If an organization wants to qualify as a charity, it has to be exclusively dedicated to charitable activities and must comply with all the requirements of Sec. 501(c)(3).
The U.S. Tax Court issued a judgment in December on a case dealing with an organization called GameHearts. GameHearts’ aim was to “promote adult sobriety and the general welfare of the citizens of Montana.” In order to fulfill this mission, the organization provided free and low-cost gaming activities (card games and miniature games similar to surrounding casinos) for residents, in a sober environment.
But GameHearts didn’t stop at providing free and reduced-cost activities. They also had courses teaching gamers how to develop relationships with retailers and game manufacturers and claimed that the organization would ‘boost the overall market shares of the industry by introducing new and motivated players into the environment.”
The court ruled that GameHearts failed to meet two requirements of Sec. 501(c)(3):
- The organization failed to prove that it operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition.
- Its claim to fulfill the “charitable” description was also invalid, since the term is defined in Sec. 501(c)(3)-1(d)(2) as “relief of the poor and distressed or of the underprivileged; . . . lessening 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; . . . or (iv) to combat community deterioration and juvenile delinquency.” The court ruled that since GameHearts offered activities and courses to anyone over 18 and sober, it didn’t meet the definition.
Before taking the matter to court, the IRS had encouraged GameHearts to apply for exemption as a social welfare organization under Sec. 501(c)(4), but GameHearts had declined.
The moral of the story is that if you claim to be a 501(c)(3) organization, you have to make sure you meet all the requirements specifically.