How are charity organizations regulated?

[ready29003]

For example:
What force stops a charity from donating money to rich people?
Is there an official definition of “people in need” that a person or family must meet to be able to receive money or other things from a charity?

Thanks.

[friedo]

In order to be a charity in the US, your organization must meet IRS guidelines that define what charities can and cannot do. In addition, your organization must follow any local and state laws where it plans to conduct business.

Most things that call themselves charities are Charitable Organizations under IRS code 501(c)(3). This page from the IRS describes what an org must do in order to be classified 501(3)(c).

To be tax-exempt as an organization described in IRC Section 501(c)(3) of the Code, an organization must be organized and operated exclusively for one or more of the purposes set forth in IRC Section 501(c)(3) and none of the earnings of the organization may inure to any private shareholder or individual. In addition, it may not attempt to influence legislation as a substantial part of its activities and it may not participate at all in campaign activity for or against political candidates.

Specifically,

The exempt purposes set forth in IRC Section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening the burdens of government; lessening of neighborhood tensions; elimination of prejudice and discrimination; defense of human and civil rights secured by law; and combating community deterioration and juvenile delinquency.

Donating to the rich wouldn’t easily fall into one of those categories.

[UDS]

Depends on where the charity is established, and what legal recognition it needs.

A lot of countries offer some kind of tax break to charities, and for this to work there has to be a legal concept of what is charitable. Surprisingly, this concept can often be quite vague, and it does vary from place to place. But, if there is no tax break, there is no obvious need for the law to be involved at all. Citizens can decide for themselves what they regard as charitable, and what they want to donate to.

The strictness of regulation also varies. An organisation may have to demonstrate that its objects and aims are “charitable” as understood by the law, but thereafter there may be relatively little regulation to police how closely they stick to their objectives - it is primarily left up to donors and/or beneficiaries to police and control the directors, just as it is left up to shareholders in a commercial trading company. In other countries the charity may be required to have its accounts independently audited, and possibly the auditor may be required to confirm that the expenditure and activities are consistent with the charitable purposes of the organisation.

[ready29003]

Ok let me separate this out:
What laws regulate how a charity gives away:

1. Money
2. Food
3. Shelter

Thanks.

[bibliophage]

The thread was started twice. I merged the two because one had answers and the other had ready29003’s clarification.

bibliophage
moderator GQ

[UDS]

*Originally posted by ready29003 *
**Ok let me separate this out:
What laws regulate how a charity gives away:

1. Money
2. Food
3. Shelter

Thanks. **

As I say, it depends on where the charity is established - laws differ from place to place.

If you’re talking about the United States, then for (federal tax) purposes the law is set out in friedo’s post above. Charity includes “relief of the poor, the distressed, or the underprivileged . . . advancement of education or science . . . elimination of prejudice and discrimination . . . defense of human and civil rights secured by law”, so there is no general rule that only the poor can benefit from charity. A school or university can charitable, even if the students are not poor, because it exists for “the advancement of education”. A foundation which provides free legal representation in civil rights cases can be charitable, even if the individuals involved could in fact afford to pay for their own representation. And so forth.

What of an institution which falls under the “relief of the poor” head? Well, there is no further definition of “poor”. In the first instance the administrators of the charity decide for themselves. If the IRS wants to deny them charitable status, it is up to them to demonstrate, ultimately to a court, that the beneficiaries cannot be considered “poor”. “Poor” is fairly liberally interpreted, so that a foundation for “the relief of the poor residents of [middle class US suburb]” is charitable even though, by global standards and even by the standards of other places in the US, the people concerned may be relatively well-off.

[ready29003]

Wohooo…thanks everyone!

[UDS]

I should have added that a charity has to be public. It doesn’t have to benefit everyone in the world, but a foundation for the relief of “the poor members of UDS’s family” would not be charitable.

[Johnny_Bravo]

*Originally posted by UDS *
**I should have added that a charity has to be public. It doesn’t have to benefit everyone in the world, but a foundation for the relief of “the poor members of UDS’s family” would not be charitable. **

Then how does that differ from various funds to help families of vicims of say, the 9/11 tragedy?

[UDS]

It can be hard to draw the line between what is public and what is not; nevertheless there is a line. You can see the difference between “UDS and his immediate family” and “all those involved in the 9/11 tragegy and their immediate families”, just as you can see the difference between “the poor residents of [my family home]” and “the poor residents of New York City”. One is clearly public and the other is not. Somewhere in between those two lies a marginal case where we would find it extremely difficult to way whether the class of beneficiaries was public or private, but that does not invalidate the general point.

[moriah]

*Originally posted by UDS *
**I should have added that a charity has to be public. It doesn’t have to benefit everyone in the world, but a foundation for the relief of “the poor members of UDS’s family” would not be charitable. **

Chyahhh… ya know what? It would be charitable. You can have a charity for one poor person or for the poor members of one particular family, they just have to be genuinely poor or in need.

Consider fund-raisers for a person or family devastated by illness or disasters. Been done thousands of times and is perfectly legal.

Peace.

“Please give to the Timmy needs a life-saving operation fund.”