In the United States, a charity is an organization that operates for a purpose that serves the public interest. There are different types of charities. Any charity in the United States and elsewhere that qualifies as a tax-exempt organization under section 501 of the Internal Revenue Code is considered a “private foundation” unless it demonstrates to the IRS that it falls into another category. Generally, any organization that is not a private foundation (i.e., qualifies as something else) is usually a public charity as described in Section 509(a) of the Internal Revenue Code.
In addition, a private foundation usually receives its primary funding from an individual, family, corporation, or some other single source and is most often a grantmaker and does not solicit funds from the public. In contrast, a foundation or public charity typically receives grants from individuals, government, and private foundations, and although some public charities engage in grantmaking activities, most provide direct services or other tax-exempt activities. Foundations that are typically grantmakers (i.e., they use their donations to make grants to other organizations, which in turn indirectly fulfill the foundation’s purposes) are commonly referred to as “grantmakers” or “non-operating” foundations.
Requirements and procedures for establishing charitable organizations vary from state to state, as do registration and registration requirements for charities that conduct charitable activities, solicit charitable contributions, or hire professional fundraisers. In practice, the detailed definition of “charity” is determined by the requirements of the law of the state in which the charity operates and the requirements of the IRS tax credit.
Resources exist to provide information and even rankings of U.S. charities.
Federal Tax Relief.
Federal tax law provides tax benefits to non-profit organizations recognized as exempt from federal income tax under Section 501 (c) of the Internal Revenue Code (IRC). Benefits of 501 (c) status include federal income tax exemption as well as eligibility for tax-deductible charitable contributions. In 2017, individuals donated a total of $281.86 billion tax-deductible dollars, and the fastest-growing form of giving was stock donations.
To qualify for 501 (c) status, most organizations must apply to the Internal Revenue Service (IRS) for such status.
In order for a charity to qualify for 501 (c) status, several requirements must be met. These include an organization organized as a corporation, trust, or unincorporated association, and the organization’s organizational document (e.g., articles of incorporation, trust documents, or bylaws) must limit its purposes to charity and permanently dedicate its assets. to charitable purposes. The organization must refrain from performing a number of other activities, such as participating in political campaigns for local, state or federal office, and must ensure that its income does not benefit anyone. Most tax-exempt organizations are required to file annual financial statements (IRS Form 990 ) at the state and federal level. The tax-exempt organization’s Form 990 and some other forms must be publicly available.
The types of charitable organizations the IRS considers organized for the public good include those organized to:
Helping the poor, needy, or disadvantaged
Promotion of religion
Development of education or science
Construction or maintenance of public buildings, monuments, or works
Reducing the burden of government
Reducing tensions in the neighborhood
Elimination of prejudice and discrimination
Protection of the rights of man and citizen enshrined in law
Combating the communication deterioration of unity and juvenile delinquency.
A number of other organizations may also qualify for exempt status, including organizations organized for religious, scientific, literary, and educational purposes, as well as organizations to check public safety and promote national or international amateur sports competitions, and to prevent child or animal cruelty.