What Is a 501(c) Nonprofit?

By Jennifer Kiesewetter, J.D.

What Is a 501(c) Nonprofit?

By Jennifer Kiesewetter, J.D.

Nonprofit exemptions under Internal Revenue Code Section 501(c) are complex and numerous. The Internal Revenue Service recognizes 29 different types of nonprofit organizations that are exempt from federal taxes. Certain 501(c) organizations are more popular than others. For example, of the over 1.5 million 501(c) organizations in the United States, 70 percent are 501(c)(3) organizations.

Hand holding marker behind non-profit-related terminology

If you're planning to form a 501(c) nonprofit organization, it is helpful to understand the most common types of 501(c) nonprofit organizations.

501(c)(3) Nonprofits

501(c)(3) nonprofits are categorized by missions: charitable, educational, religious, literary, or scientific; groups that engage in national or international amateur sports; groups testing for public safety; or groups involved in the prevention of cruelty to children or animals. An example of a 501(c)(3) nonprofit is a charitable hospital or a Red Cross chapter.

To create a 501(c)(3) nonprofit, you must first create a corporation and then apply for 501(c)(3) status. To apply, file an Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code (Form 1023). Contributions to 501(c)(3) nonprofits are tax-exempt.

501(c)(4) Nonprofits

501(c)(4) nonprofits are often confused with 501(c)(3) nonprofits, but they are distinct. 501(c)(4) organizations include social welfare organizations, local associations of employees, and civic leagues. These organizations promote educational, recreational, charitable, and community welfare missions. An example of a 501(c)(4) nonprofit is a rotary club or a volunteer fire station.

After establishing a corporation, you can apply for 501(c)(4) nonprofit status by filing an Application for Recognition of Exemption Under Section 501(a) (Form 1024).

501(c)(5) Nonprofits

Labor or agricultural unions are often 501(c)(5) organizations. The purpose of giving these unions a nonprofit exemption status is to enable unions to better the lives of laborers and farmers that are union members. Examples of unions having this status are the Teamsters and the UAW.

You also file Form 1024 to apply for 501(c)(5) nonprofit status. Union dues are often deductible as a business expense but not as a charitable expense.

501(c)(6) Nonprofits

Most 501(c) nonprofits don't turn a profit. However, a 501(c)(6) can turn a profit and still obtain the 501(c) tax exemption. To qualify as a 501(c)(6) nonprofit, the organization must be an association or a league united for a common purpose. The common purpose could be giving business owners a united voice to affect change furthering common business interests in a community. A controversial example of a 501(c)(6) nonprofit is the National Football League.

To apply for a 501(c)(6) nonprofit status, use Form 1024. Like with 501(c)(5) organizations, club or association dues are often deductible as a business expense but not as a charitable expense.

501(c)(7) Nonprofits

Fraternal beneficiary societies and associations and other social clubs can qualify for a 501(c)(7) nonprofit status. These groups, however, must operate with a chapter or lodge system. Additionally, they must prove that they offer benefits to their members, such as discounted insurance or travel benefits. Examples of 501(c)(7) nonprofits are the Knights of Columbus and the Modern Woodmen of America. An application for 501(c)(7) nonprofit status also uses Form 1024.

No matter what type of organization you form, strict compliance requirements accompany 501(c) nonprofits because of the federal tax exemption—both with operating the organization and complying with federal regulations. You can hire an online service provider to assist you in understanding nonprofit law or by explaining your options.

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