N.J. Admin. Code § 18:24-9.3

Current through Register Vol. 56, No. 24, December 18, 2024

Section 18:24-9.3 - Organizational tests

(a) In general, an organization is exempt if it meets one of the following:

1. An organization is organized exclusively for one or more exempt purposes only if its "articles of organization" (articles), as defined in (b) below, limit the purposes of such organization to one or more exempt purposes; and do not expressly empower the organization to engage, otherwise than as an insubstantial part of its activities, in activities which in themselves are not in furtherance of one or more exempt purposes.

2. In meeting the organizational test, the organization's purposes, as stated in its articles, may be as broad as, or more specific than, the purposes stated in N.J.S.A. 54:32B-9(b). Therefore, an organization, which, by the terms of its articles, is formed for literary and scientific purposes within the meaning of N.J.S.A. 54:32B-9(b), shall, if it otherwise meets the requirements in this section, be considered to have met the organizational test. Similarly, articles stating that the organization is created solely "to receive contributions and pay them over to organizations, which are exempt from taxation under N.J.S.A. 54:32B-9(b)" are sufficient for purposes of the organizational test. Moreover, it is sufficient if the articles set forth the purpose of the organization to be the operation of a school for adult education and describe in detail the manner of the operation of such school. In addition, if the articles state that the organization is formed for charitable purposes, such articles ordinarily shall be sufficient for purposes of the organizational test (see (e) below for rules relating to construction of terms).

3. An organization is not organized exclusively for one or more exempt purposes if its articles expressly empower it to carry on, otherwise than as an insubstantial part of its activities, activities which are not in furtherance of one or more exempt purposes, even though such organization is by the terms of such articles, created for a purpose that is no broader than the purposes specified in N.J.S.A. 54:32B-9(b). Thus, an organization that is empowered by its articles, to engage in a manufacturing business, or to engage in the operation of a social club, does not meet the organizational test regardless of the fact that its articles may state that such organization is created for charitable purposes within the meaning of N.J.S.A. 54:32B-9(b).

4. In no case shall an organization be considered to be organized exclusively for one or more exempt purposes if, by the terms of its articles, the purposes for which such organization is created are broader than the purpose specified in N.J.S.A. 54:32B-9(b). The fact that the actual operations of such an organization have been exclusively in furtherance of one or more exempt purposes shall not be sufficient to permit the organization to meet the organizational test. Similarly, such an organization will not meet the organizational test as a result of statements or other evidence that the members thereof intend to operate only in furtherance of one or more exempt purposes.

5. An organization, in order to establish its exemption, may be required to submit a detailed statement of its proposed activities with and as part of its application for exemption.

6. An organization should submit a copy of its Internal Revenue Code section 501(c)(3) determination letter or ruling issued by the Internal Revenue Service as prima facie evidence of exemption under N.J.S.A. 54:32B-9(b)(1) or (2).

(b) Articles of organization. For purposes of this section, the term "articles of organization" or "articles" include the trust instrument, the corporate charter, the articles of association, or any other written instrument by which an organization is created.

(c) Authorization of legislative or political activities. An organization is not organized exclusively for one or more exempt purposes if its articles expressly empower it:

1. To devote more than an insubstantial part of its activities to attempting to influence legislation by propaganda or otherwise;

2. Directly or indirectly to participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of, or in opposition to, any candidate for public office;

3. To have objectives and to engage in activities which characterize it as an action organization as defined in N.J.A.C. 18:24-9.4(c);

4. The terms used in (c)1, 2, and 3 above shall have the meanings provided in N.J.A.C. 18:24-9.4(c).

(d) Distribution of assets on dissolution. An organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt purpose. An organization's assets will be considered dedicated to an exempt purpose, for example, if, upon dissolution, such assets would, by reason of a provision in the organization's articles or by operation of law, be distributed for one or more exempt purposes, or to the Federal government, or to a state or local government, for a public purpose, or would be distributed by a court to another organization to be used in such manner as in the judgment of the court will best accomplish the general purposes for which the dissolved organization was organized. However, an organization does not meet the organizational test if its articles or the law of the state in which it was created provide that its assets would, upon dissolution, be distributed to its members or shareholders.

(e) Construction of terms. The law of the state in which an organization is created shall be controlling in construing the terms of its articles. However, any organization that contends that such terms have under state law a different meaning from their generally accepted meaning must establish such special meaning by clear and convincing reference to relevant court decisions, opinions of the state attorney general, or other evidence of applicable state law.

N.J. Admin. Code § 18:24-9.3

Amended by 48 N.J.R. 824(a), effective 5/16/2016