501(c)(3) Purposes Defined: Scientific Research

One of the lesser known purpose categories of charitable 501(c)(3) organizations is “Scientific”. But what exactly does that mean? Does your nonprofit qualify as a scientific charity?

The IRS says that in order to qualify as a charitable 501(c)(3), your nonprofit must be organized for an exclusively charitable purpose. One of those defined categories is scientific, but what does the IRS mean by that?

The best way to think about this category, frankly, requires renaming it to “Scientific Research”, because that’s exactly what it is. A scientific 501(c)(3) has as its primary mission the research of one or more topic areas, done so in the public interest.

One of the first things that might come to mind is maybe cancer research or something else medical. In fact, this is a very common version of scientific nonprofit. You often see this in college or university settings especially. But scientific research like this isn’t limited to finding cures for disease. In fact, it can encompass virtually any area of science you can imagine.

Other less obvious examples include demographic studies, engineering research, economic modeling, or even political trends. Again, you can easily imagine this kind of thing happening in a university setting, but it certainly isn’t limited to that. In fact, most scientific research organizations are NOT collegiate in nature.

Now that you understand more about what qualifies, the next question is, “What are the restrictions on this research that allow it to be a charitable nonprofit?”

Well, we started answering that question already when we said that this is scientific research carried on in the public interest. But that itself requires defining. Here’s what the IRS says about that:

“Scientific research will be considered to be in the public interest if the results of the research, including any patents, copyrights, processes, or formulas, are made available to the public on a nondiscriminatory basis; if the research is performed for the United States or a state, county, or municipal government; or if the research is carried on for one or more of the following purposes:

1. Aiding in the scientific education of college or university students
2. Obtaining scientific information that is published in a treatise, thesis, trade publication, or in any other form that is available to the interested public
3. Discovering a cure for a disease
4. Aiding a community or geographical area by attracting new industry or retention of industry.”

But that’s not all. The IRS goes on to say that scientific research does NOT include research that is incidental to commercial or industrial operations, such as the ordinary inspection or testing of materials or products, or the designing or constructing of equipment and buildings.

That restriction sounds a little vague, but essentially what it means is that scientific research carried on by a business or industry that is a normal part of improving internal processes and methods is not charitable activity.

Which takes us back to a key phrase in the IRS definition, that phrase being “nondiscriminatory basis”. The research findings must be made publicly available to those interested. Now, that doesn’t mean the minute something is discovered that you have to go public with it. What it does mean is the findings can’t be used by private interests in order to profit at the expense of public dissemination.

If a university medical school discovers a cure for diabetes, they can’t keep that information to themselves in order to privately benefit or profit from it. Nor can they sell that information to a pharmaceutical company for money. Public interest means no person nor business has the legal right to take the findings of charitably funded research and profit from it privately. Another scenario might be someone taking economic research findings done by a nonprofit and privately publishing a book on the subject, as if that person had proprietary rights to the data. They don’t.

This also makes it quite easy to understand why medical research, for example, done by big pharma isn’t charitable. Their research findings are theirs alone and provide the basis for their lucrative patents and multi-billion dollar per year income streams. Now, that doesn’t mean private business can’t find ways to profit from the public research findings…not at all. But because any charitably-sourced research findings are in the public domain, private businesses that find ways to make that information profitable are racing against other similar firms using the same data to create their own

Scientific research is a fascinating area of the nonprofit community. Much public good is accomplished through the research conducted by these charitable organizations.