Your Club as a Business - Other Incorporation Options

Your Club as a Business - Other Incorporation Options

There are a number of "tax-exempt" or non-profit incorporation options, each addressing specific organization needs and functions.  Two of the more common types are 501(c)(4) and 501(c)(6) organizations.

501(c)(4) exemptions are given to civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.[5] 501(c)(4) organizations differ from 501(c)(3) in that they are permitted to lobby for legislation.

The exemption does not apply "unless no part of the net earnings of such entity inures to the benefit of any private shareholder or individual."

Deductibility of donations to 501(c)(4) organizations

Unlike donations to the more prevalent 501(c)(3) non-profit organizations, donations to a section 501(c)(4) organization are not deductible by the donor under section 170 of the code unless the recipient organization is a volunteer fire department as described in revenue ruling 80-77 or veteran organizations with at least 90% of its membership consisting of war veterans as described in IRS Revenue Ruling 84-140.

Prominent 501(c)(4) organizations

    * AARP
    * National Rifle Association
    * League of Conservation Voters
    * Christian Coalition

The 501(c)(6) exemption is specifically reserved to Chamber of Commerce organizations, economic development corporations, real estate boards, trade boards, professional football leagues (e.g., the NFL), and other types of business leagues. They are characterized by a common business interest, which the organization typically promotes. Organizations under this category are exempt from most federal income taxes. Donations to a 501(c)(6) are not tax deductible as charitable contributions, as is the case in the 501(c)(3) category.

501(c)(6) organizations may engage in limited political activities that inform, educate, and promote their given interest. They may not engage in direct expenditures advocating a vote for a political candidate or cause. Donations to 501(c)(6) organizations are not required to be disclosed.

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