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A 501(c) organization is a
nonprofit organization A nonprofit organization (NPO), 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 contrast with an entity that o ...
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 The ''United States Sta ...

Internal Revenue Code
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 A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law, a legal person is any person A person (plural people or persons) is a being that has c ...
. 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 (polity), 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 ...

corporation
s, and unions. For example, a nonprofit organization may be tax-exempt under section 501(c)(3) if its primary activities are charitable, religious, educational, scientific, literary, testing for public safety, fostering amateur sports competition, preventing
cruelty to children
cruelty to children
, or preventing
cruelty to animals Cruelty to animals, also called animal abuse, animal neglect or animal cruelty, is the infliction by omission (neglect) or by commission by humans of suffering Suffering, or pain in a broad sense, may be an experience of unpleasantness and a ...
.


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 Unrelated Business Income Tax (UBIT) in the U.S. 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 vol ...
", 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, 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 A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law, a legal person is any person A person (plural people or persons) is a be ...
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. In February 2019, GuideStar merged with Foundation Center to become Candid. Histo ...
. 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 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 a social Social organisms, including humans, live collectively in interacting populations. This interaction is considered social whether they are aware of it or not, and whether the exchange is voluntary/involuntary. Etymology ...

religious
,
charitable The practice of charity means the Volunteering, voluntary giving of help to those in need, as a Humanitarianism, humanitarian act. There are a number of Philosophy, philosophies about charity, often associated with religion. Effective altruism is th ...
,
scientific Science () is a systematic enterprise that Scientific method, builds and organizes knowledge in the form of Testability, testable explanations and predictions about the universe."... modern science is a discovery as well as an invention. ...

scientific
,
literary Literature broadly is any collection of written Writing is a medium of human communication Communication (from Latin ''communicare'', meaning "to share") is the act of developing Semantics, meaning among Subject (philosophy), entities ...

literary
, or
education Education is the process of facilitating learning, or the acquisition of knowledge, skills, value (ethics), values, morals, beliefs, habits, and personal development. Educational methods include teaching, training, storytelling, discussion ...

education
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. The distinction is made between amateur sporting participants and professional sports, professional sporting participants, who are paid for the time ...
competition, or for the prevention of cruelty to children or
animals Animals (also called Metazoa) are multicellular A multicellular organism is an organism In biology, an organism () is any organic, life, living system that functions as an individual entity. All organisms are composed of cells ...
. 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 democracy, democracies, political campaigns often refer to election, electoral campaigns, by which representatives a ...

political campaign
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 administration, public office. Elections have been the usual mechanism by which modern representative dem ...

election
s to public office. On the other hand, public charities (but not private foundations) may conduct a limited amount of
lobbying In politics Politics (from , ) is the set of activities that are associated with making decisions in groups, or other forms of power relations between individuals, such as the distribution of resources or status. The branch of socia ...

lobbying
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 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 charitable organization A charitable organization or charity is an organization whose primary objectives are philanthropy Philanthropy consists of "private initiatives, for the public good, focusing on quality o ...
s.


501(c)(4)

:''See also
Buckley v. Valeo ''Buckley v. Valeo'', 424 U.S. 1 (1976), was a landmark decision Landmark court decisions, in present-day common law legal systems, establish precedents that determine a significant new legal principle or concept, or otherwise substantially affect ...
, which removed limits on spending on political speech 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 for or organize activities within a neighborhood A neighbourhood (British English British English (BrE) is the standard dialect of the English lan ...
. 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 A newspaper is a Periodical literature, periodical publication containing written News, information about current events and is ...
'', 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)4s are similar to 501(c)5s and 501(c)6s in that the organizations may inform the public on controversial subjects and attempt to influence legislation relevant to its program and, 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 th ...

grassroots
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 HouseThe 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 Laying before the house, lain before the hous ...
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 United States Senate is the upper chamber of the United States Congress The United States Congress or U.S. Congress is the bicameral legislature of the f ...
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.'', in which the Supreme Court struck down the part of the McCain-Feingold Act that prohibited 501(c)4s, 501(c)5s, and 501(c)6s 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 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
lobbying In politics Politics (from , ) is the set of activities that are associated with making decisions in groups, or other forms of power relations between individuals, such as the distribution of resources or status. The branch of socia ...

lobbying
, and has become controversial. Criticized as "
dark money In the politics of the United States The United States is a constitutional federal republic, in which the president of the United States, president (the head of state and head of government), United States Congress, Congress, and United S ...
", spending from these organizations on political advertisements has exceeded spending from
Super PAC In the United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located in North America. It consists of 50 U.S. state, states, a Washi ...
s. Spending by organizations that do not disclose their donors increased from less than $5.2 million in 2006 to well over $300 million 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 agencies of the United States government, independent regulatory agency of the United States whose purpose is to enforce Campaign finance in the United States, campaign finance law in United ...
.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 Federal court may refer to: United States * Federal judiciary of the United States ** United States district court, a particular federal court Elsewhere * Federal Court of Australia * Federal courts of Brazil * Federal Court (Canada) * Federal Cou ...
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 Income taxes in the United States are imposed by the Federal government of the United ...
, 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 8 July 2016, and it either applied for a determination letter using Form 1024 or filed a Form 990 between 19 December 2015 and 8 July 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 less 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 the 990 form.


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
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 Income taxes in the United States are imposed by the Federal government of the United ...
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 tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of ...

tax deduction
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
Federal Election Commission The Federal Election Commission (FEC) is an Independent agencies of the United States government, independent regulatory agency of the United States whose purpose is to enforce Campaign finance in the United States, campaign finance law in United ...
. The Federal Election Commission is required to enforce this provision based on a
federal court Federal court may refer to: United States * Federal judiciary of the United States ** United States district court, a particular federal court Elsewhere * Federal Court of Australia * Federal courts of Brazil * Federal Court (Canada) * Federal Cou ...
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, 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 ) , image_s ...
and the Security Industry Association, 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 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. An association would not qualify if its principal activities consist of securing benefits and performing particular services for members. An association that promotes the common interests of certain hobbyists would not qualify because the Internal Revenue Service does not consider hobbies to be activities conducted as businesses. An organization whose primary activity is advertising the products or services of its members does not qualify because the organization is performing a service for its members rather than promoting common interests. If an organization's primary activity is advertising the products or services of its members' industry as a whole, however, the organization will generally qualify if it also performs other services for its members.


Contributions and activities

Much like 501(c)(4) and 501(c)(5) organizations, 501(c)(6) organizations may also perform some political activities. 501(c)(6) organizations are allowed to attempt 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 A political campaign is an organized effort which seeks to influence the decision making progress within a specific group. In democracies, political campai ...
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 U.S. Chamber of Commerce is a large political spender, and
Freedom Partners Freedom Partners was a nonprofit 501(c)(6) A 501(c) organization is a nonprofit organization A nonprofit organization (NPO), also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organiz ...
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' 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
Federal Election Commission The Federal Election Commission (FEC) is an Independent agencies of the United States government, independent regulatory agency of the United States whose purpose is to enforce Campaign finance in the United States, campaign finance law in United ...
. The Federal Election Commission is required to enforce this provision based on a
federal court Federal court may refer to: United States * Federal judiciary of the United States ** United States district court, a particular federal court Elsewhere * Federal Court of Australia * Federal courts of Brazil * Federal Court (Canada) * Federal Cou ...
decision in 2018.


History

The predecessor of IRC 501(c)(6) was enacted as part of 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 Income taxes in the United States are imposed by the Federal government of the United ...
Tariff Act of 1913Image:OWUnderwood.jpg, Oscar Underwood 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 h ...
, ch.16, § II (G)(a), 38 Stat. 72."
Tariff Act of 1913Image:OWUnderwood.jpg, Oscar Underwood 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 h ...
, 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 1928The 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 a ...
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 A nation is a community of people formed on the basis of a common language, history, ethnicity, or a common culture, and, in many cases, a shared territory. A nation is more overtly political than an ...
and
American Football League The American Football League (AFL) was a major professional American football American football, referred to simply as football in the United States and Canada and also known as gridiron, is a team sport A team sport includes any ...
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 , ), was a part of United States antitrust law with the goal of adding further substance to the U.S. antitrust law regime; the Clayton Act sought to prevent anticompetitive practices in their incipi ...
or the 1914
Federal Trade Commission Act The Federal Trade Commission Act of 1914 was a United States federal law The law of the United States comprises many levels of codified and uncodified forms of law, of which the most important is the nation's Constitution of the United States, ...
. 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 Debating chamber, chamber of a bicameral legislature. The name comes from the Ancient Rome, ancient Roman Senate (Latin: ''Senatus''), so-called as an assembly of the senior (Lat ...
Tom Coburn Thomas Allen Coburn (March 14, 1948 – March 28, 2020) was an American politician and medical doctor, physician. A Republican Party (United States), Republican, he was a United States Representative and later the Seniority in the United S ...

Tom Coburn
introduced legislation to disallow a tax exemption for the
National Football League The National Football League (NFL) is a professional American football American football, referred to simply as football in the United States and Canada and also known as gridiron, is a team sport A team sport includes any s ...
, the Professional Golfers' Association, 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 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 (formerly known as Venable, Baetjer & Howard LLP) is one of the top 100 law firms in the United States, ranked in the ''AmLaw'' 100 survey. Today the firm includes more than 800 attorneys practicing in over 70 practice and industry area ...
''. 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 sport Sport pertains to any form of Competition, competitive physica ...

country club
s; amateur sport clubs;
supper club A supper club is a traditional dining establishment that also functions as a social club A social club may be a group of people or the place where they meet, generally formed around a common interest, occupation, or activity. Examples includ ...
s that provide a meeting place, library, and dining room for members; s; and
garden club A garden club is an organized group of people with a shared interest in gardening, gardens, and plants. A flower club is a similar group with a focus on flowers. History The first and oldest organized garden club in the United States is the Ladies ...
s.


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 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. A 501(c)(7) organization cannot have a 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. The Internal Revenue Service has determined that 501(c)(7) are not prohibited from discriminating against ethnic groups.


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

The predecessor of Internal Revenue Code Section 501(c)(7) was part of 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 Income taxes in the United States are imposed by the Federal government of the United ...
, 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 together 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, or mutual aid society is a society, an organization or a voluntary association formed to provide mutual aid (organization), mutual aid, benefit, for instance insurance for rel ...
.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 Unrelated Business Income Tax (UBIT) in the U.S. 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 vol ...
.


History

Fraternal benefit societies trace their lineage back through
mutual benefit The Mutual Benefit Life Insurance Company was a life insurance company that was chartered in 1845 and based in Newark, New Jersey, Newark in Essex County, New Jersey, Essex County, New Jersey, United States. The company was headed by Frederick ...
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 purpos ...
and eventually to medieval
guild A guild is an association of artisan Wood carver in Bali An artisan (from french: artisan, it, artigiano) is a skilled craft worker who makes or creates material objects partly or entirely by hand. These objects may be functiona ...
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 1954.7.25.8 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 A hospital is a health care institution providing patient treatment with specialized Medical Science, health science and Allied Healthcare, auxiliary healthcare staff and medical equipment. The best-kn ...

morgue
, 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
Tariff Act of 1913Image:OWUnderwood.jpg, Oscar Underwood 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 h ...
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).


See also

*
527 organization A 527 organization or 527 group is a type of U.S. tax-exempt organization organized under Section 527 of the U.S. Internal Revenue Code The Internal Revenue Code (IRC), formally the Internal Revenue Code of 1986, is the domestic portion of federal ...
*
Political action committee In the United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located in North America. It consists of 50 U.S. state, states, a Washi ...
*
Not-for-profit arts organizationA not-for-profit arts organization, also known as a nonprofit arts organization, usually takes the form of a not-for-profit organization A nonprofit organization (NPO), also known as a non-business entity, not-for-profit organization, or nonprofit ...


Other tax-exempt organizations

* 501(d) – Religious or apostolic organizations with the purpose of operating a religious community where the members live a communal life following the tenets and teachings of the organization. The organization's property is owned by each of the individuals in the community but, upon leaving, a member cannot withdraw any of the community's assets. The organization's income goes into a community treasury that is used to pay for the organization's operating expenses and supporting members and their families. * 501(e) – Cooperative hospital service organizations that are organized to provide services for multiple tax-exempt hospitals. * 501(f) – Cooperative service organizations of educational organizations that invest assets contributed by each of the organization's members. * 501(j) – Amateur sports organizations that either conduct national or international sporting competitions or develop amateur athletes for national or international sporting competitions. * 501(k) –
Day care center Child care, otherwise known as day care, is the care and supervision of a child or multiple children at a time, whose ages range from two weeks to twenty years. Child care is a broad topic that covers a wide spectrum of professionals, institutions ...
s may qualify as tax-exempt under Section 501(k). The day care center must provide child care away from their homes. At least 85 percent of the children served must be cared for while their parent or guardian is either employed, seeking employment, or a full-time student. Most of the day care center's funding must come from fees received for day care services. The day care center must also provide child care services to the general public. The tax exemption for certain day care centers was part of the
Deficit Reduction Act of 1984 The Deficit Reduction Act of 1984 (), also known as the DEFRA, was a federal law enacted in the United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continenta ...
. * 501(n) – Charitable risk pools that pool insurable risks of its members, which are tax-exempt charities. * 521(a) – Farmers' cooperative associations that market its member farmers' products at market rates, make purchases at wholesale rates, and remit earnings to member farmers. * 527 –
Political organizations A political organization is any organization An organization, or organisation ( Commonwealth English; see spelling differences), is an entity – such as a company, an institution, or an association – comprising one or more peopl ...
that operate primarily to raise or spend money to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office, such as
political parties A political party is an organization that coordinates candidate A candidate, or nominee, is the prospective recipient of an award or honor, or a person seeking or being considered for some kind of position; for example: * to be elected to ...
,
political action committee In the United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located in North America. It consists of 50 U.S. state, states, a Washi ...
s, and
Super PAC In the United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located in North America. It consists of 50 U.S. state, states, a Washi ...
s. * 528 – Homeowner associations, condominium management associations, residential real estate management associations, and timeshare associations may elect to be exempt from income tax on their exempt-function income under Section 528.Porter, Gary.
501(c)(4) Tax Exempt Homeowners Associations
. Hinricher, Douglas & Porter, LLP. Accessed 1 March 2016.
Homeowners' Associations Under IRC 501(c)(4), 501(c)(7) and 528
. ''Exempt Organizations Continuing Professional Education Text''.
Internal Revenue Service The Internal Revenue Service (IRS) is the revenue service A revenue service, revenue agency or taxation authority is a government agency responsible for the intake of government revenue, including taxes and sometimes non-tax revenue. Depe ...
. 1982.
Alternatively, some homeowner associations may qualify under Section
501(c)(4) A 501(c) organization is a nonprofit organization A nonprofit organization (NPO), 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 ...
instead. A homeowner association that provides only social and recreational activities may qualify under Section
501(c)(7) A 501(c) organization is a nonprofit organization in the Law of the United States#Federal law, federal law of the United States according to Internal Revenue Code and is one of over 29 types of nonprofit organizations exempt from some Taxation i ...
. * 529 – Qualified tuition plans operated by a state or educational institution.529 Plans: Questions and Answers
. ''Internal Revenue Service''. 24 August 2015.
* 4947(a)(1) – Non-exempt charitable trusts that have exclusively charitable interests. * 4947(a)(2) – Split-interest trusts. * 115(1) – Entities that derived their income a public utility or the exercise of any essential governmental function and accruing to a state or municipality. * 115(2) – States and municipalities. * 892(a) – Foreign governments.Bloom, James F.; Luft, Edward D.; Reilly, John F. (1992).
Foreign Activities of Domestic Charities and Foreign Charities
. ''Exempt Organizations Continuing Professional Education Text''. Internal Revenue Service. p. 5.
* 892(b) – Public international organizations or international-organization preparatory commissions in which the Government of the United States participates.


Notes


References


Further reading

* * Hamburger, Philip, ''Liberal Suppression: Section 501(c)(3) and the Taxation of Speech'', University of Chicago Press (2018).


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