501(c)(5) Organizations

Background

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 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.

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. 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. 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 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 is required to enforce this provision based on a federal court decision in 2018.

Additional Reading

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