People often equate federal tax-exemption with 501(c)(3) organizations.

501(c)(3) organizations are just one of many types of organizations that are eligible for tax-exemption. There are 29 tax-exempt groups mentioned in § 501(c) of the tax code. A few are explored in more detail below. A common characteristic of all tax-exempt groups is that none may provide a financial benefit to a private individual.

501(c)(3) Charitable Organizations

Charitable organizations, or 501(c)(3) organizations, are the most common type of tax-exempt organization. These groups must be organized and operated substantially for religious, scientific, charitable, or educational purposes. The group must provide a benefit to the public.

These organizations typically are eligible for exemption from state and local income taxes in addition to the federal income tax. Donations made to 501(c)(3) organizations are tax deductible. 501(c)(3)s may engage in a very limited amount of lobbying but cannot intervene in any political campaigns.

Examples of 501(c)(3)s include schools, churches, some hospitals, and charities, such as the American Red Cross, Habitat for Humanity, and Feeding America.

501(c)(4) Social Welfare Organizations

501(c)(4) organizations are commonly known as social welfare organizations. The purpose of a 501(c)(4) is to bring about civic betterments and social improvements. Like 501(c)(3)s, social welfare organizations must benefit a broad community or the public. However, unlike 501(c)(3)s, social welfare organizations may engage in unlimited lobbying so long as the lobbying is aimed at achieving the civic betterments and social improvements to which they are dedicated. 501(c)(4)s also may engage in political campaign activity, but the campaign activity cannot be the organization’s primary activity. Donations to 501(c)(4)s are not generally tax deductible.

Examples of 501(c)(4)s include civic associations, volunteer fire companies, the Miss America Organization, the National Rifle Association, and Lions Clubs.

501(c)(6) Membership-Based Organizations

501(c)(6) groups are also known as membership-based organizations. The purpose of 501(c)(6)s is to promote the common interest of their members and improve business conditions. These organizations may not engage in regular business for a profit. 501(c)(6)s, unlike 501(c)(3)s, must serve their members rather than the public. They may participate in unlimited lobbying and can intervene in political campaigns. Contributions made to membership-based organizations are not tax deductible.

Examples of 501(c)(6) organizations include business leagues, chambers of commerce, real estate boards, trade boards, and professional football leagues.

501(c)(7) Social Clubs

501(c)(7)s are social clubs that have the primary purpose of promoting the pleasure and recreation of its members. Limited membership is the key characteristic of 501(c)(7) organizations. To qualify as a social club, the group cannot be open to the public. Therefore, it is acceptable for the club to discriminate in its membership on any characteristic except race, color, and religion. However, if the group’s goal is to further the teachings or principles of a particular religion, then it may, in good faith, limit its membership to members of that religion. Social clubs must be primarily funded by dues, fees, or other funds paid by members. 501(c)(7)s should not accept a substantial amount of donations from non-members. No dues or donations to social clubs are tax deductible.

Examples of 501(c)(7)s include college alumni associations, college fraternities and sororities, country clubs, amateur sports clubs, book clubs, garden clubs, and dinner clubs.

501(c)(19) Veterans’ Organizations

501(c)(19) organizations benefit U.S. veterans in a variety of ways. The organizations may assist disabled war veterans, provide care to hospitalized veterans, sponsor patriotic activities, provide insurance benefits to members, or put on programs to commemorate deceased veterans.

To qualify as a 501(c)(19), the group must be a post or organization of past or present members of the US Armed Forces, an auxiliary unit or society of such post or organization, or a trust or foundation that benefits the post or organization. At least 75% of members must be past or present members of the US Armed Forces, and 97.5% must be past or present members of the armed forces, cadets, or relatives of those who have served in the armed forces.

Donations to veterans’ organizations are tax deductible. Examples of 501(c)(19) organizations include posts or auxiliaries of the American Legion and Veterans of Foreign Wars.

How to Know

There are many more types of tax-exempt organizations than the five mentioned here. If you need help determining which type of tax-exempt group to create, contact Davis Law Group today to set up an appointment with our nonprofit and charitable organization attorney.