It must be said that 501(c)3 is an obvious external feature of American public welfare organizations. They often say that we are a 501(c)3 organization in their presentations, and then introduce the organization’s mission and vision. 501(c)3 seems to be a very important identification, which can more accurately describe the nature of a non-profit organization than public welfare or charity. Is this done out of tradition, or does it have any substantive significance?
501(c)3 is a content in the United States Tax Code. There are more than 9,800 articles in the United States Tax Code. Article 501 stipulates that non-profit organizations can enjoy tax relief treatment. Next, 501(c) lists which organizations can enjoy the tax deduction and restrictions. A total of 29 types of organizations are specified, and 501(c)3 is the third item.
501(c)3 uses the enumeration method for the types of organizations, including charity, education, religion, science, literacy, public safety testing, sports events, and prevention of child and animal abuse. These organizations are described in terms of purpose, and their classification is close to commonly understood non-profit organizations. Red Cross, Harvard University, Mayo Clinic, U.S. Olympic Committee, Metropolitan Museum are all 501(c)3, private foundation usually also belongs to this category, such as Gates Foundation.
Non-profit organizations registered with the state government, as long as they meet the above conditions, can apply to the IRS for 501(c)3 qualifications to receive tax exemption and donation tax credit. The income of 501(c)3 is exempt from taxation, and the donation of individuals to 501(c)3 does not exceed 50% of the income, which can be deducted from personal income tax. Companies donate to 501(c)3, and the pre-tax profit deduction ratio is 10%. An organization introduced itself as a 501(c)3, which is equivalent to saying that everyone donates to me tax-free. As long as it does not exceed the prescribed ratio, the donation will not increase the tax burden of donating individuals and donating companies.In order to facilitate the fundraising of donations, nonprofit organizations will actively apply for this qualification.
Another reason why nonprofit organizations frequently quote 501(c)3 is that there is no charity law in the United States, and there is no charity or nonprofit organization registration. Non-profit organizations can only obtain the status of non-profit organizations when they are registered in various states. The scope of non-profit organizations is much larger than that of non-profit organizations. For example, owners' committees and chambers of commerce are both non-profit organizations. In this way, 501(c)3 has become the main basis for people to judge the nature of the organization.
501(c)3 is only a technical tax status, but its application and approval can also be regarded as a procedure for the federal government to recognize public welfare organizations, so everyone uses it. It sounds strange, why can't we legislate to set up a special government agency to accept charity or public welfare registration applications openly, and let the tax department do this part-time? One explanation is that the United States has the common law tradition, which does not require charity statutes, but the United Kingdom, which is also a common law system, has charity laws. Another explanation is that traditions and customs, strong social norms are sufficient to replace the law. Another possible explanation is that there are some advantages to using tax status instead of determining the nature of public interest.
First of all, such a design can clarify responsibilities and simplify management. Tax deduction and deduction qualification review are originally routine tasks of the taxation department, and the taxation department assumes the main management responsibility to reduce the various costs caused by the intervention of other government agencies. There is no need for the joint writing of several ministries and commissions, and there is no need to set up a national charity committee. The registration and supervision of non-profit organizations belong to the affairs of each state, and the federal level is only responsible for the determination of specific tax status.
Secondly, this design provides flexibility to government management. The tax law only makes detailed provisions on the tax deduction status, but it does not need to explain what charity is, and there is no need to worry about distinguishing charity from public welfare. Among the types of organizations listed in 501(c)3, there is no environmental protection category. Such obvious defects do not prevent environmental protection organizations from obtaining 501(c)3 qualifications. Generally speaking, complex regulations are beneficial to large organizations because they have sufficient resources to meet the requirements of the regulations. The main body of public welfare organizations should be grassroots organizations, and the regulatory requirements are too detailed, which will either cause market supply to shrink, or lead to widespread violations or underground economy.
The third benefit may be to keep the government away from charity organizations. The specific claims of charities or public welfare organizations are quite complicated. Which are public welfare and which are public hazards. Based on different positions, the views may happen to be opposite. Classification by tax status can avoid getting into conceptual disputes and biases. For example, two basic education non-profit organizations, one advocates reducing the difficulty of teaching, and the other advocates increasing the difficulty of teaching. It is not appropriate for the government to state their position, but granting both equal status to tax exemption rights is acceptable to all parties.
The tax law can also restrict the political activities of non-profit organizations through technical design. If a non-profit organization participates in political activities, such as an environmental protection organization that not only has environmental protection claims, but also supports a politician who proposes environmental protection policies, it will lose its 501(c)3 status and can only be registered as 501(c)4. The difference between the two is that donations to 501(c)3 are tax deductible, while donations to 501(c)4 are not.
501(c) The non-profit organizations eligible for tax relief are divided into 29 types. There are corresponding regulations from labor unions, chambers of commerce, and owners' committees, which just meet the strict and non-loophole requirements of the tax law. However, usually only 501(c)3 organizations will reveal their identity, and other types of 501(c) organizations are rarely heard of self-reporting.
The social charity behavior of a country is affected by many factors, and the role of charity law is only part of them. Without a charity law, there can still be a wide range of charitable mobilizations. The proportion of US charitable donations to 's GDP has remained at 2% for many years. The British Charity Relief Foundation CAF regularly publishes the World Giving Index. According to its design indicators, the United States ranked first in 2019 (Myanmar first) and second in 2018 (Myanmar first).
In 2019, the American Law Association (ALI) passed the "Charitable Nonprofit Organization Law Restatement", which will be officially released in 2021. The "Restatement" organizes the laws and cases related to charity organizations scattered in the federal and state laws, and more or less makes up for the inconvenience caused by the lack of a unified charity law.
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