While I.R.C. § 501(c)(3) organizations must advance a charitable purpose such as religion, education or public assistance, I.R.C. § 501(c)(6) nonprofit associations typically help small businesses advance their industry or business community. To qualify for the tax exemption allowed under § 501(c)(6), a nonprofit’s entire earnings must be reinvested into the organization and may not benefit any individual member or shareholder.
The Tax Code provides that certain types of organizations qualify as § 501(c)(6) organizations, including business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues, not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.
Regulation 1.501(c)(6)-1 further provides the following:
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. It is an organization of the same general class as a chamber of commerce or board of trade. Thus, its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons.
An organization’s activities which serve the individual business interests of the owner of a shopping center, or which relate to such matters as the maintenance and policing of the shopping areas, parking areas and walkways, hours of business, and other similar functions, do not qualify as activities characteristic of a § 501(c)(6) organization. Such activities are not directed at improvement of business conditions of one or more lines of business or business conditions of any community as a whole, within the meaning of section 501(c)(6).
These activities fail to support any § 501(c)(6) exemption for any organization because they primarily serve the special interests of the members related to their status as tenants of a common facility rather related to their status as representatives of the commercial interests of a certain business community.
If you have any questions as to whether your organization qualifies for a 501(c)(6) exemption, or 501(c)(3) exemptions under the Internal Revenue Code, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com for a FREE consultation. Call 212-490-0704 today.
