• Latest
  • Trending
  • All
  • Management
  • Give & Care
  • Marketing
501(c)(3) Operational Test – Nonprofit Law Blog

501(c)(3) Operational Test – Nonprofit Law Blog

January 29, 2023
The Three Layers of A Person and Your Fundraising Story – Agitator

The Three Layers of A Person and Your Fundraising Story – Agitator

March 20, 2023
Engaging Millennials and Gen Z by ChatGPT – Nonprofit Law Blog

Engaging Millennials and Gen Z by ChatGPT – Nonprofit Law Blog

March 18, 2023
Advertisement
The 5 Best Fundraising Ideas for Your School’s PTA

The 5 Best Fundraising Ideas for Your School’s PTA

March 18, 2023
Nonprofit Tweets of the Week – 3/17/23 – Nonprofit Law Blog

Nonprofit Tweets of the Week – 3/17/23 – Nonprofit Law Blog

March 17, 2023
Are You Giving Your Donors the Trump Treatment? – Agitator

Iron Law of Megaprojects – Agitator

March 17, 2023
Hosting Engaging Virtual Events: How to Boost Participation

Hosting Engaging Virtual Events: How to Boost Participation

March 17, 2023
Workaholic and Caretaker: Two Patterns That Make Saying No Hard

Workaholic and Caretaker: Two Patterns That Make Saying No Hard

March 16, 2023
All Segmented Up and Nowhere to Go – Agitator

All Segmented Up and Nowhere to Go – Agitator

March 15, 2023
Understanding Nonprofit Membership Models: Quick Guide

Understanding Nonprofit Membership Models: Quick Guide

March 15, 2023
How to Make Your Social Media Updates (Among Other Things) More Relevant

How to Make Your Social Media Updates (Among Other Things) More Relevant

March 14, 2023
Tuesday, March 21, 2023
  • Home
  • Charity News
  • Give & Care
    The 5 Best Fundraising Ideas for Your School’s PTA

    The 5 Best Fundraising Ideas for Your School’s PTA

    Lenten Pastoral Notes For Better Engagement

    Lenten Pastoral Notes For Better Engagement

    Appuntamento Evaluation

    Top Fundraising Platforms for Catholic Organizations

    Top Fundraising Platforms for Catholic Organizations

    10 Unique Nonprofit Fundraising Ideas for a Productive 2023

    10 Unique Nonprofit Fundraising Ideas for a Productive 2023

    How to Create Successful Nonprofit Fundraising Videos

    How to Create Successful Nonprofit Fundraising Videos

    Taking Nonprofit Email Marketing a Step Further: 6 Tips

    Taking Nonprofit Email Marketing a Step Further: 6 Tips

    4 Fundraising Delusions That Nonprofits Go Through

    4 Fundraising Delusions That Nonprofits Go Through

    3 Ways You’re Holding Your Campaign Back Without Knowing It

    Transform Your Giving & Engagement With GCSmart Tools

    Transform Your Giving & Engagement With GCSmart Tools

    Trending Tags

    • Golden Globes
    • Mr. Robot
    • MotoGP 2017
    • Climate Change
    • Flat Earth
  • Management
    Engaging Millennials and Gen Z by ChatGPT – Nonprofit Law Blog

    Engaging Millennials and Gen Z by ChatGPT – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 3/17/23 – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 3/17/23 – Nonprofit Law Blog

    Nonprofit Law 201 for Journalists – Nonprofit Law Blog

    Nonprofit Law 201 for Journalists – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 3/10/23 – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 3/10/23 – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 3/3/23 – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 3/3/23 – Nonprofit Law Blog

    Is Fiscal Sponsorship a Service Provided for a Fee? Why it isn’t and why it matters. – Nonprofit Law Blog

    Is Fiscal Sponsorship a Service Provided for a Fee? Why it isn’t and why it matters. – Nonprofit Law Blog

    Scholarships to NCPGC 30th Annual Planned Giving Conference – Nonprofit Law Blog

    Scholarships to NCPGC 30th Annual Planned Giving Conference – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 2/24/23 – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 2/24/23 – Nonprofit Law Blog

    Highlights from the ABA Exempt Organizations Subcommittee Meetings 2/10/23 – Nonprofit Law Blog

    Highlights from the ABA Exempt Organizations Subcommittee Meetings 2/10/23 – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 2/17/23 – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 2/17/23 – Nonprofit Law Blog

    Trending Tags

    • Donald Trump
    • Future of News
    • Climate Change
    • Market Stories
    • Election Results
    • Flat Earth
  • Marketing
    Workaholic and Caretaker: Two Patterns That Make Saying No Hard

    Workaholic and Caretaker: Two Patterns That Make Saying No Hard

    How to Make Your Social Media Updates (Among Other Things) More Relevant

    How to Make Your Social Media Updates (Among Other Things) More Relevant

    Mixed Links: News and Tips for Nonprofit Marketers – March 10, 2023

    Mixed Links: News and Tips for Nonprofit Marketers – March 10, 2023

    Unlocking the Power of AI for Nonprofit Communications

    Unlocking the Power of AI for Nonprofit Communications

    Why Saying No at Work is Hard for Nonprofit Communicators

    Why Saying No at Work is Hard for Nonprofit Communicators

    Social Media Demographics Nonprofit Communicators Need to Know in 2023

    Social Media Demographics Nonprofit Communicators Need to Know in 2023

    Mixed Links: News and Tips for Nonprofit Marketers – March 3, 2023

    Mixed Links: News and Tips for Nonprofit Marketers – March 3, 2023

    Kivi and Farra Talking Trends

    Kivi and Farra Talking Trends

    Nonprofit Social Media and Newsletter Ideas for March 2023

    Nonprofit Social Media and Newsletter Ideas for March 2023

    Mixed Links: News and Tips for Nonprofit Marketers – February 24, 2023

    Mixed Links: News and Tips for Nonprofit Marketers – February 24, 2023

    Trending Tags

    • Flat Earth
    • Sillicon Valley
    • Mr. Robot
    • MotoGP 2017
    • Golden Globes
    • Future of News
  • Organization & Strategy
  • Resources
No Result
View All Result
Charity Racers
Advertisement
  • Home
  • Charity News
  • Give & Care
    The 5 Best Fundraising Ideas for Your School’s PTA

    The 5 Best Fundraising Ideas for Your School’s PTA

    Lenten Pastoral Notes For Better Engagement

    Lenten Pastoral Notes For Better Engagement

    Appuntamento Evaluation

    Top Fundraising Platforms for Catholic Organizations

    Top Fundraising Platforms for Catholic Organizations

    10 Unique Nonprofit Fundraising Ideas for a Productive 2023

    10 Unique Nonprofit Fundraising Ideas for a Productive 2023

    How to Create Successful Nonprofit Fundraising Videos

    How to Create Successful Nonprofit Fundraising Videos

    Taking Nonprofit Email Marketing a Step Further: 6 Tips

    Taking Nonprofit Email Marketing a Step Further: 6 Tips

    4 Fundraising Delusions That Nonprofits Go Through

    4 Fundraising Delusions That Nonprofits Go Through

    3 Ways You’re Holding Your Campaign Back Without Knowing It

    Transform Your Giving & Engagement With GCSmart Tools

    Transform Your Giving & Engagement With GCSmart Tools

    Trending Tags

    • Golden Globes
    • Mr. Robot
    • MotoGP 2017
    • Climate Change
    • Flat Earth
  • Management
    Engaging Millennials and Gen Z by ChatGPT – Nonprofit Law Blog

    Engaging Millennials and Gen Z by ChatGPT – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 3/17/23 – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 3/17/23 – Nonprofit Law Blog

    Nonprofit Law 201 for Journalists – Nonprofit Law Blog

    Nonprofit Law 201 for Journalists – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 3/10/23 – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 3/10/23 – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 3/3/23 – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 3/3/23 – Nonprofit Law Blog

    Is Fiscal Sponsorship a Service Provided for a Fee? Why it isn’t and why it matters. – Nonprofit Law Blog

    Is Fiscal Sponsorship a Service Provided for a Fee? Why it isn’t and why it matters. – Nonprofit Law Blog

    Scholarships to NCPGC 30th Annual Planned Giving Conference – Nonprofit Law Blog

    Scholarships to NCPGC 30th Annual Planned Giving Conference – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 2/24/23 – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 2/24/23 – Nonprofit Law Blog

    Highlights from the ABA Exempt Organizations Subcommittee Meetings 2/10/23 – Nonprofit Law Blog

    Highlights from the ABA Exempt Organizations Subcommittee Meetings 2/10/23 – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 2/17/23 – Nonprofit Law Blog

    Nonprofit Tweets of the Week – 2/17/23 – Nonprofit Law Blog

    Trending Tags

    • Donald Trump
    • Future of News
    • Climate Change
    • Market Stories
    • Election Results
    • Flat Earth
  • Marketing
    Workaholic and Caretaker: Two Patterns That Make Saying No Hard

    Workaholic and Caretaker: Two Patterns That Make Saying No Hard

    How to Make Your Social Media Updates (Among Other Things) More Relevant

    How to Make Your Social Media Updates (Among Other Things) More Relevant

    Mixed Links: News and Tips for Nonprofit Marketers – March 10, 2023

    Mixed Links: News and Tips for Nonprofit Marketers – March 10, 2023

    Unlocking the Power of AI for Nonprofit Communications

    Unlocking the Power of AI for Nonprofit Communications

    Why Saying No at Work is Hard for Nonprofit Communicators

    Why Saying No at Work is Hard for Nonprofit Communicators

    Social Media Demographics Nonprofit Communicators Need to Know in 2023

    Social Media Demographics Nonprofit Communicators Need to Know in 2023

    Mixed Links: News and Tips for Nonprofit Marketers – March 3, 2023

    Mixed Links: News and Tips for Nonprofit Marketers – March 3, 2023

    Kivi and Farra Talking Trends

    Kivi and Farra Talking Trends

    Nonprofit Social Media and Newsletter Ideas for March 2023

    Nonprofit Social Media and Newsletter Ideas for March 2023

    Mixed Links: News and Tips for Nonprofit Marketers – February 24, 2023

    Mixed Links: News and Tips for Nonprofit Marketers – February 24, 2023

    Trending Tags

    • Flat Earth
    • Sillicon Valley
    • Mr. Robot
    • MotoGP 2017
    • Golden Globes
    • Future of News
  • Organization & Strategy
  • Resources
No Result
View All Result
Charity Racers
No Result
View All Result
Advertisement Advertisement Advertisement
Home Management

501(c)(3) Operational Test – Nonprofit Law Blog

by brookridgearcadia
January 29, 2023
in Management
0
501(c)(3) Operational Test – Nonprofit Law Blog
491
SHARES
1.4k
VIEWS
Share on FacebookShare on Twitter
ADVERTISEMENT


Yellow voting checkmark in a checkbox.

To be or stay exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be operated exclusively for one or more of the exempt purposes described in section 501(c)(3) (“exempt purposes”). The first part of a compliance analysis with respect to this requirement referred to as the Operational Test is to examine whether the organization is actually operating consistent with the exempt purposes stated in its articles of organization. The second part of the compliance analysis is to examine whether it is operating exclusively (interpreted in the regulations to mean operating primarily) in furtherance of its exempt purposes.

501(c)(3) Exempt Purposes

  • Religious
  • Charitable
  • Scientific
  • Testing for public safety
  • Literary
  • Educational
  • Prevention of cruelty to children or animals.

Operated Exclusively Means Operated Primarily

An organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities does not further an exempt purpose.

Treasury Reg. § 1.501(c)(3)-1(c)(1)

While it’s not precisely clear what “primarily” (and therefore “exclusively) means in this context, the key guidance is in the second sentence in the excerpted regulation. Only an insubstantial part of an organization’s activities can further other than an exempt purpose of the organization.

That of course leaves open the question of what is “insubstantial” in this context? Unfortunately, we lack clear guidance on this issue as there are no bright line tests and the IRS has provided different types of guidance over the years regarding that factors evidence an organization’s activities at issue. For example, is an organization operating primarily in furtherance of one or more exempt purposes if 90 percent of its resources are dedicated to such activities? What if the 10 percent of the organization’s other activities produced 90 percent of its income?

I believe it’s more about the dedication of organizational resources, including time, that is critical in the Operational Test analysis, and this seems partly supported by the Form 1023 exemption application that asks about the percentage of time allocated to each activity. However, outputs matter too. Even if 90 percent of an organization’s resources were dedicated to furthering its exempt purposes, if 80 percent of the goods and services produced were not in furtherance of any of these exempt purposes, it seems certain that such organization would fail the Operational Test. This also speaks to a related test known as the Commensurate Test, which asks whether an organization’s activities are commensurate in scope with its exempt purpose.

Some accountants and lawyers provide off-the-cuff advice equating the Operational Test to a test of how much income can be produced from nonexempt activities. I’ve heard opinions ranging from 5 percent to 30 percent of an organization’s total income as being insubstantial. While the production of income from a nonexempt activity may be a factor in the Operational Test analysis, it should not be viewed as the determinative factor.

The Unrelated Business Activity Issue

If, for example, an unrelated business that does not further an exempt purpose of the organization, then such the organization can only engage in an insubstantial amount of such unrelated business activity. However, the unrelated business activity example gives rise to some confusion because there is the open issue of whether an unrelated business that is not substantially related to the organization’s exempt purposes could still be engaged in to further an exempt purposes of the organization. Exempt organizations practitioners may describe this as an activity that meets the primary purpose test (part of the Operational Test) but not the substantiality test (regarding whether the business is related or unrelated). For a deeper dive into this particular issue, see How much unrelated business activity is too much? (The Tax Adviser).

Further confusion is created by the Commerciality Doctrine, a product of the courts that looks at whether an exempt organization is operating in a manner that is too commercial to meet the Operational Test. More specifically, the Commerciality Doctrine’s principal inquiry is whether the organization engaged in an activity with a substantial nonexempt commercial purpose. See Unrelated Business Income and the Commerciality Doctrine; Commercial Activity and the Operational Test (Taxation of Exempts).

Operational Test, Private Inurement/Benefit, and Substantial Lobbying

An organization is not operated exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or individuals. See Private Benefit Rules – Part I: Private Benefit Doctrine; Private Benefit Rules – Part II: Private Inurement Doctrine.

An organization is also not operated exclusively for one or more exempt purposes if it is an action organization (see three ways an organization can be an action organization below). But public charities should understand that a generous part of their activities focused on lobbying may not be regarded as substantial and therefore may be consistent with passing the Operational Test. See, e.g., Public Charities Can Lobby: Guidelines for 501(c)(3) Public Charities (AFJ Bolder Advocacy); Starting a Nonprofit: The Value of Making the 501(h) Lobbying Election. In addition, many forms of nonprofit advocacy are permissible without limits if in furtherance of the organization’s exempt purposes. See Nonprofit Advocacy is More Than Lobbying.

An organization is an action organization if a substantial part of its activities is attempting to influence legislation by propaganda or otherwise. For this purpose, an organization will be regarded as attempting to influence legislation if the organization: (a) Contacts, or urges the public to contact, members of a legislative body for the purpose of proposing, supporting, or opposing legislation; or (b) Advocates the adoption or rejection of legislation.

Treasury Reg. § 1.501(c)(3)-1(c)(3)(ii)

An organization is an action organization if it participates or intervenes, directly or indirectly, in any political campaign on behalf of or in opposition to any candidate for public office.

Treasury Reg. § 1.501(c)(3)-1(c)(3)(iii)

An organization is an action organization if it has the following two characteristics: (a) Its main or primary objective or objectives (as distinguished from its incidental or secondary objectives) may be attained only by legislation or a defeat of proposed legislation; and (b) it advocates, or campaigns for, the attainment of such main or primary objective or objectives as distinguished from engaging in nonpartisan analysis, study, or research and making the results thereof available to the public. In determining whether an organization has such characteristics, all the surrounding facts and circumstances, including the articles and all activities of the organization, are to be considered.

Treasury Reg. § 1.501(c)(3)-1(c)(3)(iv)

Related



Source link

Share196Tweet123Share49
brookridgearcadia

brookridgearcadia

  • Trending
  • Comments
  • Latest
New Members Elected to CalNonprofits Board

New Members Elected to CalNonprofits Board

Update on Sick Leave Relief for Nonprofits

Update on Sick Leave Relief for Nonprofits

Check out these upcoming events

Check out these upcoming events

The Three Layers of A Person and Your Fundraising Story – Agitator

The Three Layers of A Person and Your Fundraising Story – Agitator

March 20, 2023
Engaging Millennials and Gen Z by ChatGPT – Nonprofit Law Blog

Engaging Millennials and Gen Z by ChatGPT – Nonprofit Law Blog

March 18, 2023
The 5 Best Fundraising Ideas for Your School’s PTA

The 5 Best Fundraising Ideas for Your School’s PTA

March 18, 2023

Advertisment

Charity Racers

Copyright © 2020 Crarity Racers All Rights Reserved

Navigate Site

  • Home
  • About
  • Disclosure
  • Terms of Use
  • Privacy & Policy
  • Advertise
  • Contact

Follow Us

No Result
View All Result
  • Home
  • Charity News
  • Give & Care
  • Organization & Strategy
  • Marketing
  • Management
  • Resources

Copyright © 2020 Crarity Racers All Rights Reserved

We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
Do not sell my personal information.
Cookie SettingsAccept
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT