Since the enactment of the English Statute of Charitable Uses, it has been generally acknowledged that the relief of poverty, the promotion of religion, the advancement of education and other public purposes qualify as charitable purposes. American courts have been very liberal in determining what sort of bequests may be considered charitable and, as a general rule, have accepted as charitable an), beneficial purpose which is not absurd, illegal, obscene, selfish or too offensive. In addition, the notion that an organization which otherwise qualifies as charitable is not charitable if it engages in activities designed to influence legislation has been rejected by the vast majority of American jurisdictions. It has been argued that to hold otherwise would deny too many new worthwhile projects a fair chance of becoming established.
However, this liberal judicial attitude which allows charitable organizations to engage in legislative activities without forfeiting their qualification as charitable for general gratuitous transfer purposes has not carried over into the field of federal taxation. The Internal Revenue Code, section 501(c)(3), considers charities to include:
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 for the prevention of cruelty to children or animals, … no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation.
In one respect charities can nullify the effect of this language by basing their tax-exempt status on Section 501(c)(4) of the Internal Revenue Code which grants such status to “[c]ivic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare,” and which contains no proscriptions against legislative activity. However, section 170(c)(2)(D) of the Code precludes taxpayers from taking income tax deductions for contributions made to nonprofit organizations, a substantial part of the activities of which consist of attempts to influence legislation. Estate bequests and gifts are also subject to the “substantial legislative activity” test. This means that taxpayers cannot take income tax deductions or estate and gift tax deductions for contributions, estate bequests and gifts made to charities which engage in legislative activities. Thus, nonprofit organizations involved in substantial political activities are likely to receive fewer contributions, gifts and bequests than those charities which can meet the requirements of section 501(c)(3) even though both of these groups fit within the general legal definition of “charity” and both qualify for tax-exempt status.
This Note will discuss the historical background of the restrictions againstlegislative activity on the part of tax-exempt organizations and the arbitrary way these restrictions have been applied by the Internal Revenue Service (IRS) and the courts. It will also attempt to show that such provisions violate the first amendment rights ofcharitable organizations.
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