Section 501(c)(3) organizations are commonly known as “charities.” As such, they qualify for exemption from income taxes, and their donors may claim tax deductions for contributions. Other tax benefits may apply as well, such as exemptions from state property and sales taxes. But what is “charity”? How can reviewing its core underlying principles help organizations dedicated to doing good?
For IRS purposes, the term “charity” is broadly defined to include many organizations committed to improving the world, such as through caring for the needy, providing medical services, engaging in religious activities, educating the public on a host of issues, erecting and maintaining public works and promoting environmentalism. Many states define “charity” more narrowly, restricting charitable exemptions to organizations that either: (a) freely distribute goods and services; or (b) charge fees only to cover actual expenses and, in connection therewith, generously provide financial assistance.
Legal scholars and courts most often reference the British Charitable Uses Act of 1601 (Statute of Elizabeth I) as the first codification of the term “charity” in English law. It is also interesting to see the term’s origin in most, if not all, of the world’s major religions.
In the Judeo-Christian tradition, for example, the word charity is rooted in the biblical concepts of love and grace. Taking these two concepts together, charity is giving at a cost to oneself, in love, regardless the merit of the recipient.