| URL | https://Persagen.com/docs/501c_organizations.html |
| Sources | Persagen.com | Wikipedia | other sources (cited in situ) |
| Source URL | https://en.wikipedia.org/wiki/501(c)_organization |
| Date published | 2021-07-20 |
| Curator | Dr. Victoria A. Stuart, Ph.D. |
| Curation date | 2021-07-20 |
| Modified | |
| Editorial practice | Refer here |
| Summary | A 501(c) organization is a nonprofit organization in the federal law of the United States according to Internal Revenue Code Section 501(c) and is one of over 29 types of nonprofit organizations exempt from some federal income taxes. 501(c) organizations can receive unlimited contributions from individuals, corporations, and trade 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, or preventing cruelty to animals. |
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A 501(c) organization is a nonprofit organization in the federal law of the United States according to Internal Revenue Code Section 501(c) (26 U.S.C. § 501(c)) and is one of over 29 types of nonprofit organizations exempt from some federal income taxes. 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, corporations, and trade 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, or preventing cruelty to animals.
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.
| Corporations Organized Under Act of Congress, including Federal Credit Unions and National Farm Loan Associations | |
| Title-holding Corporations for Exempt Organizations | |
| Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations | |
| Civic Leagues, Social Welfare Organizations, and Local Associations of Employees | |
| Labor, Agricultural and Horticultural Organizations | |
| Business Leagues, Chambers of Commerce, Real Estate Boards | |
| Social and Recreational Clubs | |
| Fraternal Beneficiary Societies and Associations | |
| Voluntary Employee Beneficiary Associations | |
| Domestic Fraternal Societies and Associations | |
| Teachers' Retirement Fund Associations | |
| Benevolent Life Insurance Associations, Mutual Ditch or Irrigation Companies, Mutual or Cooperative Telephone Companies | |
| Cemetery Companies | |
| State-Chartered Credit Unions, Mutual Reserve Funds | |
| Mutual Insurance Companies or Associations | |
| Cooperative Organizations to Finance Crop Operations | |
| Supplemental Unemployment Benefit Trusts | |
| Employee Funded Pension Trust (created before 25 June 1959) | |
| Post or Organization of Past or Present Members of the Armed Forces | |
| Group Legal Services Plan Organizations | |
| Black Lung Benefit Trusts | |
| Withdrawal Liability Payment Fund | |
| Veterans Organizations | |
| Section 4049 ERISA Trusts | |
| Real Property Title-Holding Corporations or Trusts with Multiple Parents | |
| State-Sponsored Organization Providing Health Coverage for High-Risk Individuals | |
| State-Sponsored Workers' Compensation Reinsurance Organization | |
| National Railroad Retirement Investment Trust | |
| Qualified Nonprofit Health Insurance Issuers |
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, e.g., 26 U.S.C. § 6033, and 26 U.S.C. § 6050L. 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 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. It is the product of the February 2019 merger of GuideStar with Foundation Center.] 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.
A 501(c)(7) organization is a social or recreational club that is organized for pleasure, recreation, and other nonprofitable purposes. 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. 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. Examples include college alumni associations; college fraternities or college sororities operating chapter houses for students; country clubs; amateur sport clubs; supper clubs that provide a meeting place, library, and dining room for members; hobby clubs; and garden clubs.
A substantial amount of the 501(c)(7) organization's activities must be related to social and recreational activities for its members. 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.
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.
The predecessor of Internal Revenue Code Section 501(c)(7) was part of the Revenue Act of 1913, 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.
A 501(c)(8) organization is a fraternal benefit society.
The society must have members of a similar calling, recreation, or profession, or members who work together to accomplish a worthy goal. 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.
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.
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."
Fraternal benefit societies trace their lineage back through mutual benefit societies, friendly societies, and eventually to medieval guilds. 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.
A 501(c)(13) organization is a certain type of cemetery company.
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. 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. 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, 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 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. 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.
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 1913 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).
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