Page 77 - Washington Nonprofit Handbook 2018 Edition

(ii) No Private Inurement

A 501(c)(3) organization may not distribute its revenue or assets to benefit

any private individuals. Called “inurement,” this applies to those who have an
opportunity to control or influence the organization’s activities, such as directors or
officers. See Chapters 29 and 30 for a more detailed discussion on private
inurement and intermediate sanctions.

(iii) Restrictions on Lobbying and Prohibition of Political
Activities

Chapter 32 describes the rules and restrictions 501(c)(3) organizations must
follow with respect to lobbying and political activities.

(iv) Limitations on Unrelated Business Activity

As discussed in Chapter 33, an organization that engages in unrelated
business activity may have some taxable income and may jeopardize its tax-exempt
status if such activity is substantial relative to the organization’s tax-exempt activity.

(v) Public Disclosure Requirements

As discussed further in Chapter 35, a 501(c)(3) organization must make
certain documents available for public inspection.

(vi) Nondiscrimination

A 501(c)(3) organization should not discriminate. Race discrimination is
strictly prohibited. An institution that racially discriminates cannot qualify for tax-
exempt status as a charitable organization. In 1993, the United States Supreme
Court held in the famous case of Bob Jones University v. United States that private

schools that racially discriminate may not be tax-exempt and are not eligible for
deductible charitable contributions. The rule against racial discrimination applies
to all entities seeking tax-exempt status, not just private educational institutions.

c. Public Charities and Private Foundations

501(c)(3) organizations are divided into two broad categories: private
foundations and public charities. An important consideration in applying for
501(c)(3) status is determining whether the organization will qualify for one of the
enumerated public charity categories. If an organization qualifies as a 501(c)(3)
organization but cannot establish that it qualifies for one of the public charity

WASHINGTON NONPROFIT HANDBOOK -66- 2018