501(c)(2)

Civil Liberties Policy
Nonprofit regulation
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State nonprofit regulation information Nonprofit regulation in the states Nonprofit organization IRS code, section 501

501(c)(2) organizations "hold title to property on behalf of another exempt entity" and are "generally controlled by a parent tax-exempt organization." 501(c)(2) organizations must turn over income thus collected to an organization which itself is exempt under section 501(a). A 501(c)(2) organization cannot be an ordinary trust.

Purpose

As of September 30, 2025, there were several advantages to 501(c)(2) status, such as:

• limitation of liability from potential damage suits;
• enhancement of ability to borrow;
• limitations imposed in gifts and bequests to exempt organizations that effectively require such gifts to be kept in separate entities;
• clarity of title;
• accounting simplification; and
• limitations imposed by various state laws on organizations that would be recognized as exempt under the federal revenue laws.

History

According to the Internal Revenue Service, "The legislative history surrounding the original enactment of the provision makes no specific reference to the provision or to the purpose it was intended to serve. The general observation is made, however, that organizations accorded exemption in the 1916 Act were difficult to secure returns from, and that the Treasury collected little or no revenue from them."

See also

• IRS code, section 501
• 501(c)