Nonprofit Basics – What is a public charity?

Charities (public or private) are organizations exempt from federal income tax under §501(c)(3) because they are organized and operated for one or more exempt purposes: religious, charitable, scientific, testing for public safety, literary or education purposes, foster national or international amateur sports, or prevention of cruelty to children or animals. 

In order to maintain exemption, a charity must not allow its resources to inure to any private individual, must not engage in a substantial amount of advocacy or lobbying, and must refrain completely from involvement in any political campaign, either in opposition to or in favor of any candidate.  Tax exemption exists for these organizations because their activities are considered to be socially desirable activities and contribute to a shared responsibility for society.  Contributions to charities are (subject to certain limitations/restrictions) eligible to be deducted from both individual and corporate income taxes.

 The category of charities is made up of both public charities and private foundations.  Organizations that qualify as public charities can then be divided into four further categories.  The first group includes organizations that engage in inherently public activity: churches or a convention of association of churches; schools; hospitals and medical research organizations; organizations that provide support for a state college or university; and governmental units of the United States.  The second group is organizations that are publicly supported.  These are organizations that receive substantial support from a governmental unit or from the general public, and organizations supported by exempt function income.  The third type is organization that qualify as supporting organizations. The fourth and final category is organizations that test for public safety.

Public charities are those organization that are responsive to the general public due to the fact that they maintain a diversity of support from the public, or they are operated, controlled by, or supervised in connection with such a group.  It is because of this responsiveness that they receive such preferential tax treatment.

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