One would normally think that a non-profit organization would be considered "charitable," or at least "educational" or "scientific," if the non-profit tests products for product safety or prevents child or animal cruelty, without the need for the specific statutory language. The "prevention of cruelty" provision was added to the Internal Revenue Code without explanation in 1918, perhaps at a time when people felt less charitable toward animals and children.
The product safety provision arose after the landmark 1943 case of Underwriters' Laboratories v. Commissioner. Underwriters' Laboratories (UL) is the organization that provides the UL symbol on nearly all household electric products. UL charges manufacturers an "ample fee" to test their products, and any approved products receive the UL label of approval. UL keeps the fee even if the product is not approved. Though UL was formed by various fire insurance companies, which are the members of UL, the members do not receive any of UL's profits.
The Seventh Circuit Court of Appeals concluded:
This does not sound like charity to us. If it is charity, it began at home. It was not the public interest that prompted the establishment of the petitioner. It was financial gain and business advantage. The primary concern of the petitioner was that of its membership, made up almost entirely of insurance companies, and the manufacturers who paid its ample fees. Whatever benefit inured to the public was only incidental to the primary concern.
Congress changed the Internal Revenue Code in 1954 to specifically provide that UL and similar public safety testing organizations should be considered non-profits exempt from federal taxation. However, the provision does not apply to drug testing organizations, because the testing to meet FDA requirements helps primarily the drug manufacturer rather than the general public.
Section 501(c)(3) List of exempt organizations.
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 (h)), and which does not 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.