Types of Tax-Exempt Organizations

What are the various kinds of tax-exempt organizations and how do they differ?

The most common types of tax-exempt organizations recognized by the Internal Revenue Code are those which meet charitable, religious, scientific, literary and other exempt status under section 501 (c)(3) of the Code.

Other tax-exempt organizations are referred to as having “life cycles,” meaning that they must provide the IRS with forms, files, annual information guides, and explanations of their mission and purpose during their existence. They fall into the following categories:

Social welfare organizations — perform some variety of public or community beneficial actions, but do not derive private benefit or profit.

Agricultural or horticultural organizations — promote interests of individuals raising livestock or aquatic resources (fishing and related pursuits), cultivating land by preparing soil, planting seeds and harvesting crops. Livestock includes fur-bearing animals raised for their pelts, as well as domesticated sheep, cattle, and hogs raised for their meat.

Labor organizations — provide for the betterment of conditions of those involved in labor, agricultural or horticultural pursuits without being associated with savings or investment plans.

Business league or trade associations — promote common business interests, but may not be organized for profit of individuals or firms. This category includes chambers of commerce and professional associations.

Social clubs — designed for social and recreational interaction without providing monetary profit of any kind to their members.

Fraternal societies — must have a stated fraternal purpose, a substantial program of fraternal activities, a parent organization, and a subordinate branch (lodge), chartered by the parent group but which is self-governing.

Employee benefit associations or funds must be a voluntary association of employees, providing payment of benefits for illness, accident, or death (to designated beneficiaries). Such an association may only provide benefits to members in such circumstances of infirmity or death.

Veterans’ organizations — must by an organization, post, or auxiliary unit comprised (97.5 percent) of past or present members of the U.S. Armed Forces, active cadets, or spouses, widows, widowers, or ancestors of such individuals and must operate exclusively to benefit veterans and their families without providing profit to any private individual or shareholder.

Political organizations — must be a party, committee or association organized primarily to accept contributions or make expenditures designed to attempt to influence the nomination, election or appointment of a public official.

Other miscellaneous organizations may apply for tax-exempt status by paying appropriate fees and filing various forms with the IRS to request status as public charities or private foundations.