IRC 501(c)(3) exempts from Federal income tax: corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation (except as otherwise provided in subsection (i)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office.

Under the Tax Reform Act of 1969, certain types of organizations described in IRC 501(c)(3) are classified as private foundations. Foundation classification is made at the time an organization is recognized exempt under IRC 501(c)(3).

The Act subjects private foundations to several restrictions and requirements in addition to those imposed on IRC 501(c)(3) organizations generally.

The basic private foundation provisions are IRC 507, 508, 509, and 4940 through 4948.

The kinds of IRC 501(c)(3) organizations that are classified as private foundations as well as the additional restrictions and requirements they are subject to under the Tax Reform Act of 1969 are discussed in the Private Foundations Manual, IRM 7.26, or in the Exempt Organizations Tax Manual, IRM 7.27.

In addition to exemption from the payment of federal income tax, organizations recognized as exempt under IRC 501(c)(3), may enjoy collateral benefits under the Internal Revenue Code, as well as under state or local income, property, sales, use, or other tax provisions.

IRC 501(c)(3) requires an organization to be both "organized" and "operated" exclusively for one or more IRC 501(c)(3) purposes. If the organization fails either the organizational test or the operational test, it is not exempt. Reg. 1.501(c)(3)–1(a)(1).

The organizational test concerns the organization’s articles of organization or comparable governing document. The operational test concerns the organization’s activities. A deficiency in an organization’s governing document cannot be cured by the organization’s actual operations. Likewise, an organization whose activities are not within the statute will not qualify for exemption by virtue of a well written charter. Reg. 1.501(c)(3)–1(b)(1)(iv).

Corporations are the most common form of organization specified in IRC 501(c)(3). A corporation is a creature of state law whose existence is evidenced by a charter or certificate of incorporation issued by the State under whose laws it was incorporated. The Service rarely questions the validity of the corporate status of an organization that has satisfied the formal requirements of the law governing its creation.

In Emerson Institute v. United States, 356 F.2d 824 (D.C. Cir. 1966), however, the Service successfully challenged a claim of de facto corporate status based on judicial decree. In Emerson, an exempt school corporation dissolved and became a partnership, with the former directors as the partners. When the Service became aware of this, it revoked exemption and assessed tax against the surviving partner. The surviving partner obtained a consent judgment under local law voiding the earlier corporate dissolution on certain technical grounds. He then sought a refund of taxes on the grounds that the corporation had never legally dissolved, that it, not he, was entitled to the school’s earnings, and that it was exempt. The court held that there was no de facto corporation during the years after the dissolution, but, even if there was one for nontax purposes, the local court decree was not binding on the Service, as it had not been a party to the proceeding.

Fifth-Third Union Trust Co. v. Commissioner, 56 F.2d 767 (6th Cir. 1932), clearly established that a trust is included in the terms "fund or foundation." Thus, a trust is an acceptable form of organization exempt status under IRC 501(c)(3).

Unincorporated associations have historically presented difficulty for the Service, as determining exempt status requires finding that there is an entity separate from the individuals who created it.

In Trippe v. Commissioner, 9 TCM (CCH) 622 (1950), the Tax Court clarified a formless aggregation of individuals without some organizing instrument, governing rules, and regularly chosen officers would not be a "corporation, community chest, fund, or foundation" for purposes of IRC 501(c)(3). But Cf. Morey v. Riddell, 205 F Supp. 918 (S.D. Cal. 1962), in which the court found organizing documents sufficient to support a finding that an entity was created.

The typical nonprofit association formed under a constitution or bylaws, with elective officers empowered to act for it, would be treated as a corporation for purposes of IRC 501(c)(3). Of course, an association’s organizing documents must satisfy the organizational test before the association can qualify under IRC 501(c)(3).

Copies of the corporate charter, constitution, or other articles of organization must be submitted as part of an application for exemption. Where the purported organizing instrument is in the form of a constitution or articles of association, there must be evidence that it was signed by people who thereby associated themselves under its terms. Unlike a trust, an association cannot be formed by a single individual, thus one individual cannot promulgate articles of association. This may be significant where, as in Hewitt v. Commissioner, T.C. Memo. 1957–112, exemption is sought for the activities of an individual who has a coterie of followers who are not really "associates."

Informal aggregations of individuals who state that they "just came together" or that they "never had articles of organization" are not tax entities to which a ruling may be issued. (Trippe v. Commissioner, supra.) Accordingly, if it is determined that no organization exists, the applicant should be advised that no ruling or determination letter can be issued.

An association’s constitution or articles of association should be signed by at least two persons.

To meet the organizational test, the organization’s purposes must be specified in its articles. They may be as broad as, or more specific than, the purposes stated in IRC 501(c)(3). Reg. 1.501(c)(3)–1(b)(1)(ii).

The following examples provide illustrations of broad and narrow purposes clauses that meet the test:

The purpose stated in the articles must be a purpose that necessarily falls within the purposes stated in IRC 501(c)(3). For example, a purpose "to operate a hospital" does not meet the organizational test since it is not necessarily within the purposes stated in IRC 501(c)(3). A hospital may or may not be exempt, depending upon the manner in which it is operated.

Under no circumstances may the organizational purposes be broader than the purposes of IRC 501(c)(3). They may, however, be narrower. For example, the charter may recite as purposes "charitable and educational purposes within the meaning of IRC 501(c)(3)." It may also recite a narrow specific purpose such as "to grant scholarships to deserving junior college students residing in Gotham City." Reg. 1.501(c)(3)–1(b)(1)(iv).

Organizations that are organized for both exempt and nonexempt purposes fail to meet the test. The following two revenue rulings provide examples:

An organization does not meet the organizational test if its articles expressly empower it:

An organization’s articles will not violate the organizational test even though they expressly empower it:

An organization does not meet the organizational test unless its assets are dedicated to an exempt purpose. Reg. 1.501(c)(3)–1(b)(4). The two ways an organization’s can be dedicated for an exempt purpose are:

A charitable organization or trust must be set up for the benefit of an indefinite class of individuals, not for specific persons. A trust or corporation organized and operated for the benefit of specific individuals is not charitable. Thus, a trust to benefit John Jones is not a charitable trust even though the facts may show that John Jones is impoverished. However, an organization set up with the general charitable purpose of benefiting needy individuals in a particular community is a charitable organization and it may select John Jones as a beneficiary.

A trust set up for the benefit of an aged clergyman and his wife was held not to be an exempt organization in Carrie A. Maxwell Trust, Pasadena Methodist Foundation v. Commissioner, 2 TCM 905 (1943). The court found the trust to be a private, rather than charitable trust, despite the fact that the elderly gentleman was in financial need.

However, an organization may properly have a purpose to benefit a comparatively small class of beneficiaries, provided the class is open and the identities of the individuals to be benefited remain indefinite. It has been held that a foundation set up to award scholarships solely to undergraduate members of a designated fraternity could be exempt as a charitable foundation. Rev. Rul. 56–403, 1956–2 C.B. 307.

A trust to pay a certain sum to all the individuals enrolled in a certain school on a particular date was held to be a private trust, not a charitable trust. The beneficiaries were a group of identifiable individuals. Rev. Rul. 57–449, 1957–2 C.B. 622.

If the organization is expressly empowered by its articles to carry on, other than as an insubstantial part of its activities, activities that are not in furtherance of exempt purposes, it will not meet the organizational test even though its stated purposes are within the Code. For example, if the articles expressly reserve the power "to engage in a manufacturing business," or "to engage in the operation of a social club," the organizational test is not met. Reg. 1.501(c)(3)–1(b)(1)(iii).

Similarly, the regulations preclude exemption if the articles empower the organization to engage in substantial attempts to influence legislation or to intervene in political campaigns. Reg. 1.501(c)(3)–1(b)(3).

In the interpretation of an organization’s articles of organization or association, State law governs the definition of the respective rights, duties, powers, and immunities of the parties. Where an organization contends that a term has an unusual meaning under State law, clear legal authority should be presented. Reg. 1.501(c)(3)–1(b)(5).

Articles of organization that fail to meet the organizational test are ordinarily amendable. After amendment, exemption may be retroactive to the period before amendment. Therefore, in most cases, the status of an organization depends ultimately on the operational test.

This has several implications. The resolution of the organizational test question is only the first step in determining whether an organization is exempt. It is not a substitute for ascertaining the specific activities of an organization and determining whether they are within the scope of IRC 501(c)(3).

Charitable Class— A foundation set up to award scholarships solely to undergraduate members of a designated fraternity may be exempt. Rev. Rul. 56–403, 1956–2 C.B. 307.

Charitable Class— A trust to pay a certain sum to all the individuals enrolled in a certain school on a particular date was held to be a private trust, not a charitable trust. The beneficiaries were a group of identifiable individuals. Rev. Rul. 57–449, 1957–2 C.B. 622.

Organizational Test— A testamentary trust established to make annual payments to exempt charitable organizations and to use a fixed sum from annual income for the perpetual care of the testator’s burial lot is not organized for charitable purposes. Rev. Rul. 69–256, 1969–1 C.B. 151.

Organizational Test— an irrevocable inter vivos trust which provides that a fixed percentage of the income must be paid annually to the settlor with the balance to charity is not organized and operated exclusively for charitable purposes. Rev. Rul. 69–279, 1969–1 C.B. 152.

The regulations’ terms "exclusively," "primarily" and "insubstantial" present difficult conceptual problems. Questions involving the application of these terms can more readily be resolved on the basis of the facts of a particular case. It is therefore important that all the facts and circumstances be fully developed.

Reg. 1.501(c)(3)–1(d)(l)(ii) provide that to meet the operational test, an organization must be engaged in activities furthering "public" purposes rather than private interests. It must not be operated for the benefit of designated individuals or the persons who created it. The purposes specified in IRC 501(c)(3), which are all "public" purposes, are separately analyzed below.

Reg. 1.501(c)(3)–1(d)(2) expressly provides that relief of the poor, or distressed, or underprivileged is a charitable purpose. Relief can be provided in many ways.

Public recreation facilities— A nonprofit organization formed for the purpose of establishing, maintaining and operating a public swimming pool, playground and other recreation facilities for the children and other residents of a community is exempt from tax. Rev. Rul. 59–310, 1959–2 C.B. 146. But see Rev. Rul. 67–325, 1967–2 C.B. 113, which held that an organization providing recreational facilities to residents of a community is not organized and operated exclusively for charitable purposes because it excluded members of the community on the basis of race.

Employment assistance to the elderly— A nonprofit organization that aids unemployed elderly persons of limited means to find employment by providing them free services and educating the public about the employment capabilities of elderly persons qualifies for exemption. Rev. Rul. 66–257, 1966–2 C.B. 212.

Blood banks— A nonprofit blood bank that provides a community with permanent facilities for the collection, storage, and distribution of blood, and furnishes a variety of services for the community at large and for health agencies within the community, is charitable within the meaning of IRC 501(c)(3). However, the organization is subject to unrelated business income tax on sales of blood to commercial laboratories. Rev. Rul. 66–323, 1966–2 C.B. 216.

Housing guidance to low income families— A nonprofit organization that provides instruction and guidance to low income families in need of adequate housing and interested in building their own homes is exempt from tax. Rev. Rul. 67–138, 1967–1 C.B. 129. See also Rev. Rul. 70–585, 1970–2 C.B. 115; and Rev. Rul. 68–17, 1968–1 C.B. 247.

Prisoner rehabilitation— An organization devoted to rehabilitating convicts to help them become self-supporting and useful citizens is exempt under IRC 501(c)(3), as is an organization formed to develop, manage, and operate community correctional centers to rehabilitate prisoners selected by the courts or governmental custodial agencies. Rev. Rul. 67–150, 1967–1 C.B. 133, and Rev. Rul. 70-583, 1970–2 C.B. 114.

Promoting nondiscriminatory housing— An organization formed to educate the public about the need to make housing available to members of the public on a nondiscriminatory basis and to encourage investment in such housing may be exempt from tax. Rev. Rul. 67–250, 1967–2 C.B.182.

Ministering to the sick— A nonprofit organization created to minister to the nonmedical needs of patients in a proprietary hospital qualifies for exemption as an organization described in IRC 501(c)(3). Rev. Rul. 68–73, 1968–1 C.B. 251.

Self-help program— A nonprofit organization formed and operated to assist needy families in "developing" countries may be exempt from tax. Rev. Rul. 68–117, 1968–1 C.B. 251.

Self-help program— A nonprofit organization created to market the cooking and needlework of women who are not otherwise able to support themselves and their families may be exempt from tax, even though it receives a small commission on each sale, if the organization is not self-supporting and must depend on public contributions. Rev. Rul. 68–167, 1968–1 C.B. 255.

Self-help program— A domestic nonprofit corporation (composed of educational, civic, business, and other groups) that joins with a counterpart group in a country in Latin America to promote student and cultural exchanges and to provide technical and material assistance for self-help projects designed to improve the living conditions of underprivileged people in Latin America may be exempt from tax. Rev. Rul. 68–165, 1968–1 C.B. 253.

Pension to retired employees— An organization created pursuant to the will of a stockholder of a company to pay pensions to all retired employees of that company does not qualify for exemption. Rev. Rul. 68–422, 1968–2 C.B. 207. See also Rev. Rul. 56–138, 1956–1 C.B. 202.

Legal aid society— A nonprofit legal aid society providing free legal services to indigent persons otherwise financially incapable of obtaining such services qualifies for exemption. Rev. Rul. 69–161, 1969–1 C.B. 149. See also Rev. Rul. 78–428, 1978–2 C.B. 177, which provides that an organization providing legal services to indigents for a fee may qualify for exemption under IRC 501(c)(3) if the fees are based on the indigent clients’ limited ability to pay rather than the type of services rendered.

Rescue service— A nonprofit organization that conducts emergency rescue services for stranded, injured or lost persons is exempt as an organization described in IRC 501(c)(3). Rev. Rul. 69–174, 1969–1 C.B. 149.

Credit counseling service— A nonprofit organization formed to help reduce personal bankruptcy by providing information to the public on budgeting, buying practices, and the sound use of consumer credit, and assisting low-income individuals and families who have financial problems by providing, without charge, counseling, and, if necessary, budget plans for liquidation of indebtedness, qualifies for exemption. Rev. Rul. 69–441, 1969–2 C.B. 115.

Day care center— An educational day care center operated in conjunction with an industrial company that enrolls children on a basis of family financial need and the child’s need for the care and development program of the center qualifies for exemption. Rev. Rul. 70–533, 1970–2 C.B. 112.

Drug rescue center— An organization that maintains a drug rescue center and a telephone drug crisis service for persons with drug problems was held exempt as an organization described in IRC 501(c)(3). Rev. Rul. 70–590, 1970–2 C.B. 116.

Community welfare— A nonprofit organization formed to provide food and drink to firemen, policemen, and other emergency personnel at the scene of fires, riots and other disasters qualifies for exemption. Rev. Rul 71–99, 1971–1 C.B. 151.

Housing; elderly— A nonprofit organization that provides specially designed housing to elderly persons at the lowest feasible cost and maintains in residence those tenants who subsequently become unable to pay its monthly fees is an organization operated exclusively for charitable purposes within the meaning IRC 501(c)(3). Rev. Rul. 79–18, 1979–2 C.B. 194. See also Rev. Rul. 72–124, 1972–1 C.B. 145; Rev. Rul. 61–72, 1961–1 C.B. 188; and Rev. Rul. 64–231, 1964–2 C.B. 139.

Legal services corporation— An organization formed to provide substantial free legal services to low income residents of economically depressed communities through subsidization of recent law graduates who have been admitted to the bar is exempt as an organization described in IRC 501(c)(3). Rev. Rul. 72–559, 1972–2 C.B. 247.

On-the-job training— An organization that is otherwise qualified for exemption will not fail to qualify because its educational and vocational training of unemployed and underemployed persons is carried out through the manufacturing and selling of toy products. Rev. Rul. 73–128, 1973–1 C.B. 222. See also Rev. Rul. 73–127, 1973–1 C.B. 221; and Rev. Rul. 77–272, 1977–2 C.B. 191.

Volunteer fire company— A nonprofit organization that was organized and operated to provide fire protection and ambulance and rescue services to a community qualifies for exemption as a charitable organization under IRC 501(c)(3). Rev. Rul. 74–361, 1974–2 C.B. 159.

Senior citizen center— An organization that establishes a service center providing information, referral, and counseling services relating to health, housing, finances, education and employment as well as a facility for specialized recreation for a community’s senior citizens, who need not become members to participate in the activity, may qualify for exemption as a charitable organization under IRC 501(c)(3). Rev. Rul. 75–198, 1975–1 C.B. 157.

Organization of public housing tenant groups— An organization of public housing tenant groups in a State that was formed to promote the rights and welfare of public housing tenants by providing them information and technical assistance about regulations and laws concerning public housing, and that acted as the recognized State agent for public housing tenant organizations, qualifies for exemption. Rev. Rul. 75–283, 1975–2 C.B. 201.

Rural rest home for elderly poor— A nonprofit, publicly supported organization that operates a rural rest home to provide, at a nominal charge, two-week vacations for elderly poor people from nearby metropolitan areas qualifies for exemption. Rev. Rul. 75–385, 1975–2 C.B. 205.

Halfway house operating furniture shop— A halfway house, organized to provide room, board, therapy, and counseling for persons discharged from alcoholic treatment centers, which also operates a furniture shop to provide full-time employment for its residents, with any profits applied to operating costs of the halfway house, qualifies for exemption. Rev. Rul. 75–472, 1975–2 C.B. 208.

Legal assistance; posting bail bond— An organization that, as part of its integrated program of providing legal, rehabilitative, employment, and other services to persons accused of crimes, posts its own money or property with the court as total or partial bail for indigent defendants unable to provide funds with which to post bail may qualify for exemption. Rev. Rul. 76–21, 1976–1 C.B. 147.

Legal assistance; bondsmen’s fees— An organization otherwise qualifying for exemption under IRC 501(c)(3) that provides free legal services and funds necessary to pay the commercial bondsmen’s fees for indigent persons accused of crimes is operated exclusively for charitable purposes. Rev. Rul. 76–22, 1976–1 C.B. 148.

Bus transportation for senior citizens— A nonprofit organization that provides, on request, low cost bus transportation to senior citizens and handicapped persons in a community where public transportation is unavailable or inadequate qualifies for exemption. Rev. Rul. 77–246, 1977–2 C.B. 190.

Subsidizing law students’ work in legal aid— An organization that assisted a school’s law students, chosen on the basis of merit and interest, to obtain practical experience with exempt public interest law firms and legal aid societies by supplementing the nominal salaries paid by the participating firms and societies qualifies for exemption under IRC 501(c)(3). In addition to promoting the law students’ educations, the organization’s payments constituted indirect support of the firms and societies that employed the students. Rev. Rul. 78–310, 1978–2 C.B. 173.

Hospice— A nonprofit hospice, operated on both an inpatient and outpatient basis to alleviate the physical and mental distress of the terminally ill, is operated exclusively for charitable purposes and qualifies for exemption. Rev. Rul. 79–17, 1979–1 C.B. 193.

Housing for the physically handicapped— A nonprofit organization that provides specially designed housing to physically handicapped persons at the lowest feasible cost and maintains in residence those tenants who subsequently become unable to pay its monthly fees is operated exclusively for charitable purposes within the meaning of IRC 501(c)(3). Rev. Rul. 79–19, 1979–1 C.B. 195.

Private hospital rooms for the poor— An otherwise qualifying organization that makes private hospital rooms available to patients who can benefit medically from a private room but who cannot afford the expense of such a room is operated exclusively for charitable purposes and qualifies for exemption as an organization described in IRC 501(c)(3). Rev. Rul. 79–358, 1979–2 C.B. 225.

Adoption agency; placement of foreign orphans— A nonprofit organization that arranges the placement of orphan children from foreign countries in the homes of adoptive parents in the United States is operated exclusively for charitable purposes. Rev. Rul. 80–200, 1980–2 C.B. 173.

Litigation of environmental issues— An otherwise qualifying organization that was formed to protect and restore environmental quality and whose principal activity consists of instituting litigation as a party plaintiff to enforce environmental legislation is operated exclusively for charitable purposes and qualifies for exemption. Rev. Rul. 80–278, 1980–2 C.B. 175.

Lawyer referral service— A nonprofit lawyer referral service, which arranges at the request of any member of the public an initial half-hour appointment for a nominal charge with a lawyer whose name is on an approved list maintained by the organization, does not qualify for exemption under IRC 501(c)(3). Although it provides some benefit to the public, a substantial purpose of the organization is promoting the legal profession. Thus, a lawyer referral service may qualify for exemption as an organization described in IRC 501(c)(6) but not in IRC 501(c)(3). Rev. Rul. 80–287, 1980–2 C.B. 185.

Housing, transportation, and counseling for relative of hospital patients— A nonprofit organization that provides housing, transportation, and counseling to hospital patients’ relatives and friends who travel to the locality to assist and comfort the patients qualifies for exemption. Rev. Rul. 81–28, 1981–1 C.B. 328.

The First Amendment to the United States Constitution provides that Congress shall make no law respecting an establishment of religion or prohibiting the free exercise thereof. However, the Supreme Court has held that a legislative grant of tax exemption does not violate this prohibition. In Walz v. Tax Commission of the City of New York, 97 U.S. 664 (1970), the Court upheld the constitutionality of property tax exemptions granted by New York City to religious organizations for properties used solely for religious worship. In holding that the exemption of religious organizations, including churches, from tax, is not a law respecting an establishment of religion in violation of the First Amendment, the Court noted that the minimal involvement between church and state created by exemption is far less entanglement than taxation would entail.

Any religious organization, including a church, must satisfy the statutory requirements to be exempt under IRC 501(c)(3). As explained by the court in Christian Echos National Ministry. Inc. v. United States, 470 F.2d 849 (10th Cir. 1972), cert. den., 414 U.S. 864 (1973), in which the court upheld denial of tax exemption to a religious organization engaged in substantial legislative activity, "[i]n light of the fact that tax exemption is a matter of grace rather than right, we hold that the limitations contained in Section 501(c)(3) withholding exemption from nonprofit corporations [that engage in substantial lobbying] do not deprive Christian Echoes of its constitutionally guaranteed right of free speech. The taxpayer may engage in all such activities without restraint, subject, however, to withholding of the exemption, or, in the alternative, the taxpayer may refrain from such activities and obtain the privilege of exemption."

Exemption from state or local taxation is neither conclusive nor relevant to the determination whether an organization is operated exclusively for religious purposes under federal tax law. Universal Life Church v. U.S., 721 USTC 9467 (E.D. Cal. 1972).

As noted by the court in Church of Spiritual Technology v. United States, 26 Cl. Ct. 713 (1992), which upheld denial of an organization’s application for recognition of exemption, in demonstrating their entitlement to exemption, churches and other religious organizations are subject to the same burden of proof requirements as other organizations.

The court in Church of Spiritual Technology cited a long line of authority holding that the applicant bears the burden of showing it is entitled to exemption. In Harding Hospital, Inc. v. United States, 505 F.2d 1068, 1071 (6th Cir. 1974), the court stated that "[i]ncome tax exemption must be strictly construed, with any doubts to be resolved in favor of the taxing entity. Consequently, determinations of the Commissioner are presumed correct."

Similarly, the court cited Welch v. Helvering, 190 U.S. 111, 115 (1933), and modern cases following its stricture that "[P]laintiff thus bears the burden of proving its entitlement to an exemption." See also, Bubbling Well Church of Universal Love, Inc. v. Commissioner, 670 F.2d 104, 106 (9th Cir. 1981); Freedom Church of Revelation v. United States, 588 F. Supp. 693, 696 (D.D.C. 1984).

In making a determination whether a religious organization qualifies for exemption under IRC 501(c)(3), the Internal Revenue Service cannot pass judgment on the merits of the applicant’s asserted religious belief.

Accordingly, proof of entitlement to exemption does not include proving the validity of the religious doctrines or beliefs of the applicant or its members. It is the government’s duty to "make room for as wide a variety of beliefs and creeds as the spiritual needs of man deem necessary." Zorach v. Clausen, 343 U.S. 306 (1952).

This concept is also discussed in U.S. v. Ballard, 322 U.S. 78 (1943), in which the Court stated "The Fathers of the Constitution were not unaware of the varied and extreme views of religious sects, of the violence of disagreement among them, and of the lack of any one religious creed on which all men would agree. They fashioned a charter of government which envisaged the widest possible toleration of conflicting views...The religious views espoused by respondents might seem incredible, if not preposterous, to most people. But if those doctrines are subject to trial before a jury charged with finding their truth or falsity, then the same can be done with the religious beliefs of any sect. When the triers of fact undertake that task, they enter a forbidden domain."

The term "religious" as used in IRC 501(c)(3) is not subject to precise definition. The leading interpretation of the term was made by the Supreme Court in United States v. Seeger, 380 U.S. 163 (1965), in which the Court interpreted the phrase "religious training and belief" as used in the Universal Military Training and Service Act, 50 U.S.C. section 456 (j), in determining an individual’s eligibility for exemption from military service on religious grounds. The Court formulated the following definition: "A sincere and meaningful belief which occupies in the life of its possessor a place parallel to that filled by the God of those admittedly qualifying for the exemption comes within the statutory definition."

The Court elaborated upon the Seeger definition in Welsh v. United States, 398 U.S. 33 (1970), stating that "[i]f an individual deeply and sincerely holds beliefs that are purely ethical or moral in source and content but that nevertheless impose upon him a duty of conscience to refrain from participating in any war at any time, those beliefs certainly occupy in the life of that individual a place parallel to that filled by... God in the lives of traditionally religious persons." Thus, religious beliefs include many beliefs (for example, Taoism, Buddhism, and Secular Humanism) that do not posit the existence of a Supreme Being in the conventional sense.

The constitutional protections afforded religious beliefs do not prevent government from regulating conduct or actions when it has a compelling interest to do so. Thus, the First Amendment does not prevent the government from requiring compliance with general laws designed to effectuate an important governmental policy or objective even though compliance may be contrary to an individual’s sincerely-held religious beliefs.

In Reynolds v. United States, 98 U.S. 145 (1878), the Court upheld a law passed by Congress that made the practice of polygamy by persons residing in United States territories a crime. The Court interpreted the constitutional prohibition in this way: "Congress was deprived of all legislative power over mere opinion, but was left free to reach actions which were in violation of social duties or subversive of good order." Finding that polygamy had long been considered an offense against society in all the states of the union, the Court held that the statute under consideration was constitutional and valid as prescribing a rule of action for all those residing in the territories. In holding that religious belief did not except persons from operation of the statute, the Court said: "While they [laws] cannot interfere with mere religious belief and opinions, they may with practices."

In Cantwell v. Connecticut, 310 U.S. 296 (1940), the Court endorsed Reynolds, stating that "the [First] Amendment embraces two concepts, freedom to believe and freedom to act. The first is absolute but, in the nature of things, the second cannot be." See also Davis v. Beason, 133 U.S. 33 (1890), and Mormon Church v. United States, 136 U.S. 1 (1890), where the Court grappled with the same issue. While continuing to affirm the right of freedom of religious belief, the Court nevertheless held that legislation for the punishment of actions "inimical to the peace, good order and morals of society" did not violate the First Amendment.

A notable recent application of this doctrine is Bob Jones University v. United States, and Goldsboro Christian Schools v. United States, 461 U.S. 574 (1983), in which the Supreme Court upheld revocation of the exemption under IRC 501(c)(3) of religious and educational institutions on the grounds that its religiously motivated policy forbidding interracial dating violated a fundamental public policy against racial discrimination. The Court concluded that educational institutions that practice racial discrimination based on religious beliefs are not charitable in the generally accepted legal sense and thus do not qualify for federal tax exemption.