Although section 501(c)(3) of the Internal Revenue Code is the most common source of tax-exempt status for nonprofit organizations, other sections of the IRC provide tax-exempt status for some nonprofits, as well. For example, business leagues or trade associations are nonprofit organizations tax-exempt under section 501(c)(6) of the Internal Revenue Code. As the laws governing nonprofit organizations and tax-exempt status can be complex, the California Center for Nonprofit Law can help you navigate all applicable federal and state laws.
We determine whether exemption under section 501(c)(6) or a different type of tax-exempt entity is right for your organization. Our attorneys can also advise you concerning the requirements of your organization’s tax-exempt status to remain compliant and in good standing with the Internal Revenue Service. Finally, we can help ensure that you comply with all relevant laws to help your nonprofit organization continue to grow and achieve its goals.
Defining Business Leagues Under the IRC
According to the IRC, 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.” A business league’s activities must be designed to improve the business conditions of one or more lines of business, such as the conditions of a particular trade or interest of the community.
Business leagues are nonprofit organizations exempt from federal income taxes under section 501(c)(6). However, these associations differ from charitable organizations regarding member involvement, permissible benefits, and restrictions on political activity.
Membership Involvement
To be tax-exempt, business leagues must have members to provide “meaningful membership support” by paying dues and/or being engaged in organizational activities. A business league may have multiple membership tiers based on members’ financial support, such as association, student, and honorary tiers. However, the IRS does not consider lesser membership tiers when measuring membership support for a business league to determine eligibility and compliance under section 501(c)(6).
Permissible Benefits
The net earnings of a business league must benefit the organization, not any of its members. As a result, members may not receive any financial assistance or welfare benefits. Business leagues also cannot use non-member income to benefit members through rebates or reduced association dues.
Nonetheless, members can receive some minimal benefits from business leagues to which they belong, such as newsletters. They also may indirectly benefit from the operations of their private businesses as the result of the efforts of the business league to promote common business interests.
Restrictions on Political Activities
Unlike section 501(c)(3), section 501(c)(6) places no restrictions on nonprofit organizations that wish to engage in lobbying. More specifically, business leagues may participate in “an unlimited amount of lobbying, provided that the lobbying is related to the organization’s exempt purpose”.
Another difference between 501(c)(3) and 501(c)(6) organizations is their ability to participate in political campaign activities. 501(c)(6) business leagues may engage in political campaign activities if those activities are not their organization’s primary activities. However, political expenditures may be subject to taxes.
We Can Help Your Business League with Its Legal Needs
All nonprofit organizations, including business leagues, need legal guidance and advice in their day-to-day operations and periodic legal issues as they arise. You can rely on the California Center for Nonprofit Law to ensure your business league’s compliance with all applicable laws and regulations. In addition, we can help guide you through the maze of federal and state laws that affect your organization while you focus on furthering your organization’s goals.
We are here to represent the legal interests of your nonprofit organization. Call the California Center for Nonprofit Law today at 949-892-1221, email us at info@NPOlawers.com or contact us online to learn more about the services we can provide your business league, trade association, or other nonprofit organization.