A 501c6 nonprofit organization promotes common business interests without generating any profit for itself. No shares or dividends are paid to any of the individuals and none of the board members make profit from the organization’s income.
Because of this, these kinds of nonprofits are exempt from paying income tax. 501c6 nonprofits are allowed to collect contributions from individuals and corporations to carry out their activities.
Requirements For 501c6 Organizations
IRS has the following requirements for an organization to be classified as a 501c6 nonprofit,
- The organization should not work for profit.
- Shareholders and individuals of the organization should not benefit from its net earnings.
- The organization should have a solid membership base.
- All the members should have common business interests and the purpose of the organization must be to promote this interest.
- The organization must not provide any services for individuals but for the group.
Types Of 501c3 Organizations
Business Leagues – In simple terms a business league is a group of people who share a common business interest. The purpose of a business league is to promote its business interests instead of carrying on their business just to make profit.
In order to be classified as a business league,
- The organization’s activities must be focused on improving business conditions.
- Private shareholders should not benefit from the organization’s net earnings.
- The organization must have proven membership support.
Trade associations and professional associations usually qualify as business leagues.
Chambers of Commerce – A chamber of commerce is similar to a business league and is composed of merchants and traders of a city. It is established to promote common business interests of all commercial enterprises within its trade community.
Real Estate Boards – Members of a real estate board share a common interest in improving business conditions in the real estate industry. In contrast to other real estate companies, they are not organized for profit.
Boards of Trade – In a board of trade, the members might not share the exact same business interests, but are engaged in similar lines of business. Boards of trade help promote common interests of all the commercial enterprises in a trade community.
Professional Football League – A implied by the name, amateur football leagues do not qualify for the 501c6 status. Only professional football leagues are exempt from tax even if they administer pension funds for football players.
Applying For Exemption Status
In order to apply for 501c6 status, the IRS Form 1024 must be filled and submitted along with the user fee. This form can be found on the official IRS website. The 1024 form includes information like,
- Organizational activities
- Present and future sources of funding
- Name of the officers and directors
- Ties or affiliations to other organizations
- Financial data or records
- Services performed for members
Apart from the above information, you will also need an Employer Identification Number. You should apply for this number after your organization has been legally set up. In order to obtain this number,
- Fill the IRS Form SS – 4 which is available on the official IRS website. You can fill out the physical form and send it to the concerned address.
- You can also apply online and this method is easier and faster. Your EIN will be sent to you by email.
The EIN is used for purposes like opening a bank account and hiring employees for the organization. It is also used for obtaining licenses which your nonprofit will need to carry out future activities.
Conclusion
It is important to note that your organization will need to disclose certain information to the public. This includes your tax exempt determination letter, IRS application and other supporting documents. Copies should also be provided if necessary. Organizations applying for the 501c6 status should follow these information disclosure requirements.
