Creating Non-Profit/Tax-Exempt Organizations Pt. 2 — Tax-Exempt Categories

Today we’ll discuss the major categories of tax exemptions in the Internal Revenue Code. ———————————- – 501(c)(2): Title-holding organization; entity organized for the purpose of holding title to property, collecting the income from said property, and turning the net income to another tax-exempt organization. Typically used as an investment vehicle for exempt organization – 501(c)(3): Charitable organization; perhaps the most popular and well-known of the tax exempt categories. This particular category will be covered in much greater detail in the next blog post, but by way of summary, a 501(c)(3) is an organization involved in one of the following purposes: – religious – charitable – scientific – educational – testing for public safety – fostering amateur sports competition (but cannot provide facilities or equipment) – promotion of the arts – prevention of cruelty to animals and children A 501(c)(3)’s most notable and unique feature is that donations made to it usually may be deducted from income tax by the donors (depending on the specific type of organization). Furthermore, there are two types of 501(c)(3)s: the private foundation and the public charity – 501(c)(4): Organization for the promotion of “social welfare”; nominally are civic leagues that promote civic issues or the common good and general welfare of the community. As a result, 501(c)(4)s can engage in campaigns to inform the public about legislative and political issues related to their cause. Donations are generally not deductible, particularly to the extent such funds are used in lobbying or participation in a political campaign. Perhaps most importantly, 501(c)(4)s are not required to publicly disclose their donors, and in the wake of the Supreme Court’s Citizens United decision, have been extensively to lobby for political candidates and causes. – 501(c)(5): Labor, agricultural, and horticultural organization; typically represented by labor and farmers’ unions, county fair committees, and flower societies. – 501(c)(6): Business leagues and professional associations; includes professional and trade groups such as chambers of commerce, lawyers’ bar associations, real estate boards, and perhaps most famously professional sports leagues such as the NFL. – 501(c)(7): Social and recreational clubs: usually dues-paying member-based clubs that manage and provide access to social and recreational facilities such as golf courses, tennis clubs, swimming pools, etc. – 501(k): Child care organizations; entities such as day cares that have an educational purpose and are available to the general public – 527 political organization: group created primarily to influence the selection, nomination, appointment, or election of candidates to political office; includes candidate committees, political action committees, Super PACs, and political parties. Unlike 501(c)(4)s, donors to 527s are public record.

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