DEFINITION of 501(c)
The 501(c) is a subsection under the United States Internal Revenue Code. The subsection relates to non-profit organizations and tax law and identifies which nonprofit organizations are exempt from paying federal income tax.
BREAKING DOWN 501(c)
Under subsection 501(c) there are multiple sections that separate the different organizations according to operations. The designation has expanded over time to encompass more types of organizations. As of 2018, there were 29 types of organizations listed under 501(c).
The most common include:
501(c)(1): Any corporation that is organized under an act of Congress that is exempt from federal
501(c)(2): Corporations that hold a title of property for exempt organizations
501(c)(3): Corporations, funds or foundations that operate for religious, charitable, scientific,
literary or educational purposes
501(c)(4): Nonprofit organizations that promote social welfare
501(c)(5): Labor, agricultural or horticultural associations
501(c)(6): Business leagues, chambers of commerce, etc. that are not organized for profit
501(c)(7): Recreational organizations
The Growing Types of 501(c) Organizations
Other organizations that qualify for listing under this designation include fraternal beneficiary societies that operate under the lodge system and provide for the payment life, illness, and other benefits for its members and dependents. Teacher’s retirement fund associations, as long as they are local in nature and none their net earnings grow for the benefit of a private shareholder. Benevolent life insurance associations that are local may also qualify for this designation. Certain mutual cooperative electric and telephone companies could also be classified under 501(c). Nonprofit, co-op health insurers might also qualify.
Cemetery companies that are owned and operated for the exclusive benefit of their members or are not operated for profit could receive this designation. Credit unions that do not have capital stock organized, insurance companies – aside from life insurance – with gross receipts that are less than $600,000, and a variety of trusts for such purposes as providing supplement unemployment benefits and pensions can receive this designation and exemptions if they meet all the underlying criteria.
There are also authorizations for organizations whose membership is made up from current and former members of the armed forces of the United States, or their spouses, widows, descendants, and auxiliary units in their support.
Groups that might fit the designated categories must still apply for classification as 501(c) organizations and meet all of the stipulations required by the IRS. Tax exemption is not automatic, regardless of the nature of the organization and federal authorization is required before it can be claimed.