Charities and the Law
A charity is a non-profit organization that works to benefit the public or accomplish some form of philanthropy.
Charities can be either public or private foundations. When a charity (even if foreign) qualifies under the Internal Revenue code Section 501(c)(3), which makes them exempt from taxes, they are considered to be a private foundation. A private charity receives the majority of its funds from one source, such as a family, individual or a corporation.
If the charity does not qualify to be a private foundation, it is considered to be a public foundation, and also classifies under Section 508(b) or 509(a). In a public charity, the majority of funding comes from the government, private foundations, or individuals.
For a charity to have 501(c)(3) status, it must be organized and run exclusively for the reasons described in the code, in this case purely for charity. The organization cannot benefit any private interests and none of the earnings should benefit any one private individual shareholder. Because of this status, a charity can get tax-deductible contributions.
A charity is limited in its ability to conduct legislative and political activities, such as lobbying. Under 501(c)(3) code, a charity must do the following:
• Restrict lobbying to a very small part of the charity’s activities
• Refrain from taking part in any candidates during political campaigns on any level of government
• Not let any earnings benefit one individual or private shareholder
• Refrain from operating for the benefit of one private interest or for the purpose of any trade or business that is not related to the exempt purpose
• Refrain from illegal activities
The most common 501(c)(3) charities promote:
• Fighting community deterioration
• Preventing juvenile delinquency
• Eliminating discrimination and prejudice
• Constructing or maintaining public monuments, buildings, or works
• Advancing science or education
• Advancing religion
• Securing civil and human rights through the law
• Helping the underprivileged, the distressed, or the poor
A charity that is under 501©(3) must follow two disclosure rules placed by the federal tax law. A donor must receive from the charity a written acknowledgement for any individual contribution that is at least $250 in order for the donor to claim a federal contribution on a federal income tax return. Second, a charity must give a written disclosure to a donor who pays $75 or more as a combination of contribution and payment for a service or good.