For many people, the term "tax-exempt 501(c) organization" brings to mind a charitable entity that's exempt for tax purposes under section 501(c)(3) of the Internal Revenue Code (IRC). But nonprofit organizations eligible for exemption under 501(c) don't have to be charitable organizations, and the IRC offers a number of exemptions for nonprofits under 501(c), including those that qualify for exemption under 501(c)(6).
What Is a 501(c)(6)?
- Business league. According to the Internal Revenue Service (IRS), a business league is “an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit." Trade associations and professional associations both qualify as business leagues.
- Chamber of commerce. Chambers of commerce are similar to business leagues, but their purpose is the promotion of the common business interests of all commercial enterprises within its trade community.
- Board of trade. Much like a chamber of commerce, a board of trade's purpose is the promotion of the common business interest of its members within its trade community.
- Real estate board. A real estate board's membership shares a common interest in improving business conditions within the real estate industry.
- Professional football league. Organizations under this category must be professional, rather than amateur, football leagues.
Other 501(c)(6) Requirements
Other requirements of a 501(c)(6) organization include:
- It must be an association of persons with a common business interest, whose purpose is to promote those common business interests.
- It must focus on improving the business conditions of a line of business. In this case, “line of business" means either an entire industry or all parts of an industry within a specific geographic area, rather than any particular brand within that industry.
- Its purpose does not include engaging in the activities of a regular business carried on for profit. This is so even if the organization operates as a co-op or intends to produce just enough income to be self-sustaining.
- No part of the organization's net earnings can inure to the benefit of any individual or private shareholder.
501(c)(6) Organizations vs. Charitable Organizations
While 501(c)(6) organizations and charitable organizations, such as a 501(c)(3), are not operated for profit, they have significant differences:
- Tax effect of contributions. While contributions or donations to a 501(c)(3) organization are tax-deductible, dues, fees, or other contributions made to a 501(c)(6) organization are not considered charitable donations and are only deductible if they qualify as a business expense on the part of the individual or entity making the contribution.
- Political activities. Political activities, including lobbying, are generally off limits for charitable organizations, but a 501(c)(6) does not face similar limitations and can normally engage in such activities. However, 501(c)(6) organizations are required to disclose the percentage of the membership fees that go toward lobbying activities.
How to Apply for 501(c)(6) Status
Organizations applying to the IRS for exempt status under 501(c)(6) will need to fill out and submit:
- Form 1024, Application for Recognition of Exemption Under Section 501(a)
- Form 8718, User Fee for Exempt Organization Determination Letter Request
- Appropriate filing fee
Organizations applying for either 501(c)(3) or 501(c)(4) status have a different form to fill out. If your organization meets IRS requirements for exemption under 501(c)(6), you can apply for recognition of exempt status using Form 1024.
You also need an Employer Identification Number (EIN) for your organization before applying. If you don't have an EIN, obtain one before you file your completed Form 1024. To apply for an EIN, submit Form SS-4, or apply by phone or online.
Public Access to Your Information
Once you've received tax-exempt status, your organization will be required to have available to the public the approval of your application for recognition of exemption, any supporting documents, and the last three annual information returns filed by your organization.
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