IRS code, section 501

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Section 501 of the U.S. tax code outlines which types of nonprofit organizations are tax exempt. The section of this code that provides for exemption is section 501(a), which states that organizations are exempt from some federal income taxes if they fall under sections 501(c) or 501(d), or under section 401(a).[1]

Note: The words "association," "order," "league," and other related words, are included in the umbrella term "organization" for the purposes of this article.

501(c)

Main article:501(c)

Section 501(c) of the U.S. tax code has 28 sections which list specific conditions particular organizations must meet in order to be considered tax exempt under the section. These are:[1]

  • 501(c)(1) — Corporations organized under acts of Congress such as Federal Credit Unions
  • 501(c)(2) — Title holding corporations for exempt organizations
  • 501(c)(3) — Charitable, non-profit, religious, and educational organizations
  • 501(c)(4) — Political education organizations
  • 501(c)(5) — Labor Unions and Agriculture
  • 501(c)(6) — Business league and chamber of commerce organizations
  • 501(c)(7) — Recreational club organizations
  • 501(c)(8) — Fraternal beneficiary societies
  • 501(c)(9) — Voluntary Employee Beneficiary Associations
  • 501(c)(10) — Fraternal lodge societies
  • 501(c)(11) — Teachers' retirement fund associations
  • 501(c)(12) — Life Insurance Associations, Mutual Irrigation and Telephone Companies
  • 501(c)(13) — Cemetery companies
  • 501(c)(14) — Credit Unions
  • 501(c)(15) — Mutual insurance companies
  • 501(c)(16) — Corporations organized to finance crop operations
  • 501(c)(17) — Employee associations
  • 501(c)(18) — Employee-funded pension trusts created before June 25, 1959
  • 501(c)(19) — Veterans' organizations
  • 501(c)(20) — Group legal services plan organizations
  • 501(c)(21) — Black lung benefit trusts
  • 501(c)(22) — Withdrawal liability payment fund
  • 501(c)(23) — Veterans' organizations created before 1880
  • 501(c)(24) — Trusts under the Employee Retirement Income Security Act
  • 501(c)(25) — Title-holding corporations for other qualified exempt organizations
  • 501(c)(26) — High-risk health coverage organizations
  • 501(c)(27) — Workers' compensation reinsurance organizations
  • 501(c)(28) — National railroad retirement trust

501(d)

Religious or apostolic associations or corporations are included in this subsection only if such organizations have a common treasury.[1][2] This generally means that all income earned by members must go into the community bank account. When it comes time to pay income tax, the income of all members is added, divided by the number of members, and each member files their return paying tax on that amount.Cite error: Closing </ref> missing for <ref> tag

501(f)

Cooperative service organizations of operating educational organizations. These organizations invest money pooled by members in stocks and securities and disperses the income thus gained to these members.[1]

501(g)

This section defines "agricultural" as "the art or science of cultivating land, harvesting crops or aquatic resources, or raising livestock."[1]

501(h)

501(h) outlines one of two tests for measuring an eligible 501(c)(3) organization’s lobbying expenditures. The other is the “insubstantial part” test that the IRS has used since 1934, but the nature of this test necessitated the creation 501(h).[3]

Under 501(h), a charity may use up to 20% of the first $500,000 of its exempt purpose expenditures to lobby. For organizations with larger budgets, this dollar amount increases, on a sliding scale, to a maximum of $1 million.[3]

501(h) provides more generous lobbying limits than the “insubstantial part" test and is clearer and easier to calculate. Other benefits include clear definitions of lobbying communications, volunteer efforts not considered in lobbying limits, safeguards ensuring an electing charity cannot lose its exemption for a single year’s excessive expenditures (a non-electing charity can), and no personal penalty for individual managers whose charity exceeds its lobbying expenditure limits.[3]

501(i)

This section prohibits discrimination by certain social clubs. It states that an organization which is described in subsection (c)(7) shall not be exempt from taxation if at any time during such taxable year a governing instrument of such organization provides for discrimination against any person on the basis of race, color, or religion.[1]

501(j)

Section 501(j), in an effort to extend tax-exempt status to organizations training athletes for events like the Olympics, added to 501(c)(3) a provision allowing that an amateur sports organization may provide facilities and equipment if its primary purpose is to develop amateur athletes for national or international sports competition.[4][5] Amateur sports organizations may also be considered educational, particularly if they are oriented towards youth athletics, but the Internal Revenue Service will not grant exemption on athletic activities that are primarily recreational, such as adult softball and bowling leagues.[4]

501(k)

Section 501(k) concerns child care organizations.[1]

501(l)

Government corporations exempt under subsection (c)(1).[1]

501(m)

Section 501(m) is titled "Certain organizations providing commercial-type insurance not exempt from tax."[1]

501(n)

501(n) concerns charitable risk pools.[1]

501(o)

501(o) regards treatment of hospitals participating in provider-sponsored organizations.[1]

501(p)

This sections states that an organization's tax exempt status will be suspended upon proof that it is engaged in terrorist activities. The definition of "terrorist" is gotten from section 212(a)(3)(B)(vi)(II) or 219 of the Immigration and Nationality Act as a terrorist organization or foreign terrorist organization, but may also come pursuant to an Executive order.[1]

501(q)

Section 501(q) outlines special rules for credit counseling organizations.[1]

External links

References

  1. 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 § 501. Exemption from tax on corporations, certain trusts, etc
  2. Skyhouse - What is a 501(d) community?
  3. 3.0 3.1 3.2 Worry-Free Lobbying for Nonprofits
  4. 4.0 4.1 Qualification under Section 501(c)
  5. John D. Colombo, The NCAA, Tax Exemption and College Athletics, Footnote 33