Charitable nonprofits are the most common nonprofit organization classified by the Internal Revenue Service, but they are not the only type of nonprofit. More than 10 types of nonprofits fall under section 501c of the Internal Revenue Code. Section 501c6 recognizes business leagues as tax exempt. Like all tax-exempt organizations recognized by the Internal Revenue Service, a business league 501c6 cannot inure benefit to any individual or single shareholder, and all net earnings must go back into the organization.
Types of Business Leagues
The Internal Revenue Service sees a business league as an association of persons having some common business interest to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Trade associations and professional associations are considered business leagues. Real estate associations and chambers of commerce are examples of business leagues. Neither actually sells products directly, but they promote the businesses that do sell the product or service.
Filing Requirements to Become a 501c6
To apply for exemption as a 501c6 business league, the organization must show that it will strive to improve business conditions for one or more lines of business without actually performing that type of business. For example, a real estate association would need to show that it will promote real estate in general without actually promoting the sale of one particular home. IRS Form 1024 is the application for exemption for most tax-exempt organizations. With the inclusion of Schedule C, this application is used to verify that an organization meets the standards of a business league.
Filing Requirements After Being Approved
All tax-exempt organizations must file a Form 990, 990-EZ or 990-N with the IRS. All IRS filings must be received by the 15th day of the fifth month after the close of the organization's accounting period. If the accounting period closes on Dec. 31, the Form 990 is due May 15. If it ends on June 30, the deadline is Nov. 15. The Internal Revenue Service requires Schedule C Part III for 501c6 organizations to account for any political or lobbying activities they have performed. Schedule B may also be required, depending on the amount of contributions received by the organization.
Unlike charitable nonprofits, a 501c6 organization can work to enact changes in laws as long as this lobbying activity is for the betterment of the industry that the league represents. Dues paid to the business league are not deductible as a charitable contribution by the donor, but they may be deducted as a business expense. No part of the dues can be deducted for lobbying activities.
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