A 501(c) organization is a

nonprofit organization A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in co ...

in the federal law of the United States according to

Internal Revenue Code The Internal Revenue Code (IRC), formally the Internal Revenue Code of 1986, is the domestic portion of federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 ...

(26 U.S.C. § 501(c)) and is one of over 29 types of nonprofit organizations exempt from some

federal Federal or foederal (archaic) may refer to: Politics General *Federal monarchy, a federation of monarchies *Federation, or ''Federal state'' (federal system), a type of government characterized by both a central (federal) government and states or ...

income taxes An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...

. Sections 503 through 505 set out the requirements for obtaining such exemptions. Many states refer to Section 501(c) for definitions of organizations exempt from state taxation as well. 501(c) organizations can receive unlimited contributions from individuals,

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...

s, and unions. For example, a nonprofit organization may be tax-exempt under section

501(c)(3) A 501(c)(3) organization is a United States corporation, trust, unincorporated association or other type of organization exempt from federal income tax under section 501(c)(3) of Title 26 of the United States Code. It is one of the 29 types of 50 ...

if its primary activities are charitable, religious, educational, scientific, literary, testing for public safety, fostering amateur sports competition, or preventing cruelty to

children A child ( : children) is a human being between the stages of birth and puberty, or between the developmental period of infancy and puberty. The legal definition of ''child'' generally refers to a minor, otherwise known as a person younger ...

animals Animals are multicellular, eukaryotic organisms in the biological kingdom Animalia. With few exceptions, animals consume organic material, breathe oxygen, are able to move, can reproduce sexually, and go through an ontogenetic stage in ...

Types

According to the IRS Publication 557, in the ''Organization Reference Chart'' section, the following is an exact list of 501(c) organization types and their corresponding descriptions.

General compliance

Under Section 511, a 501(c) organization is subject to tax on its " unrelated business income", whether or not the organization actually makes a profit, but not including selling donated merchandise or other business or trade carried on by volunteers, or certain bingo games. Disposal of donated goods valued over $2,500, or acceptance of goods worth over $5,000 may also trigger special filing and record-keeping requirements. Tax exemption does not excuse an organization from maintaining proper records and filing any required annual or special-purpose

tax returns A tax return is the completion of documentation that calculates an entity or individual's income earned and the amount of taxes to be paid to the government or government organizations or, potentially, back to the taxpayer. Taxation is one of ...

, e.g., and . Prior to 2008, an annual return was not generally required from an exempt organization accruing less than $25,000 in gross income yearly. Since 2008, most organizations whose annual gross receipts are less than $50,000 must file an annual information return known as Form 990-N. Form 990-N must be submitted electronically using an authorized

IRS e-file E-file is a system for submitting tax documents to the US Internal Revenue Service through the Internet or direct connection, usually without the need to submit any paper documents. Tax preparation software with e-filing capabilities includes st ...

provider. Form 990, Form 990-EZ, and Form 990-PF may be filed either by mail or electronically through an authorized e-file provider. Failure to file required returns such as Form 990 (Return of Organization Exempt From Income Tax) may result in fines of up to $250,000 per year. Exempt or political organizations, excluding churches or similar religious entities, must make their returns, reports, notices, and exempt applications available for public inspection. The organization's Form 990 (or similar such public record as the Form 990-EZ or Form 990-PF) must be available for public inspection and photocopying at the offices of the exempt organization, through a written request and payment for photocopies by mail from the exempt organization, or through a direct Form 4506-A "Request for Public Inspection or Copy or Political Organization IRS Form" request to the IRS of for the past three tax years. Form 4506-A also allows the public inspection or photocopying access to Form 1023 "Application for Recognition of Exemption" or Form 1024, Form 8871 "Political Organization Notice of Section 527 Status", and Form 8872 "Political Organization Report of Contribution and Expenditures". Internet access to many organizations' 990 and some other forms are available through

GuideStar Candid is an information service specializing in reporting on U.S. nonprofit companies. In 2016, its database provided information on 2.5 million organizations.Wyland, Michael. "GuideStar Introduces Program Metrics Section for Nonprofit Profile ...

. Certain organizations are exempt from filing Form 990, such as churches, their integrated auxiliaries, and conventions or associations of churches; the exclusively religious activities of any religious order; and religious organizations; and most organizations whose annual gross receipts are less than $5,000. Failure to file such timely returns and to make other specific information available to the public also is prohibited. Between 2010 and 2017 the IRS revoked the nonprofit status of more than 760,000 nonprofit organizations for failing to file the 990 form.

501(c)(3)

501(c)(3) tax-exemptions apply to entities that are organized and operated exclusively for

religious Religion is usually defined as a social system, social-cultural system of designated religious behaviour, behaviors and practices, morality, morals, beliefs, worldviews, religious text, texts, sacred site, sanctified places, prophecy, prophecie ...

charitable The practice of charity is the voluntary giving of help to those in need, as a humanitarian act, unmotivated by self-interest. There are a number of philosophies about charity, often associated with religion. Etymology The word ''charity'' or ...

scientific Science is a systematic endeavor that builds and organizes knowledge in the form of testable explanations and predictions about the universe. Science may be as old as the human species, and some of the earliest archeological evidence for ...

literary Literature is any collection of Writing, written work, but it is also used more narrowly for writings specifically considered to be an art form, especially prose fiction, drama, and poetry. In recent centuries, the definition has expanded to ...

, or

education Education is a purposeful activity directed at achieving certain aims, such as transmitting knowledge or fostering skills and character traits. These aims may include the development of understanding, rationality, kindness, and honesty. Va ...

al purposes; or for testing for public safety, to foster national or international

amateur sports Amateur sports are sports in which participants engage largely or entirely without remuneration Remuneration is the pay or other financial compensation provided in exchange for an employee's ''services performed'' (not to be confused with givi ...

competition, or for the prevention of cruelty to children or

. The 501(c)(3) exemption also applies for any unincorporated community chest, fund, cooperating association, or foundation that is organized and operated exclusively for those purposes. There are also supporting organizations—often referred to in shorthand form as "Friends of" organizations. , provides a deduction, for federal income tax purposes, for some donors who make charitable contributions to most types of 501(c)(3) organizations, among others. The IRS explains that to be tax-exempt, "an organization must b
organized
an
operated
exclusively fo
exempt purposes
... and none of its earnings ma
inure
to any private shareholder or individual." Private inurement means that the organization's assets must not unduly benefit a person. Organizations described in section 501(c)(3) are prohibited from conducting

political campaign A political campaign is an organized effort which seeks to influence the decision making progress within a specific group. In democracies, political campaigns often refer to electoral campaigns, by which representatives are chosen or referend ...

activities to intervene in

election An election is a formal group decision-making process by which a population chooses an individual or multiple individuals to hold public office. Elections have been the usual mechanism by which modern representative democracy has opera ...

s to public office. On the other hand, public charities (but not private foundations) may conduct a limited amount of

lobbying In politics, lobbying, persuasion or interest representation is the act of lawfully attempting to influence the actions, policies, or decisions of government officials, most often legislators or members of regulatory agency, regulatory agencie ...

to influence legislation. Although the law states that "No substantial part..." of a public charity's activities can go to lobbying, charities may register for a

501(h) election A 501(h) election or Conable election is a procedure in United States tax law that allows a 501(c)(3) non-profit organization to participate in lobbying limited only by the financial expenditure on that lobbying, regardless of its overall extent. ...

allowing them to lawfully conduct lobbying activities as long as their financial expenditure does not exceed a specified amount. 501(c)(3) organizations risk loss of tax exempt status if any of these rules are violated. A 501(c)(3) organization is allowed to conduct some or all of its charitable activities outside the United States.Rev. Rul. 71-460, 1971-2 C.B. 231
. ''Internal Revenue Service''. 1971.Domestic Organizations with Foreign Operations
. ''Exempt Organization Continuing Professional Education Text''. Internal Revenue Service. 1983. Donors' contributions to a 501(c)(3) organization are tax-deductible only if the contribution is for the use of the 501(c)(3) organization, and that the 501(c)(3) organization is not merely serving as an agent or conduit of a foreign charitable organization.Rev. Rul. 63-252, 1963-2 C.B. 101
. ''Internal Revenue Service'' via Bradford Tax Institute. 1963. Additional procedures are required of 501(c)(3) organizations that are

private foundation A private foundation is a tax-exempt organization not relying on broad public support and generally claiming to serve humanitarian purposes. The Bill & Melinda Gates Foundation is the largest private foundation in the U.S. with over $38 billion ...

501(c)(4)

A 501(c)(4) organization is a social welfare organization, such as a civic organization or a

neighborhood association A neighborhood association (NA) is a group of residents or property owners who advocate to organize activities within a neighborhood. An association may have elected leaders and voluntary dues. Some neighborhood associations in the United States ...

. An organization is considered by the IRS to be operated exclusively for the promotion of social welfare if it is primarily engaged in promoting the common good and general welfare of the people of the community.Reg. 1.501(c)(4)-1(a)(2)(i)
/ref> Net earnings must be exclusively used for charitable, educational, or recreational purposes. According to ''

The Washington Post ''The Washington Post'' (also known as the ''Post'' and, informally, ''WaPo'') is an American daily newspaper published in Washington, D.C. It is the most widely circulated newspaper within the Washington metropolitan area and has a large nati ...

'', 501(c)(4) organizations:

...are allowed to participate in politics, so long as politics do not become their primary focus. What that means in practice is that they must spend less than 50 percent of their money on politics. So long as they don't run afoul of that threshold, the groups can influence elections, which they typically do through advertising.

Allowed activities

501(c)(4)s are similar to 501(c)(5)s and 501(c)(6)s in that the organizations may inform the public on controversial subjects and attempt to influence legislation relevant to its program. Unlike 501(c)(3) organizations, they may also participate in political campaigns and elections, as long as their primary activity is the promotion of social welfare and related to the organization's purpose. The income tax exemption for 501(c)(4) organizations applies to most of their operations, but income spent on political activities—generally the advocacy of a particular candidate in an election—is taxable. An "action" organization generally qualifies as a 501(c)(4) organization. An "action" organization is one whose activities substantially include, or are exclusively, direct or

grassroots A grassroots movement is one that uses the people in a given district, region or community as the basis for a political or economic movement. Grassroots movements and organizations use collective action from the local level to effect change at t ...

lobbying related to advocacy for or against legislation or proposing, supporting, or opposing legislation that is related to its purpose. A 501(c)(4) organization may directly or indirectly support or oppose a candidate for public office as long as such activities are not a substantial amount of its activities. A 501(c)(4) organization that lobbies must register with the

Clerk of the House The clerk, chief clerk, or secretary of a legislative chamber is the senior administrative officer responsible for ensuring that its business runs smoothly. This may encompass keeping custody of documents lain before the house, received, or produ ...

if it lobbies members of the House or their staff. Likewise, a 501(c)4 organization must register with the

Secretary of the Senate The secretary of the Senate is an officer of the United States Senate. The secretary supervises an extensive array of offices and services to expedite the day-to-day operations of that body. The office is somewhat analogous to that of the clerk ...

if it lobbies members of the Senate or their staff. In addition, the 501(c)(4) organization must either inform its members the amount it spends on lobbying or pay a proxy tax to the Internal Revenue Service. Lobbying expenses and political expenses are not deductible as business expenses.

Electioneering communications

The use of 501(c)(4), 501(c)(5), and 501(c)(6) organizations has been affected by the 2007 case ''

FEC v. Wisconsin Right to Life, Inc. ''Federal Election Commission v. Wisconsin Right to Life, Inc.'', 551 U.S. 449 (2007), is a Supreme Court of the United States, United States Supreme Court case in which the Court held that issue ads may not be banned from the months preceding a pr ...

'', in which the Supreme Court struck down the part of the McCain-Feingold Act that prohibited 501(c)(4)s, 501(c)(5)s, and 501(c)(6)s from broadcasting electioneering communications. The Act defined an electioneering communication as a communication that mentions a candidate's name 60 days before a primary or 30 days before a general election.

Contributions

Contributions to 501(c)(4) organizations are not tax-deductible as charitable donations unless the organization is either a volunteer fire department or a veterans organization. Dues or contributions to 501(c)(4) organizations may be deductible as a business expense under IRC 162, although amounts paid for intervention or participation in any political campaign, direct lobbying, grass roots lobbying, and contact with certain federal officials are not deductible. If a 501(c)4 engages in a substantial number of these activities, then only the amount of dues or contributions that can be attributed to other activities may be deductible as a business expense. The organization must provide a notice to its members containing a reasonable estimate of the amount related to lobbying and political campaign expenditures, or else it is subject to a proxy tax on its lobbying and political campaign expenditures. It must also state that contributions to the organization are not deductible as charitable contributions during fundraising. A 501(c)(4) organization is not required to disclose their donors publicly, with the exception of organizations that make

independent expenditures An independent expenditure, in elections in the United States, is a political campaign communication that Issue advocacy ads, expressly advocates for the election or defeat of a clearly identified candidate that is not made in cooperation, consulta ...

as of 2018. The former complete lack of disclosure led to extensive use of the 501(c)(4) provisions for organizations that are actively involved in

, and has become controversial. Criticized as "

dark money In the politics of the United States, dark money refers to spending to influence elections where the source of the money is not disclosed to voters. In the United States, some types of nonprofit organizations may spend money on campaigns wi ...

", spending from these organizations on political advertisements has exceeded spending from Super PACs. Spending by organizations that do not disclose their donors increased from less than $5.2million in 2006 to well over $300million during the 2012 election season. Every organization, including a 501(c)(4) organization, that expressly advocates for the election or defeat of a particular political candidate and spends more than $250 during a calendar year must disclose the name of each person who contributed more than $200 during the calendar year to the

Federal Election Commission The Federal Election Commission (FEC) is an independent regulatory agency of the United States whose purpose is to enforce campaign finance law in United States federal elections. Created in 1974 through amendments to the Federal Election Cam ...

.52 U.S.C. Section 30104(c)
. via ''United States House of Representatives''. Retrieved 19 September 2018.Lee, Michelle Ye Hee; Barnes, Robert (18 September 2018).

. ''The Washington Post''. The Federal Election Commission is required to enforce this provision based on a federal court decision in 2018.Citizens for Responsibility and Ethics in Washington, et al. v. Federal Election Commission and Crossroads Grassroots Strategies
. ''United States District Court for the District of Columbia''. 3 August 2018.Crossroads v. CREW Order
. ''United States Supreme Court''. 18 September 2018.

History

The origins of 501(c)(4) organizations date back to the

Revenue Act of 1913 The Revenue Act of 1913, also known as the Underwood Tariff or the Underwood-Simmons Act (ch. 16, ), re-established a federal income tax in the United States and substantially lowered tariff rates. The act was sponsored by Representative Oscar U ...

, which created a new group of tax-exempt organizations dedicated to social welfare in a precursor to what is now Internal Revenue Code Section 501(c)(4). The Protecting Americans from Tax Hikes Act of 2015 introduced a new requirement on 501(c)(4) organizations. Within 60 days of the organization's formation, a 501(c)(4) organization is required to file Form 8976 with the Internal Revenue Service as notification that it is operating as a section 501(c)(4) organization.Notice 2016-09
. ''Internal Revenue Service''. 8 February 2016.Rev. Proc. 2016-41
. ''Internal Revenue Service''. 11 July 2016. The Internal Revenue Service will acknowledge receipt of the notification, but the acknowledgment is not a determination that the organization qualifies for section 501(c)(4) tax-exempt status. A 501(c)(4) organization is not required to send the notification if the organization was formed on or before July 8, 2016, and it either applied for a determination letter using Form 1024 or filed a Form 990 between December 19, 2015, and July 8, 2016. As of January 2018, the application for recognition of exemption as a 501(c)(4) organization is a new form, Form 1024-A, rather than Form 1024. Between 2010 and 2017, the number of 501(c)(4) organizations dropped from almost 140,000 to fewer than 82,000. In 2017 revocations of 501(c)(4) groups comprised 58% which usually is only 15% of the total nonprofits which have their tax status revoked by the IRS for their failure to file Form 990.

501(c)(5)

A 501(c)(5) organization is a labor organization, an agricultural organization, or a horticultural organization. Labor unions, county fairs, and flower societies are examples of these types of groups. Labor union organizations were a primary benefactor of this organization type, dating to the 19th century. According to the Internal Revenue Service, a 501(c)(5) organization has a duty of providing service to its members first. The organization's benefits may not inure to a specific member, but the rules for inurement vary among the three different types of organizations under this segment. A 501(c)(5) organization can make unlimited corporate, individual, or union contributions. A labor organization may pay benefits to its members because paying benefits improves all members' shared working conditions. An agricultural organization can provide financial assistance to its members in order to improve the conditions of those engaged in agricultural pursuits generally. Members can benefit in incidental ways from the organization's exempt activities as long as the benefits are available to all persons.

History

The first exemption for labor organizations from corporate income tax was enacted as part of the Payne–Aldrich Tariff Act of 1909. The

excluded "labor, agricultural, or horticultural organizations" from income tax liability.

Contributions and activities

Much like 501(c)(4) and 501(c)(6) organizations, 501(c)(5) organizations may also perform some political activities. 501(c)(5) organizations are allowed to attempt to influence legislation that is related to the common union interests of its members.Rev. Rul. 61-177, 1961-2 C.B. 117
. ''Internal Revenue Service''. 1961. 501(c)(5) organizations can receive unlimited contributions from corporations, individuals, and labor unions. The names and addresses of contributors are not required to be made available for public inspection.Form 990, Schedule B: Schedule of Contributors: General Instructions
. ''Internal Revenue Service''. 2015. All other information, including the amount of contributions, the description of noncash contributions, and any other information, is required to be made available for public inspection unless it clearly identifies the contributor. A union membership dues paid to a 501(c)(5) organization are generally an ordinary and necessary business expense.Rev. Rul. 1.162-15(c)
. ''Internal Revenue Service''. 1965. The membership dues are tax-deductible in full unless a substantial part of the 501(c)(5) organization's activities consists of political activity, in which case a

tax deduction Tax deduction is a reduction of income that is able to be taxed and is commonly a result of expenses, particularly those incurred to produce additional income. Tax deductions are a form of tax incentives, along with exemptions and tax credits. T ...

is allowed only for the portion of membership dues that are for other activities. Because associations involved in fishing and seafood harvesting were having difficulties qualifying for reduced postal rates, in 1976 Congress established Internal Revenue Code Section 501(5) to define "agriculture" as the art or science of cultivating land, harvesting crops or aquatic resources, or raising livestock. Every organization, including a 501(c)(5) organization, that expressly advocates for the election or defeat of a particular political candidate and spends more than $250 during a calendar year must disclose the name of each person who contributed more than $200 during the calendar year to the

. The Federal Election Commission is required to enforce this provision based on a federal court decision in 2018.

501(c)(6)

A 501(c)(6) organization is a business league, a chamber of commerce like the

U.S. Chamber of Commerce The United States Chamber of Commerce (USCC) is the largest lobbying group in the United States, representing over three million businesses and organizations. The group was founded in April 1912 out of local chambers of commerce at the urgin ...

, a real estate board, a board of trade, a professional football league or an organization like the

Edison Electric Institute The Edison Electric Institute (EEI) is an association that represents all U.S. investor-owned electric companies. Its members provide electricity for 220 million Americans, operate in 50 states and the District of Columbia, and directly employ ...

and the

Security Industry Association The Security Industry Association (SIA), based in Silver Spring, Maryland, is a U.S. trade association, founded in 1769, representing global security solutions providers. The organization today represents over 1,200 firms and organizations in t ...

, that are not organized for profit and no part of the net earnings goes to the benefit of any private shareholder or individual.Reilly, John Francis; Hull, Carter C.; Braig Allen, Barbara A.
IRC 501(c)(6) Organizations
. ''Exempt Organizations-Technical Instruction Program for FY 2003 ''. Internal Revenue Service. 2003.

Qualifications for exemption

A business league may qualify if it is an association of persons having a common business interest, whose purpose is to promote the common business interest and whose activities improve business conditions rather than actually conduct the business itself. Members of the organization must be of the same trade, business, occupation, or profession in order to qualify. A local chamber of commerce or board of trade could qualify for similar reasons except that they may promote the common economic interests of all the commercial enterprises in a given trade or community. In order to qualify for a tax-exemption under seciton 501(c)(6), the organization must specify that it seeks to promote and improve business condition for a specific type of business.West, Lauren (October 24, 2022).
Benefit Plans for 501(c)(6) Organizations May Be Disallowed
. ''

CliftonLarsonAllen LLP CliftonLarsonAllen LLP (known as CliftonLarsonAllen or CLA) is a professional services network and the eighth-largestattempt to influence legislation that is related to the common business interests of its members. A 501(c)(6) organization may receive unlimited contributions from corporations, individuals, and labor unions. The names and addresses of contributors are not required to be made available for public inspection, with the exception of a 501(c)(6) organization that makes

independent expenditure An independent expenditure, in elections in the United States, is a political campaign communication that Issue advocacy ads, expressly advocates for the election or defeat of a clearly identified candidate that is not made in cooperation, consulta ...

s. All other information, including the amount of contributions, the description of non-cash contributions, and any other information, is required to be made available for public inspection unless it clearly identifies the contributor. The

is a large political spender, and

Freedom Partners Freedom Partners was a nonprofit 501(c)(6) organization headquartered in Arlington, Virginia. The organization, which was founded in 2011 under the name Association for American Innovation, was purposed to promote "the benefits of free markets a ...

used its status as a 501(c)(6) organization to raise and distribute over $250 million during the 2012 election campaigns without disclosing its donors. The group's existence was not publicly known until nearly a year after the election. A business's membership dues paid to a 501(c)(6) organization are generally an ordinary and necessary business expense. The membership dues are tax-deductible in full unless a substantial part of the 501(c)(6) organization's activities consists of political activity, in which case a tax deduction is allowed only for the portion of membership dues that are for other activities. Every organization, including a 501(c)(6) organization, that expressly advocates for the election or defeat of a particular political candidate and spends more than $250 during a calendar year must disclose the name of each person who contributed more than $200 during the calendar year to the

. The Federal Election Commission is required to enforce this provision based on a federal court decision in 2018.

History

The predecessor of IRC 501(c)(6) was enacted as part of the

Tariff Act of 1913 The Revenue Act of 1913, also known as the Underwood Tariff or the Underwood-Simmons Act (ch. 16, ), re-established a federal income tax in the United States and substantially lowered tariffs in United States history, tariff rates. The act was sp ...

, ch.16, § II (G)(a), 38 Stat. 72."

, ch.16, § II (G)(a), 38 Stat. 72. "...nothing this section shall apply to labor, agricultural, or horticultural organizations, or to mutual savings banks not having a capital stock represented by shares, or to fraternal beneficiary societies, orders, or associations operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and providing for the payment of life, sick, accident, and other benefits to the members of such societies, orders, or associations and dependents of such members, nor to domestic building and loan associations, nor to cemetery companies, organized and operated exclusively for the mutual benefit of their members, nor to any corporation or association organized and operated exclusively for religious, charitable, scientific, or educational purposes, no part of the net income of which inures to the benefit of any private stockholder or individual, nor to business leagues, nor to chambers of commerce or boards of trade, not organized for profit or no part of the net income of which inures to the benefit of the private stockholder or individual ; nor to any civic league or organization not organized for profit, but operated exclusively for the promotion of social welfare. likely due to a U.S. Chamber of Commerce request for an exemption for nonprofit "civic" and "commercial" organizations, which resulted in IRC 501(c)(4) for nonprofit "civic" organizations and IRC 501(c)(6) for nonprofit "commercially-oriented" organizations. The

Revenue Act of 1928 The Revenue Act of 1928 (May 29, 1928, ch. 852, 45 Stat. 791), formerly codified in part at 26 U.S.C. sec. 22(a), is a statute enacted by the 70th United States Congress in 1928 regarding tax policy. Section 605 of the Act provides that "In case ...

amended the statute to include real estate boards. In 1966, professional football leagues were added to the described organizations. The Revenue Act of 1913 related to professional football leagues had both antitrust and tax provisions: The antitrust provision was enacted to permit the merger of the

National National may refer to: Common uses * Nation or country ** Nationality – a ''national'' is a person who is subject to a nation, regardless of whether the person has full rights as a citizen Places in the United States * National, Maryland, ce ...

and

American Football League The American Football League (AFL) was a major professional American football league that operated for ten seasons from 1960 until 1970, when it merged with the older National Football League (NFL), and became the American Football Conference. ...

s to go forward without fear of an antitrust challenge under either the 1914

Clayton Antitrust Act The Clayton Antitrust Act of 1914 (, codified at , ), is a part of United States antitrust law with the goal of adding further substance to the U.S. antitrust law regime; the Clayton Act seeks to prevent anticompetitive practices in their incipie ...

or the 1914

Federal Trade Commission Act The Federal Trade Commission Act of 1914 was a United States federal law which established the Federal Trade Commission. The Act was signed into law by US President Woodrow Wilson in 1914 and outlaws unfair methods of competition and unfair acts ...

. IRC 501(c)(6) amendment was enacted in 1966 to ensure that a professional football league's exemption would not be jeopardized because it administered a players' pension fund. Additionally, a professional sports league's exemption is not to be jeopardized because its primary source of revenue is the sale of television broadcasting rights to its games because the broadcasting of games increases public awareness of the sport. In 2013,

Senator A senate is a deliberative assembly, often the upper house or chamber of a bicameral legislature. The name comes from the ancient Roman Senate (Latin: ''Senatus''), so-called as an assembly of the senior (Latin: ''senex'' meaning "the el ...

Tom Coburn Thomas Allen Coburn (March 14, 1948 – March 28, 2020) was an American politician and physician who served as a United States senator for Oklahoma from 2005, until his resignation in 2015. A Republican, he previously served as a United St ...

introduced legislation to disallow a tax exemption for the

National Football League The National Football League (NFL) is a professional American football league that consists of 32 teams, divided equally between the American Football Conference (AFC) and the National Football Conference (NFC). The NFL is one of the ...

, the

Professional Golfers' Association of America The Professional Golfers' Association of America (PGA of America) is an American organization of golf professionals that was founded in 1916. Consisting of nearly 29,000 men and women members, the PGA of America's undertaking is to establish ...

, and other professional sports organizations. Coburn estimated the tax exemption cost $100 million, but he said he could not get other members of Congress to support the legislation.

501(c)(7)

A 501(c)(7) organization is a social or recreational club that is organized for pleasure, recreation, and other nonprofitable purposes.Langley, Jim; Rosenberg, Conrad.
C. Social Clubs - IRC 501(c)(7)
. ''1996 Exempt Organization Continuing Professional Education Text''. Internal Revenue Service. 1996. Members must share interests and have a common goal directed toward pleasure and recreation, and the organization must provide opportunities for personal contact among members.Social Clubs – Requirements for Exemption – Personal Contact Required
. ''Internal Revenue Service''. 9 December 2015. The organization's facilities and services must be open to its members and their guests only. The organization must be a club of individuals, and no individual may derive profit from the organization's net earnings.Tenenbaum, Jeffrey S.; Journy, Matthew T.
Requirements for Tax-Exempt Status under IRC § 501(c)(7): A Primer for Social Clubs
. ''

Venable LLP Venable LLP is an American law firm headquartered in Washington, D.C. It is the largest law firm in the state of Maryland. Founded in 1900 by Richard Venable in Baltimore, today Venable has 10 offices across the United States and 800 attorneys w ...

''. June 2008. Examples include college alumni associations; college fraternities or college sororities operating chapter houses for students;

country club A country club is a privately owned club, often with a membership quota and admittance by invitation or sponsorship, that generally offers both a variety of recreational sports and facilities for dining and entertaining. Typical athletic offer ...

s; amateur sport clubs;

supper club A supper club is a traditional dining establishment that also functions as a social club. The term may describe different establishments depending on the region, but in general, supper clubs tend to present themselves as having a high-class image ...

s that provide a meeting place, library, and dining room for members;

hobby club The Hobby Club was established in New York City in 1908 as an exclusive gentleman's club for people with an amateur's hobby or special interest. The original number of members could not be more than 50 men. In effect, this was an opportunity to s ...

s; and garden clubs.

Activities

A substantial amount of the 501(c)(7) organization's activities must be related to social and recreational activities for its members.S. Rep. No. 94-1318, 94th Cong., 2nd Sess. 4 (1976), 1976-2 C.B. 597, 599. No more than 35 percent of its gross receipts may derive from non-members, and no more than 15 percent of its gross receipts is permitted to come from use of its facilities or services by the general public. An organization that exceeds these limits may lose its 501(c)(7) status.H. Nonmember Income of Social, Fraternal, Veterans, and Social Welfare Organizations
. ''1990 Exempt Organization Continuing Professional Education Text''. Internal Revenue Service. 1990. When a group of eight or fewer individuals, at least one of whom is a member, uses the organization's facilities and the member pays for the other individuals, the Internal Revenue Service will assume the nonmembers are the guests of the member, and the revenue is deemed to be derived from the member. Similarly, if at least 75 percent of a group using club facilities are members of the organization, the Internal Revenue Service will assume the nonmembers are the guests of the member, and the revenue is deemed to be derived from the member. It is the responsibility of the organization to maintain these records. If the organization does not keep sufficient records to link revenue to a member, the Internal Revenue Service assumes the revenue came from a nonmember. The organization is subject to unrelated business income tax for the revenue derived from nonmember use of its facilities and services, less allowable deductions. If the organization sells assets that were previously used for recreational or social purposes, the proceeds are considered related business income as long as the proceeds are reinvested in the organization. Public use of the organization's facilities must be minimal, generally either less than $2,500 per year or less than fivepercent of its total gross receipts from normal and usual activities of the club. A 501(c)(7) organization cannot have a written policy of discriminating on the basis of race, color, or religion. Nevertheless, a 501(c)(7) organization is permitted to limit its members to a particular religion in order to further the teachings of that religion. An auxiliary of a 501(c)(8) fraternal benefit society that limits membership to members of a particular religion is allowed to do so as well. Having written policies that limit its membership by ethnic origin and gender would not jeopardize the organization's tax-exempt status.

History

The predecessor of Internal Revenue Code Section 501(c)(7) was part of the

, which provides a tax-exemption to "fraternal beneficiary societies, orders, or associations operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system". Congress justified the tax-exemption with the reasoning that the members join to provide themselves with recreational or social organization without further tax consequences, similar as if they had paid for the benefits directly. Tax-exemption was available for organizations operated exclusively for pleasure, recreation, and other nonprofitable purposes. In 1969, Congress passed a law stating that social and recreational clubs were permitted to engage in some unrelated business income, subject to income tax.

501(c)(8)

A 501(c)(8) organization is a

fraternal benefit society A benefit society, fraternal benefit society, fraternal benefit order, friendly society, or mutual aid society is a society, an organization or a voluntary association formed to provide mutual aid, benefit, for instance insurance for relief fr ...

.IRC 501(cc)(8) Fraternal Beneficiary Societies and IRC 501(c)(10) Domestic Fraternal Societies
. ''2004 EO CPE Text''. Internal Revenue Service. 2004.

Eligibility

The society must have members of a similar calling, recreation, or profession, or members who work together to accomplish a worthy goal.National Union v. Marlow, 74 F. 775, 778-79 (8th Cir. 1896). The members have associated themselves in order to help each other and to promote the common cause. The society must have written documentation of its eligibility standards for membership, classes of membership, a process of admission, and rights and privileges of members. The members must have a common bond, which may be based on religious beliefs, gender, occupation, ethnicity, or shared values.What is a Fraternal Benefit Society?
" ''American Fraternal Alliance''. Retrieved 26 August 2016. The society must have a supreme governing body and subordinate lodges into which members are elected, initiated, or admitted in accordance with its laws. The supreme governing body should be composed of delegates elected directly by members or intermediate assemblies. The society must offer benefits to members, which may include life insurance, medical insurance, scholarships, educational programs, travel opportunities, and discount programs. Revenue generated from providing benefits to non-members must be insubstantial to the society and may be taxable as unrelated business income.

Donations

An individual's donation to a fraternity is only a tax-deductible charitable contribution if the contribution "is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals."

History

Fraternal benefit societies trace their lineage back through mutual benefit societies,

friendly societies A friendly society (sometimes called a benefit society, mutual aid society, benevolent society, fraternal and service organisations, fraternal organization or Rotating savings and credit association, ROSCA) is a mutual association for the purpo ...

and eventually to medieval

guild A guild ( ) is an association of artisans and merchants who oversee the practice of their craft/trade in a particular area. The earliest types of guild formed as organizations of tradesmen belonging to a professional association. They sometimes ...

s. Many fraternal benefit societies were founded to serve the needs of immigrants and other under-served groups who shared common bonds of religion, ethnicity, gender, occupation or shared values. Section 38 of the Payne–Aldrich Tariff Act of 1909 was the first law to provide a tax-exemption for fraternal beneficiary societies. The tax-exemption was later codified as section 501(c)(8) with the

Internal Revenue Code of 1954 Internal may refer to: *Internality as a concept in behavioural economics *Neijia, internal styles of Chinese martial arts *Neigong or "internal skills", a type of exercise in meditation associated with Daoism *''Internal (album)'' by Safia, 2016 ...

.7.25.8 Fraternal Beneficiary Societies
. ''Internal Revenue Manual''. Internal Revenue Service. Retrieved 26 August 2016.

501(c)(13)

A 501(c)(13) organization is a certain type of cemetery company.

Eligibility

There are two primary types of eligible cemetery companies. A mutual cemetery company must be either "owned by and operated exclusively for the benefit of its lot owners who hold such lots for bona fide burial purposes and not for the purpose of resale" or engages in the burial of impoverished people performing similar charitable activities.§ 1.501(c)(13)-1
. ''Internal Revenue Service''. Legal Information Institute. Cornell University Law School. Retrieved 19 October 2018. A nonprofit cemetery corporation must be incorporated solely for the purpose of the burial or the cremation of bodies and no part of its net earnings inures to the benefit of any private shareholder or individual. Any net gain by the cemetery must be devoted to certain cemetery functions, such as the cemetery's operations, maintenance, and improvements; acquisition of cemetery property; and investment of the net gain in order to provide additional income for cemetery functions.Cemeteries
. ''Exempt Organization Continuing Professional Education Texas''. Internal Revenue Service. 1980. Net gains are not allowed to be distributed to individuals. The cemetery may restrict burials and cremations to a certain group of people, such as impoverished people, people adherent to a certain religion, or people who lived in a certain community, as long as it still serves a broad class of people and operates for public purposes, but a 501(c)(13) organization may not enforce overly restrictive restrictions. A perpetual care fund that is used by a profit-making cemetery to maintain cemetery properties and burial lots is not eligible under 501(c)(13). On the other hand, a nonprofit organization may have a perpetual care fund without jeopardizing its exemption under Section 501(c)(13). A cemetery that owns or operates a

morgue A morgue or mortuary (in a hospital or elsewhere) is a place used for the storage of human corpses awaiting identification (ID), removal for autopsy, respectful burial, cremation or other methods of disposal. In modern times, corpses have cus ...

, whether on its own grounds or elsewhere, is not eligible under 501(c)(13) because the Internal Revenue Service does not consider mortuary services necessarily incident to burial purposes. The provision of traditional burial services that directly support and maintain basic tenets and beliefs of a religion regarding burial of its members" may still be eligible under 501(c)(13). A cemetery that buries animals is not eligible under 501(c)(13). A cemetery company wishing to be recognized under Section 501(c)(13) needs to prepare and file Form 1024 with the Internal Revenue Service.

Charitable contributions

Charitable contributions to a 501(c)(13) organization are tax-deductible to the donor. Payments for perpetual care of a particular lot or a particular crypt are not considered tax-deductible charitable contributions.Rev. Rul. 58-190, 1958-1 C.B. 15
. ''Internal Revenue Service''. 1958. Payments made as part of the purchase price of a burial lot or crypt are not considered tax-deductible charitable contributions, even if a portion of the payment is for the perpetual care of the entirety of the cemetery. Bequests or gifts to a 501(c)(13) cemetery is not deductible for federal estate tax purposes or gift tax purposes.

History

Historically, cemeteries were exempt from local property taxes and excise taxes in most states because states generally considered cemeteries to be performing a recognized civic service. The

provided an exemption from federal income taxes for mutual cemetery companies that were organized and operated exclusively "for the benefit of their members". In 1921, Congress extended the tax-exemption to cemetery companies that are not mutual and to cemetery companies that are not operated for profit as well as any corporation solely incorporated to operate a cemetery and whose net gains do not inure to any person. In 1970, Congress included crematorium in the definition of cemetery for the purposes of Section 501(c)(13).

Notes

References

External links

* * Publication 557 governs 501(c) organizations. * * * * {{cite web , url = https://www.nonprofitlegalcenter.com/ , title = Helpful Legal Information and Links regarding Nonprofit Law, Startup and Compliance. 0501c Non-profit organizations based in the United States Taxation in the United States Charity law

Types

General compliance

501(c)(3)

501(c)(4)

Allowed activities

Electioneering communications

Contributions

History

501(c)(5)

History

Contributions and activities

501(c)(6)

Qualifications for exemption

History

501(c)(7)

Activities

History

501(c)(8)

Eligibility

Donations

History

501(c)(13)

Eligibility

Charitable contributions

History

See also

Other tax-exempt organizations

Notes

References

Further reading

External links