Are you interested in finding out just what a 501(c)(6) organization really is? Even though 501(c)(3) is the term you hear most often associated with nonprofit organizations, this is not the only type of Internal Revenue Service (IRS) recognition for not for profit status. Find out more about 501(c)(6) status.
What Is a 501(c)(6) Organization?
Organizations designated as 501(c)(6) entities by the IRS are officially recognized as nonprofit organizations that are exempt from federal taxes. Rather than existing for a charitable, religious, literary, or scientific purpose, as is required for 501(c)(3) status, these types of organizations function as business leagues. In order to qualify for 501(c)(6) status, business leagues must not be organized for the purpose of turning a profit. None of the organization's net earnings can be used for the benefit of an individual or shareholder in the organization.
There are several types of business leagues. Examples include Chambers of Commerce, Boards of Trade, and professional organizations. These types of organizations represent the common business interests of members, but cannot engage in business activities that are customarily associated with efforts to earn a profit. To qualify for classification as a 501(c)(6), an organization's mission must be focused specifically on advancing the interests of the community, trade, or industry that the entity serves.
The activities of a 501(c)(6) organization activities must be focused on improving business conditions for one or more particular "lines of business" that the entity represents rather than profit seeking activities. The phrase "line of business" can refer to a specific industry overall, or within a specific geographic area. In the case of a Chamber of Commerce, rather than focusing on a particular industry, the organization represents the interests of all business entities doing business within a specific community or region. Organizations or associations that focus specifically on promoting or selling a particular brand are not eligible for nonprofit status.
For example, a professional association of Certified Public Accountants may conduct an educational campaign about the benefits of working with a CPA or may lobby for legislation favorable to the profession. However, the organization cannot engage in the practice of providing fee-based accounting services or focus on promoting the services of a specific CPA firm. It is important to note that 501(c)(6) organizations that do engage in lobbying activities are often required to disclose to members the proportion of membership dues that are use for such a purpose.
How to Apply for 501(c)(6) Status
To apply for 501(c)(6) status, it is necessary to complete and submit IRS Form 1024, Application for Recognition of Exemption Under Section 501(a)* and IRS Form 8718, User Fee for Exempt Organization Determination Request. All requested information must be provided and the completed forms must be signed by an officer, trustee, or individual with power of attorney who is authorized to sign on behalf of the organization. The correct fee must be sent in with the forms.
Information and documents necessary to complete the application paperwork include:
- Full name of organization
- Address, telephone number, and website address
- Employer Identification Number (if available)
- Description of activities of the organization
- Date of incorporation or formation
- Articles of Incorporation, Association, or other creating document
- Bylaws
- Names and contact information for officers, directors, and trustees
- Financial statements
- Sources of financial support (present and expected)
- Details about capital stock outstanding (if applicable)
- Description of membership qualifications
- Additional relevant information
Want to Learn More?
To find out more about the process of applying for IRS tax exemption recognition for your business association or other nonprofit organization, review IRS Publication 557, Tax Exempt Status for Your Organization.
