Public Charities in the United States

General Background

The charitable sector, comprising both public charities and private foundations exempt from income tax under IRC section 501(c)(3), is a substantial and growing portion of the overall economy. Public charities and private foundations directed much of this additional revenue into charitable expenditures such as program service activities and grants.

Public charities filed over 276,000 information returns for Tax Year 2004. These organizations held more than $2.0 trillion in assets and reported nearly $1.2 trillion in revenue, 70 percent of which came from program services. The statistics reported in this section are based on data compiled from Form 990 and Form 990-EZ, the short form version of the information return that may be completed by smaller organizations. In order to qualify for tax-exempt status, an organization must show that its purpose serves the public good, as opposed to a private interest. The activities of public charities are limited in that they must further one or more of the purposes for which they were granted tax-exempt status. Organizations that are exempt under IRC section 501(c)(3) are those whose purposes are religious, charitable, scientific, literary, or educational. In practice, these categories cover a broad range of activities. Examples of the varied exempt purposes of these public charities include nonprofit hospitals, educational institutions, youth organizations, community fundraising campaigns, local housing organizations, historical societies, and environmental preservation groups.

Most churches and certain other religious organizations need not apply for recognition of tax exemption, unless they specifically request an IRS ruling.

Even though they are considered nonprofit, public charities use net income, the difference between total revenue and total expenses, to expand future programs and increase endowments.

To further their charitable purposes, most private foundations pay grants to charities that operate charitable programs. Grants paid were the largest component of charitable expenditures, representing 84 percent or more of total charitable expenses for each of Tax Years 1985-2004.

Note: based on a document for the IRS authored by by Paul Arnsberger, Melissa Ludlum, Margaret Riley, and Mark Stanton.

Charitable Uses, or Charities, Historical Definition

Gifts to general public uses, which may extend to the rich as well as the poor. (…). Gifts to such purposes as are enumerated in Act 43 Eliz. c. 4, or which, by analogy, are deemed within its spirit or intendment. Boyle, Charity, 17. “Whatever is given for the love of God, or for the love of your neighbor, in the catholic or universal sense, free from the stain or taint of every consideration that is personal, private or selfish,” is a gift for charitable uses. 2 How. (U.S.) 127. The essentials are (1) that the gift be for the benefit of an indefinite number of persons (14 Allen [Mass.] 556; 107 U.S. 182) ; (2) that it be free from contractual obligation in or consideration to the donor (33 Pa. St. 419) ; (3) that the purpose be humanitarian in the broadest sense, whether it be religious (12 Mass. 537), educational (35 N. H. 445; 34 N. J. Eq. 101), benevolent (91 Mass. 442; 54 Ind. 549), or public (163 Mass. 509; 5 Del. Ch. 51). [1]