Internal Revenue Code (IRC) Section 501(c)(5) permits tax-exempt status for qualifying labor, agricultural, or horticultural organizations. Each organization must meet different criteria to meet the definition of one of these organizations. Furthermore, organizations must meet eligibility requirements that apply to all tax-exempt organizations. If you have questions about your organization’s eligibility for tax-exempt status under current law, contact the California Center for Nonprofit Law at (949) 892-1221 today for legal advice and guidance.
General Eligibility for Tax-Exempt Status Under IRC Section 501(c)(5)
Generally, for an organization to be tax-exempt under IRC Section 501(c)(5), the net earnings of the organization may not inure to the benefit of any member. Nonetheless, members of these organizations may receive incidental benefits from the organization’s exempt activities.
However, organizations must remember that what constitutes inurement of earnings to an agricultural or horticultural organization member may not be inurement of earnings to a labor organization member. For instance, a labor organization may pay certain sick or accident-related benefits to its members because payment of those benefits serves the labor organization’s mutual interests, i.e., improving working conditions. Conversely, an agricultural organization that provides monetary aid to a member constitutes inurement, as an agricultural organization aims to better the conditions of those engaged in agricultural pursuits generally, not the conditions of general members.
Labor refers to the performance of service as employees. Labor organizations are organized membership groups designed to promote the improvement of working conditions for workers in general. Examples of labor organizations include labor unions, labor councils, and other groups primarily organized to safeguard and advance labor interests. Generally, labor organizations must serve actively working employees, not retirees, independent contractors, or entrepreneurs.
Labor organizations can conduct unlimited lobbying activities as long as those activities are pertinent to their interests. However, campaigning for or in opposition to candidates for public office does not further Section 501(c)(5) labor organization purposes.
Agricultural and Horticultural Organizations
Agricultural and horticultural organizations are groups of people who work to promote the interest of persons who cultivate land, harvest crops or aquatic resources, or raise livestock. These organizations must work toward improving conditions for those involved in one of these pursuits.
Like labor organizations, agricultural and horticultural organizations are membership groups. Those served by these organizations must represent a significant portion of the interested agricultural community. Any individual membership benefits must be incidental to the larger goal of improving the agricultural community.
Some examples of qualifying agricultural and horticultural organizations include farm bureaus, rodeos, exhibitions, fairs, and breeders’ associations. Some organizations that engage in soil testing, pest control, and program collection data may also qualify for tax-exempt status if their objective is to improve agriculture.
Agricultural and horticultural organizations can engage in unlimited amounts of lobbying on issues germane to their interests. However, as with labor organizations, intervening in political campaigns does not further Section 501(c)(5) agricultural or horticultural organization purposes.
IRC Section 501(c)(5) and Political Activities
As noted above, labor, agricultural, and horticultural organizations can engage in unlimited lobbying that is germane to their purpose but cannot intervene in political campaigns. However, Section 501(c)(5) organizations can set up separate Section 527 organizations to handle their political activities. Section 527(f) imposes a tax on direct political expenditures by Section 527 organizations, including those affiliated with labor organizations.
Call the California Center for Nonprofit Law Today
If your charity needs legal advice or assistance, we are here to help. Contact an experienced nonprofit lawyer today. Call the California Center for Nonprofit Law offices at (949) 892-1221, email us at firstname.lastname@example.org, or contact us online for more information today. We offer a wealth of experience handling the unique legal issues that nonprofit organizations routinely face.