Charitable organizations are a kind of business that fits within the nonprofit organization (NPO) category. In general, this type of entity is sometimes referred to as a charity or foundation, which can be run publicly or privately. Some charities may be centered around religious, educational or other public interest activities that are philanthropic in nature. Depending upon the location of the charity, the legal definition of what constitutes a charitable organization may vary according to its country of origin. Therefore, the tax implications for a charity will also depend upon the region or country in which the charitable organization operates.
The procedures for forming the various kinds of charitable organizations vary from state to state in the United States, as well as other countries and regions within them. Registration and filing requirements for entities that engage in charitable activities and solicit contributions are also determined by its originating state or region. Charitable organizations must comply with federal tax relief guidelines, as specified by the Internal Revenue Service (IRS). For a charitable organization to qualify as tax exempt, it must refrain from certain activities, such as political campaign and candidate fundraising, and earnings may not benefit any individual.
Some charitable organizations operate as private foundations that obtain their principal funding through a corporation, family, individual or other single financial source that does not solicit public funding. Private foundations usually use endowment funds to provide grants to outside or affiliated organizations that support the foundation objectives. These kinds of charitable organizations are often referred to as “non-operating,” such as with the Bill & Melinda Gates Foundation and the Rockefeller Foundation.
Public Charities And Operating Foundations
Public, operating foundations or charities usually receive grants from the government, private foundations and individuals. Although some public charities may engage in grant making activities, the majority of them are concerned with tax-exempt activities. Examples of operating foundations include the American Cancer Society, the Elizabeth Glaser Pediatric AIDS Foundation and the World Wildlife Fund, all of which service society and seek public contributions.
Federal Tax Benefits
Federal tax relief and benefits are provided to most nonprofit charitable organizations, which are recognized as exempt under section 501(c)(3) of the Internal Revenue Code (IRC). Some of the benefits of tax relief status can include the ability to receive tax deductible charitable contributions and no requirement to pay income tax for the organization. Most charitable organizations must formally apply to the IRS to obtain tax exempt status. The charity must be formally organized as a trust, corporation or unincorporated association. Also, the charitable organization’s operating documents, which may be articles of incorporation, articles of association or trust documents, must specify its purposes strictly and permanently as being dedicated to charitable purposes.
Types of Charitable Organization Activities
Kinds of charitable organizations that are considered organized for public benefit can include those which offer relief for the poor, distressed or underserved, and those with religious, educational or scientific affiliations. Some charitable organizations are engaged in the creation and management of monuments, public buildings or works. Many charities work to enhance society by offering social services, lessen government burden and combat community deterioration. The defense of public safety, children, civil rights, and elimination of prejudice and discrimination are some other social centric activities that charities concern themselves with.