Choosing a Charitable or Non-Charitable Nonprofit
The law of nonprofit organizations can be confusing, because there are two meanings for the word charitable. One refers to a charity that, for example, aids the poor. The other refers to the broader IRS definition that includes all organizations that can accept tax-deductible contributions. These include educational, religious, scientific, patriotic, and many other types of organizations that are classified under Section 501(c)(3) of the Internal Revenue Code.
If at all possible, you should form your organization to comply with this section, and therefore become a charitable organization. To do so, you must draft your statement of purpose to fit into the permitted purposes under the law.
If your planned activities don’t meet the requirements to qualify your group as a Section 501(c)(3) organization, such as if you plan to do substantial lobbying for new laws or to contribute to political campaigns, you can form a non-charitable nonprofit organization under one of the other exemptions. These include:
- business leagues (trade associations) under Section 501(c)(6)
- chambers of commerce under Section 501(c)(6)
- civic leagues under Section 501(c)(4)
- employee associations under Section 501(c)(4), (9), or (17)
- labor organizations under Section 501(c)(5)
- lodges under Section 501(c)(10)
- recreational clubs under Section 501(c)(7)
- social clubs under Section 501(c)(7)
- social welfare organizations under Section 501(c)(4)
- veterans' organizations under Section 501(c)(19)
Under these sections, an organization can be exempt from paying income taxes, but contributions given to it are not tax-deductible as charitable contributions. However, they might be tax deductible for another reason. For example, dues to a trade association are usually tax-deductible for businesses in the same trade.