Section 501(c)(3) Dissected: IRS Issues Detailed Guidance On Exempt Purposes

Published date29 March 2023
Subject MatterEmployment and HR, Tax, Discrimination, Disability & Sexual Harassment, Employee Rights/ Labour Relations, Income Tax
Law FirmFreeman Law
AuthorCory Halliburton

On March 17, 2023, the IRS Exempt Organizations and Government Entities Division published two Technical Guides: (1) TG 1 Instrumentalities of the United States, Government Corporations, and Federal Credit Unions; and (2) TG 3-3 Exempt Purpose, Charitable IRC 501(c)(3).

Given its substance and magnitude, TG 3-3 will be addressed first here.

TG 3-3 Exempt Purpose, Charitable IRC 501(c)(3)

TG 3-3, a 59-page gem, provides guidance on, basically, the meaning of exempt purposes described in section 501(c)(3) of Title 26 of the Internal Revenue Code ("Code"). In this regard, section 501 of the Code affords exemption from federal income tax to (among other organizations)

Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

See 26 U.S.C. ' 501(c)(3).

TG 3-3 describes the IRS's position on and understanding of core and common tax-exempt terms such as "charitable," "needy," "low-income families," "very low-income families," "charitable class," and "charitable group." TG 3-3 addresses the organizational and operational tests prescribed by section 501(c)(3). TG 3-3 provides guidance on common programmatic areas within the tax-exempt space, such as assistance to the elderly, the sick, and handicapped.

TG 3-3 also addresses Treasury Regulation section 1.501(c)(3)-1(d)(2)'s exempt function of "advancement of religion," noting that an organization that advances religion within the meaning of the Treasury Regulation may also qualify under section 501(c)(3) as a charitable or educational organization. Importantly, TG 3-3 recognizes that "First Amendment considerations prevent Congress and the Service from establishing a concise or objective...

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