501(c)(3) Organizations: What Qualifies as "Educational"? (CRS Report for Congress)
Premium Purchase PDF for $24.95 (10 pages)
add to cart or
subscribe for unlimited access
Pro Premium subscribers have free access to our full library of CRS reports.
Subscribe today, or
request a demo to learn more.
| Release Date |
Aug. 21, 2012 |
| Report Number |
R42673 |
| Report Type |
Report |
| Authors |
Erika K. Lunder, Legislative Attorney |
| Source Agency |
Congressional Research Service |
Summary:
Concern is sometimes expressed that certain entities which qualify for tax-exempt 501(c)(3) status as "educational" organizations have abused their exemption by advocating a policy viewpoint. The argument is that these entities should have to present information on both sides of an issue equally and neutrally, without opinion.
The term "educational" is not defined in the Internal Revenue Code (IRC). It is defined by regulation to encompass individual instruction, as well as public instruction "on subjects useful to the individual and beneficial to the community."
The question here is how far can the term "educational" be extended? Can a group espousing a viewpoint (i.e., only one side of an issue) be characterized as educational? If so, does the group have to provide factual information to support its statements? Is there some standard for truthfulness and accuracy?
The answers are rooted in a Treasury regulation, which provides that an organization that advocates a position or viewpoint can qualify as educational if it presents "a sufficiently full and fair exposition of the pertinent facts" so that people can form their own opinions or conclusions. To supplement the regulation's "full and fair exposition" standard, the Internal Revenue Service (IRS) has developed the "methodology test." Under it, a method is not "educational" if it fails to provide a "factual foundation" for the position or viewpoint or "a development from the relevant facts that would materially aid a listener or reader in a learning process."
There are constitutional implications in how the term "educational" is defined. In particular, the denial of tax-exempt status on the basis of an organization's speech could raise issues under the First Amendment. While there is no constitutional requirement that the term "educational" encompass every communication protected by the First Amendment, courts will examine the IRS's denial of a tax exemption or other benefit when it is based on the content of the taxpayer's speech in order to ensure the denial was not done for an impermissible reason. Groups that promote controversial positions may be particularly vulnerable to an interpretation of "educational" that permits a subjective determination by the IRS as to whether a group's methods of presenting its views are educational.
Concern over these issues has led to questions about whether the "educational" standard is unconstitutionally vague. While the IRS's methodology test was held to be unconstitutionally vague by a federal appellate court, subsequent court decisions have suggested that the test passes constitutional muster.
