Historically in the United States examples of a charitable organization include:
- Relief for the poor, the distressed or the underprivileged
- Advancement of religion
- Advancement of education or science
- Erection or maintenance of public buildings, monuments or works
- Lessening the burden of government
- Lessening of neighborhood tensions
- Elimination of prejudice and discrimination
- Defense of human and civil rights secured by law, and
- Combating community deterioration and juvenile delinquency.
Elsewhere the IRS Code section 501 (c) (3) describes charitable organizations as those that are formed for "religious, charitable, scientific, testing for public safety, literary or educational purposes or to foster national or international amateur sports competition".
There are benefits and detriments in becoming a nonprofit organization under State and Federal laws. They will be discussed shortly. At this point, it is important to realize that being recognized as a nonprofit organization in your State and as a section 501 (c) (3) corporation by the IRS gives the organization public recognition of tax exempt status. It gives contributors an advance assurance of deductibility of contributions and it allows the nonprofit to be exempt from certain State taxes and Federal excise taxes. Foundation, corporate and government grants are available to nonprofits that have the recognition of the IRS.
There are other benefits including nonprofit mailing privileges and it may provide relief from property taxes. I say, "may provide relief from property taxes" because there have been periodic movements by lawmakers to tax certain nonprofit property. Early in 2001 Baltimore MD considered taxing the huge holdings of Johns Hopkins University and other large NPOs in the city, but the matter was settled by negotiations. NPOs may have to pay property taxes if the property is viewed as a profit-making source of revenue. It is a growing concern as local communities seek a broader tax base.
In most states there are property tax assessments that can be charged to nonprofits including houses of worship, churches, synagogues, mosques and other NPOs as they are with businesses and housing. Each can be required to pay property tax on space leased to other entities such as a day care center, a weekday parking lot or for-profit-businesses. A number of churches have leased their steeples or towers to cell phone carriers. Usually it is up to the local municipalities to enforce the law and to assess the appropriate property tax. That is the bad news. The good news is that the assessment on these lease agreements may help protect houses of worship and other NPOs from fully losing their status as a tax-exempt organization. The best news is that this practice of taxing is negligible.
But there is more...much more.