The Other Nonprofits – 501(c)(4), 501(c)(6) & 501(c)(7)

Note:  This article was originally posted in June 2009.  It has been one of the most read articles we have ever written, averaging nearly 200 views per day 2 years after publication.  It also generates dozens of questions every week, only a few of which we are able to answer.  We apologize in advance if your question is not addressed.

chamber of commerce

The king of the nonprofit world is the 501(c)(3) public charity.  This is what most people mean when talking about a nonprofit.  It has federal income tax exemption, contributions to it are tax deductible to the donor and it is potentially state sales & property tax exempt.  The government provides incentives like these when an organization’s purpose is:  religious, educational, charitable, scientific, literary, testing for public safety, to foster national or international sports competition or prevention of cruelty to children or animals.

But what about the other nonprofit organizations?  What are their purposes and what benefits do they get?

The IRS identifies many categories of tax-exempt organizations, including 501(c) code sections 2-27.  These categories encompass organizational purposes from mutual insurance to farming coops to cemetery associations.  Three particular 501(c) groups, however, make up the bulk of all non-501(c)(3) organizations.  They can obtain federal income tax exemption, but contributions to these organizations are usually not tax deductible to the donor.  They also have specific purposes that determine their classification and what they are allowed to do.  And unlike 501(c)(3) organizations which apply for tax-exemption by filing IRS Form 1023, these organizations have a very different filing application, Form 1024.

Let’s look at three of the most common nonprofits other than the more well known 501(c)(3).  Here’s they are:

501(c)(4)

Civic Leagues, Social Welfare Organizations, etc.
These organizations tend toward advocacy work, political actions, lobbying, environmental purposes, homeowners’ associations and various community associations.  Interestingly, it is not uncommon to find some organizations occupying the ranks of 501(c)(4) that would normally be considered 501(c)(3) if it were not for particular activities such as substantial lobbying or political candidate endorsements…things prohibited under 501(c)(3).

501(c)(6)

Business Leagues, Chambers of Commerce, etc.
Trade associations and professional associations are considered business leagues.  These organizations typically promote higher business practices, better business methods, establish and maintain integrity within an industry and/or operate a trade publication to benefit an entire industry.  Just like with 501(c)(4), some 501(c)(6) organizations have activities that are similar to 501(c)(3), such as educational programs, but are specifically geared toward promoting the business interests of companies or individuals.

501(c)(7)

Social and Recreation Clubs
These are clubs organized for recreation, pleasure, social activities and other similar nonprofit purposes.  These organizations include college fraternities or sororities, country clubs, hobby clubs, garden clubs, etc.  One of the most common types of 501(c)(7)  is the recreational sports league, though ones geared toward kids may qualify for 501(c)(3).

These three 501(c) classifications have a use and provide a beneficial function for the nonprofit world.  They provide a tax-exempt option for people to conduct activities that are not a for-profit business, but do not qualify for a 501(c)(3).  For more information about the all the rest of the 501(c) family, see IRS Publication 557.

 

The Foundation Group provides expert formation and compliance services for all types of nonprofits, including 501(c)(4), (6) and (7). Call us to learn more!

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About Greg McRay

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

194 Responses to “The Other Nonprofits – 501(c)(4), 501(c)(6) & 501(c)(7)”

  1. Apostle Sam Martin July 1, 2009 12:08 am
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    I was wondering, if my church obtained a state tax exemption will I still need to obtain a 501(c)3 for my church… to be exempt as well as protecting the donors?…

    According to what I have just learned this year as I understand it, if a church does not not obtain a 501(c)3 then their contributors will not be able to claim their contributions that were donated.

    • Greg McRay, EA July 6, 2009 12:35 pm
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      Not so. Churches are a unique category of 501(c)(3) in that they are considered federally tax-exempt even without obtaining a formal IRS letter of 501(c)(3) determination. In our opinion, relying on the statutory status is not a good long term plan. Active churches are better served from having an IRS determination letter. But, in the short run, there is no harm in not having it. Donations are still deductible to the donor.

  2. Baseball Mom August 26, 2009 9:24 pm
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    We are currently in the process of starting a travel baseball team, we would like to know if we can register our team as a non-profit organization. Our goal is to eventually start doing some fund raising to cover some of the team’s expenses. Perhaps, we might not be qualified to pursue this avenue. Please advise.

    • Greg McRay, EA September 1, 2009 12:36 pm
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      Baseball mom,

      Yes…youth sports programs can (usually) qualify as 501(c)(3) nonprofits on the basis of being educational. It is often a great way to go. The same steps are involved as is the case with most all 501(c)(3) organizations: nonprofit incorporation followed by seeking 501(c)(3) tax exemption from the IRS.

      We have worked with hundreds of such programs. If you decide to go this route, we can make it easier for you. Good luck!

  3. Helen Savage September 29, 2009 11:54 am
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    Does a 501c4 have to publish the minutes from its monthly board meetings? If so, is it sufficient to post them directly to the 501c4′s website?

    • Greg McRay, EA September 29, 2009 12:38 pm
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      There is no such specific requirement under IRS regulations, but it certainly is not a bad thing to do. Publishing them on the organization’s website is a great place to allow such visibility into the work the board is conducting.

  4. A. Banks November 2, 2009 11:20 am
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    Some of my girlfriends and I are wanting to start a social club. We will mostly do things that are for pleasure and social engagement. We do plan on doing a few charitable things like raising money for Relay for Life, helping with toy drives and food drives, and things of that nature. Is it necessary for us to register with the IRS as a 501 (c) 7?

    • Greg McRay, EA November 3, 2009 1:17 pm
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      Maybe…maybe not. Typically, if your operations will generate less than $5,000 gross revenue (not net), then you can essentially operate it as a “club” of sorts. You can assume 501(c)(7) classification, though you will be doing so without any official designation. If your club will normally receive more than $5k, from all sources, you should take steps to be officially recognized by the IRS, lest you be considered a taxable business.

      • Rick December 6, 2010 10:38 am
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        Can our social club have a fundraiser and receive substantial income (>35% total club income) from non-members? We will ultimately use a large portion of the income to support other charitable groups.

  5. Children Youth and Family Counseling & Consulting, Inc. December 17, 2009 8:00 pm
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    I am a for-profit (tax status) consultant helping child welfare systems learn to use data to improve service delivery. I am getting killed on taxes, and wonder if I can change my status to a 501 c 4. Thanks! Love what I do, but can’t afford to continue with the tax situation!

    • Greg McRay, EA December 18, 2009 12:34 pm
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      It is tough out there for everybody right now…for-profits and nonprofits alike. Not a lot of details in your question, but it doesn’t sound like a 501(c)(4) activity to me. 501(c)(4)s are what’s called social welfare/public benefit organizations. A lot of c4s are advocacy groups like AARP or National Right to Life. Providing a paid consulting service, even if to an exclusively nonprofit client base, will not typically qualify as a tax-exempt purpose under any 501(c) code section. Sounds to me like you need the services of a good tax planning accountant more than you need tax exemption. More than likely, some restructuring of your compensation system will alleviate much of the tax problem. Plus, you probably do not want to give up the level you would have to do.

      Good luck!

  6. Gabe March 2, 2010 2:47 pm
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    I have a c3 and a c4. Our c3 has a IRS determination letter with our 501c3 tax ID number on it. Should our c4 have a letter from the IRS, too?

    • Greg McRay, EA March 3, 2010 9:58 am
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      Absolutely! I assume (hopefully) that the c4 is a separate, legal corporate entity. That would be a good start. But until you have applied for and received tax exemption from the IRS as a 501(c)(4), it isn’t a c4.

  7. Vicki March 21, 2010 5:06 pm
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    I am curious, I am investigating as much as I can. After reading your reply on July 6, 2009. I have a ministry that helps parents of children who have died. I raise money to bury these children. Do I or do I not need a 501 (c) 3.
    And is it expensive to apply for this exemption. Do I also need the (c) 4.
    Thank you, Vicki

    • Greg McRay, EA March 23, 2010 9:24 pm
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      I don’t see any reason you would need a 501(c)(4). And, unless your contributors are expecting a tax deduction, you likely do not need to formalize into a 501(c)(3). I recommend having a financial means-test to determine who to help. If your donors want tax deductibility, of course, you will need to have a 501(c)(3) determination.

  8. Lee March 22, 2010 8:40 pm
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    I’m currently considering creating a non-profit tax-exempt 501(c)(something) organization that would support the income and benefits of a certain government workers for up to 12 months should they get released due to staff reductions, downsizing or contract termination. Interested workers could join, contributing monthly in support of the organization and in order to benefit…this would be the main sounce of organization revenue besides grants and outside donations. Having this program could alleviate state and federal government being burdened with unemployement benefits. The program would also use the released workers to educate high school students on government careers. Would like to know the most beneficial 501(c) to register this under.

    • Greg McRay, EA March 23, 2010 9:41 pm
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      What you are describing is really a form of insurance and, as such, would not qualify. Plus, the only way to alleviate state and federal obligations under current labor law would be to change federal law. Not likely to happen. Great idea, though.

  9. John C Leddy April 27, 2010 3:16 pm
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    We completed and submitted our 1023 Form requesting tax exempt status as a 501c3 organization. We got a brief reply from the IRS stating that we are exempt as a 501c4 organization. This letter came without explanation or even acknowledgement of our 501c3 application. I’m not confident that we’ll be able to grow as a nonprofit since virtually all funding for nonprofits excludes 501c4′s. Their decision feels arbitrary and capricious. Have you ever heard of such treatment? What are the chances that they would change their determination? I’m on hold with the IRS waiting to speak with someone.

    • Greg McRay, EA May 5, 2010 11:22 pm
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      I have often seen organizations that thought they qualified for 501c3, but were better suited to another code section like 501c4. I don’t think we have ever seen the IRS just issue a determination letter as something other than what you filed for. That should have required that you reapply via Form 1024. Are you sure that what you got wasn’t a response letter from your case reviewer that you are better suited for 501c4?

  10. Mike May 4, 2010 4:55 pm
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    We have a non-profit that has been filing as a 501(c)3. During 2009, we realized that our activities lent to us being a better fit as a 501(c)6. We filed with the IRS in December, and in February they accepted us as being a 501(c)6.

    My question is, for our tax return due for 2009, do we file as a 501(c)6 for the entire year? Do we need to do a partial year, or are we not allowed to file the 990 as a 501(c)6 until 2010?

    • Greg McRay, EA May 5, 2010 10:43 pm
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      I’m not sure how to answer this one without more info. Look at the effective date on your IRS determination letter. If it is backdated into 2009, you probably need to file as a 501c6, but there are other factors. I recommend you seek assistance with this to make sure you do it right. We prepare hundreds of 990s every year, so let us know if you need help.

  11. Karissa Sullivan June 18, 2010 2:10 pm
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    I am also a baseball mom and we are putting together some summer ball leagues. We are fixing to file for our 501c3 as an educational organization. Currently we only have funds from parents as registration fees. We plan to do some fundraising and also taking donations. My question is that we might in the future pay experienced coaches to coach the players. If we do this do we need to file for a 501c7? What are the differences between the two? I read somewhere that are donations would not be a tax write off for our donars if we are a 501c7. Can we be a 501c3 and pay a coach?

    Thanks,
    Karissa Sullivan

    • Greg McRay, EA June 18, 2010 3:04 pm
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      You absolutely CAN pay a coach as a 501(c)(3). Not a problem. A c7 is a recreational organization and some sports groups file under this…especially adult groups. Kids’ sports are usually filed under c3, however, because it is considered educational to promote athletics to children. And, you are correct. Donations to c7 groups are not tax deductible.

  12. Jen July 8, 2010 11:54 am
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    Can you use a 501(c)(6) status to apply for grants, or do you need to have a 501(c)(3)? Which status would you recommend as best suited for a farmers’ market? Thank you!

    • Greg McRay, EA July 12, 2010 11:23 am
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      501(c)(6) organizations can apply for grants if the grant maker allows for that in its criteria. Having said that, most grants are intended for charitable organizations.

      As to your farmer’s market question, most do not qualify for 501(c)(3). You are more likely to find them organized as 501(c)(5) or 501(c)(6).

  13. Erin July 13, 2010 3:05 pm
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    I am trying to help an amature adult baseball team get off the ground. We find that alot of local businesses require that organizations have a non-profit id to participate in their programs. I don’t belive we can file as a 501(c) (3) since we are not a youth team, but can we file as a 501(c)(7) org? I have also read that if your organization budget is under $5,000 you may not have to register, but can still be function as a 501(c)(7) how does that work?

    Any information would greatly help!

    Thanks!

    • Greg McRay, EA July 14, 2010 2:43 pm
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      Erin…Your organization most likely would qualify as a 501(c)(7) given its recreational nature. “Adult” is the key here. Children’s sports programs can usually qualify as 501(c)(3)s due to it being considered educational. Having said that, your organization can operate as a defacto 501(c)(7) without having to apply to the IRS if it has less than $5k in revenue per year. You basically fly under the radar and get left alone by Uncle Sam. The problem with that lies with the businesses, though. Most will want to see official IRS recognition of your tax-exempt status. For many of them, just saying we are will not be enough.

  14. JM July 27, 2010 11:09 am
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    Greg – great post and lot of good info in your comments

    I am thinking of starting a business league to improve business conditions in my state for a particular industry. It would conduct mostly advocacy, but would also lobby during the state’s regular session(s); however, it would not give directly to candidates for office. From what I’ve been reading here and elsewhere, it seems to be best suited as a (c)6. Agree?

    Subsequently, would business donors possibly be able to deduct as a business expense their dues, or a portion thereof, on their tax returns if the “league” does get (c)6 status? Same question for sponsors/donors who give over any dues amount.

    • Greg McRay, EA July 28, 2010 11:14 pm
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      Sounds like a 501(c)(6) would indeed be the way to go. You are correct that dues, while not deductible as a charitable donation, can be considered a deductible business expense. Voluntary donations above the cost of dues may not be deductible, however, due to the lack of attributable expense category. You might be able to consider it a lobbying expense if it were designated toward such efforts. Sort of a gray area…

  15. curious August 19, 2010 3:42 pm
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    Are 501(c)7 organizations subject to the same private benefit test as 501(c)3 organizations. For instance, could a 501(c)7 organization members sell holiday wrapping paper to offset each individuals cost of travel to tournaments? I understand that this practice, although common, is illegal.

    • Greg McRay, EA August 22, 2010 10:14 pm
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      Great question. With a 501c7, you do not have tax deductibility of contributions like you do with a 501c3, so the rules are usually more flexible. That being said, private inurement rules still apply. Your example of the wrapping paper sale is NOT acceptable in the eyes of the IRS. You’re right…it happens all the time, but improperly.

  16. tom August 24, 2010 9:22 pm
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    Greg- i’m on the board of a small private golf club. Our status is 501(c) as per our tax returns. I would think it should be a 501(c) (7). One – does that matter, and two,what are some of the benefits that we should be taking advantage of with that classification? Is there an easy to understand site that I can go to that has a list of benefits? Thanks- tom

    • Greg McRay, EA October 26, 2010 2:55 am
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      Your status is almost certainly 501c7. Go to http://www.IRS.gov and click on the Charities and Nonprofits tab. Once there, click on Search for Charities on the left sidebar…you should be able to look up the status there. As far as understanding 501c7, start with IRS Publication 557. Good luck!

  17. KS September 4, 2010 3:27 pm
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    My organization is a 501 (c) (6) status. Are we allowed to request and accept donations as long as the donors are not writing them off as a tax exempt donation?

    • Greg McRay, EA September 8, 2010 10:10 pm
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      Yes. Just make sure you clearly communicate this donors.

  18. AshleyK September 19, 2010 3:43 pm
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    My organization is currently a c3, but we are hoping to also start a c4 so that we can get involved in more political advocacy. Is there any sort of checklist available for me to follow so that I can ensure we do everything correctly? I do not want to overlook anything in the process as we form at the state level (California) and then move on to the federal c4 application.

    Thanks!

  19. Scott October 5, 2010 6:34 pm
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    What is the best 501 to file under for a competitive cheer team who have parents who want to do fundraising and have the money earned go towards individual accounts of the people who did the fundraising.

    • Greg McRay, EA October 12, 2010 4:05 am
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      If it is restricted to those 18 and under, I would tend to recommend 501(c)(3). This IRS will view this as eduational. If it involves adult participants over 18, it would have to be strictly amateur and involve strictly structured tournament play to be c3. Anything that bends toward social or recreational would need to file as a 501(c)(7).

  20. Felicity October 7, 2010 3:43 pm
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    I know that as a 501c6 my organization is not eligible for federal grants, but I’m wondering if we can apply for grants from state agencies?

    • Greg McRay, EA October 12, 2010 9:57 am
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      Depends on the state and/or agency involved and what your organization is trying to accomplish. Many non-c3s receive some funding from government sources, but it is usually very, very targeted.

  21. Cindy October 12, 2010 2:02 pm
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    I started a support group for prisoners families. Is there any type of funding to help with this cause. I do have plenty of support, but no funding. What would be the best way to raise funds or the best route to take?

  22. Stacie October 19, 2010 6:51 pm
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    We are a 501 c6. Are we ineligible to apply for any grants from any organization (grant programs from 501c3, city grants, etc)?

    • Greg McRay, EA October 26, 2010 2:30 am
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      Eligibility is in the eye of the funder. In other words, it's up to the funder to specifically exclude 501c6 orgs or not. That being said, grants to 501c6s do not usually qualify as a charitable activity by the funder. That's the reason you rarely see it happen.

  23. Susan October 22, 2010 12:56 am
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    My long standing womens sailing group a 501c4 has a couple of also lonstanding questions. Can we make a contribution to a charity ie. a kids sailing organization that is definitely non-profit? Also can we make a profit on ways and means articles we sell (only to each other) in order to fund what we do–fix boats, buy refreshments,etc?

    • Greg McRay, EA October 26, 2010 3:00 am
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      There is nothing keeping a 501c4 from donating to a 501c3. Such giving should represent a very small part of your organization's activities, though. And yes, you can "profit" on the articles sales. Nothing in the code requires you to break even or take a loss.

  24. Richard October 27, 2010 2:32 am
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    We are a homeowner's association part of a historic district. Our HOA is a 501c4. A neighbor wants to donate a small partial of land to us to develop as we see fit ie. small social gathering/park area. Since we are not a 501c3, I presume they cannot classify us as a tax deduction so are there any benefits that he can gain or write off. I checked the tax records and it appears the property is owned by him, and not a business of his.

    • Greg McRay, EA October 29, 2010 8:05 am
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      The gift would be perfectly legit, but there is no benefit to the donor other than warm fuzzies for having done so.

  25. Gysele Clerizier November 7, 2010 10:16 pm
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    Mr. McRay,
    I would like a non profit organization to help the orphans who lost their parents during the January 12th earthquake. Will a 501(c) (3) organization be suitable for me to start it? How do I start it? or do you know anywhere I can get some assistance in filling out the paper work? I am located in north carolina. Thanks a lot for the update.

    • Greg McRay, EA November 11, 2010 5:47 am
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      Hi, Gysele. From what little you wrote, it sounds like it could work. The devil is in the details, as they say. We provide assistance with what you are talking about…give us a call and speak with one of our reps. They can help you out.

  26. ezra schwartz November 9, 2010 11:11 am
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    I currently run an organization, which we have recently applied for 501c3 status. What we do is run adult basketball leagues, and the remaining funds or donations left over are given to local charities. In the future we are planning to run youth leagues and instructional leagues as well

    IRS replied to our application saying that since we are an adult-baed league, we are a social welfare org, and we only qualify under 501C4. To qualify under 501c3, the majority of the organizations time must be spent on youth activity.

    Is this true? This poses a big issue for us as far as receving donations from outside sources

    thanks

    • Greg McRay, EA November 10, 2010 5:29 pm
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      Unfortunately, Ezra, it is true. Sports programs can qualify under 501c3, c4 or c7. I'm surprised you were told c4 for your adult leagues…that would usually be a c7 recreational nonprofit. 501c3 status for sports programs is typically reserved for kids and national/international level amateur competition.

  27. erick November 15, 2010 8:20 am
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    I started a dance club and want to donate the profits to needy indivduals also selling a cookbook and making profit to donate. We have no employees and everything is volunteers. We are seniors and just trying to help others and we were told we should be 501(C)(4) is the best fit, do you agree. We are a non profit corp as of right now in our state.

    • Greg McRay, EA November 15, 2010 1:13 pm
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      A 501c4 might work, but it sounds like a 501c7 may be the better fit. A 501c7 designation is for social and recreational organizations, whereas a 501c4 is a public benefit org.

  28. Kat November 17, 2010 8:48 am
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    i was recently elected to an officer's position at my tax-exempt sportsman's club. we have not updated our tex exempt status since we incorporated 65 years ago. we are trying to decide which to update our sttatus to: 501c7 or 501c3. maybe you can help? while we absolutely qualify for tax exemption status as a "social club" (pursuant to a 501c7), i believe we could also qualify as a charitable organization (501c3) for the following exempt requirements "fostering national or international amateur sports competition" (we had one of our girls place in among teh top 3 in the National Skeet Shooting Assoc's 2009 championship event), and "advancement of education or science" (we already offer state-sanctioned hunter safety courses and technical skills courses). The reason we'd like to be a 501c3 is for the ability to accept tax deductible contributions, and to get around having to pay sales and property tax. Can we qualify?

    • Greg McRay, EA December 1, 2010 3:53 am
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      Maybe. Your organization is riding the fence between c7 and c3. In order to qualify for c3, you would have to have very, very little social elements for the members. We have dealt with many such borderline cases. You may wish to call and speak with one of our reps. We should be able to help.

  29. Brian Vandersall November 22, 2010 1:53 pm
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    I work for an organization of unpaid volunteers who do community assistance through local Emergency Management Agencies and also the County Sheriff's Offices. We pay dues and conduct regular monthly administration/training to assist in these areas. We are looking for a 501c status that would allow members and outside people to donate (money, goods) to us as a tax write off. We don't do political campaigning.

    Can you advise which would be the best 501c status to adopt?

    • Greg McRay, EA December 1, 2010 3:55 am
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      The only status that will allow for tax deductible donations is 501c3. What you are describing might qualify, but sounds more like a 501c4 from your description. Your association with the government agencies might be your loophole into 501c3. I highly recommend getting some council on this one. We can help if you need it.

  30. martha davis December 11, 2010 11:29 am
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    We are a senior residents council with a 501c7. We do not tip the help. The help were given $500 each from our yearly appreciation fund. Must we give them a tax form with the gift? Isn't that their responsibility to include the the money with their tax returns? We should have nothing to do with their tax. Please comment and help us.

    • Greg McRay, EA December 17, 2010 10:01 am
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      If this payment is considered to be coming from their employer, it should be included on their W2. Otherwise, it would be good to provide a 1099-MISC even though it's below the $600 threshold.

  31. Brenda Peters December 20, 2010 8:58 pm
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    I am a new board member for a regional professional organization registered as a 510c6. We are all volunteer, no employees, no office, no equipment — even the gavel used to conduct the annual meeting is borrowed when we can find one. Membership dues and registration fees are used to provide semiannual educational conferences and host a web page for publishing minutes and membership news items. I believe we are exempt from filing tax returns as our budget is so small.

    I'm finding some online information confusing. In reading IRS Publication 557 (rev Oct 2010) I note on page 21 that our organization could establish a separate 501c3 fund specifically for education purposes that would then be eligible for some low cost services for providing additional educational opportunities to our members that we are unable to qualify for as a 501c6. However, other documents (e.g. http://www.irs.gov/pub/lanoa/pmta00591_7201.pdf ) seem to indicate that there has to be a financial separation of the two such that the c6 could not provide the funds to the c3.

    Can a 501c6 provide startup and maintenance funds to an affiliated 501c3 directly, sharing Board members, and are there any issues to be careful of in doing so? Or would we be required to somehow get funds for the c3 entirely separate from the c6 and essentially run it as a separate organization with a separate Board? Or would it be advisable or even possible to change our c6 into a c3 given the educational activities of the association?

    • Greg McRay, EA December 27, 2010 3:10 pm
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      That's a lot of questions, Brenda! Here's the nutshell…Substantially all financial income and expeditures within a 501c organization must be in the conduct of the activity the org is approved to do by the IRS. This means that a 501c6 should not typically be directly funding the startup or maintenance of a 501c3. In addition, even with the same board, the 501c3 must be functionally independent. It may be closely associated with the c6, but not subordinate. It is possible to create a 501c3 "fund", but this is tricky. I highly recommend calling us about some consulting time before you go much further on this. Good luck!

  32. Phoebe Lee December 23, 2010 6:35 am
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    We are members of an adult amateur golf association that takes membership of $200 a year and $120 for each golf tournament. All fees are used for tournaments and the meals of the players. Non members can join the tournaments without getting the trophy awards. Our gross receipts each year is more than $25,000. Are we grouped as 501(c)(4) or 501(c)(7)?

    We set up the corporation in 1986 and has been filed as a regular c corporation. Should we convert the existing organization to non-profit for tax purpose? Should we set up a new organization and apply for non-profit status and close the existing corporation?

    Thanks.

    • Greg McRay, EA December 27, 2010 3:02 pm
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      Sounds like you need help. If you inc'd as a c-corp, then chances are you do not have 501c4 or c7 tax exemption. A c-corp is by its very nature a for-profit entity. It cannot become tax-exempt. Your association sounds like it would qualify as a 501c7 if it were nonprofit. You might want to give us a ring on this one.

  33. Karen January 9, 2011 8:11 am
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    We are part of a snowmobile club which is a 501(c)7. A question was recently raised in one of our club monthly meetings. Can we legally pay a member of the volunteer club for the use of their personal equipment such as a 4-wheeler for doing work on the trails? If so, what would be the limit that could be paid?

    • Greg McRay, EA January 14, 2011 11:24 am
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      Karen, reimbursement of direct expenses is probably the best way to go. Gas, oil, repairs arising out of activity for the club, etc. If the member is in the business of providing such service to the public, it's even OK to pay his fee as long as it is in the best interest of the club to use him instead of someone else…assuming, that is, that he has no say in picking himself for the job.

  34. Dave January 20, 2011 4:39 am
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    I am on a committe that is attempting to raise funds for the purchase and installation of a handicap lift for the disabled to have access to a local VFW Post. The Post is a 501c 4 organization and we are considering applying for grants under the Posts classification. Is this possible and also are grants available for 501c 4 orgs?

    Thanks

    • Greg McRay, EA February 6, 2011 11:45 am
      #

      You wouldn't likely qualify for a grant from a 501c3, but that doesn't mean someone couldn't donate (or "grant") you the funds. It just wouldn't be a tax deductible gift given your 501c4 status.

  35. Kevin Danby January 29, 2011 7:24 am
    #

    I am the GM of a 2600 lot recreational development. We have an 8 acre area with amenities for dues paying members including a pool, clubhouse, and RV sites. We maintain roads within the subdivision and enforce C, C, & R's. We are still engaged in lot sales. We are not responsible for maintaining an owner's lot or structures. All moneys go toward the operation of the POA. We are owned by the members. We have a few permanent homes that are occupied but most of the activity is seasonal recreation. Am I right in assuming that we are a 501 (c) (4)?

    • Greg McRay, EA January 30, 2011 1:29 pm
      #

      Maybe or maybe not. You may qualify to be a 501c4, but that is only true if your organization applied for and received such status from the IRS by filing Form 1024. HOAs and similar orgs can usually operate as either a quasi for-profit that pays taxes via Form 1120-H or as a 501c4.

  36. Danny January 30, 2011 5:02 am
    #

    I'm the new Vice President of a professional firefighters' association in the state of Virginia and I'm trying to learn the ropes… We are registered as a 501(c)5, but we are not technically a union because we are in a right-to-work state. I know that donations to our organization are not tax-deductible, but do you know if there are limitations on the funds we can raise to support some of the programs we might sponsor in the future? (we would like to provide fire safety and prevention programs, seek out community partnerships to raise funds for other nonprofits, and fund specialized training for our firefighters where city government funding falls short)

    Thanks.

    • Greg McRay, EA February 6, 2011 11:30 am
      #

      Your only limitations might be based on what you solicited the donations for (see our article of misappropriation of funds). The bigger issue to me is why you are a 501c5. Sounds like you might be better suited to 501c6.

  37. Kelsey B. February 2, 2011 4:49 am
    #

    I was on your website because I am looking into making an organization in my community. It is a non-partisan, pro-education group looking to enhance education in the schools. We would like to be able to endorse candidates, help them, and also raise money to promote the candidates along with our school budget. What are the steps of what I should do? From what I read it seems as though a 501(c)(4) is the best way to go, but because I am new to this I would like to check with someone that has a better knowledge about the topic to make sure everything is being done correctly.

    Thanks in advance

    • Greg McRay, EA February 6, 2011 11:25 am
      #

      Based on what little you mentioned, it does sound like a 501c4 might fit the bill. I recommend calling our office and discussing your plan in more detail with one of our sales consultants. They can help you figure out the best way to go.

  38. c.k. boyle February 3, 2011 6:21 am
    #

    our municipality (small 30,000+ city) has on its tax rolls over 67 religious organizations, along with 2 tax exempt colleges, tax exempt railroad, etc. Needless to say, the assessor must verify that they actually are eligible for tax exempt status. Will current forms 1023 be sufficient or is there anything additional (in newyork state) as proof. with a 71% tax increase, taxpayers are up in arms. does the tax exempt status of one property carry over to as many properties as the religious organization owns?

    • Greg McRay, EA February 6, 2011 11:36 am
      #

      I assume your question relates to real estate taxes. This varies greatly state-to-state…even city-to-city. It is common to see nonprofits pay property taxes on real estate not being actively used for an exempt purpose. Check with your local assessors office to be sure.

  39. Philip Navratil February 3, 2011 11:49 am
    #

    I am part of a grass-roots petition drive aimed at dissolving a local taxing authority. Although there is no candidate or election involved, there is a political component to our advocacy. We are considering organizing to accept donations. Can we organize as a 501(c)3? Should we organize as 501(c)4 – or other?

    • Greg McRay, EA February 6, 2011 11:31 am
      #

      501c3 is probably not going to work given that you know politics will be involved. Sounds like a 501c4 to me.

      • Corrie H February 11, 2011 6:36 am
        #

        Are you aware of any grants available for 501 (c) 7 organizations? If so, where may I find them?

        Thank you.

        • Greg McRay, EA February 18, 2011 10:13 am
          #

          Not very likely, Corrie. Foundations cannot give to 501c7s. Practically all gov't programs would exclude them, also. Individual donors can support a 501c7, but not tax-deductibly.

  40. Sandra February 8, 2011 7:45 am
    #

    Does a mom's stay at home group qualify for a 501c7 status?

    • Greg McRay, EA March 2, 2011 7:12 am
      #

      Too broad of a question, really. It all depends on what the purpose of the group is. If it is a social club, it may very well qualify. The need for such depends upon a number of factors, so you may wish call for more discussion.

  41. Rob Cutchins February 19, 2011 3:52 am
    #

    We have a unique situation here. In 1999, we organized a group of owners of vintage Chris-Craft boats. We focus on one model (the "Commander"). We are internet-based. In 2006, we formally incorporated the group. We charge no dues. Our mission (as stated in our bylaws) is to educate the owners of these classic vessels in the maintenance, restoration and upkeep of their boats. We archive the exchanged information into a very organized and yearly CD, which is sold to members. We also derive funds from registration dues at our annual event, and other sales (shirts, flags, etc.). Our coffers currently hold approximately $10,000. We are getting nailed on taxes. The governing board has decided to explore non-profit status based on our mission of "educating" the owner. Initially, it was thought our group would best be classified under 501c7 status, however, learning that contributions to the organization would NOT be tax deductible, we began looking into 501(c3) status. Given this very brief rundown of our organization, do you think we would qualify for c3 status?

    • Greg McRay, EA February 22, 2011 5:31 pm
      #

      A 501c7 seems the more obvious choice, but a 501c3 might be possible under the right circumstances. There's not enough detail here to say definitively. You may want to consider calling us to discuss it.

  42. Sandy Gibson February 20, 2011 10:08 am
    #

    Good afternoon,
    I row with a rowing club which currently has a 501c7 status. We are a competitive club and also have a youth program which is rapidly growing. We feel that achieving a 501c3 status will enable greater donations to the club. Is this accurate? Can we have both a 501c7 and 501c3 status?
    Thanks,
    Sandy

    • Greg McRay, EA February 22, 2011 5:35 pm
      #

      You can't have both. It is possible to convert a 501c7 to a 501c3, but you may have a problem if the competition involves adults. This could be overcome if the adult competition qualifies to be considered national or international amateur meets. We can assist with a reclassification if that is what is needed.

  43. Jamie G February 22, 2011 4:49 am
    #

    I work for a 501C3 and we are making a grant to a 501C4, are there any issues with that? The grant is not for lobbying or political activity.

    • Greg McRay, EA February 22, 2011 5:23 pm
      #

      This is very likely a problem. As a 501c3, your activities and financial support are limited to charitable purposes. A 501c4, while tax exempt, is not charitable. It is a public or social benefit organization and it shouldn't normally be considered for such funding.

  44. Carlos Linares March 2, 2011 1:40 pm
    #

    Hi Greg,

    I've been thoroughly enjoying reading your comments to several interesting questions and thought I'd throw my inquiry into the mix. I'm in the process of establishing a Chamber of Commerce 501c6 in my local area. Am I required to have a board of directors? Or could I get away with simply having a board of advisors? Thanks Greg!

    • Greg McRay, EA March 3, 2011 3:03 pm
      #

      IRS regulations will require that you have a functioning, voting board of directors. You may choose to call them something else…advisors, trustees, etc…but they must have voting authority. Also, your state nonprofit corporate law likely requires at least 3 directors. Obviously, you may be on the board. Just watch out about hiring board members as employees. It can be done, but be sure that person abstains from voting on their own compensation.

  45. Matt Libhart March 9, 2011 8:25 am
    #

    Hi Greg,
    Thanks for giving out all this free advice…it's great.
    I'm the VP of a local hobby club. We're clearly a 501c7 and easily have less than 5K in gross receipts. The club goes way back, and the "books" have been passed from treasurer to treasurer for years and years. We've just recently been contemplating a name change, on which we'd have a vote at one of our meetings.
    We have a bank account, and our current treasurer just took over from the previous. No one has any record of us having an EIN. Apparently though that's just missing records from many years past, because the bank does in fact have an EIN. I realize the IRS allows us to change our name w/o having to change our EIN, but my guess is that no one has filed anything with the IRS like a 990 for a very long time….if ever. We can't even verify the EIN the bank has because no one really offers a search, at least for free. Would you recommend that if we change our name that we simply get a new EIN and open a new bank account, closing the old one, and then beginning filing 990s as we should, or should we keep the old one, assume it's correct, realizing that if we send a letter to the IRS that we're changing our name that they then may begin looking at the fact that we haven't filed anything for a very long time. Thanks.

    • Greg McRay, EA March 28, 2011 5:25 pm
      #

      Do NOT change your EIN if you think you actually have 501(c)(7) status. It will invalidate your tax exemption…though you likely have bigger problems. Given your revenue numbers, your organization was not even required to file a Form 990 prior to 2007. Now, it is liable for 990-N. Your problem is that the same law that created Form 990-N for small nonprofits made nonfiling of Form 990 for three consecutive years result in automatic loss of tax exemption. The IRS is set to publish its first Nonfiler Revocation List sometime in April 2011. I expect your organization is on the list. This means you will likely have to refile for 501(c)(7) status. Keep in mind that the IRS allows small nonprofits with under $5k in revenue can operate as tax exempt without formal status.

  46. Paul March 16, 2011 9:26 am
    #

    My friend and i are starting a non-profit to fund grassroots organization to fight for more employment. I'm not sure whether to go 501c(4) or 501(c)5. There just isn't much written about 501(c)5s.

    • Greg McRay, EA March 28, 2011 5:17 pm
      #

      You're right, there's not much on 501c5. You just don't see that many. Without more details, sounds like 501c4 would suit your idea well.

  47. Lurina March 24, 2011 3:50 pm
    #

    Our geological club is a non-profit 501c7. Do we have to pay sales tax?

    • Greg McRay, EA March 28, 2011 4:54 pm
      #

      That totally depends upon your state law. Some states grant sales tax exemption to all nonprofits, other states only to charities…and some states not at all.

  48. Basketball Dad April 6, 2011 4:08 pm
    #

    We are currently in the process of changing the status of our travel youth basketball club, and are looking into any constraints that prohibit us from filing 501c3. We currently only raise funds from team dues, but the absence of reasonably priced practice facilities is killing us! One of our board members is considering erecting a gymnasium barn for this club of 6 teams. If the club chooses to pay facility fees for this gym, does this raise a conflict with us obtaining and maintaining 501c3 status? Please advise – and thanks for all the helpful posts!

    • Greg McRay, EA April 20, 2011 2:38 am
      #

      There is a huge conflict of interest here. If the board member wanted to do this, then let the club use if for free, then its not a problem. Once rental fees come into place, things change quickly. If you decide to pursue 501(c)(3) status, these are the type of issues we can help you navigate.

  49. Jay April 14, 2011 4:51 am
    #

    I live in a small town where most families are not very well off. I would like to start a travel basketball team for (7-10)5th graders. I am thinking about trying to raise between $1,000 – $3,000 dollars for the team. I was wanting to open a separate checking account (we will call the account XYZ Basketball) to keep track of the funds(that I will be in charge of). I really do not want the hassle of becoming an official nonprofit or group but I am curious if I am liable for the claiming the money on my taxes since the bank account will be in my name. All of the money will be used and spent on travel basketball. What will be the easiest way for me to fund raise money and keep myself out of any-sort of major financial liability?

    • Greg McRay, EA April 20, 2011 2:33 am
      #

      Great question, Jay. Actually, as long as you are bringing in less than $5,000 per year in gross revenue, you can operate this as a tax-exempt "club". People cannot claim any tax deductions, but the IRS will let you operate without a formal structure. And no, it should not affect your taxes. Just make sure you keep accurate records and don't co-mingle ANY club funds with your own.

  50. Jeremy April 19, 2011 2:04 am
    #

    I am on the Board of our local Rotary Club (501c4). We have been rolling around the idea of starting a separate account/fund, a sort of endowment fund, and seeking exemption under 501c3. Have you ever heard of just creating a separate fund for a purpose like this? It would enable us to receive monies left by passing members who wish to give part of their estate to the Club. We would use it solely for charitable purposes (scholarships, etc).

    • Greg McRay, EA April 20, 2011 2:15 am
      #

      Actually, yes. We have been working with Lions Club, International for about 4 years, assisting local 501(c)(7) chapters to establish separate 501(c)(3) foundations for their charitable works. This allows people to donate tax-deductibly to the charitable activities of a particular Lions Club, while the social activities continue in the c7.

  51. Susan Safire April 20, 2011 4:31 am
    #

    Is a 501(c)6 Chamber exempt from sales tax in the state of New Jersey?

    • Greg McRay, EA April 26, 2011 4:25 pm
      #

      Unlikely, but you can check with your department of revenue/taxation. Sales tax exemption is usually limited to charitable orgs.

  52. John M April 27, 2011 1:26 am
    #

    We already have a trust set up for a friend that was killed by a hit and run driver. The trust gives out high school scholarships to his Alma Mater. His sisters are in charge of the trust. I would like to make it an official charitable trust, but I do not think they will want to diversify the board. It seems as though by default it would have to be a private foundation versus a public charity. Is this the way to go?

    Also, how many hours would you say a 990PF takes to prepare?

    Many thanks.

    • Greg McRay, EA May 9, 2011 6:11 am
      #

      If the sisters will constitute all or most of the board, then private foundation is pretty much the default choice. As to the 990PF, preparation time depends greatly on the degree of investment activity and scholarship distribution. The most complex and/or voluminous the transactions, the more complicated the return. In general, anything other than a 990-N is not a do-it-yourself project.

  53. Renate M Reuter June 10, 2011 10:27 am
    #

    Your articles are excellent and very helpful. Thank you for publishing them.

  54. Rachel K November 7, 2011 10:35 am
    #

    Can a Chamber of Commerce that is a 501(c)(6) solicit donations from non-members so long as it includes the disclaimer that such donations are not tax deductible?

    • Greg McRay November 7, 2011 4:06 pm
      #

      Absolutely….there are no restrictions on who can give. Just don't forget the disclaimer!

  55. Anne November 10, 2011 6:24 am
    #

    My hobby club is thinking about filing for 501(c)(7) status. Would be be limited to 35% of our total annual income if we sold advertisement space on our club's fourm website? What are our options if the club doesn't earn more than $5,000 annually?

    • Greg McRay November 11, 2011 4:54 am
      #

      Be careful about selling advertising on your website. The IRS considers that unrelated business income (UBI). Because it is generated from a business activity that does not directly further your exempt purpose, it is taxable revenue. That's a complication you do not need. Also, if you believe gross revenues will consistently be less than $5,000 each year, you are not required to seek 501c7 status to be considered tax exempt. Just keep in mind that donations to 501c7s are not tax deductible to the donor either way.

  56. JLM November 22, 2011 3:38 pm
    #

    We have been operating an adult vintage base ball club for three years and have not registered with the IRS because our annual earnings are far below $5,000. We have not applied for an EIN, nor have we filed anything with the IRS. We obtained a non-interest bearing checking account using our president’s Social Security number. Basically the club’s costs are covered by its membership dues.

    1) Do we have to file for an EIN with the IRS?
    2) Do we have to file a Form 990-N annually with the IRS?
    3) Can you confirm that we are not required to register as a 501(c)7 with the IRS? Our club is on a tight budget and we don’t want to incur any costs unless it’s absolutely necessary.

    Thank you so much in advance for your help. It’s been difficult for us to get straight answers from anyone.

    • Greg McRay November 23, 2011 10:42 am
      #

      If your club’s gross revenue stays below $5,000, you are not required to do anything other than what you are currently doing. No EIN nor 990-N filing is necessary.

      • JLM November 28, 2011 10:08 am
        #

        Greg, your advice is very much appreciated. No one at the IRS would tell us that our club didn’t have to register an EIN or do a filing, given that we’re below the $5K threshold. We also couldn’t find a statement like that in any of the IRS’s literature.

        Thanks again.

  57. DAM December 9, 2011 9:09 am
    #

    I help run an adult baseball league. We filed as a non-profit corporation in our state 3 years ago but have not submitted our application for tax exempt status. Are we required to file for tax exemption or can we continue to operate in this manner? And, if we do decidet to file for tax exempt status, it looks as if C7 is the way to go, correct?

    • Greg McRay January 17, 2012 11:01 pm
      #

      If you consistently bring in less than $5,000 per year, you can continue to operate as you are. If more than that, you need to file for 501c7 status.

  58. John December 14, 2011 10:44 am
    #

    How are the contributions donated to 501c3 organizations by 501c7 organizations handled/viewed by the IRS? How are documented contributions by 501c7 organizations to organizations such as schools, community centers etc handled/viewed by the IRS?

    • Greg McRay December 14, 2011 1:26 pm
      #

      There is typically no problem with a 501c7 donating to a 501c3. Just make sure that the majority of the 501c7′s expenditures are for 501c7 purposes. That being said, the reverse is usually not OK…that is, a 501c3 donating to a 501c7.

  59. John December 14, 2011 1:39 pm
    #

    Thanks. Would that mean if a 501c7 obtains funds from charging admission to parties related to the purpose of the 501c7 and donates the funds collected throughout the year to 501c3 organizations those donations would be deductible from 501c7 gross revenue?

    • Greg McRay December 14, 2011 5:48 pm
      #

      Generally, yes.

  60. Rene December 15, 2011 7:51 am
    #

    I asked this question above but it looks like I should have posted it here instead of replying to one of your answers. So I’m going to ask again.
    We have a 501 c 7. We are a swim team that participates in meets, parties, other fun stuff.

    1.This year we had some sponsors. Sponsors at the highest level have their logo put on a banner at our functions, have a link on our website, and appear on our Tshirts.

    The middle level gets put on the banner and website.

    The lowest level gets put on the banner.

    Should any or all of these be reported on the 990-T or are they exempt function?

    If they are taxable can we deduct the T shirt expense from the income (or only the screening fee)?

    2. We also sell concessions at our home meets. This is all done by volunteers. Since it is done by volunteers is it exempt function income. We sell to members and non members. Is any part of the profit taxable?

    I appreciate your help on this.
    Thanks

    • Greg McRay December 16, 2011 3:24 pm
      #

      Tough question to answer in this space, but here’s the nutshell. As long as you are merely providing sponsor acknowledgment and not ad space, you should be fine. The difference is important. Avoid calls-to-action (Go buy from Bob’s flowers!) and superlatives (Bob’s Flowers is the best florist shop in town). If in doubt, notice the difference between public radio/tv sponsor acknowledgments vs. commercials on commercial radio/tv. Concessions should be fine, too.

  61. Matt December 21, 2011 12:34 pm
    #

    Hi, we’re currently in the process of forming a 501(c)(7) supporters club for our local sports team with more than $5k in total receipts anticipated. While our initial year’s income will be nearly all member dues income, next year as our renewal fees lower we’ll be looking for other sources of revenue to fund activities. We normally do fundraisers like tailgates (selling food) and selling merchandise for our club at a small up-mark. My question is two-fold:

    1. Say we spend $5 on a shirt and sell it for $10. Do we report $5 in fundraising revenue or $5 of expenses and $10 of fundraising revenue? Is there a way to be able to account for the expenses of making the item or whatever the revenue goes for (we’re not pocketing any of it) and deducting that from any fundraising revenue?

    2. Would it be possible for one of our members to individually order and sell merchandise on their own and then donate the proceeds at the end so we’re not having to handle the full cost of the items and the donations as non-member income?

    • Matt December 21, 2011 12:38 pm
      #

      And I guess as a clarifying follow-up, if it’s our members who are buying the merchandise from our club, does that count as member income? Thanks!

      • Greg McRay January 17, 2012 11:08 pm
        #

        1) $10 fundraising with $5 expenses. 2) Yes 3) No. Good luck!

  62. Jack December 21, 2011 8:16 pm
    #

    Greg,

    I am president of a newly minted 501(c)(3). Our purpose is to create feature films using local talent. Think community theater on a screen instead of a stage. We have been approved. A notion has come up from our board about awarding “work points” for the people who work on our productions and then ever so often taking a percentage of our net income from these films and using that as compensation for the people who contributed their time and talents. My question to you is: does doing this jeopardize our status? I see food co-ops and similar operations do something similar with their members. I know there is a separate category for farm coops but the food coops I’ve looked at mostly have 501c3 status. If people are “members” of our organization AND also work on our productions, can we not also compensate them (I know we can) but if we use the formula of sharing in our proceeds are we running afoul of the “inurement to the benefit” of members concept? If so, should we NOT have actual members and simply have people work for the compensation (based on this point system) so we are ‘sending profits to members’? We’d prefer to have actual members of the organization for a variety of other reasons.

    • Greg McRay January 10, 2012 6:51 pm
      #

      Honestly, there are way too many variables and pitfalls here to give you an actionable answer. You should consider calling us for an in-depth consultation. You could indeed fall afoul of inurement rules if you approach this the wrong way.

  63. Loretta December 25, 2011 6:30 pm
    #

    Greg,
    What is involved in converting a professional trade organization from its current status as a S-corp to a non-profit 501(c)6? I believe the organization’s corporation was registered in either Florida or Georgia. The founder currently resides in Georgia. Where is the best state to register the non-profit.? Typical cost?

    Thank you

    • Greg McRay December 28, 2011 9:59 pm
      #

      You can’t really “convert”…you pretty much have to start with a new nonprofit corporation. The other part of your question is too fact-dependent to really answer here. Call our office and one of our reps can help you figure out what’s best for you.

  64. Al December 28, 2011 12:15 am
    #

    I have several 501c7 questions, I apologize in advance. We are a car club with an EIN, but no official status. The club was formed in Nov 2009. If we choose to file for the 501c7 status, do we (or should we) file taxes for 2009 as well as 2010 & 2011? I know in 2009, the club did not have gross revenue of over $5000, but I do not know yet, about 2010 or 2011. Also, if we do need to file the 990 (or 990-N) form, which comes first? Filing taxes (990 or the 990-N) or filing for the 501c7 status?

    The club currently sells items to members; tee shirts, hats, stickers, etc. Is this allowed as a 501c7?

    Also, I see some of the questions above refer to sponsors, I need to elaborate on one and ask my own. We also have sponsors and we give them sponsor acknowledgement. But, on the forum, they are allowed to come and post their sales or whatever via the forum post. Is this allowed under the 501c7 status?

    • Greg McRay January 10, 2012 6:44 pm
      #

      OK…990N would be the appropriate return, but it is too late for 2009 and 2010. Given that you don’t yet have status, this will not be a big deal. Get 501c7 status first. We’d be happy to help with that if you need it. As to member trinket sales, no problem there. Sponsors posting ads in the forum of your website is a big deal and should be stopped. Allowing promotional activity goes beyond the bounds of gift acknowledgement.

  65. Randi December 29, 2011 5:42 pm
    #

    Greg,

    I have read that Charities (501 c 3) have to register in any state in which they want to do fundraising. If a 501 c 7 is fundraising by, say selling a cookbook, does it have to do something similar if any of the sales are to people out of the home state?

    Also, can two 501 c 7 organizations (separate, but with overlapping members and one with a budget below 5k and one over 5k) share/split monies from the same cookbook fundraiser?

    Thanks

    • Greg McRay January 10, 2012 6:38 pm
      #

      The answer to the first question is very fact and state-dependent. Call our office and speak to a representative to help you figure this out. Some states require 501c7 orgs to register, some don’t.

      As to revenue splitting, that’s OK. Just make sure your recordkeeping fully reflects the respective portions of income and expense for each organization.

  66. Teresa January 4, 2012 4:42 pm
    #

    Greg,

    I am involved with a hobby model train club registered as a 501(c)7. What are our limitations on accepting donations (we understand they aren’t tax-deductible) to help cover the expenses of the club? How do donations fit into the 35% limitation? We want to be able to accept donations from visitors to our railroad displays and community supporters, but want to make sure it is allowed.

    Thank you!

    • Greg McRay January 10, 2012 6:29 pm
      #

      It is allowed, but keep that 35% rule in mind. 501c7 revenue should be mostly from member dues and activities, not donations.

  67. Chris January 16, 2012 7:20 am
    #

    Greg,

    I am starting up a travel basketball team in my community. My goal is to build up a county wide program in the near future. I wanted to know if my program could be registered as a 501(c)(3) or would it have to be registered as a 501(c)(7). We do plan on approaching local businesses to help with sponsorship. Also, would we have to file as a mutual or public benefit.

    Thanks!

    • Greg McRay January 17, 2012 10:39 pm
      #

      Your status as a 501c3 vs 501c7 has everything to do with the age of the participants. If it’s kids under 18, then 501c3 is likely the way to go. Adults or mixed groups would likely need 501c7 status. Public benefit with regard to corporate status. We can help with all of this if you need it.

  68. Daniel spencer January 17, 2012 6:26 am
    #

    We are starting a travel basketball game team and are looking into the 501c, but the price is like 400 to 500 dollars in TN to get one. If we dont get a 501c can sponsors still write off their donations and can we just pay the taxes on any donations we receive or or raise. Thanks

    • Greg McRay January 17, 2012 10:21 pm
      #

      Donations cannot be deductible to the donor without 501c3 status.

  69. frank capone January 19, 2012 7:57 am
    #

    we have a runners club and fit all the criteria of a 501 c7. Are we allowed to receive grants as a 501 c 7?

    • Greg McRay January 27, 2012 4:55 pm
      #

      You are certainly allowed to receive a grant as a 501c7. The question is, “How likely is that?” Probably a long shot.

  70. Kathleen Walls January 23, 2012 5:21 pm
    #

    Hi Greg, You are offering a real service here. I have been going crazy seeking answers. We are a small organization and filed for a 501c corporation in Florida. We work with feeding, neutering and when possible finding homes for abandoned and feral cats. There are only two of us actually working at this. Last year we took in less than $2000 and spent way more on food and neutering not even counting gas. We were told we need to register with the Fl Dept of Agriculture and Consumer affairs if we solicit donations. To fill out that form it looks like we need either a tax exempt status with the IRS or some letter of determination recognizing us as a 501 c. I see mention on one “help” publication at IRS of a “Letter application” but nothing about what form to use for that. Then I see a form 1023 which costs $400. Other places say we do not need to file this if we collect less than $5000. We desperately need the little we do get in contributions. How do I get this letter recognizing our 501 C status? Any advice you can offer will be appreciated.

    • Greg McRay January 23, 2012 8:33 pm
      #

      It is true that if you consistently take in less than $5000 gross revenue per year, you can operate as a 501c3 without actually applying for and receiving official tax exemption determination with the IRS, so long as your activities qualify as charitable. What you are describing seems to do that. The only problem with this statutory status is that no donor can consider their gift tax deductible. And, it still likely doesn’t relieve you from filing with the state of Florida in order to solicit donations. The best way to get official IRS recognition is to hire a professional firm like ours to shepherd you through the process. That being said, if you do not foresee your organization growing much beyond the current $ levels, it’s hard to justify the expense of getting (and maintaining) official determination. It’s a tough call…if you expect to grow, invest in the official status. Otherwise, you are probably better off operating as you are.

  71. Kathleen Walls January 24, 2012 1:35 pm
    #

    Thanks. You do clarify the situation for us. I will have to think about the options.

  72. Kathleen Walls January 24, 2012 1:41 pm
    #

    One other question that will affect our decision. If we do file a form 1023 for tax free IRS status, how often do we need to refile oris it a one time only expense? Thanks in advance.

    • Greg McRay January 26, 2012 12:55 pm
      #

      It’s a one-time filing, but your organization will have to report annually to the IRS with Form 990. We have quite a few articles on the website here that deal with that.

  73. Maria January 25, 2012 11:56 am
    #

    My daughter’s swim team is currently a 501(c)(7). We want to convert this to a 501(c)(3) – (all the participants are under age 18). What IRS forms should we use to accomplish this? Thank you.

    • Greg McRay January 26, 2012 11:42 pm
      #

      Unfortunately, there is no path for converting from one tax-exempt status to another…the IRS does not allow it. A new corporation must be formed and Form 1023 completed in order to make this change. See: http://www.501c3.org/501c3-services/start-a-501c3-nonprofit

      • Maria January 27, 2012 4:42 pm
        #

        Thank you for your swift answer.

  74. Heather January 26, 2012 6:52 pm
    #

    Hi- first let me say this is such a great website because this is so confusing! I am the treasurer of my local Moms Group. I believe we meet all the requirements of 501(c)7. Our Gross revenues are around $6k. Annual expenses about half of that. All of our expenses are club related. We have been around for years but previously were a DBA set up under the founders name. Just this year I was told to get an EIN and incorporate in CT to protect the Board from liabiltiy. We are now officially a non-profit Connecticut corporation. However, what are my tax filing requirements? Do I need to do an 1120? We are also on the fence about trying to get the official Tax-Exempt status since the $850 fee is prohibitive and the form itself is daunting. Also, I was told I Would need to prepare 3 years of financial statements which will be a huge process since the only records I have for the years before I took over are basically bank statements.

    • Greg McRay January 26, 2012 11:37 pm
      #

      Sounds like you do qualify for 501(c)(7) status. Because your expenses are over $5,000, you have to decide whether to file Form 1120 and pay taxes or apply for IRS tax-exemption. The good news is that your filing fee is not $850…it’s $400 since your revenue is under $10,000. The form is indeed daunting, but we provide this service if you go that route. We can make it pretty easy for you. Give us a ring for more info.

      • Heather January 27, 2012 2:26 pm
        #

        Thank you Greg! $400 is much more reasonable then $850. However, now i have another question. I was speaking to a tax accountant I know this morning and she indicated that if we applied for the exemption status and tell the IRS we have been around for almost 10 years (operating as a DBA before 2011) then we would automatically be denied because we have never filed a 990 in the past. She said we would then be required to re-apply for exemption going forward only and we would be on the hook for preparing 1120s for the past years for which I really have no records. We did get a brand new EIN effective 1/1/11 and incorporated in 10/11 so she suggested we just complete the 1023 as if we have only been existance since 2011. Do you agree? We are such a small group and are all volunteers but my name and SSN are on the EIN aplication so I don’t want to end up having this come back and bite me for trying to do the right thing.

        • Greg McRay January 27, 2012 5:16 pm
          #

          Your accountant is well-meaning, but very misinformed. It IS possible to get status all the way back, but you have to know what to do. We do this all the time. I do NOT recommend using a new corporate entity, lest your old one find itself on the hook for corporate taxes and penalties/interest. In addition, the law requires disclosure that the new organization is a successor organization, which guarantees tax problems. The safest bet is to use the old organization and apply for status that is retroactive. We can help you do that.

  75. Tony January 28, 2012 1:36 pm
    #

    Dear Greg,

    Really appreciate all the information in this thread!

    Our question: we are a 501 c 3 church with a determination letter, and we tithe monthly to other 501 c 3 organizations. We have a non 501 c 3, but still a 501 c (other) entity on our requisition list. Can a 501 c 3 give to a non 501 c 3 if the non 501 c 3 is still a 501 c (other) organization? Couldn’t find an answer anywhere …

    Many thanks,
    Tony

    • Greg McRay February 4, 2012 10:30 pm
      #

      Tony…A 501c3 can give to a non-501c3, so long as it is designated for an exclusively charitable purpose. The donating 501c3 must have a complete accounting of the use of funds by the non-501c3, as it is accountable for making sure the expenses qualify as charitable.

  76. Staci Hartfiel January 31, 2012 9:19 am
    #

    I have been told in the past that you can only use tax-deductible contributions on certain items for the club. For example, if the player will get to keep something after the team is done, such as a uniform or bat bag, then tax-deductible contributions CAN NOT go towards these items. However, they do go towards “TEAM Expenses” like equipment, travel to games, lodging for games, food during games, etc. I really need clarification.

    • Greg McRay February 12, 2012 6:57 pm
      #

      The examples you give are absolutely correct.

  77. Debbie February 1, 2012 11:23 am
    #

    We are a lake improvement association with 501(c)4 status. Some have recently suggested we consider offering merit-based scholarships available to children of members who pursue undergraduate studies in fields such as environmental, conservation, botany, etc. I have searched online sites and irs.gov and it seems scholarships are covered in 501(c)3 organizations or by foundations separate from other tax exempt organizations. Can a 501(c)4 provide scholarships? Where do I find info on this?

    • Greg McRay February 12, 2012 7:12 pm
      #

      Good luck finding info on this. It is doable, but not very common. Such activity should be minor in comparison to your larger 501(c)(4) projects.

  78. Chuck Johnson February 4, 2012 3:38 pm
    #

    I would like to know if a 501 c3 can donate to another 501 c3. We are a group that obtains monies to give to our wounded when they come home from the war. There is a another 501 c3 group in the state that builds homes for some of our homeless vets. Are we able to donate to them to help them out?

    • Greg McRay February 12, 2012 7:20 pm
      #

      Absolutely you can if both organizations are 501c3.

  79. Kristain February 7, 2012 7:38 am
    #

    Dear Greg,

    I stumbled upon this while researching tax status for a summer swim team that I have recently become the Treasurer. We have not filed for any tax exempt status. We do have a tax id so that we could open a bank account. We take in ~$5k in sponsorship donations (which are not tax deductible) and ~$5k in other fundraisers, concession and merchandise sales. The remaining revenue is from registration for the team members. All of the coaches make more than $600.

    My questions are: Are we required to file FORM 1099-MISC for the coaches?, Can we keep operating this way or should we be seeking tax exempt status?, How involved is tax work for a 501(c) organization? I’m thinking 501(c)(3) vs. 501(c)(7) based on what I’ve read. We want to ensure we are operating properly, but don’t want to add unnecessary financial or tax burdens for a summer league.
    Thanks so much for any advice you can provide!

    • Greg McRay February 12, 2012 7:29 pm
      #

      If you are bringing in more than $5,000 annually, you must apply for tax-exemption or else be considered for-profit and liable for corporate tax returns. It’s either one or the other…and the tax work is comparable. As far as 501c3 vs. 501c7, that depends upon the ages of the participants. Any participants over 17 will likely necessitate 501c7. The coaches should probably be paid as employees unless they are freelance coaches who bill for their services.

      • Kristain February 13, 2012 2:54 pm
        #

        Thank you Greg. I wanted to clarify that the rule is on “gross revenue” and not net revenue. Each year we have less than $5,000 in NET revenue. Our gross revenue is more, but always offset by expenses for the team.

        We do have a few swimmers that are 18. Would that prevent us from getting 501(c)(3) status? This seems better than 501(c)(7) since 501(c)(3) allows for donations to be tax deductible. Are there any other big advantages or disadvantages to one or the other?

  80. Leslie February 7, 2012 2:41 pm
    #

    Greg,
    Eight families in our neighborhood are going together to have a water well drilled and it is being paid for by the eight families. We are wondering if we can file a nonprofit corporation? None of the officers or members will be paid. The monthly dues of $30 per family will be used to pay for electric, any testing and maintanence needs. We are just now looking at the paperwork needed for this and are not sure what to do. Any help would be appreciated

    Thanks you,
    Leslie

    • Greg McRay February 12, 2012 7:33 pm
      #

      This sounds like a candidate for 501c4 status. You could incorporate as a nonprofit and operate as a provisional 501c4 without filing for IRS recognition if gross revenue will always be less than $5,000 per year. I wouldn’t do anything without more consultation on the specifics of your plan, though. Too many variables to answer here.

  81. JLMealer February 8, 2012 6:29 pm
    #

    Hello,
    I am forming a non profit company to both allow for paid training for individuals in various jobs from construction, welding, Mfg., etc., while ALSO maintaining and offering them a business loan (once their business plans are drafted and worthy of investment) to put America back to work.

    I know the (c)(4) has this covered, but since I will be approaching large groups, wealthy people and corporations for donations as well as vacant building owners for lease write-offs, I must know the best route to take so THEY can write-off their donations.

    Can.Will you help me in figuring this one out. We also run a non profit Cancer housing charity, that is being rebuilt as we work with a local Oncology group.

    Thank you.
    JL Mealer

    This is all very minimal pay

  82. JLMealer February 8, 2012 6:32 pm
    #

    Sorry, I closed this prior to completing the comments…
    This is all very minimal pay for the Company CEO and directors, et al., we simply need to get America back to work and my “other” campaign may flounder without massive support. so this is Americas best hope from the outside.

    • Greg McRay February 12, 2012 7:48 pm
      #

      Donations to 501c4 organizations are not tax-deductible to the donor. The only way is with a 501c3, which might be possible. I highly recommend getting our assistance with this formation if you go forward.

  83. Don February 9, 2012 4:08 pm
    #

    Greg,

    There is a local baseball organization that has recently been in the news for potentially fraudlent activity. I have searched Guidestar and cannot locate anything about the organization. The organization listed on it’s website that it is “non-profit”, however I am wondering if they need to file any public information. It upsets me as I and several of my friends have paid signficant money to the organization for our kids to play ball. Is there any tax filing requirments for this organization? Form 990?

    • Greg McRay February 12, 2012 5:52 pm
      #

      It depends. “Nonprofit” doesn’t mean they ever applied for and received tax-exempt status from the IRS. Even if they did, they may not have had to file a full information return (Form 990) if they had gross revenue under $50,000 per year. If you cannot find it on Guidestar, try the IRS website…you can search there to. If it isn’t in either place, it is not tax-exempt.

      • craig February 17, 2012 5:49 am
        #

        You could also check with the state to see if they ever registered as a non profit depending if they incorporated or not.

  84. Katie February 15, 2012 9:35 am
    #

    Greg, thanks for bringing all the extra info to us in the comments!! Very useful.

  85. Greg February 20, 2012 11:06 pm
    #

    Greg,

    I thought we had a group exemption from our national association. But as far as anyone can now tell, there was no formal exemption, simply oral declarations based on National’s rationale that under $5k in gross it didn’t matter (pre-2007).

    We finally discovered some old paperwork. It seems we were a 501c6 as of 1975 under a different name. But we haven’t filed a 990 post-2007, so the 501c6 status was revoked. (I finally searched using our EIN; it was listed as revoked under a truncated version of our present association name).

    Post-2007, gross revenues fell between $4k and $7k. I’m assuming we can reapply (via Transitional Relief before 12/2012), and that should square things with the IRS. Is that correct?

    I think we would rather be a 501c3 like our sister local affiliates (our “meetings” consist of a presenter on an economic topic–education); but under the circumstances of having been revoked, that looks like an even bigger mess.

    Thoughts? And how much does something like that cost to have sorted out by a firm such as yours (reapplication to 501c6; new application to 501c3)? [Illinois; We're not incorporated]

    • Greg McRay February 22, 2012 6:08 pm
      #

      You would qualify for transitional relief only if you were reapplying as a 501c6. But that shouldn’t necessarily matter. The process is pretty much the same whether you are pursuing 501c6 reinstatement or a new status of 501c3. Your revenues aren’t high enough to warrant having to file prior year Form 990s. The only problem I see with pursuing 501c3 status is that you may have some taxable revenue issues for the period of time you were operating after revocation. But again, with such small revenue totals, it shouldn’t be a big problem. You should definitely pursue 501c3 if that is a better fit.

      Call our office and speak with Ken or Mick. They can better evaluate your situation and help you determine what you need and how we can help.

  86. James February 22, 2012 10:54 am
    #

    Hi Greg,

    We started a group of business owners with lucrative means, this group has a monthly fee that has to be paid by the members of the organization. I am trying to open a bank account to keep track of the money that’s coming in from membership fees, eventually we want to raise funds for projects that will be funded by the members and make a profit off of; We want to allocate some of the profits for charity or give scholarships to students. Would this apply to a 501© 6 or would this be considered a corporation? How do I go about opening a bank account do I need a tax ID if so what do I register this organization as?

    Thanks in advance for the feedback.

    James

    • Greg McRay March 27, 2012 10:33 pm
      #

      This is not really what a 501c6 is about. To qualify as a 501c6, you must be a “business league”, generally defined as a group of businesses coming together to promote each other and improve business conditions. There should be some unifying quality, such as geography (think Chamber of Commerce) or similar line of work (think North Florida Association of Auto Dealers). An interesting side note is that a business league cannot be a group of franchise owners of the same company. Midas Muffler shop owners tried this and the failure ended up the subject of an IRS Revenue Ruling. Your description is more of joint venture, which would not qualify.

  87. Rebecca February 22, 2012 5:16 pm
    #

    Hi Greg,
    I work with a national sailing organization that includes both adult and youth members. We compete in local regattas, as well as national and international regattas. Members pay dues (this makes up about 75% of our budget) and we receive the rest in donations from one company. We don’t have any facilities, employees, equipment, or even an office.
    For the last 8 years, we have been a 501c7 organization with an EIN. I’d like to re-file and change our status to a 501c3. We seem to walk that fine line between the two, since we are both adult AND youth, but we also train and compete in national competitions. What do you think?
    Thanks for your help!

    • Greg McRay March 27, 2012 10:40 pm
      #

      It may be possible to qualify as a 501c3, but I would certainly have to know more about what you’re doing. One thing for sure is that your donor base would have to expand substantially in order to qualify as a public charity. Also, you cannot reclassify the existing 501c7. You would have to form a new organization in order to be a 501c3.

  88. Lisa February 25, 2012 4:26 pm
    #

    We are a family all volunteer 501 c 4, on a shoestring budget. We offer free prevention and education on tick-borne diseases.to schools and community/professional organizations whose activity place them at high risk for a devastating illness.

    I am looking to apply for grants, but I noticed most say they offer to 501 c 3′s. Are we at a disadvantage by being a 501 c 4 in applying for grants?

    • Greg McRay March 27, 2012 10:43 pm
      #

      Without a doubt. Typically, charitable foundations cannot fund non-charitable nonprofits. Public (government) grants are difficult for any nonprofit. For a 501c4, it’s extremely unlikely.

  89. Megan March 1, 2012 10:32 pm
    #

    My husband was injured at work last year and his mother has organized a benefit on our behalf in order to try to raise some money to help us with the medical bills. She told me to have a bank account set up to use as a donation account, which I did. I got an EIN number from the IRS and the account is up and active now. Now my mother in law is telling me that I have to get a tax-exempt status in order for anyone to donate money because they are going to want to use it as a tax deduction. I have been trying to figure out what I need to do; I don’t want to make this a business, but I can’t figure out any other way.

    • Greg McRay March 27, 2012 11:05 pm
      #

      Unfortunately, you cannot make this into a tax-exempt charity. Such funds designed for the benefit of a specific person or family can never qualify for IRS charity status and gifts are never deductible to the donor.

  90. Brian March 8, 2012 6:09 pm
    #

    Hi, great column.

    I started a memorial golf tournament last year in honor of my wife’s cousin who passed away. We raised $16,500 in donations, sponsors and golf fees. It cost $6000 to put the tournament on and we split the money raised, $5k to a charity and $5k to a 529 college savings plan set up for the 2 year old daughter who he left behind. $500 was kept for expenses this year.

    This year we look to grow stronger and raise more money. We would like to become a non-profit, but I believe the private donation piece makes that a challenge. We would like to keep the private donation to the daughter’s college fund going as well as the donation to the charity. Any help would be greatly appreciated

    • Greg McRay March 8, 2012 6:40 pm
      #

      Your instinct is correct, Brian. Pretty much everything works except for donation to the daughter’s college fund. The IRS would consider this private benefit because it targets a single individual and not an overall cause. Plus, the money is going to a future possibility, not a current benevolent need. It’s a wonderful thing you are doing, but it wouldn’t get approved by the IRS.

      • Brian March 9, 2012 1:26 pm
        #

        That is what I thought, If we were to drop the donation to the family and just donate all proceeds to charity, which 501c would you recommend we form? Thanks for your help. We would be interested in using your firm if we go that route.

  91. Fern March 10, 2012 3:26 pm
    #

    Dear Greg:

    We are starting up a merchant’s association to promote the business interests of the shopping development. Our thought is to form a not for profit corporation, with members to pay dues. Do we file as a 501(c)6?

    • Greg McRay March 27, 2012 11:17 pm
      #

      Likely. Sounds similar to a Chamber of Commerce to me.

  92. John Datsko April 10, 2012 9:40 pm
    #

    Does our Volunteer Fire Department (a 501c4) have to file an annual 990?

    • Greg McRay April 18, 2012 10:08 pm
      #

      Yes, they do. We just recently began working with a VFD that lost tax exemption due to non-filing of Form 990 for three consecutive years.

  93. simchuck May 21, 2012 8:00 pm
    #

    Hi Greg. Thanks for the informative articles and actively-managed replies.

    I am the Treasurer for a newly formed homebrew club, and looking to set up the proper legal paperwork for managing our finances. We do not yet have enough history for me to say where we will fall with annual revenues — I assume less than $5,000 in the first year, but we have already discussed activities which will help raise money for the club, some of which could conceivably push us over that limit.

    We have so far established our preliminary by-laws, and a member dues structure. All of this is intended to promote education and social interaction for the members.

    Do we need to file for not-for-profit 501(c)(7) status in order to get an EIN? I assume we need the EIN to get a bank account in the club’s name. If we do not file for 501(c)(7), will we have to pay taxes on member dues, etc?

    Also, as our club’s functions necessarily involve alcoholic beverages, does the not-for-profit status help (or hurt) us in any with regards to liability issues, etc? Do we need to explore some other form of legal protection or insurance?

    Thanks!

    • Greg McRay June 11, 2012 10:11 pm
      #

      Sorry for the delay in replying. You do not need 501c7 status to get an EIN. Moreover, assuming your average annual revenue is under $5,000 (calculated on a 5 year average), you can operate as a self-declared 501c7 without actually seeking IRS approval. If you anticipate your average exceeding $5,000, you will need IRS approval lest you find your organization considered taxable.

      I can’t see how the alcohol issue affects much. You might want to get the opinion of someone you trust in insurance on that one.

      If your home-brew is great stuff, be sure to send us a sample! I nice hoppy IPA, a high gravity Russian stout… :)