DEFINITION of 'Qualified Charitable Organization'

A qualified charitable organization is a nonprofit organization that qualifies for tax-exempt status according to the U.S. Treasury. Qualified charitable organizations include those operated exclusively for religious, charitable, scientific, literary or educational purposes, or for the prevention of cruelty to animals or children, or the development of amateur sports.

Nonprofit veterans' organizations, fraternal lodge groups, cemetery and burial companies and certain legal corporations can also qualify. Even federal, state and local governments can be considered qualified charitable organizations if money that is donated to them is earmarked for charitable causes.

BREAKING DOWN 'Qualified Charitable Organization'

Only donations that are made to a qualified charitable organization are tax-deductible. Organizations that do not qualify for this status are considered for-profit and are taxed accordingly.

For example, political contributions are not tax-deductible, because political parties are not charitable institutions. On the other hand, contributions to an organization dedicated to building hospitals in third-world countries would likely be a charitable organization, and contributions would be tax deductible.

Qualified charitable organizations differ from strictly tax-exempt organizations, which do not have to be for a charitable purpose yet are not required to pay taxes. However, qualified charitable organizations are also tax-exempt.

How the IRS Regards Qualified Charitable Organizations

In order to receive the status from the IRS, qualified charitable organizations must meet requirements under section 501(c)(3) of the Internal Revenue Code. That means none of the earnings of the organization can go towards any private shareholder or individuals. The organization may not seek, as a substantial part of its actions, to influence legislation.

The organization also cannot engage in any political campaign activity in favor or opposition to candidates. There are also limits on how much lobbying these organizations may do in the legislative and political arenas. This includes not being allowed to participate, directly or indirectly, in political campaigns for candidates for public office. Furthermore, no contributions can be made on behalf of the organization for a political campaign. Likewise no statements can be made on behalf of the organization in favor of or in opposition to a political candidate. Programs that promote voter registration and participation in elections are permitted, as long as there is no bias that shows favoritism of one candidate over another. If the organization breeches such rules, they may lose their tax-exempt status.

There are further requirements for qualified charitable organizations. They cannot operate or be formed for the benefit of private interests. If the organization enters into any excess benefit transactions with someone who has significant influence over the organization, they could face excise taxes.

RELATED TERMS
  1. IRS Publication 526

    A document published by the Internal Revenue Service (IRS) that ...
  2. IRS Publication 78

    IRS Publication 78 is published by the Internal Revenue Service ...
  3. Nonprofit Organization

    A nonprofit organization is a business entity that pays no income ...
  4. Charitable Contributions Deduction

    Within certain limitations, the Charitable Contributions Deduction ...
  5. Donor Advised Fund

    A private fund administered by a third party and created for ...
  6. Tax Exempt

    Tax-exempt is to be free from, or not subject to, taxation by ...
Related Articles
  1. Taxes

    How to Optimize Charitable Giving

    Thinking of donating to a charitable organization before year end? Here are some guidelines.
  2. Taxes

    5 steps to forming a tax-exempt nonprofit corporation

    Before you tackle this challenge, know the challenges of forming and operating an official nonprofit organization.
  3. Taxes

    4 Reasons to Consider a Charitable Remainder Trust

    Maximizing charitable deductions through a vehicle like a charitable remainder trust is one way to take advantage of the changes to the tax code.
  4. Taxes

    Is The Billionaire Charity Pledge A Good Idea?

    Will Bill Gates' call for billionaires to become more active in charitable giving do all the good it could?
  5. Insights

    $46 Billion Industry Of Philanthropy

    Philanthropic giving is not just about money - millions of volunteers donate their time to worthy causes every year.
  6. Taxes

    Charitable Giving: Benefits of Donor Advised Funds

    Donor advised funds are often overlooked as a charitable giving tool.
  7. Taxes

    How to Pick a Charity

    The increasing number of charitable organizations mean the competition is fierce for your charitable dollars. Use these tips to research before donating.
  8. Insights

    Whole Foods 365: The Economics of Discount Organic

    Whole Foods Market is expanding its brand to create a chain of discount natural food stores called 365 by Whole Foods Market. With the high cost of producing, shipping and selling organic food, ...
  9. Retirement

    Choosing The Best Charitable Gift Annuity

    Want to support a cause you care about, but still earn income from that donation in your retirement years? This vehicle offers both.
Hot Definitions
  1. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  2. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  3. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  4. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  5. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  6. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
Trading Center