This Note proposes a reform of the operational test for charitable exemption found in § 501 (c) (3) of the Internal Revenue Code. Under current law, the operational test uses a facts-and-circumstances standard to distinguish activity that furthers a charitable purpose from unrelated activity and to determine how much unrelated activity to allow. Due in part to the common law’s expansive interpretation of the charitable purposes enumerated in § 501(c)(3), the operational test permits charities to engage in significant amounts of commercial activity without risking loss of exemption–the broader the definition of a charitable purpose, the more commercial activities may be related to it. Yet as commercial activity by charities increases, so too does the public perception that charities compete unfairly with for-profits and thus do not merit tax-exempt status. The perceived abuse of the charitable tax exemption puts pressure on the courts and the Internal Revenue Service to distort the scope of the current operational test in an effort to reduce commercial activity by charities. The result, a subjective “smell test,” has produced an inconsistent and unprincipled jurisprudence–sometimes even punishing charities for engaging in commercial activity that is related to charitable purposes. Further complicating matters is the Internal Revenue Service’s tendency to allow significant amounts of commercial activity in clear contradiction of operational test jurisprudence. This Note judges the current operational test to be unworkable and proposes a modified test to take its place.