real estate development with a population of over 100,000 residents. The development was neither an incorporated city nor other form of political subdivision. The court considered this fact significant in concluding that the organization was "...merely an aggregation of homeowners and tenants bound together in a structural unit formed as an integral part of a plan for the development of real estate." As such, it lacked a "sufficient public element" to be a "community at large" in the charitable context.

  3. Restrictions that deny use of facilities to a significant segment of the community will based on race, religion, nationality, belief, occupation, or other classification having no relationship to the nature or size of the facility will always preclude exemption under IRC 501(c)(3). This longstanding position is illustrated by Rev. Rul. 67–325, 1967–2 C.B. 113, which holds that nonprofit organization that ran a community recreational facility restricted on the basis of race is not exempt under IRC 501(c)(3). Exclusion of part of the community on the basis of race removes the community benefit that would justify exemption.

7.25.3.9  (02-23-1999)
Lessening the Burdens of Government

  1. Reg. 1.501(c)(3)–1(d)(2) includes "lessening of the burdens of government" in the definition of the term "charitable." As stated in Rev. Rul. 85–2, 1985–2 C.B. 178, an organization is lessening the burdens of government if

    1. its activities are activities that a governmental unit considers to be its burdens; and

    2. the activities actually lessen such governmental burden.

  2. The organization must demonstrate that a governmental unit considers the organization to be acting on the government’s behalf, thereby actually freeing up government assets — human, material, and fiscal — that would otherwise have to be devoted to the particular activity. This determination is based on facts and circumstances.

7.25.3.9.1  (02-23-1999)
Requirements

  1. An activity is a burden of government only if there is an objective manifestation by a governmental unit that it considers the activities of the organization to be its burden. Rev. Rul. 85–1, 1985–1 C.B. 177.

  2. Little weight should be given to statements of government officials that merely praise or express approval of an organization and its activities. Rather, the government must formally recognize the organization and its functions to be considered a governmental burden. Relevant factors to determine if the government unit has made the necessary objective manifestation include:

    1. A statute specifically creates the organization and clearly defines the organization’s structure and purposes.

    2. The activity is an integral part of a larger governmental program, or is acted jointly with a governmental unit.

    3. The governmental unit controls the activities of the organization, such as appointing all the board members.

    4. The organization pays governmental expenses.

    5. Regular government funding of the organization’s activities through grants or general obligation bonds backed with the full faith and credit of the governmental unit (as opposed to general revenue bond financing).

    6. The governmental unit is not prohibited from performing the particular activity.

7.25.3.9.2  (02-23-1999)
Examples

  1. A nonprofit organization assisted local governments of a metropolitan area by researching solutions for common regional problems, such as water and air pollution, waste disposal, water supply, and transportation. The chief elected officers of the local jurisdictions constituted the membership of the organization. Receipts included assessments on the local jurisdictions. The interrelationship between the local governments and the organization indicates the existence of a burden of government in that the organization’s membership was composed totally of government officials; persons appointed by the local governments involved. The funding of the organization from the government assessments indicates a burden of government. Developing regional plans and policies for regional problems is an activity normally conducted by governmental units, and indicates a burden of the government. Rev. Rul. 70–79, 1970–1 C.B. 127.

  2. A nonprofit organization was formed as a Model Cities demonstration project under the Demonstration Cities and Metropolitan Act of 1966 to provide bus transportation to isolated areas of a community not served by the existing city bus system. As a Model Cities project, the organization has been approved by the local government and works in coordination with local governmental agencies. Its income is from fares, contributions, and governmental grants. The organization provides bus service under the authority of the Federal and local governments. The organization was formed in conformity with the statute which defined the organization’s structure and purpose. It works in conjunction with governmental agencies, and is funded by governmental grants. These factors demonstrate a governmental burden. Rev. Rul. 78–68, 1978–1 C.B. 149.

  3. A nonprofit organization funds a county’s law enforcement agencies to police illegal narcotic traffic. Its funds allow undercover narcotics agents to buy drugs in the course of their efforts to apprehend persons engaged in illegal drug traffic. No government funds are otherwise available for these purposes. The organization is actually lessening the burdens of government because without its funds, the undercover investigations could not be conducted since no other funds are available, and the law enforcement agencies can engage in the undercover work without the appropriation of additional government funds. Rev. Rul. 85–1, 1985–1 C.B. 177. Also see, Rev. Rul. 74–246, 1974–2 C.B. 130 (an organization which made funds available to the police department for use in offering awards is assisting the government is carrying out its function.)

7.25.3.9.3  (02-23-1999)
Requirement to Serve Public Purpose Rather than Private Benefit

  1. Even if an organization’s activities lessen the burdens of government, it must otherwise satisfy the requirements under IRC 501(c)(3). Thus, the organization must demonstrate that its activities serve a public rather than a private interest within the meaning of Reg. 1.501(c)(3)–1(d)(1).

  2. In Indiana Crop Improvement Association, Inc. v. Commissioner, 76 T.C. 394 (1981), acq. 1981–2 C.B. 1, the Tax Court considered private benefit in the context of lessening the burdens of government. The court held that an agricultural association, delegated the responsibility of seed certification by state and federal laws, qualified for exemption under IRC 501(c)(3). Seed certification was available to any seed producer or farmer that was a member of the Association. The court found that the seed certification activity was a recognized governmental function, and the organization furthered the charitable purpose of lessening the burdens of government by performing it. The court further found that the Association’s activities did not primarily benefit the private business interests of the member seed producers and farmers.

7.25.3.10  (02-23-1999)
Urban Problems and Programs

  1. Reg. 1.501(c)(3)–1(d)(2) defines "charitable" to include the promotion of social welfare by organizations designed to lessen neighborhood tensions; eliminate prejudice and discrimination; defend human and civil rights secured by law; and combat community deterioration and juvenile delinquency.

  2. These purposes are particularly relevant to modern urban problems such as poverty, racial discrimination, and urban decay.

7.25.3.10.1  (02-23-1999)
Eliminating Prejudice and Discrimination

  1. Many organizations attempting to eliminate prejudice and discrimination are necessarily engaged in educating the public. Issues mainly involve housing and employment.

  2. Educating the public about the need for making housing available to everyone on a non-discriminatory basis and encouraging investment in such housing helps to eliminate prejudice and discrimination on a charitable basis. Rev. Rul. 67–250, 1967–2 C.B. 182. Also, educational programs to prevent panic selling resulting from the introduction of non-white residents into a formerly all-white neighborhood also furthers charitable purposes. In one case, the organization also encouraged and assisted white families to purchase homes in integrated neighborhoods where it was determined that such families helped to stabilize the neighborhood. The organization purchased homes to lease or resell at no profit on an open occupancy basis. Rev. Rul. 68–655, 1968–2 C.B. 213.

  3. Organizations that foster prejudice or discrimination will be disqualified from recognition of exemption under IRC 501(c)(3). See IRM 7.25.3.7.2 for a discussion of the Service position with respect to schools that do not have a racially nondiscriminatory policy.

7.25.3.10.2  (02-23-1999)
Examples of Organizations Combating Prejudice and Discrimination

  1. An organization that studied employment conditions and informed the public of the advantages of non-discriminatory hiring. Rev. Rul. 68–70, 1968–1 C.B. 248.

  2. An organization that conducted investigations regarding discrimination and met with trade associations and with proprietors of establishments where discrimination had been observed to encourage better compliance with civil rights law. Rev. Rul. 68–438, 1968–2 C.B. 209.

  3. An organization that investigated instances of discrimination in employment with regard to women, and educated women to recognize and deal with discrimination in the workplace. Rev. Rul. 72–228, 1972–1 C.B. 148.

7.25.3.10.3  (02-23-1999)
Combating Deterioration and Urban Decay

  1. Reg. 1.501(c)(3)–1(d)(2) (iv) includes combating community deterioration in the definition of charitable purposes. Combating community deterioration involves remedial action to eliminate the physical, economic and social causes of such deterioration, including providing

    • housing assistance

    • Economic development

    • prevention of deterioration

    • planning and enforcement

    • historic preservation

  2. Organizations engaged in combating community deterioration generally achieve their purposes through assistance to others or through other activities that are not inherently "charitable" . Thus, determining whether an activity is charitable requires a multi-step analysis:

    1. identify the conditions the organization seeks to improve and determine if they are "community deterioration" in the charitable sense;

    2. identify the persons who will benefit from the organization’s activities, and determine if they are members of a charitable class;

    3. identify the organization’s activities and determine if some or all are inherently charitable activities, for example, education of the public;

    4. if the activities are not inherently charitable, determine how they achieve the organization’s stated charitable purposes; and

    5. identify who benefits form the organization’s activities, and determine if private benefits are consistent with exemption under IRC 501(c)(3), either because the recipients are members of a charitable class, or if not, because private benefits are incidental to achieving the charitable purpose.

7.25.3.10.3.1  (02-23-1999)
Housing Assistance

  1. Rev. Rul. 70–585, 1970–2 C.B. 115, describes four different nonprofit housing organizations created to lessen neighborhood tensions, eliminate prejudice and discrimination, and combat community deterioration by providing housing for low or moderate income families. Three of the organizations qualify for exemption under IRC 501(c)(3), one does not. The four situations are:

    1. An organization constructed new housing and renovated existing homes for sale to low income families on long-term, low payment plans. It conducted these activities throughout the city, but limited sales to families who qualify for loans under a federal housing program and cannot obtain conventional financing. It also assisted eligible families who could not afford the down payment. The organization qualifies under IRC 501(c)(3) because it relieves the poor and distressed.

    2. An organization constructed housing units for sale to low and moderate-income members of minority groups who are unable to obtain adequate housing because of local discrimination. The housing units were located as to help reduce racial and ethnic imbalances in the community. The organization, which also conducted education on integrated housing as a means to minimize misunderstanding and stabilize integrated neighborhoods, qualifies for exemption under IRC 501(c)(3) because it helps eliminate prejudice and discrimination and lessen neighborhood tensions.

    3. An organization formed to plan for renewal and rehabilitation of an area of a city with a low median income level and generally old and deteriorated housing helps provide area residents with decent, safe, and sanitary housing without relocating them outside the area. The organization developed an overall rehabilitation plan for the area; sponsored a renewal project in which area residents took the initiative; arranged monthly meetings to involve area residents in the renewal planning; and plans to purchase an apartment house to rehabilitate and rent at cost to low and moderate residents of the area. The organization qualifies for exemption under IRC 501(c)(3) because it combats community deterioration by helping to rehabilitate an old and run-down residential area.

    4. An organization formed to build new housing to help moderate-income families secure decent, safe, and sanitary at affordable prices in an area facing a shortage of moderate-income housing does not qualify for exemption under IRC 501(c)(3). The organization’s program did not combat community deterioration, nor did it provide relief to the poor.

  2. An organization operated a self-help home building program for low-income families in need of adequate housing was recognized exempt under IRC 501(c)(3) in Rev. Rul. 67–138, 1967–1 C.B. 129. In addition to combating community deterioration, the organization’s activities provided relief to the underprivileged, lessened the burdens of government, and were educational.

  3. An organization provided small, short-term, interest-free loans to low-income homeowners unable to obtain a loan elsewhere to promote the rehabilitation of a badly deteriorated residential area of a city was recognized exempt under IRC 501(c)(3) in Rev. Rul. 76–408, 1976–2 C.B. 145. Although the organization’s activities were conducted in a badly deteriorated residential area of a large city, Rev. Rul. 76–408 emphasized the charitable class aided in finding the organization charitable because it relieves the poor and distressed.

7.25.3.10.3.2  (02-23-1999)
Economic Development

  1. Economic development is a desirable goal sought by virtually every community on some way. However, not all desirable goals are "charitable" within the meaning of IRC 501(c)(3). Determining whether particular economic development activities are charitable requires analyzing the conditions the organization seeks to improve, what the organization seeks to achieve and how it plans to achieve them, who will benefit, and whether benefits to noncharitable interests will be incidental to achieving charitable purposes.

  2. An organization that purchased blighted land in a depressed area, converted it into an industrial park, and leased the land to business tenants who were required to hire and train a significant number of unemployed persons living in the area, was held exempt under IRC 501(c)(3) in Rev. Rul. 76–419, 1976–2 C.B. 146. The organization was funded pursuant to a public law providing for the such programs in areas with urban blight, little industry, and high unemployment and underemployment of low-income persons.

  3. Rev. Rul. 74–587, 1974–2 C.B. 162, describes a nonprofit organization that qualified for exemption under IRC 501(c)(3) by providing low-cost loans to businesses in economically depressed areas. Because of lack of development capital, limited entrepreneurial skills of business owners, social unrest and instability in the area, and depressed economic conditions in the larger region, many businesses in the target areas had declined, fallen into disrepair, or failed. The organization combats these conditions by providing working capital, either through low-interest loans or purchases of equity interests, to businesses that cannot obtain commercial financing. The terms of financing were reasonably related to the needs of the particular businesses, and the organization disposed of any equity interest as soon as the particular business’ success was reasonably assured.

  4. Rev. Rul. 81–284, 1981–2 C.B. 130, amplifies Rev. Rul. 74–587, supra, by describing how the standards for exemption apply to a nonprofit small business investment company licensed under §301 (d) of the Small Business Investment Act to provide low-cost or long-term loans to businesses in economically depressed areas. An organization licensed under §301 (d) cannot aid disadvantaged businesses to the extent described in Rev. Rul. 74–587 because SBA regulations impose lending standards that limit the businesses eligible for loans, and also require a organization to charge an interest rate sufficient to recover the cost of its loan funds. Rev. Rul. 81–284 holds that the SBA requirements do not preclude a §301 (d) licensee from being organized and operated exclusively for charitable purposes, but the mere fact that an organization is licensed under §301 (d) does qualify it for exemption under IRC 501(c)(3).

  5. Exemption was denied to an organization that increased business patronage in an economically deteriorated area as well as to an organization that revived lagging sales in a particular area in Rev. Rul. 77–111, 1977–1 C.B. 144. One organization sought to increase business in a deteriorated area by promoting the area through media advertising and other means. The other organization sought to combat economic decline of an urban area by constructing a shopping mall to make the area more competitive with outlying shopping areas. Although the first organization’s activities may further charitable purposes, they were not limited to members of a charitable class. They overall thrust was to promote business generally. The second organization failed to further primarily charitable purposes because it primarily benefited businesses that located in the shopping center.

7.25.3.10.3.3  (02-23-1999)
Prevention of Deterioration

  1. Activities to prevent deterioration may benefit a community in a charitable manner regardless whether the community is now or presently in a state of decline, provided the interests served are public in scope and not merely the private interests of a class of persons that do not constitute a charitable class.

  2. An organization that preserved and developed the beauty of a city by planting trees in public areas, assisting municipal authorities in keeping the city clean, and informing the public of the advantages of these programs was held to be organized and operated exclusively for charitable purposes in Rev. Rul. 68–14, 1968–1 C.B. 243.

  3. An organization that worked to improve conditions in an area of a city where the income level was higher and housing better than in other areas of the city by providing information on methods of counteracting housing deterioration and ways of improving homes was held exempt in Rev. Rul. 76–147, 1976–1 C.B. 151. The organization identifies community problems and encourages their resolution through pamphlets and brochures, open meetings, and letter-writing campaigns.

    1. Rev. Rul. 76–147 modified Rev. Rul. 67–6, 1967–1 C.B. 135, to remove any implication that preserving or improving a community does not benefit a sufficiently broad segment of the public to be charitable. Rev. Rul. 67–6 concerns and organization formed to preserve the traditions, architecture, and appearance of a community solely for the benefit of the community’s residents. Rev. Rul. 76–147 recognizes that as long as the community interests an organization serves are truly public in scope and not merely the private interests of persons who do not comprise a charitable class, the organization may be considered to confer a public community benefit that is charitable within the meaning of IRC 501(c)(3).

7.25.3.10.3.4  (02-23-1999)
Planning and Enforcement

  1. Rev. Rul. 68–15, 1968–1 C.B. 244, held and organization engaged in a variety of activities directed to combating community deterioration and juvenile delinquency, lessening neighborhood tensions, and eliminating prejudice and discrimination. Among its activities that furthered charitable purposes, the organization investigated complaints of possible building code and zoning violations that could result in community deterioration, identified uses for vacant lots to keep them from becoming hangouts, and sponsored meetings and other activities to relieve racial tensions both within the schools and within the larger community.

7.25.3.10.3.5  (02-23-1999)
Historic Preservation

  1. Rev. Rul. 86–49, 1986–1 C.B. 243, recognizes that preserving he historic or architectural character of a community through acquiring and occasionally restoring historically or architecturally significant properties can serve to prevent community deterioration within the meaning of Reg. 1.501(c)(3)–1(d)(2). The organization set up a revolving fund to acquire and resell these properties subject to restrictive covenants, to preserve the historic or architectural character of the community. The organization’s manner of operations achieved its charitable purposes without serving private interests because:

    1. it confined acquisitions to significant properties that met strict criteria, including listing in the National Register of Historic Places or located in a registered historic district and certified by the Secretary of the Interior as significant to such district;

    2. purchases were made at arm’s length for fair market value;

    3. all resales were subject to restrictive covenants that insure perpetual preservation and reasonable visual access for the public;

    4. resales were made at fair market value;

    5. the organization would not resell a property to the person or a relative of the person who sold or contributed the property to the organization.

    Example:

    An organization, formed for the purpose of preserving the natural environment, acquired, by gift or purchase, ecologically significant undeveloped land and either maintained the land itself with limited public access or transferred the land to a government conservation agency by outright gift or reimbursement by the agency for its cost was held to qualify under IRC 501(c)(3) in Rev. Rul. 76–204, 1976–1 C.B. 152.

    Example:

    Compare with an organization that restricted its farm land to uses that do not change the environment but did not preserve land that is ecologically significant was denied exemption under IRC 501(c)(3) in Rev. Rul. 78–384, 1978–2 C.B. 174.

  2. An organization that developed and distributed a community land use plan was held exempt under IRC 501(c)(3) in Rev. Rul. 67–391, 1967–2 C.B. 190.

  3. An organization that educated the public regarding environmental deterioration due to solid waste pollution and operated recycling centers staffed by volunteers was held exempt under in Rev. Rul. 72–560, 1972–2 C.B. 248. The organization, which was supported by contributions and proceeds from sale of collected solid waste for recycling, engaged in exclusively charitable activities. In addition to educating the public on subjects useful to the community, the organization combated environmental deterioration through the operation of its recycling centers.

  4. Litigation and mediation are permissible means to achieve charitable environmental purposes.

    1. An organization that instituted litigation as a party plaintiff to enforce environmental legislation to protect and restore environmental quality was held exempt in Rev. Rul. 80–278, 1980–2 C.B. 175.

    2. An organization that conducted legal research to help resolve international environmental disputes and participated in the resolution of such disputes through mediation was held exempt in Rev. Rul. 80–279, 1980–2 C.B. 1976.

7.25.3.10.4  (02-23-1999)
Environment and Conservation

  1. Organizations engaged in the development and conservation of natural resources, such as forests, lands, or wildlife, for the benefit of the entire community may be exempt as charitable organizations. Rev. Rul. 67–292, 1967–2 C.B. 184.

7.25.3.10.5  (02-23-1999)
Defense of Human and Civil Rights

  1. Reg. 1.501(c)(3)–1(d)(2)(iii) provides that charitable purposes include "to defend human and civil rights secured by law."

  2. An organization that provides funds to defend members of a religious sect in legal actions involving substantial constitutional issues was held to be defending human and civil rights secured by law and thus exempt as a charitable organization in Rev. Rul. 73–285, 1973–2 C.B. 174.

  3. An antiwar protest organization formed to promote world peace and disarmament by nonviolent direct action and whose primary activity is the sponsoring of antiwar protest demonstrations in which demonstrators are urged to commit violations of local ordinances and breaches of public order was held not to qualify for exemption under IRC 501(c)(3) in Rev. Rul. 75–384, 1975–2 C.B. 204. Although the organization’s ultimate purposes are charitable, its activities violated the common law requirement that all charitable trusts (and by implication all charitable organizations) are subject to the requirement that their purposes may not be illegal or contrary to public policy.

  4. An organization formed to assist workers in litigating their rights to work against compulsory unionism was held to be exempt under IRC 501(c)(3) in National Right to Work Legal Defense and Education Foundation v. U.S., 487 F. Supp. 801, 45 AFTR 2d 80–764 (DC NC 1979). The court stated that the organization’s activities were charitable and that the Constitution recognizes the right to work as a human and civil right secured by law; therefore, defense of this right was beneficial to the community and was charitable in nature. This case is significant because the "right to work" , as used in the sense of state laws that prevent mandatory union membership as a condition of employment, is not a right guaranteed by the United States Constitution or the United Nations Universal Declaration of Human Rights.

7.25.3.10.6  (02-23-1999)
Prevention of Cruelty

  1. Organizations that are organized and operated exclusively for the "prevention of cruelty to children or animals" are exempt under IRC 501(c)(3).

7.25.3.10.6.1  (02-23-1999)
Cruelty to Children

  1. Rev. Rul. 67–151, 1967–1 C.B. 134, held an organization formed to protect children from working at hazardous occupations in violation of state laws and in unfavorable work conditions is an organization for the prevention of cruelty to children.

7.25.3.10.6.2  (02-23-1999)
Cruelty to Animals

  1. An organization promoting high standards of care for laboratory animals was held exempt in Rev. Rul. 66–359, 1966–2 C.B. 219. The organization accredited laboratories that gave satisfactory care to experimental animals. This was an exempt purpose, described as charitable, supporting education and science, and preventing cruelty to animals.

  2. Rev. Rul. 74–194, 1974–1 C.B. 129, holds a nonprofit organization formed to prevents the birth and eventual suffering of unwanted animals, by subsidizing spaying or neutering for pet owners who otherwise cannot afford the services, exempt under IRC 501(c)(3).

  3. Organizations formed to prevent cruelty to animals often engage in attempts to influence legislation. This activity is appropriate, unless it is more than an insubstantial part of the organization’s activities, or, if the organization elects under IRC 501(h), it engages in excess lobbying. See, Rev. Rul. 67–293, 1967–2 C.B. 185.

7.25.3.10.6.3  (02-23-1999)
Unrelated Business Income

  1. Income derived by an exempt organization from boarding and grooming services is income from an unrelated trade or business under IRC 513. See Rev. Rul. 73–587, 1973–2 C.B. 192.

7.25.3.10.7  (02-23-1999)
Digests of Precedent Rulings

  1. Public recreation facilities—A nonprofit organization formed for the purpose of establishing, maintaining and operating a public swimming pool, playground and other recreation facilities, for the children and other residents of the community, is exempt from tax. Rev. Rul. 59–310, 1959–2 C.B. 146.

  2. Garden club—A garden organization exclusively engaged in the development of plantings on public lands, making awards for civic achievements, and conducting similar activities for the community benefit was held to be promoting social welfare by combating community deterioration and thus exempt under IRC 501(c)(3). Rev. Rul. 66–179, 1966–1 C.B. 139.

  3. Housing guidance to low-income families—A nonprofit organization created to provide instruction and guidance to low-income families in need of adequate housing and interested in building their own homes is exempt from tax under IRC 501(c)(3). Rev. Rul. 67–138, 1967–1 C.B. 129.

  4. Promoting non-discriminatory housing—An organization formed to educate the public about the need for making housing available to members of the public on a nondiscriminatory basis and to encourage investment in such housing may be exempt from tax under IRC 501(c)(3). Rev. Rul. 67–291, 1967–2 C.B. 184.

  5. Resource planning—Organizations engaged in the development and conservation of natural resources, such as forests, lands, or wildlife, for the benefit of the entire community are exempt as charitable organizations. Rev. Rul. 67–292, 1967–2 C.B. 184.

  6. Public works and recreation; facilities restricted—Where an organization provides community facilities without charge to residents of a township but restricts the use of facilities on the basis of race, it is not organized and operated exclusively for charitable purposes and does not qualify for exemption. Rev. Rul. 67–325, 1967–2 C.B. 113.

  7. Resource planning—An organization that developed and distributed a community land use plan may be exempt under IRC 501(c)(3). Rev. Rul. 67–391, 1967–2 C.B. 190.

  8. City beautification program—An organization that preserved and developed the beauty of a city by planting trees in public areas, assisting municipal authorities in keeping the city clean, and informing the public of the advantages of these programs was combating community deterioration and thus operated for charitable purposes. Rev. Rul. 68–14, 1968–1 C.B. 243.

  9. Community development—An organization that investigated complaints in cases in which possible violations of building codes and zoning ordinances might result in community deterioration, planned the use of vacant lots, and worked to relieve racial tensions both within the schools and within the larger community was held exempt under IRC 501(c)(3) as a charitable organization. Rev. Rul. 68–15, 1968–1 C.B. 244.

  10. Housing—A nonprofit organization that conducts a model demonstration housing program for low-income families and disseminates information about the results of the program may qualify for exemption under IRC 501(c)(3). Rev. Rul. 68–17, 1968–1 C.B. 247.

  11. Discrimination; eliminating unemployment—An organization formed to end discrimination in employment, study employment conditions, and inform the public of the advantages of non-discriminatory hiring through lectures and discussions was held exempt under IRC 501(c)(3). Rev. Rul. 68–70, 1968–1 C.B. 248.

  12. Discrimination; eliminating prejudice—An organization conducted investigations to obtain information regarding discrimination and met with proprietors of establishments where discrimination had been observed and with trade associations for the purpose of encouraging better compliance with civil rights law was eliminating prejudice and discrimination and thus exempt under IRC 501(c)(3). Rev. Rul. 68–438, 1968–2 C.B. 209.

  13. Discrimination; eliminating prejudice—A nonprofit organization formed to promote racial integration in housing, to lessen neighborhood tensions, and to prevent deterioration of neighborhoods may be exempt under IRC 501(c)(3). Rev. Rul. 68–655, 1968–2 C.B. 213.

  14. Resource planning—A nonprofit organization which holds meetings to discuss, identify, and cooperate in developing regional plans and policies for such problems as water and air pollution, waste disposal, water supply, and transportation, but does not advocate any legislative action to implement its findings, qualifies for exemption under IRC 501(c)(3). Rev. Rul. 70–79, 1970–1 C.B. 127.

  15. Public works and recreation—An organization formed to preserve a lake used as a public recreation facility by treating the water in the lake and otherwise improving its condition for recreational purposes is a charitable organization exempt under IRC 501(c)(3). Rev. Rul. 70–186, 1970–1 C.B. 128.

  16. Lessening burdens of government; rehabilitation of prisoners—An organization formed to develop and manage community correctional centers for the rehabilitation of prisoners in cooperation with the courts and government custodial agencies qualifies for exemption under IRC 501(c)(3). Rev. Rul. 70–583, 1970–2 C.B. 114.

  17. Lessening burdens of government; internship program in government for college students—An organization formed to recruit college students for internship programs providing work experience in various phases of government related to their studies while enabling them to contribute to the community qualifies for exemption under IRC 501(c)(3). Rev. Rul. 70–584, 1970–2 C.B. 114.

  18. Housing—Nonprofit organizations created to provide housing for low and moderate income families, thereby lessening neighborhood tensions, eliminating prejudice and discrimination, and combating deterioration qualify for exemption. Rev. Rul. 70–585, 1970–2 C.B. 115.

  19. Lessening burdens of government; grant to transit authority—A grant to a city transit authority for the purpose of maintaining a mass transportation system qualifies as a charitable disbursement in furtherance of an organization’s exempt purposes. The grant lessens the burdens of government and is therefore charitable within the meaning of IRC 501(c)(3). Rev. Rul. 71–29, 1971–1 C.B. 150. See also Rev. Rul. 62–78, 1962–1 C.B. 86.

  20. Lessening burdens of government; on-site canteen for emergency personnel—An organization was formed to provide food and drink to firemen, police and other emergency personnel at the scene of fires, riots and other disasters. The organization, supported by contributions from the general public, is authorized by the local government to perform these activities. By assisting firemen, police and other personnel to perform their duties more efficiently during emergency conditions, the organization is helping lessen the burdens of government and qualifies for exemption under IRC 501(c)(3). Rev. Rul. 71–99, 1971–1 C.B. 151.

  21. Discrimination; schools—A private school that does not have a racially nondiscriminatory policy as to students does not qualify for exemption. Rev. Rul. 71–447, 1971–2 C.B. 230.

  22. Discrimination; eliminating prejudice—An organization formed to promote equal rights for women by investigating instances of discrimination in employment and to aid women in recognizing and dealing with discrimination is promoting a charitable purpose since it is trying to eliminate prejudice and discrimination. Rev. Rul. 72–228, 1972–1 C.B. 148. See also Rev. Rul. 67–250, 1967–2 C.B. 182.

  23. Legal services corporation—An organization formed to provide substantial free legal services to low income residents of economically depressed communities through the subsidization of recent law graduates who have been admitted to the bar is promoting social welfare by relieving the poor and distressed or underprivileged. Rev. Rul. 72–559, 1972–2 C.B. 247.

  24. Resource conservation—An organization formed to educate the public regarding environmental deterioration due to solid waste pollution and which operated with contributions and proceeds from the sale of collected solid waste for recycling was held to be combating environmental deterioration. Rev. Rul. 72–560, 1972–2 C.B. 248.

  25. Defense of religious sect members—An organization that provides funds to defend members of a religious sect in legal actions involving substantial constitutional issues of state abridgement of religious freedom is defending human and civil rights secured by law and is thus exempt under IRC 501(c)(3). Rev. Rul. 73–285, 1973–2 C.B. 174.

  26. Lessening burdens of government; apprehension of criminals—An organization assisting the police department in the apprehension and conviction of criminals by making funds available for use in offering rewards qualifies for exemption under IRC 501(c)(3). The gratuitous performance of services to Federal, state or local governments is charitable in the generally accepted legal sense. Rev. Rul. 74–246, 1974–1 C.B. 130.

  27. Lessening burdens of government; volunteer fire company—A volunteer fire company which provides fire protection and ambulance services for a community qualifies for exemption as a charitable organization under IRC 501(c)(3). Rev. Rul 74–361, 1974–2 C.B. 159.

  28. Housing—A nonprofit organization formed to relieve poverty, eliminate prejudice, reduce neighborhood tensions, and combat community deterioration through a program of financial assistance in the form of low-cost or long-term loans to, or the purchase of equity interests in, various business enterprises in economically depressed areas is exempt under IRC 501(c)(3). Rev. Rul. 74–587, 1974–2 C.B. 162.

  29. Community improvement organization; block association—An organization which limits its preservation, beautification or improvement of public property to a specific geographic area, a city block, where the public property adjoins the private property of the organization’s members, does not qualify for exemption under IRC 501(c)(3). However, the organization does qualify for exemption under IRC 501(c)(4). Rev. Rul. 75–286, 1975–2 C.B. 210.

  30. Antiwar protest organization—A nonprofit organization formed to promote world peace and disarmament by nonviolent direct action and whose primary activity is the sponsoring of antiwar protest demonstrations in which demonstrators are urged to commit violations of local ordinances and breaches of public order does not qualify for exemption under IRC 501(c)(3) or (4). Rev. Rul. 75–384, 1975–2 C.B. 204.

  31. Community improvement organizations—An organization formed to improve conditions in an area of a city where the income level is higher and housing better than in other areas of the city and whose activities include providing general information on methods of counteracting housing deterioration and ways of improving homes may qualify for exemption under IRC 501(c)(3). Rev. Rul. 67–6 modified. Rev. Rul. 76–147, 1976–1 C.B. 151.

  32. Environmental conservancy—A nonprofit organization formed for the purpose of preserving the natural environment by acquiring, by gift or purchase, ecologically significant undeveloped land, and either maintaining the land itself with limited public access or transferring the land to a government conservation agency by outright gift or being reimbursed by the agency for its cost, qualifies for exemption under IRC 501(c)(3). Rev. Rul. 76–204, 1976–1 C.B. 152.

  33. Community improvement organization; home repairs to low-income homeowners—An organization formed to promote rehabilitation of a badly deteriorated residential area within a large city, by encouraging homeowners to make use of small, short-term, interest-free loans to make repairs necessary to meet local housing regulations, where the homeowners are otherwise unable to obtain loans for repairs, qualifies for exemption under IRC 501(c)(3). Rev. Rul. 76–408, 1976–2 C.B. 145.

  34. Resource planning; reduction of vehicle deaths and injuries—An organization formed to initiate and develop plans and programs to reduce vehicle deaths and injuries by providing local government officials upon request with free expert opinions on the existence of hazardous traffic conditions and the alleviation of these conditions, qualifies for exemption under IRC 501(c)(3). Rev. Rul. 76–418, 1976–2 C.B. 145.

  35. Community improvement organization; industrial parks in depressed areas—An organization receiving funding pursuant to a government program for the establishment of programs to reduce chronic unemployment by making purchases of blighted land in an economically depressed community to convert such land into an industrial park for lease to tenants, who are required to hire unemployed persons residing in that area and train the unemployed in needed skills, qualifies for exemption under IRC 501(c)(3). Rev. Rul. 76–419, 1976–2 C.B. 146.

  36. Community improvement; promoting business activity in an economically deteriorated area—An organization was formed to increase business patronage in a deteriorated area by providing information on shopping in the area and providing a telephone information service on transportation and accommodations. Another organization was formed to revive declining sales in a particular area and purchased land for the construction of a retail center. Neither organization qualified for exemption under IRC 501(c)(3). Rev. Rul. 77–111, 1977–1 C.B. 144.

  37. Lessening burdens of government; transportation system—An organization formed as a Model Cities Demonstration project to provide bus transportation to isolated areas of a community unserved by the existing bus system qualifies for exemption under IRC 501(c)(3). Rev. Rul. 78–68, 1978–1 C.B. 149.

  38. Public works and recreation; public park maintenance—An organization formed by residents of a city cooperated with municipal authorities in preserving, beautifying and maintaining a public park located in the center of the city. The park was commonly used by citizens of the entire city. Activities included the planning of the design of the park, horticultural plantings, design of trash containers, mowing of grass and removal of litter. The organization qualified for exemption under IRC 501(c)(3). Rev. Rul. 78–85, 1978–1 C.B. 150.

  39. Environmental conservancy—An organization restricted the use of its farm to farming and other ecologically suitable purposes that did not change the environment. The organization was not preserving land that had any distinctive ecological significance within the meaning of Rev. Rul. 76–204. Any benefit to the public from these restrictions is too indirect and insignificant to establish that the organization serves a charitable purpose. Thus the organization does not qualify for exemption under IRC 501(c)(3). Rev. Rul. 78–384, 1978–2 C.B. 174.

  40. Litigation of environmental issues—An otherwise qualifying organization that was formed to protect and restore environmental quality and whose principal activity consists of instituting litigation as a party plaintiff to enforce environmental legislation is operated exclusively for charitable purposes and qualifies for exemption under IRC 501(c)(3). Rev. Rul. 80–278, 1980–2 C.B. 175.

  41. Mediation of international environmental disputes—An otherwise qualifying organization that engages in legal research concerning various means of adjusting and resolving international environmental disputes and arranges for, and participates in, the resolution of such disputes through mediation is exempt under IRC 501(c)(3). Rev. Rul. 80–279, 1980–2 C.B. 176.

  42. Lessening the burdens of government; funding for law enforcement—An organization that provides funds to a county’s law enforcement agencies to police illegal narcotic traffic lessens the burdens of government and, therefore, is described in IRC 501(c)(3). Rev. Rul. 85–1, 1985–1 C.B. 177.

  43. Lessening the burdens of government; legal assistance—An organization that provides legal assistance to guardians ad litem who represent abused and neglected children before a juvenile court that requires their appointment lessens the burdens of government and, therefore, is described in IRC 501(c)(3). Rev. Rul. 85–2, 1985–2 C.B. 178.

  44. Community improvement organization; preserving historical character—An organization formed for the purpose of preserving the historic or architectural character of a community through the acquisition and occasional restoration of historically or architecturally significant properties; and subsequent disposition of these properties subject to restrictive covenants is described in IRC 501(c)(3). Rev. Rul. 86–49, 1986–1 C.B. 243.

  45. Public works and recreation; community association in a private development—An organization formed to develop and operate various parks and recreation facilities, including pathways, swimming pools, golf courses, and community centers, for a private real estate development, does not qualify for exemption under IRC 501(c)(3). The development was a planned community with a population of more than 100,000, but was neither an incorporated city nor other form of political subdivision. As such, the Tax Court concluded that it was merely an aggregation of homeowners and tenants bound together for their private interests rather than a community at large. Columbia Park and Recreation Association v. Commissioner, 88 T.C. 1 (1987), aff’d in unpublished opinion 838 F. 2d 465 (4th Cir. 1988).

7.25.3.11  (02-23-1999)
Health

  1. Promotion of health has long been recognized as charitable, provided that it is not carried on in a proprietary manner and the class of beneficiaries is sufficiently large and indeterminate to benefit the community as a whole. Restatement (Second) of Trusts, §§ 368, 372 (1959); 4A Austin W. Scott and William F. Fratcher, The Law of Trusts §§ 368, 372 (4th ed. 1989).

7.25.3.11.1  (02-23-1999)
Hospitals

  1. Rev. Rul. 69–545, supra, holds that a hospital otherwise meeting the requirements of IRC 501(c)(3) with the following characteristics qualifies as an organization described in IRC 501(c)(3):

    1. The hospital is governed by a board of trustees consisting of prominent citizens in the community.

    2. Medical staff privileges are available to all qualified physicians in the community.

    3. The hospital operates a full time emergency room and no one requiring emergency care is denied treatment.

    4. The hospital otherwise limits treatment to those able to pay, either themselves or through third-party payors, such as insurance or public programs like Medicare.

    5. All surplus funds are used to improve the quality of patient care, expand its facilities, and advance its medical training, education, and research programs.

  2. Provision of free or below-cost non-emergency hospital care is not a requirement for exemption as an organization described in IRC 501(c)(3). See Rev. Rul. 69–545, supra. However, it is a factor that may be considered in determining whether a hospital is promoting health in a charitable manner. See Rev. Rul. 56–185, supra; Sonora Community Hospital v. Commissioner, 46 T.C. 519, (1966), aff’d 397 F.2d 814 (9th Cir. 1968); and Harding Hospital, Inc. v. United States, 505 F.2d 1068 (6th Cir. 1974).

  3. The operation of a full-time emergency room, open to all regardless of ability to pay, is one factor in determining whether a hospital is promoting health in a charitable manner. However, a hospital may qualify as an organization described in IRC 501(c)(3) where it does not operate an emergency room if (a) either a governmental health planning agency has made a determination that an emergency room is not required or the hospital is a specialty hospital that typically does not require emergency care (such as an eye hospital or cancer institute) and (b) it otherwise engages in activities that promote the health of the community in a charitable manner, such as research and education. Rev. Rul. 83–157, 1983–2 C.B. 94.

7.25.3.11.2  (02-23-1999)
Other Healthcare Organizations—Traditional

  1. In determining whether nonhospital healthcare organizations qualify as organizations described in IRC 501(c)(3), a "flexible community benefit standard" derived from Rev. Rul. 69–545, supra, is applied. See Sound Health Association v. Commissioner, 71 T.C. 158 (1978), acq. 1981–2 C.B. 2 and Geisinger Health Plan v. Commissioner, 985 F.2d 1210 (3rd Cir., 1993), rev’g 62 T.C.M. 1656 (1991).

  2. Not all activities that promote health support exemption under IRC 501(c)(3). See Federation Pharmacy Services, Inc. v. Commissioner, 625 F.2d 804, 807 (8th Cir. 1980), aff’g 72 T.C. 687 (1979), where the court noted that "the selling of prescription drugs by Federation may serve to promote health, but it does not, without more, further a charitable purpose." An activity must promote health for the benefit of the community to be considered charitable.

  3. In University Medical Resident Services, P. C. and University Dental Resident Services, P. C. v. Commissioner, T.C. Memo 1996–251 (1996), the Tax Court upheld the Service’s denial of charitable status for the petitioners, UMRS and UDRS, which were nonprofit professional corporations established to aid certain medical and dental residency programs in upstate New York. A charitable organization administered the residency programs, the teaching hospitals handled the training, and medical schools supervised the quality of the teaching program. The petitioners, which had no administrative staff, paid the residents’ compensation and had nominal power to hire and fire the residents.

    1. The petitioners argued they were charitable because they (1) advanced education; (2) lessened the burdens of the local government; and (3) were educational under the integral part theory. The court ruled that the petitioners’ advancement of education was minimal; that the petitioners had failed to establish that either the medical schools or the teaching hospitals were governmental entities or that the petitioners reduced the cost of the training in any event; and that petitioners were merely shell corporations providing the conduit through which compensation might be made to the medical and dental residents. Thus, the petitioners could not be conducting the integral functions of any charitable organizations.

7.25.3.11.2.1  (02-23-1999)
SSA Representative Payee Organizations

  1. The Representative Payee Organization Program (RPOP) of the Social Security Administration (SSA) permits qualified organizations to collect disability insurance and supplemental security insurance payments for individuals who are mentally or physically debilitated due to:

    • drug or alcohol abuse,

    • mental or physical impairments, or

    • old age.

  2. The funds are used to ensure the personal care and well-being of SSA beneficiaries.


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