Spirit of the Law

Title: Understanding 501(c)(6): Trade Associations and Business Leagues

Introduction:

The common knowledge surrounding nonprofits often revolves around the well-known 501(c)(3) charitable organizations. However, there exists another significant category: the 501(c)(6) organizations, commonly known as trade associations or business leagues. This article aims to shed light on the definition, examples, and process of starting a 501(c)(6).

501(c)(6) Defined:

A 501(c)(6) organization, interchangeably called a trade association or business league, represents the business interests of its members rather than the public at large. The IRS defines a business league as an association of persons with a common business interest, aiming to promote that interest without engaging in regular business for profit. In simpler terms, it is a member organization supporting the common business interests of its members.

Activities and Requirements:

To gain tax-exempt status as a business league, the organization must demonstrate how its activities will improve the business conditions of its members. It should focus on enhancing specific lines of business rather than offering services to individual persons. Examples of such organizations include Chambers of Commerce and trade associations.

Examples of 501(c)(6) Nonprofits:

Chambers of Commerce, operating at local, regional, or national levels, are prime examples of business leagues. These organizations, comprising companies in a common geographic area, aim to enhance the overall business environment for their members. Trade associations, catering to individuals or businesses, work towards improving business prospects through various activities like publications, conventions, and education opportunities.

Professional sports organizations, such as the National Football League (NFL), have also operated as 501(c)(6) business leagues. While the NFL voluntarily relinquished its tax-exempt status in 2015 due to public opinion, other sports leagues like the National Hockey League (NHL), Professional Golfers Association (PGA), and LPGA continue to operate under 501(c)(6).

Starting a 501(c)(6):

Initiating a 501(c)(6) involves incorporation, followed by applying to the IRS for tax-exempt status using Form 1024 or Form 1024-A. Since 2021, filings can only be done through Pay.gov. Foundation Group provides assistance to startup 501(c)(6) organizations in this process.

Tax Treatment of Contributions:

Donations to 501(c)(6) nonprofits are not tax-deductible as charitable contributions. However, members can often deduct dues and other membership-related expenses as ordinary business expenses.

Conclusion:

While many may not be familiar with the term "501(c)(6)," these organizations play a crucial role in our communities. From local Chambers of Commerce to professional sports leagues, they impact lives positively by focusing on the collective business interests of their members. Understanding the diversity within the nonprofit sector is essential for appreciating the valuable contributions of 501(c)(6) organizations.