Nonprofit Organizational Assessment

Corporations … organized and operated exclusively for religious, charitable, scientific,
testing for public safety, literary, or educational purposes, or to foster national or
international amateur sports competition …, or for the prevention of cruelty to children or
animals, no part of the net earnings of which inures to the benefit of any private
shareholder or individual …
Although an organization must be both organized and operated exclusively for taxexempt
purposes, the court focused primarily on whether GameHearts was operated for
charitable purposes.
Regs. Sec. 501(c)(3)-1(d)(2), the term includes, but is not limited to:
The court
explained that
the term
“charitable” is
used in Sec.
501(c)(3) in its
generally
accepted legal
sense.
According to
[r]elief of the poor and distressed or of the underprivileged; … lessening of the burdens
of Government; and promotion of social welfare by organizations designed to
accomplish any of the above purposes, or (i) to lessen neighborhood tensions; … or (iv)
to combat community deterioration and juvenile delinquency.
The Tax Court had previously held that the term “charitable” could include “any
benevolent or philanthropic objective not prohibited by law or public policy which tends
to advance the well-doing and well-being of man” (Hutchinson Baseball Enters., Inc., 73
T.C. 144, 152 (1979), aff’d, 696 F.2d 757 (10th Cir. 1982) (quoting Peters, 21 T.C. 55,
59 (1953))).
Operating Exclusively for Charitable Purposes
According to Regs. Sec. 501(c)(3)-1(c)(1), an organization will be regarded as operated
exclusively for one or more exempt purposes only if it engages primarily in activities that
accomplish one or more of the exempt purposes specified in Sec. 501(c)(3).
The IRS’s primary issue with GameHearts was that it was not operated exclusively for
charitable purposes because of the way it promoted sobriety and the general welfare of
the people of Montana. A single, substantial nonexempt purpose will disqualify an
organization despite the importance of its exempt purpose. Also, if an organization
serves private rather than public interests, it will not qualify.
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