West Virginia Code of State Rules › Agency 110 - Tax › Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT › Series 110-37 - Charitable Raffles › Appendix A - UNITED STATES TREASURY REGULATIONS

Current through Register Vol. XLI, No. 28, July 12, 2024
(Reg. Section 1.501(c)(3)-1)
The regulation below is intended to provide guidance to the
				  public in the determination of what a charitable or public service activity or
				  endeavor is.
' 1.501(c)(3)-1. Organizations organized and operated
				  for religious, charitable, scientific, testing for public safety, literary, or
				  educational purposes, or for the prevention of cruelty to children or
				  animals.
(a)
Organization and operational tests
.
(1) In order to be exempt as an organization described in
				  section 501(c)(3), an organization must be both organized and operated
				  exclusively for one or more of the purposes specified in such section. If an
				  organization fails to meet either the organizational test or the operational
				  test, it is not exempt.
(2) The term "Exempt Purpose or Purposes", as used in this
				  section, means any purpose or purposes specified in section 501(c)(3), as
				  defined and elaborated in paragraph (d) of this section.
(b)
Organizational test.
(1) In general.
(A) An organization is organized exclusively for one or more
				  exempt purposes only if its articles of organization (referred to in this
				  section as its "articles") as defined in subparagraph (2) of this
				  paragraph:
(i) Limit the purposes of such organization to one or more
				  exempt purposes; and
(ii) Do not expressly empower the organization to engage,
				  otherwise, than as an insubstantial part of its activities, in activities which
				  in themselves are not in furtherance of one or more exempt purposes.
(B) In meeting the organizational test, the organization's
				  purpose, as stated in its articles, may be as broad as, or more specific than,
				  the purposes stated in section 501(c)(3). Therefore, an organization which, by
				  the terms of its articles, is formed "for literary and scientific purposes
				  within the meaning of section 501(c)(3) of the Code shall, if it otherwise
				  meets the requirements in this paragraph, be considered to have met the
				  organizational test. Similarly, articles stating that the organization is
				  created solely "to receive contributions and pay them over to organizations
				  which are described in section 501(c)(3) and exempt from taxation under section
				  501(a)" are sufficient for purposes of the organizational test. Moreover, it is
				  sufficient if the articles set forth the purpose of the organization to be the
				  operation of a school for adult education and describe in detail the manner of
				  the operation of such school. In addition, if the articles state that the
				  organization is formed for "Charitable Purposes", such articles ordinarily
				  shall be sufficient for purposes of the organizational test
				  (
See
subparagraph (5) of this paragraph for rules
				  relating to construction of terms).
(C) An organization is not organized exclusively for one or
				  more exempt purposes if its articles expressly empower it to carry on,
				  otherwise than as an insubstantial part of its activities, activities which are
				  not in furtherance of one or more exempt purposes, even though such
				  organization is, by the terms of such articles, created for a purpose that is
				  no broader than the purposes specified in section 501(c)(3). Thus, an
				  organization that is empowered by its articles "to engage in a manufacturing
				  business," or "to engage in the operation of a social club" does not meet the
				  organizational test regardless of the fact that its articles may state that
				  such organization is created "for charitable purposes within the meaning of
				  Section 501(c)(3) of the Code."
(D) In no case shall an organization be considered to be
				  organized exclusively for one or more exempt purposes, if by the terms of its
				  articles, the purposes for which such organization is created are broader than
				  the purposes specified in section 501(c)(3). The fact that the actual
				  operations of such an organization have been exclusively in furtherance of one
				  or more exempt purposes shall not be sufficient to permit the organization to
				  meet the organizational test. Similarly, such an organization will not meet the
				  organizational test as a result of statements or other evidence that the
				  members thereof intend to operate only in furtherance of one or more exempt
				  purposes.
(E) An organization must, in order to establish its
				  exemption, submit a detailed statement of its proposed activities with and as a
				  part of its application for exemption (
See
paragraph
				  (b) of ' 1.501(a)-1).
(2)
Articles of organization.
- For purposes of
				  this section, the term "articles of organization" or "articles" includes the
				  trust instrument, the corporate charter, the articles of association, or any
				  other written instrument by which an organization is created.
(3)
Authorization of legislative or political
				  activities.
- An organization is not organized exclusively for one or
				  more exempt purposes if its articles expressly empower it:
(A) To devote more than an insubstantial part of its
				  activities to attempting to influence legislation by propaganda or otherwise;
				  or
(B) Directly or indirectly to 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;
				  or
(C) To have objectives and to engage in activities which
				  characterize it as an "action" organization as defined in paragraph (c)(3) of
				  this section. The terms used in subdivisions (A), (B), and (C) of this
				  subparagraph shall have the meanings provided in paragraph (c)(3) of this
				  section.
(4)
Distribution of assets on dissolution.
- An
				  organization is not organized exclusively for one or more exempt purposes
				  unless its assets are dedicated to an exempt purpose. An organization's assets
				  will be considered dedicated to an exempt purpose, for example, if upon
				  dissolution, such assets would, by reason of a provision in the organization's
				  articles or by operation of law, be distributed for one or more exempt
				  purposes, or to the Federal government, or to a State or local government, for
				  a public purpose, or would be distributed by a court to another organization to
				  be used in such manner as in the judgment of the court will best accomplish the
				  general purposes for which the dissolved organization was organized. However,
				  an organization does not meet the organizational test if its articles or the
				  law of the State in which it was created provide that its assets would, upon
				  dissolution, be distributed to its members or shareholders.
(5)
Construction of terms.
- The law of the
				  State in which an organization is created shall be controlling in construing
				  the terms of its articles. However, any organization which contends that such
				  terms have under State law a different meaning from their generally accepted
				  meaning must establish such special meaning by clear and convincing reference
				  to relevant court decisions, opinions of the State attorney general, or other
				  evidence of applicable State law.
(6)
Applicability of the organizational test.
-
				  A determination by the Commissioner or a district director that an organization
				  is described in section 501(c)(3) and exempt under section 501(a) will not be
				  granted after July 26, 1959 (regardless of when the application is filed),
				  unless such organization meets the organizational test prescribed by this
				  paragraph. If, before July 27, 1959, an organization has been determined by the
				  Commissioner or district director to be exempt as an organization described in
				  section 501(c)(3) or in corresponding provision of prior law and such
				  determination has not been revoked before such date, the fact that such
				  organization does not meet the organizational test prescribed by this paragraph
				  shall not be a basis for revoking such determination. Accordingly, an
				  organization which has been determined to be exempt before July 27, 1959, and
				  which does not seek a new determination of exemption is not required to amend
				  its articles of organization to conform to the rules of this paragraph, but any
				  organization which seeks a determination of exemption after July 26, 1959, must
				  have articles of organization which meet the rules of this paragraph. For the
				  rules relating to whether an organization determined to be exempt before July
				  27, 1959, is organized exclusively for one or more exempt purposes,
See
26 CFR (1939 39.101(5)-1 (Regulation 118) as made
				  applicable to the Code by Treasury Decision 6091, approved August 16, 1954 (19
				  F.R. 5167; C.B. 1954-2, 47).
(c)
Operational test.
(1)
Primary activities.
- An organization will
				  be regarded as "operated exclusively" for one or more exempt purposes only if
				  it engages primarily in activities which accomplish one or more of such exempt
				  purposes specified in section 501(c)(3). An organization will not be so
				  regarded if more than an insubstantial part of its activities is not in
				  furtherance of an exempt purpose.
(2)
Distribution of earnings.
- 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. For the definition of the words "private shareholders or
				  individual",
See
paragraph (c) of ' 1.501(a)-1.
(3)
"Action" organization.
(A) An organization is not operated exclusively for one or
				  more exempt purposes if it is an "Action" organization as defined in
				  subdivisions (B), (C), or (D) of this subparagraph.
(B) 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 -
(i) Contacts, or urges the public to contact, members of a
				  legislative body for the purpose of proposing, supporting, or opposing
				  legislation; or
(ii) Advocates the adoption or rejection of legislation. The
				  term "legislation", as used in this subdivision, includes action by the
				  Congress, by any State legislature, by any local council or similar governing
				  body, or by the public in a referendum, initiative, constitutional amendment,
				  or similar procedure. An organization will not fail to meet the operational
				  test merely because it advocates, as an insubstantial part of its activities,
				  the adoption or rejection of legislation.
(C) 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. The term
				  "Candidate for Public Office" means an individual who offers himself, or is
				  proposed by others, as a contestant for an elective public office, whether such
				  office be national, State or local. Activities which constitute participation
				  or intervention in a political campaign on behalf of or in opposition to a
				  candidate include, but are not limited to, the publication or distribution of
				  written or printed statements or the making of oral statements on behalf of or
				  in opposition to such a candidate.
(D) An organization is an "Action" organization if it has the
				  following two characteristics:
(i) 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
(ii) 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.
(E) An "Action" organization, described in subdivisions (ii)
				  or (iv) of this subparagraph, though it cannot qualify under section 501(c)(3)
				  may nevertheless qualify as a social welfare organization under section
				  501(c)(4) if it meets the requirements set out in paragraph (a) of '
				  1.501(c)(4)-1.
(d)
Exempt purposes.
(1) In general.
(A) An organization may be exempt as an organization
				  described in section 501(c)(3) if it is organized and operated exclusively for
				  one or more of the following purposes:
(i) Religious,
(ii) Charitable,
(iii) Scientific,
(iv) Testing for public safety,
(v) Literary,
(vi) Educational, or
(vii) Prevention of cruelty to children or animals.
(B) An organization is not organized or operated exclusively
				  for one or more of the purposes specified in subdivision (A) of this
				  subparagraph unless it serves a public rather than a private interest. Thus, to
				  meet the requirement of this subdivision, it is necessary for an organization
				  to establish that it is not organized or operated for the benefit of private
				  interests such as designated individuals, the creator or his family,
				  shareholders of the organizations, or persons controlled, directly or
				  indirectly, by such private interest.
(C) Since each of the purposes specified in subdivision (A)
				  of this subparagraph is an exempt purpose in itself, an organization may be
				  exempt if it is organized and operated exclusively for any one or more of such
				  purposes. If, in fact, an organization is organized and operated exclusively
				  for exempt purpose or purposes, exemption will be granted to such an
				  organization regardless of the purpose or purposes specified in its application
				  for exemption. For example, if an organization claims exemption on the ground
				  that it is "Educational", exemption will not be denied if, in fact, it is
				  "Charitable".
(2)
"Charitable" defined.
- The term
				  "Charitable" is used in section 501(c)(3) in its generally accepted legal sense
				  and is, therefore, not to be construed as limited by the separate enumeration
				  in section 501(c)(3) of other tax-exempt purposes which may fall within the
				  broad outlines of "Charity" as developed by judicial decisions. Such term
				  includes: Relief of the poor and distressed or of the underprivileged;
				  advancement of religion; advancement of education or science; erection of
				  maintenance of public buildings, monuments, or works; lessening of the burdens
				  of Government; and promotion of social welfare by organizations designed to
				  accomplish any of the above purposes, or
(A) to lessen neighborhood tensions;
(B) to eliminate prejudice and discrimination;
(C) to defend human and civil rights secured by law;
				  or
(D) to combat community deterioration and juvenile
				  delinquency.
The fact that an organization which is organized and operated
				  for the relief of indigent persons may receive voluntary contributions from the
				  persons intended to be relieved will not necessarily prevent such organization
				  from being exempt as an organization organized and operated exclusively for
				  charitable purposes. The fact that an organization, in carrying out its primary
				  purpose, advocates social or civic changes or presents opinion on controversial
				  issues with the intention of molding public opinion or creating public
				  sentiment to an acceptance of its views does not preclude such organization
				  from qualifying under section 501(c)(3) so long as it is not an "Action"
				  organization of any one of the types described in paragraph (c)(3) of this
				  section.
(3)
"Educational" defined.
(A)
In general.
- The term "Educational", as
				  used in section 501(c)(3), relates to -
(i) The instruction or training of the individual for the
				  purpose of improving or developing his capabilities; or
(ii) The instruction of the public on subjects useful to the
				  individual and beneficial to the community.
An organization may be educational even thought it advocates
				  a particular position or viewpoint so long as it presents a sufficiently full
				  and fair exposition of the pertinent facts as to permit an individual or the
				  public to form an independent opinion or conclusion. On the other hand, an
				  organization is not educational if its principal function is the mere
				  presentation of unsupported opinion.
(B)
Examples of educational organizations.
- The
				  following are examples of organizations which, if they otherwise meet the
				  requirements of this section, are educational:
Example 1.
- An organization, such as a primary
				  or secondary school, a college, or a professional or trade school, which has a
				  regularly scheduled curriculum, a regular faculty, and a regularly enrolled
				  body of students in attendance at a place where the educational activities are
				  regularly carried on.
Example 2.
- An organization whose activities
				  consist of presenting public discussion groups, forums, panels, lectures, or
				  other similar programs. Such programs may be on radio or television.
Example 3.
- An organization which presents a
				  course of instruction by means of correspondence or through the utilization of
				  television or radio.
Example 4.
- Museums, zoos, planetariums,
				  symphony orchestras, and other similar organizations.
(4)
"Testing for Public Safety" defined.
- The
				  term "Testing for Public Safety", as used in section 501(c)(3), includes the
				  testing of consumer products, such as electrical products, to determine whether
				  they are safe for use by the general public.
(5)
"Scientific" defined.
(A) Since an organization may meet the requirements of
				  section 501(c)(3) only if its serves a public rather than a private interest, a
				  "Scientific" organization must be organized and operated in the public
				  interest. Research when taken alone is a word with various meanings; it is not
				  synonymous with "Scientific"; and the nature of particular research upon the
				  purpose which it serves. For research to be "Scientific", within the meaning of
				  section 501(c)(3), it must be carried on in furtherance of a "Scientific"
				  purpose. The determination as to whether research is "Scientific" does not
				  depend on whether such research is classified as "Fundamental" or "Basic" as
				  contrasted with "Applied" or "Practical". On the other hand, for purposes of
				  the exclusion from unrelated business taxable income provided by section
				  512(b)(9), it is necessary to determine whether the organization is operated
				  primarily for purposes of carrying on "Fundamental", as contrasted with
				  "Applied", research.
(B) Scientific research does not include activities of a type
				  ordinarily carried on as an incident to commercial or industrial operations,
				  as, for example, the ordinary testing or inspection of materials or products or
				  the designing or construction of equipment, buildings, etc.
(C) Scientific research will be regarded as carried on in the
				  public interest -
(i) If the results of such research (including any patents,
				  copyrights, processes, or formula resulting from such research) are made
				  available to the public on a nondiscriminatory basis;
(ii) If such research is performed for the United States, or
				  any of its agencies or instrumentalities, or for a State or political
				  subdivision thereof; or
(iii) If such research is directed toward benefiting the
				  public. The following are examples of scientific research which will be
				  considered as directed toward benefiting the public, and, therefore, which will
				  be regarded as carried on in the public interest:
(a) Scientific research carried on for the purpose of aiding
				  in the scientific education of college or university students;
(b) Scientific research carried on for the purpose of
				  obtaining scientific information, which is published in a treatise, thesis,
				  trade publication or in any other form that is available to the interested
				  public;
(c) Scientific research carried on for the purpose of
				  discovering a cure for a disease; or
(d) Scientific research carried on for the purpose of aiding
				  a community or geographical area by attracting new industry to the community or
				  area or by encouraging the development of, or retention of, an industry in the
				  community or area. Scientific research described in this subdivision (c) will
				  be regarded as carried on in the public interest even though such research is
				  performed pursuant to a contract or agreement under which the sponsor or
				  sponsors of the research have the right to obtain ownership or control of any
				  patents, copyrights, processes, or formula resulting from such research.
(D) An organization will not be regarded as organized and
				  operated for the purpose of carrying on scientific research in the public
				  interest and, consequently, will not qualify under section 501(c)(3) as a
				  "Scientific" organization, if -
(i) Such organization will perform research only for persons
				  which are (directly or indirectly) its creators and which are not described in
				  section 501(c)(3), or
(ii) Such organization retain (directly or indirectly) the
				  ownership or control of more than an insubstantial portion of the patents,
				  copyrights, processes, or formula resulting from its research and does not make
				  patents, copyrights, processes, or formula available to the public. For
				  purposes of this subdivision, a patent, copyright, process, or formula shall be
				  considered as made available to the public if such patent, copyright, process,
				  or formula is made available to the public on a nondiscriminatory basis. In
				  addition, although one person is granted the exclusive right to the use of a
				  patent, copy right, process, or formula, such patent, copyright, process, or
				  formula shall be considered as made available to the public if the granting of
				  such exclusive right is the only practicable manner in which the patent,
				  copyright, process, or formula can be utilized to benefit the public. In such a
				  case, however, the research from which the patent, copyright, process, or
				  formula resulted will be regarded as carried on in the public interest (within
				  the meaning of subdivision (C) of this subparagraph) only if it is carried on
				  for a person described in subdivision (C)(ii) of this subparagraph of if it is
				  scientific research described in subdivision (C)(iii) of this
				  subparagraph.
(E) The fact that any organization (including a college,
				  university, or hospital) carries on research which is not in furtherance of an
				  exempt purpose described in section 501(c)(3) will not preclude such
				  organization from meeting the requirements of section 501(c)(3) so long as the
				  organization meets the organizational test and is not operated for the primary
				  purpose of carrying on such research (
See
paragraph
				  (e) of this section, relating to organizations carrying on a trade or
				  business).
See
paragraphs (a)(5) of ' 1.513-2, with
				  respect to research which constitutes an unrelated trade or business, and
				  section 512(b)(7)(8), and (9), with respect to income derived from research
				  which is excludable from the tax on unrelated business income.
(F) The regulations in this subparagraph are applicable with
				  respect to taxable years beginning after December 31, 1960.
(e)
Organizations carrying on trade or
				  business.
(1)
In general.
- An organization may meet the
				  requirements of section 501(c)(3) although it operates a trade or business as a
				  substantial part of its activities, if the operation of such trade or business
				  is in furtherance of the organization's exempt purpose or purposes and if the
				  organization is not organized or operated for the primary purpose of carrying
				  on an unrelated trade or business, as defined in section 513. In determining
				  the existence or nonexistence of such primary purpose, all the circumstances
				  must be considered, including the size and extent of the trade or business and
				  the size and extent of the activities which are in furtherance of one or more
				  exempt purposes. An organization which is organized and operated for the
				  primary purpose of carrying on an unrelated trade or business is not exempt
				  under section 501(c)(3) even though it has certain religious purposes, its
				  property is held in common, and its profits do not inure to the benefit of
				  individual members of the organization.
See
, however,
				  section 501(d) and ' 1.501(d)-1, relating to religious and apostolic
				  organizations.
(2)
Taxation of unrelated business income.
- For
				  provisions relating to the taxation of unrelated business income of certain
				  organizations described in section 501(c)(3),
See
sections 511 to 515, inclusive, and the regulations thereunder.
(f)
Applicability of regulations in this
				  section.
- The regulations in this section are, except as otherwise
				  expressly provided, applicable with respect to taxable years beginning after
				  July 26, 1959. For the rules applicable with respect to taxable years beginning
				  before July 27, 1959,
See
26 CFR (1939) 39.101(6)-1
				  (Regulations 118) as made applicable to the Code by Treasury Decision 6091,
				  approved August 16, 1954 (19 F.R. 5167; C. B. 1954-2, 47). Reg. Section
				  1.501(c)(3)-1.