Introduction
When we think of nonprofits, our minds often drift toward charities and philanthropic organizations. However, the world of nonprofits encompasses a wide variety of entities, including those that might not fit the traditional mold of a charitable organization. One such category is the 501(c)(6) organization (in the United States), which serves to support the business interests and activities of its members.
Here, we’ll delve into the intricacies of obtaining 501(c)(6) status, from understanding its definition to the step-by-step process of attaining this special status.
For those unfamiliar with this type of nonprofit, the Internal Revenue Service (IRS) provides a comprehensive resource that sheds light on the concept. In the following sections, we will explore what a 501(c)(6) organization is, highlight its differences from the more familiar 501(c)(3) entities, and provide a step-by-step guide on how to achieve 501(c)(6) status.
Table of Contents
- What is a 501(c)(6) organization?
- What’s the difference between 501(c)(3) and 501(c)(6)?
- How do organizations qualify for 501(c)(6) status?
- How to Get 501(c)(6) Status: 7 Steps
- Draft a Mission Statement and Bylaws
- Assemble a Board
- Recruit members
- Submit IRS Form SS-4
- File Articles of Incorporation
- Complete IRS Form 1024
- Reach out to Local, County, and State Departments of Revenue
- Wrapping Up: Making the Most of 501(c)(6) Status
What is a 501(c)(6) organization?
A 501(c)(6) organization is a specific nonprofit that focuses on advancing its members’ business interests and industry activities. Unlike traditional charitable organizations, which aim to alleviate societal issues, 501(c)(6) entities are driven by enhancing the collective interests of professionals, associations, and commercial groups.
What are examples of 501(c)(6) Organizations?
Let’s consider some common examples of 501(c)(6) organizations to provide a clearer picture:
- Chambers of Commerce: These entities work tirelessly to boost local economies by advocating for business growth, promoting networking opportunities, and offering valuable resources.
- Professional and Trade Associations: Organizations like these unite professionals in a particular industry, fostering collaboration, knowledge-sharing, and setting industry standards. Some even partake in advocacy work.
- Real Estate Boards: A 501(c)(6) real estate board focuses on improving real estate practices, ensuring ethical conduct among agents, and advancing industry regulations.
- Professional Football Leagues: Don’t be fooled by the name; this categorization can use some wordsmithing but refers to the designation by the IRS of any formalized sports league that has members acting in a common interest for the sport.
Consider the Greater Raleigh Chamber of Commerce, a 501(c)(6) organization in Raleigh, North Carolina. By providing networking events, business development opportunities, and advocating for local commerce, the Chamber supports the prosperity of the Raleigh business community.
What are some benefits of Starting a 501(c)(6) Organization?
There are several compelling reasons why organizations might seek 501(c)(6) status:
Tax Exemption
While not as encompassing as 501(c)(3) organizations, 501(c)(6) entities still enjoy some level of tax exemption.
Enhanced Credibility and Trust
Attaining this status can bolster an organization’s credibility, instilling trust among potential partners, members, and stakeholders.
Ability to Engage in Lobbying
501(c)(6) organizations have more flexibility to participate in lobbying activities, advocating for industry-friendly policies.
Ability to Participate in Political Activity
These entities can engage in a limited amount of political activities, allowing them to voice opinions on issues affecting their members.
Difference between 501(c)(3) and 501(c)(6)
Here are the main distinctions between the two types of nonprofits:
Purpose of the Organization
501(c)(3) organizations focus on charitable endeavors, while 501(c)(6) organizations work to further the interests of their members’ businesses.
Tax-Exempt Status
501(c)(3) nonprofits achieve tax-exempt status through IRS Form 1023 or Form 1023-EZ, while 501(c)(6) organizations require Form 1024.
Reporting Donor Information
501(c)(6) entities aren’t obliged to report donor information to the IRS, but donor activity, revenue and how donations are used are required reporting for 501(c)(3) organizations.
Tax-Deductible Donations
While donations to 501(c)(3) charities are tax deductible, donations to 501(c)(6) organizations are not.
Political Activity
501(c)(3) nonprofits face strict limitations on political activities, with only a percentage of donor funds allowed for lobbying and precise reporting. Rules for 501(c)(6) activity are far less limiting.
How do organizations qualify for 501(c)(6) status?
To qualify for 501(c)(6) status, organizations should have the following characteristics:
- Membership: The organization must be a membership-based group.
- Common Business Interest: The group should focus on advancing the business interests of its members.
- Non-Distribution: Profits generated must be used to support the organization’s purposes rather than being distributed to members.
How to Get 501(c)(6) Status: 7 Steps
Now, let’s break down the process of obtaining 501(c)(6) status:
Draft a Mission Statement and Bylaws
Clearly define your organization’s mission and establish bylaws that outline its purpose, structure, and operational guidelines.
Assemble a Board
Recruit and attract board members who will be responsible for governance and decision-making. These individuals will help influence members, legislators and build your associations strategic direction.
Recruit Members
Attract and learn how to retain members who align with your organization’s purpose and can benefit from its services.
Submit IRS Form SS-4
Apply for an Employer Identification Number (EIN) using IRS Form SS-4 to identify your organization for tax purposes.
File Articles of Incorporation
Create and file Articles of Incorporation with your state’s appropriate agency.
Complete IRS Form 1024
File IRS Form 1024 to officially request recognition as a 501(c)(6) organization.
Reach out to Local, County, and State Departments of Revenue
Check with local authorities for any additional requirements related to your organization’s status, as this can vary across states and local governments. This isn’t a comprehensive list and there will inevitably be other steps to getting started!
Wrapping Up: Making the Most of 501(c)(6) Status
In conclusion, 501(c)(6) organizations play a vital role in advocating for business interests, fostering collaboration, and promoting industry growth. By understanding the nuances of 501(c)(6) status and following the outlined steps, your organization can navigate the process of obtaining this special designation. Remember that achieving 501(c)(6) status can unlock numerous benefits, providing your organization with a platform to make a lasting impact within its industry.
For readers interested in learning how to improve their membership programs, feel free to explore the resources available through MemberClicks and Wild Apricot by Personify.
Additional Reading for Your Enjoyment
- 8 Steps to Start an Association
- How to Start a Chamber of Commerce in 7 Steps
- Chamber of Commerce Software Solutions
- Leading Association Management Software Options
Note: This blog post is intended to provide general information and guidance on the topic of obtaining 501(c)(6) status. The process may vary based on specific circumstances. It’s always a good idea to consult with legal and financial professionals as you develop your business plan.
