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The operational test also reinforces the express dictates of
section 501(c)(3) in that an entity is deemed not to operate
exclusively for exempt purposes if net earnings are distributed
or otherwise inure to the benefit of private individuals or if
its activities involve proscribed political involvement. Sec.
1.501(c)(3)-1(c)(2) and (3), Income Tax Regs. Additionally,
although an organization may be engaged only in a single activity
directed toward multiple purposes, both exempt and nonexempt,
failure to satisfy the operational test will result if any
nonexempt purpose is substantial. Redlands Surgical Servs. v.
Commissioner, supra at 71; Copyright Clearance Ctr., Inc. v.
Commissioner, supra at 803-804.
Exempt purposes, in turn, are those specified in section
501(c)(3), such as religious, charitable, scientific, and
educational. Sec. 1.501(c)(3)-1(d)(1)(i), Income Tax Regs.
Charitable is further defined as follows:
The term “charitable” is used in section 501(c)(3) in
its generally accepted legal sense and is, therefore,
not to be construed as limited by the separate
enumeration in section 501(c)(3) of other tax-exempt
purposes which may fall within the broad outlines of
“charity” as developed by judicial decisions. Such
term includes: Relief of the poor and distressed or of
the underprivileged; advancement of religion;
advancement of education or science; erection or
maintenance of public buildings, monuments, or works;
lessening of the burdens of Government; and promotion
of social welfare by organizations designed to
accomplish any of the above purposes, or (i) to lessen
neighborhood tensions; (ii) to eliminate prejudice and
discrimination; (iii) to defend human and civil rights
secured by law; or (iv) to combat community
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Last modified: November 10, 2007