Table of Contents
- Introduction
- 501(c)(4) -Civic Leagues and Social Welfare Organizations
- 501(c)(5)-Labor, Agricultural, and Horticultural Organizations
- 501(c)(6) -Business Leagues, etc.
- 501(c)(7) -Social and Recreation Clubs
- 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal Societies
- 501(c)(4), 501(c)(9), and 501(c)(17) -Employees' Associations
- 501(c)(12) -Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations
- 501(c)(13) -Cemetery Companies
- 501(c)(14) -Credit Unions and Other Mutual Financial Organizations
- 501(c)(19) -Veterans' Organizations
- 501(c)(20) -Group Legal Services Plan Organizations
- 501(c)(21) -Black Lung Benefit Trusts
- 501(c)(2) -Title-Holding Corporations for Single Parents
- 501(c)(25) -Title-Holding Corporations or Trusts for Multiple Parents
- 501(c)(26) -State-Sponsored High-Risk Health Coverage Organizations
- 501(c)(27) -State-Sponsored Workers' Compensation Reinsurance Organizations
This chapter contains specific information for certain organizations described in section 501(c), other than those organizations that are described in section 501(c)(3). Section 501(c)(3) organizations are covered in chapter 3 of this publication.
The Table of Contents at the beginning of this publication, as well as the Organization Reference Chart, may help you locate at a glance the type of organization discussed in this chapter.
If your organization is not organized for profit and will be operated only to promote social welfare, you should file Form 1024 to apply for recognition of exemption from federal income tax under section 501(c)(4). The discussion that follows describes the information you must provide when applying. For application procedures, see chapter 1.
To qualify for exemption under section 501(c)(4), the organization's net earnings must be devoted only to charitable, educational, or recreational purposes. In addition, no part of the organization's net earnings may benefit any private shareholder or individual. If the organization provides an excess benefit to certain persons, an excise tax may be imposed. See Excise tax on excess benefit transactions under Excess Benefit Transactions in chapter 5 for more information about this tax.
The following information should be contained in the application form and accompanying statements of certain types of civic leagues or social welfare organizations.
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An organization operating an airport that is on land owned by a local government, which supervises the airport's operation, and that serves the general public in an area with no other airport,
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A community association that works to improve public services, housing and residential parking; publishes a free community newspaper; sponsors a community sports league, holiday programs and meetings; and contracts with a private security service to patrol the community,
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A community association devoted to preserving the community's traditions, architecture, and appearance by representing it before the local legislature and administrative agencies in zoning, traffic, and parking matters,
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An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses so they will relocate to the area, and
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An organization that holds an annual festival of regional customs and traditions.
If you are a member of an organization that wants to obtain recognition of exemption from federal income tax as a labor, agricultural, or horticultural organization, you should submit an application on Form 1024. You must indicate in your application for exemption and accompanying statements that your organization will not have any net earnings benefiting any member. In addition, you should follow the procedure for obtaining recognition of exempt status described in chapter 1. Submit any additional information that may be required, as described in this section.
A labor organization is an association of workers who have combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions.
To show that your organization has the purpose of a labor organization, you should include in the articles of organization or accompanying statements (submitted with your exemption application) information establishing that the organization is organized to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. In addition, no net earnings of the organization may benefit any member.
Agricultural and horticultural organizations are connected with raising livestock, forestry, cultivating land, raising and harvesting crops or aquatic resources, cultivating useful or ornamental plants, and similar pursuits.
For the purpose of these provisions, aquatic resources include only animal or vegetable life, but not mineral resources. The term harvesting, in this case, includes fishing and related pursuits.
Agricultural organizations may be quasi-public in character and are often designed to encourage the development of better agricultural and horticultural products through a system of awards, using income from entry fees, gate receipts, and donations to meet the necessary expenses of upkeep and operation. When the activities are directed toward the improvement of marketing or other business conditions in one or more lines of business, rather than the improvement of production techniques or the betterment of the conditions of persons engaged in agriculture, the organization must qualify for exemption as a business league, board of trade, or other organization, as discussed next in the section on 501(c)(6) organizations.
The primary purpose of exempt agricultural and horticultural organizations must be to better the conditions of those engaged in agriculture or horticulture, develop more efficiency in agriculture or horticulture, or improve the products.
The following list contains some examples of activities that show an agricultural or horticultural purpose.
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Promoting various cooperative agricultural, horticultural, and civic activities among rural residents by a state and county farm and home bureau.
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Exhibiting livestock, farm products, and other characteristic features of agriculture and horticulture.
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Testing soil for members and nonmembers of the farm bureau on a cost basis, the results of the tests and other recommendations being furnished to the community members to educate them in soil treatment.
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Guarding the purity of a specific breed of livestock.
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Encouraging improvements in the production of fish on privately-owned fish farms.
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Negotiating with processors for the price to be paid to members for their crops.
If your association wants to apply for recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, board of trade, or professional football league (whether or not administering a pension fund for football players), it should file Form 1024. For a discussion of the procedure to follow, see chapter 1.
Your organization must indicate in its application form and attached statements that no part of its net earnings will benefit any private shareholder or individual and that it is not organized for profit or organized to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining).
In addition, your organization must be primarily engaged in activities or functions that are the basis for its exemption. It must be primarily supported by membership dues and other income from activities substantially related to its exempt purpose.
A business league, in general, is an association of persons having some common business interest, the purpose of which is 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.
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Promotion of higher business standards and better business methods and encouragement of uniformity and cooperation by a retail merchants association,
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Education of the public in the use of credit,
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Establishment of uniform casualty rates and compilation of statistical information by an insurance rating bureau operated by casualty insurance companies,
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Establishment and maintenance of the integrity of a local commercial market,
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Operation of a trade publication primarily intended to benefit an entire industry, and
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Encouragement of the use of goods and services of an entire industry (such as a lawyer referral service whose main purpose is to introduce individuals to the use of the legal profession in the hope that they will enter into lawyer-client relationships on a paying basis as a result).
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Influencing legislation.
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Participating or intervening in a political campaign for, or against, any candidate for public office.
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Trying to influence the general public, or part of the general public, with respect to elections, legislative matters, or referendums (also known as grassroots lobbying).
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Communicating directly with certain executive branch officials to try to influence their official actions or positions.
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Appearing before, submitting statements to, or sending communications to members of a local council or similar governing body with respect to legislation or proposed legislation of direct interest to the member, or
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Communicating information between the member and the organization with respect to local legislation or proposed legislation of direct interest to the organization or the member.
If your club is organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes, it should file Form 1024 to apply for recognition of exemption from federal income tax.
In applying for recognition of exemption, you should submit the information described in this section. Also see chapter 1 for the procedures to follow.
Typical organizations that should file for recognition of exemption as social clubs include:
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College alumni associations that are not described in chapter 3 under Alumni association,
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College fraternities or sororities operating chapter houses for students,
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Country clubs,
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Amateur hunting, fishing, tennis, swimming, and other sport clubs,
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Dinner clubs that provide a meeting place, library, and dining room for members,
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Hobby clubs,
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Garden clubs, and
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Variety clubs.
This section describes the information to be provided upon application for recognition of exemption by two types of fraternal societies: beneficiary and domestic. The major distinction is that fraternal beneficiary societies provide for the payment of life, sick, accident, or other benefits to their members or their dependents, while domestic fraternal societies do not provide these benefits but rather devote their earnings to fraternal, religious, charitable, etc., purposes. The procedures to follow in applying for recognition of exemption are described in chapter 1.
If your organization is controlled by a central organization, you should check with your controlling organization to determine whether your unit has been included in a group exemption letter or may be added. If so, your organization need not apply for individual recognition of exemption. For more information see Group Exemption Letter in chapter 1 of this publication.
A fraternal beneficiary society, order, or association should file an application for recognition of exemption from federal income tax on Form 1024. The application and accompanying statements should establish that the organization:
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Is a fraternal organization,
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Operates under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system, and
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Provides for the payment of life, sick, accident, or other benefits to the members of the society, order, or association or their dependents.
A domestic fraternal society, order, or association may file an application for recognition of exemption from federal income tax on Form 1024. The application and accompanying statements should establish that the organization:
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Is a domestic fraternal organization,
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Operates under the lodge system,
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Devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and
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Does not provide for the payment of life, sick, accident, or other benefits to its members.
The organization may arrange with insurance companies to provide optional insurance to its members without jeopardizing its exempt status.
This section describes the information to be provided upon application for recognition of exemption by the following types of employees' associations:
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A local association of employees whose membership is limited to employees of a designated person or persons in a particular municipality, and whose income will be devoted exclusively to charitable, educational, or recreational purposes,
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A voluntary employees' beneficiary association (including federal employees' associations) organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries, if no part of the net earnings of the association benefits any private shareholder or individual, and
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A supplemental unemployment benefit trust whose primary purpose is providing for payment of supplemental unemployment benefits.
Both the application form to file and the information to provide are discussed later under the section that describes your employee association. Chapter 1 describes the procedures to follow in applying for exemption.
A local employees' association may apply for recognition of exemption by filing Form 1024. The organization must submit evidence that:
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It is of a purely local character,
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Its membership is limited to employees of a designated person or persons in a particular locality, and
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Its net earnings will be devoted exclusively to charitable, educational, or recreational purposes.
A local association of employees that has established a system of paying retirement or death benefits, or both, to its members will not qualify for exemption since the payment of these benefits is not considered as being for charitable, educational, or recreational purposes. Similarly, a local association of employees that is operated primarily as a cooperative buying service for its members in order to obtain discount prices on merchandise, services, and activities does not qualify for exemption.
An application for recognition of exemption as a voluntary employees' beneficiary association must be filed on Form 1024. The material submitted with the application must show that your organization:
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Is a voluntary association of employees,
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Will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries and substantially all of its operations are for this purpose, and
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Will not allow any of its earnings to benefit any private individual or shareholder except in the form of scheduled benefit payments.
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Each class of benefits under the plan is provided under a classification of employees that is set forth in the plan and does not discriminate in favor of employees who are highly compensated individuals.
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The benefits provided under each class of benefits do not discriminate in favor of highly compensated individuals.
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Who have not completed 3 years of service,
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Who have not attained age 21,
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Who are seasonal or less than half-time employees,
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Who are not in the plan and who are included in a unit of employees covered by a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining, or
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Who are nonresident aliens and who receive no earned income from the employer that has United States source income.
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Owned 5 percent or more of the employer at any time during the current year or the preceding year,
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Received more than $100,000 for 2007 (adjusted for inflation) in compensation from the employer for the preceding year, and
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Was among the top 20% of employees by compensation for the preceding year.
A trust or trusts forming part of a written plan (established and maintained by an employer, his or her employees, or both) providing solely for the payment of supplemental unemployment compensation benefits must file the application for recognition of exemption on Form 1024. The trust must be a valid, existing trust under local law and must be evidenced by an executed document. A conformed copy of the plan of which the trust is a part should be attached to the application.
Each of the following organizations may apply for recognition of exemption from federal income tax by filing Form 1024.
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Benevolent life insurance associations of a purely local character and like organizations.
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Mutual ditch or irrigation companies and like organizations.
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Mutual or cooperative telephone companies and like organizations.
A like organization is an organization that performs a service comparable to that performed by any one of the above organizations.
The information to be provided upon application by each of these organizations is described in this section. For information as to the procedures to follow in applying for exemption, see chapter 1.
All of the organizations listed above must submit evidence with their application that they receive 85% or more of their gross income from their members for the sole purpose of meeting losses and expenses. Nevertheless, certain items of income are excluded from the computation of the 85% requirement if the organization is a mutual or cooperative telephone or electric company.
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A nonmember telephone company for the performance of communication services involving the completion of long distance calls to, from, or between members of the mutual or cooperative telephone company,
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Qualified pole rentals,
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The sale of display listings in a directory furnished to its members, or
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The prepayment of a loan created in 1987, 1988, or 1989, under section 306A, 306B, or 311 of the Rural Electrification Act of 1936.
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Qualified pole rentals,
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Any provision or sale of electric energy transmission services or ancillary service if the services are provided on a nondiscriminatory open access basis under an open access transmission tariff approved or accepted by the Federal Energy Regulatory Commission (FERC) or under an independent transmission provider agreement approved or accepted by FERC (other than income received or accrued directly or indirectly from a member),
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The provision or sale of electric energy distribution services or ancillary services if the services are provided on a nondiscriminatory open-access basis to distribute electric energy not owned by the mutual or electric cooperative company:
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To end-users who are served by distribution facilities not owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), or
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Generated by a generation facility not owned or leased by the company or any of its members and which is directly connected to distribution facilities owned by the company or any of its members (other than income received or accrued directly or indirectly from a member),
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Any nuclear decommissioning transaction, or
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Any asset exchange or conversion transaction.
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By the telephone or electric company to support one or more wires that are used by the company in providing telephone or electric services to its members, and
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Pursuant to the rental to support one or more wires (in addition to wires described in (1)) for use in connection with the transmission by wire of electricity or of telephone or other communications.
The 85% requirement is applied on the basis of an annual accounting period. Failure of an organization to meet the requirement in a particular year precludes exemption for that year, but has no effect upon exemption for years in which the 85% requirement is met.
Gain from the sale or conversion of the organization's property is not considered an amount received from members in determining whether the organization's income consists of amounts collected from members.
Because the 85% income test is based on gross income, capital losses cannot be used to reduce capital gains for purposes of this test.
Collections from members | $2,400 |
Short-term capital gains | 600 |
Short-term capital losses | 400 |
Other income | None |
Gross income ($2,400 + $600 =$3000) | 100% |
Collected from members ($2,400) | 80% |
A benevolent life insurance association or an organization seeking recognition of exemption on grounds of similarity to a benevolent life insurance association must submit evidence upon applying for recognition of exemption that it will be of a purely local character, that its excess funds will be refunded to members or retained in reasonable reserves to meet future losses and expenses, and that it meets the 85% income requirement. If an organization issues policies for stipulated cash premiums, or if it requires advance deposits to cover the cost of the insurance and maintains investments from which more than 15% of its income is derived, it will not be entitled to exemption.
To establish that your organization is of a purely local character, it should show that its activities will be confined to a particular community, place, or district irrespective of political subdivisions. If the activities of an organization are limited only by the borders of a state, it cannot be purely local in character. A benevolent life insurance association that does not terminate membership when a member moves from the local area in which the association operates will qualify for exemption if it meets the other requirements.
A copy of each type of policy issued by your organization should be included with the application for recognition of exemption.
Mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations need not establish that they are of a purely local character. They may serve noncontiguous areas.
If your organization wishes to obtain recognition of exemption from federal income tax as a cemetery company or a corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, it should file an application on Form 1024. For the procedure to follow to file an application, see chapter 1.
A nonprofit mutual cemetery company that seeks recognition of exemption should submit evidence with its application that it is owned and operated exclusively for the benefit of its lot owners who hold lots for bona fide burial purposes and not for purposes of resale. A mutual cemetery company that also engages in charitable activities, such as the burial of paupers, will be regarded as operating within this standard. The fact that a mutual cemetery company limits its membership to a particular class of individuals, such as members of a family, will not affect its status as mutual so long as all the other requirements of section 501(c)(13) are met.
If your organization is a nonprofit corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, you should show that it is not permitted by its charter to engage in any business not necessarily incident to that purpose. Operating a mortuary is not permitted. However, selling monuments, markers, vaults, and flowers solely for use in the cemetery is permitted if the profits from these sales are used to maintain the cemetery as a whole.
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To pay the ordinary and necessary expenses of operating, maintaining, and improving the cemetery or crematorium.
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To buy cemetery property.
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To create a fund that will provide a source of income for the perpetual care of the cemetery or a reasonable reserve for any ordinary or necessary purpose.
No part of the net earnings of your organization may benefit any private shareholder or individual.
Ordinary and necessary expenses in connection with the operation, management, maintenance, and improvement of the cemetery are permitted, as are reasonable fees for the services of a manager.
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The preferred stock entitles the holders to dividends at a fixed rate that is not more than the greater of the legal rate of interest in the state of incorporation or 8% a year on the value of the consideration for which the stock was issued.
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The organization's articles of incorporation require:
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That the preferred stock be retired at par as rapidly as funds become available from operations, and
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That all funds not required for the payment of dividends on or for the retirement of preferred stock be used by the company for the care and improvement of the cemetery property.
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If your organization wants to obtain recognition of exemption as a credit union without capital stock, organized and operated under state law for mutual purposes and without profit, it should file an application including the facts, information, and attachments described in this section. In addition, it should follow the procedures for filing an application described in chapter 1.
Federal credit unions organized and operated in accordance with the Federal Credit Union Act, as amended, are instrumentalities of the United States, and therefore, are exempt under section 501(c)(1). They are included in a group exemption letter issued to the National Credit Union Administration. They are not discussed in this publication.
State-chartered credit unions and other mutual financial organizations may file applications for recognition of exemption from federal income tax under section 501(c)(14). The other mutual financial organizations must be corporations or associations without capital stock organized before September 1, 1957, and operated for mutual purposes and without profit to provide reserve funds for, and insurance of, shares or deposits in:
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Domestic building and loan associations,
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Cooperative banks (without capital stock) organized and operated for mutual purposes and without profit,
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Mutual savings banks (not having capital stock represented by shares), or
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Mutual savings banks described in section 591(b).
Similar organizations, formed before September 1, 1957, that provide reserve funds for (but not insurance of shares or deposits in) one of the types of savings institutions described in (1), (2), or (3) above may be exempt from tax if 85% or more of the organization's income is from providing reserve funds and from investments. There is no specific restriction against the issuance of capital stock for these organizations.
Building and loan associations, savings and loan associations, mutual savings banks, and cooperative banks, other than those described in this section, are not exempt from tax. However, certain corporations organized and operated in conjunction with farmers' cooperatives can be exempt under IRC 521.
Your organization must show on its application that it is formed under a state credit union law, the state and date of incorporation, and that the state credit union law with respect to loans, investments, and dividends, if any, is being complied with.
A form of statement furnished to applicants by the Credit Union National Association is acceptable in meeting the application requirements for credit unions, and may be used instead of the statement form of application just described. The following is a reproduction of that form.
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Date of incorporation .
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It was incorporated under the credit union law of the State of , and is being operated under uniform bylaws adopted by said state.
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In making loans, the state credit union law requirements, including their purposes, security, and rate of interest charged thereon, are complied with.
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Its investments are limited to securities which are legal investments for credit unions under the state credit union law.
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Its dividends on shares, if any, are distributed as prescribed by the state credit union law.
Signature of Officer Title
Every other organization included in this section must show in its application the state in which the organization is incorporated and the date of incorporation; the character of the organization; the purpose for which it was organized; its actual activities; the sources of its receipts and the disposition thereof; whether any of its income may be credited to surplus or may benefit any private shareholder or individual; whether the law relating to loans, investments, and dividends is being complied with; and, in general, all facts relating to its operations that affect its right to exemption.
The application must include detailed information showing either that the organization provides both reserve funds for and insurance of shares and deposits of its member financial organizations or that the organization provides reserve funds for shares or deposits of its members and 85% or more of the organization's income is from providing reserve funds and from investments. There should be attached a conformed copy of the articles of incorporation or other document setting forth the permitted powers or activities of the organization; the bylaws or other similar code of regulations; and the latest annual financial statement showing the receipts, disbursements, assets, and liabilities of the organization.
A post or organization of past or present members of the Armed Forces of the United States may file Form 1024 to apply for recognition of exemption from federal income tax. You should follow the general procedures outlined in chapter 1. The organization must also meet the qualifications described in this section.
Examples of groups that would qualify for exemption are posts or auxiliaries of the American Legion, Veterans of Foreign Wars, and similar organizations.
To qualify for recognition of exemption, your application should show:
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That the post or organization is organized in the United States or any of its possessions,
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That at least 75% of the members are past or present members of the U.S. Armed Forces and that at least 97.5% of all members of the organization are past or present members of the U.S. Armed Forces, cadets (including only students in college or university ROTC programs or at armed services academies) or spouses, widows, widowers, ancestors, or lineal descendants of any of those listed here, and
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That no part of net earnings benefit any private shareholder or individual.
In addition to these requirements, a veterans' organization also must be operated exclusively for one or more of the following purposes.
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To promote the social welfare of the community (that is, to promote in some way the common good and general welfare of the people of the community).
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To assist disabled and needy war veterans and members of the U.S. Armed Forces and their dependents and the widows and orphans of deceased veterans.
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To provide entertainment, care, and assistance to hospitalized veterans or members of the U.S. Armed Forces.
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To carry on programs to perpetuate the memory of deceased veterans and members of the Armed Forces and to comfort their survivors.
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To conduct programs for religious, charitable, scientific, literary, or educational purposes.
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To sponsor or participate in activities of a patriotic nature.
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To provide insurance benefits for its members or dependents of its members or both.
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To provide social and recreational activities for its members.
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It is affiliated with, and organized in accordance with, the bylaws and regulations formulated by the parent organization.
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At least 75% of its members are either past or present members of the U.S. Armed Forces, spouses of those members, or related to those members within two degrees of kinship (grandparent, brother, sister, and grandchild represent the most distant allowable relationship).
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All of its members either are members of the parent organization, spouses of a member of the parent organization, or related to a member of such organization within two degrees of kinship.
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No part of its net earnings benefit any private shareholder or individual.
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The trust or foundation is in existence under local law and, if it is organized for charitable purposes, has a dissolution provision similar to charitable organizations. (See Articles of Organization in chapter 3 of this publication.)
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The corpus or income cannot be diverted or used other than for:
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The funding of a veterans' organization, described in this section,
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Religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals, or
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An insurance set aside.
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The trust income is not unreasonably accumulated and, if the trust or foundation is not an insurance set aside, a substantial portion of the income is in fact distributed to the parent organization or for the purposes described in item 2(b).
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It is organized exclusively for one or more of the purposes listed earlier in this section that are specifically applicable to the parent organization.
An organization or trust created in the U.S. for the exclusive function of forming a part of a qualified group legal services plan or plans cannot be exempt under section 501(c)(20) after June 30, 1992. However, it may qualify for exemption under section 501(c)(9).
If your organization wishes to obtain recognition of exemption as a black lung benefit trust, it must file its application by letter and include a copy of its trust instrument. The general procedures to follow for obtaining recognition are discussed in chapter 1 of this publication. This section describes the additional (or specific) information to be provided upon application.
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Its only purpose is:
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To satisfy in whole or in part the liability of that person (generally, the coal mine operator contributing to the trust) for, or with respect to, claims for compensation arising under federal or state statutes for disability or death due to pneumoconiosis,
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To pay the premiums for insurance that covers only that liability,
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To pay the administrative and other incidental expenses of that trust (including legal, accounting, actuarial, and trustee expenses) in connection with the operation of the trust and processing of black lung claims against such person arising under federal or state statutes, and
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To pay accident and health benefits or insurance premiums and other administrative expenses for retired coal miners and their spouses. The amount of assets available for such use is generally limited to 110% of the present value of the liability for black lung benefits.
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No part of its assets may be used for, or diverted to, any purposes other than:
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The purposes described in 1,
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Payments into the Black Lung Disability Trust Fund or into the general fund of the U.S. Treasury (other than in satisfaction of any tax or other civil or criminal liability of the person who established or contributed to the trust),
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Investment in public debt securities of the U.S., obligations of a state or local government that are not in default as to principal or interest, or time or demand deposits in a bank or an insured credit union located in the U.S. (These investments are restricted to the extent that the trustee determines that a portion of the assets is not currently needed for the purposes described in 1.
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If your organization wants to obtain recognition of exemption from federal income tax as a corporation organized to hold title to property, collect income from that property, and turn over the entire amount less expenses to a single parent organization that is exempt from income tax, it should file its application on Form 1024. The information to submit upon application is described in this section. For a discussion of the procedures for obtaining recognition of exemption, see chapter 1.
You must show that your organization is a corporation. If you are in doubt as to whether your organization qualifies as a corporation for this purpose, contact your IRS office.
A title-holding corporation will qualify for exemption only if there is effective ownership and control over it by the distributee exempt organization. For example, the distributee organization may control the title-holding corporation by owning its voting stock or possessing the power to select nominees to hold its voting stock.
If your organization wants to obtain recognition of exemption from federal income tax as an organization organized for the exclusive purpose of acquiring, holding title to, and collecting income from real property, and turning over the entire amount less expenses to member organizations exempt from income tax, it should file its application on Form 1024. For a discussion of the procedures for obtaining recognition of exemption, see chapter 1.
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By selling or exchanging their stock or beneficial interest to any organization described in IRC 501(c)(25)(C), provided that the sale or exchange does not cause the number of shareholders or beneficiaries to exceed 35.
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By having their stock or beneficial interest redeemed by the 501(c)(25) organization upon 90 days notice.
In general, the receipt of unrelated business income by a section 501(c)(25) organization will subject the organization to loss of exempt status since the organization cannot be exempt from taxation if it engages in any business other than that of holding title to real property and collecting the income from the property. However, exempt status generally will not be affected by the receipt of debt-financed income that is treated as unrelated business taxable income solely because of section 514.
Under section 514(c)(9), certain shareholders or beneficiaries are not subject to unrelated debt-financed income tax under section 514 on their investments through the organization. These shareholders are generally schools, colleges, universities, or supporting organizations of such educational institutions. Organizations other than these will take into account as gross income from an unrelated trade or business their pro rata share of income that is treated as unrelated debt-financed income because section 514(c)(9) does not apply. These organizations will also take their pro rata share of the allowable deductions from unrelated taxable income.
A state-sponsored organization established to provide medical care to high-risk individuals should apply by letter for recognition of exemption from federal income tax under section 501(c)(26).
To qualify for exemption, the organization must be a membership organization established by a state exclusively to provide coverage for medical care on a nonprofit basis to high-risk individuals who are state residents. It may provide coverage either by issuing insurance itself or by entering into an arrangement with a health maintenance organization (HMO).
The state must determine the composition of membership in the organization. No part of the net earnings of the organization can benefit any private shareholder or individual.
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Cannot get medical care coverage for that condition through insurance or an HMO, or
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Can get coverage for that condition only at a rate that is substantially higher than the rate for the same coverage from the state-sponsored organization.
A state-sponsored workers' compensation reinsurance organization should apply by letter for recognition of exemption from federal income tax under section 501(c)(27).
To qualify for exemption, any membership organization must meet all the following requirements.
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It was established by a state before June 1, 1996, exclusively to reimburse its members for losses under workers' compensation acts.
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The state requires that the membership consist of all persons who issue insurance covering workers' compensation losses in the state and all persons and government entities who self-insure against those losses.
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It operates as a nonprofit organization by returning surplus income to its members or workers' compensation policyholders on a periodic basis and by reducing initial premiums in anticipation of investment income.
Any organization (including a mutual insurance company) can qualify for exemption if it meets all of the following requirements.
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It is created by state law and is organized and operated under state law exclusively to:
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Provide workmen's compensation insurance which is required by state law or state law must provide significant disincentives if employers fail to purchase such insurance, and
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Provide related coverage which is incidental to workmen's compensation insurance.
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It provides workmen's compensation insurance to any employer in the state (for employees in the state or temporarily assigned out-of-state) which seeks such insurance and meets other reasonable requirements relating to the insurance.
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The state makes a financial commitment to such organization either by extending its full faith and credit to the initial debt of the organization or by providing the initial operating capital of the organization.
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The assets of the organization revert to the state upon dissolution or the organization is not permitted to dissolve under state law.
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The majority of the board of directors or oversight body of such organization are appointed by the chief executive officer or other executive branch official of the state, by the state legislature, or by both.
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