Deeper Dive - Looking at other tax-exempt entities - November 8, 2022
Let's get to know the other members of the 501(c) family.
In last week’s rundown, I mentioned some of the other little known 501(c) organizations that exist in the Internal Revenue Code; groups like 501(c)4s and 501(c)6s. It opened up a conversation on what these other tax exempt entities look like and what they do. Let’s take a look at the other tax exempt entities that are out there.
501(c) organizations are exempt from federal income taxes under the Internal Revenue Code (these organizations are referenced in 26 USC Sec. 501 (c)). The code actually refers to other 29(!) different types of tax exempt organizations. This is a quick primer on what those other organizations are and how they get their tax exempt-status. We won’t cover all of them, but some of the ones you might run into time to time in the nonprofit world.
501(c)4 - Social Welfare Organizations
Social welfare organizations are exempt under Section 501(c)4 and these organizations can be entities like neighborhood associations or civic associations, but it is important to recognize that it is not a member-benefit organization. The benefit is for a wider audience. 501(c)4 organizations do not apply to be a tax-exempt organization. Rather, they file an IRS Form 8976, which simply notifies the IRS that the organization will operate under 501(c)4. Donations to these organizations are not exempt from an individual’s income taxes.
501(c)5 - Labor, Agricultural and Horticultural Organizations
This is how most agricultural co-ops and labor unions are organized. The laws allow limited political activities, such as the ability to influence legislation. These organizations are member-based organizations and dues paid to a 501(c)5 are tax-deductible on individual income taxes. 501(c)5’s must disclose donors that gave more than $200 in political activity, which is broadly defined as advocating for the election or defeat of a particular candidate. 501(c)5’s apply for tax-exempt status using IRS Form 1024.
501(c)6 - Business Leagues, Chambers of Commerce
Many local downtown merchant associations and Chambers of Commerce are tax-exempt under Section 501(c)6. These again are member based organizations, much like a 501(c)5. Dues paid and generally exempt from business income taxes. Like 501(c)5’s, (c)6’s must disclose donors that gave more than $200 in political activity, which is broadly defined as advocating for the election or defeat of a particular candidate. 501(c)6’s also apply for tax-exempt status using IRS Form 1024.
501(c)7 - Social and Recreation Clubs
Entities such as country clubs, hunting clubs, gardening clubs, alumni associations are exempt under Section 501(c)7. These organizations can’t discriminate, however that can put good faith limits on members to further certain ideals that are held by the limited membership of the group. These groups can earn income from renting out their facilities, but there are restrictions. These organizations also file Form 1024 for tax exemption.
501(c)10 - Domestic Fraternal Societies
Groups like the local Elks Club or Moose Club are organized under section 501(c)10. These are membership based groups that operate within a “lodge system” where there are multiple similar organizations around the country. They devote all net earnings to 501(c)3 causes and they do not provide life, health, accident or insurance to their members. These organizations also file Form 1024 for tax exemption.
501(c)19 - Veterans’ Organizations
Groups that are formed with at least 75% of their membership of active-duty or retired military are eligible for tax-exempt status under Section 501(c)19. Donations are tax-exempt for donors from federal income taxes. And these organizations must see that the post or organization is organized in the United States or any of its possessions, that at least 75% of the members are past or present members of the U.S. Armed Forces and that at least 97.5% of all members of the organization are past or present members of the U.S. Armed Forces, cadets (including only students in college or university ROTC programs or at armed services academies) or spouses, widows, widowers, ancestors, or lineal descendants of any of those listed here, and that no part of net earnings inure to the benefit of any private shareholder or
individual.
Other Organizations and a Disclaimer
There are other nonprofit organizations in your community as well that you might never realize were nonprofits. These type groups include cemeteries (501(c)13s), credit unions (501(c)14s), local mutual ditch and telephone cooperatives (501(c)12s).
Also, the information here simply scratches the surfaces about the nuances of these organizations. Those that are interested in these organizations should consult a nonprofit professional or at least look at the Internal Revenue Service website for more information.