The Differences Between All of the Types of Nonprofits
You have gotten to the step where you have decided to become a nonprofit….congrats! Nonprofits like yours are making the world a better place. 💙
Before starting this step, make sure you have conducted a needs assessment to ensure there is a measurable need that your nonprofit will solve. Now you need to determine what type of nonprofit status will benefit you the most. This can seem intimidating, but it is worth the time investment. Luckily, we have done the research for you by creating a summary of the types of nonprofits you might qualify for (and why you should apply for one over another).
There are a plethora of nonprofit filing options to choose from, but you will most likely be choosing a version of a 501(c).
If it does not seem like a 501(c) is what you want then take a look at the information the IRS has provided to see some alternatives. They also have a comprehensive document describing each of these types of nonprofits in further detail.
In this article we will cover 25 types of nonprofits broken down into 8 categories:
- General - 501(c)(3)
- Insurance/Benefits Giving
- Finance Driven
- Social/Membership Oriented
- Limited Liability
Let’s dive in!
General - 501(c)(3)
Chances are you have already heard about this form of nonprofit either from your research or even from everyday life. This is the most common form of nonprofit status - close to 75% of 501(c)s are registered as a 501(c)(3). This begs the question...why?
The IRS defines a 501(c)(3) as religious, educational, charitable, scientific, literary, testing for public safety, to foster national or international amateur sports competition or prevention of cruelty to children or animal organizations. This category is by far the most extensive with many different organizations being able to qualify to register. The IRS has a great deal of information about 501(c)(3)s, but we have broken down the basics for you:
- What a 501(c)(3) consists of: Public charities and private foundations; Includes things like childcare, alumni associations, charitable hospitals, and much more (state or municipal agencies can also apply if they are organized separately from the government institution that created them).
- Requirements to be considered a 501(c)(3): Your nonprofit needs to be organized as a corporation and have articles of organization. A key point is that the organization's purpose as stated in the articles of organization must meet the requirements for a 501(c)(3) and must match the activities of the corporation.
- Forms to file: 1023 or 1023-EZ(streamlined) for exemption and 990, 990-EZ, or 990-PF for annual returns. In some cases your organization may not have to file a 1023, so be sure to check the IRS resources (page 23) to see if your organization is exempt.
- Donations: A big plus for this type of 501(c) is that donations/contributions are usually tax-deductible. Only one other type of 501(c) is considered to allow tax-deductible donations, others have restrictions associated with donations and contributions.
- State bonuses: Some states allow sales tax and property tax exemptions for 501(c)(3)s, saving your organization some precious cash.
- Regulations: This is the part where you say “I knew there was a catch”.
501(c)(3)s are highly regulated in comparison to other forms of nonprofits. A great example of this is their regulation on political activities. 501(c)(3)s cannot substantially participate in political activities (like lobbying) and are strictly forbidden from participating in political campaigns. Secondly, no earnings can be unfairly given to individuals (i.e. directors, officers, or anyone else getting an especially high salary). Furthermore, all assets of 501(c)(3)s are considered charitable donations; this means that all of your assets will be given to charity if you decide to stop operations.
This was just a summary of the basics of being considered a 501(c)(3). For more information on how to apply to be a 501(c)(3) tax-exempt organization, read this article. If you think this is the best option for you, you should consult with a lawyer to understand these details and/or go through the information provided by the IRS (pages 22-47).
As you can see, there are positives and negatives to being a 501(c)(3). Let’s look at the other categories to find out how they differ, and see how they will benefit your nonprofit!
Insurance and/or Benefits Giving
This category of nonprofits is dedicated to providing insurance or benefits to members of the organization. We gathered the key points that will be helpful when deciding which type of nonprofit is right for your organization.
501(c)(9): Voluntary Employees Beneficiary Associations
According to the IRS, a 501(c)(9) must be a voluntary association of employees that will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries. Essentially they are acting as an insurance for their members. Moreover, a substantial amount of its operations are for this purpose, and like a 501(c)(3), won't allow any of its net earnings to be the benefit of any private individual or shareholder except in the form of scheduled benefit payments.
Donations to 501(c)(9)s are not tax deductible. For filing, you will use form 1024 for tax exemption and 990 or 990-EZ for annual financial reporting.
501(c)(11): Teachers’ Retirement Fund Associations
The name of this one is pretty self-explanatory; an organization that manages teachers’ retirement funds (go figure). In general, 501(c)(11)s are local organizations that collect funds through dues, investment income, and tax proceeds. Donations are not tax-deductible.
The tax-exempt application is in the form of a letter sent to the address shown on Form 8718. A copy of the organizing document should be attached and the letter should be signed by an officer. You will also need to file a 990 or 990-EZ for your annual financial reporting.
501(c)(15): Mutual Insurance Companies or Associations
Put simply, a 501(c)(15)s primary purpose is to provide insurance at cost to its members. Donations are not deductible for this type of nonprofit.
To file to be tax exempt you will need form 1024 and form 990 or 990-EZ for your annual financial reporting.
501(c)(17): Supplemental Unemployment Benefit Trusts
Essentially, funds that provide supplemental unemployment benefits. To qualify for tax-exempt status trusts must be part of a written plan that is established by an employer and their employees, in addition to filing form 1024.
You will also be required to file a Form 990 or 990-EZ for ongoing financial compliance. Like most 501(c) forms, donations to 501(c)(17)s are not deductible.
501(c)(18): Employee Funded Pension Trust
This is another trust, but it must have been created before June 25, 1959. In addition, payment of benefits plans can only be funded by members. Donations are not deductible for 501(c)(18)s. This will most likely not apply to your nonprofit because of the date of creation requirement, but we have included it just in case.
501(c)(21): Black Lung Benefit Trusts
These nonprofits are created to help coal miners affected by black lung disease and are usually contributed to by coal mine operators. Donations are deductible as a business expense up to a certain amount and after that are taxed 5%.
The tax-exempt application is by letter to the address shown on Form 8718. A copy of the organizing document should be attached and the letter should be signed by an officer. Also needs to include a copy of the trust instrument. For yearly financial reporting, you must use information Form 990-BL.
501(c)(26): State-Sponsored High-Risk Health Coverage Organizations
501(c)(26)s are membership organizations established by a state exclusively to provide coverage for medical care on a nonprofit basis to high-risk individuals who are state residents.
Again, donations are non-deductible. To file for tax exemption you will need to send an application in the form of a letter to the address shown on Form 8718. A copy of the organizing document should be attached and the letter should be signed by an officer. A 990 or 990-EZ should be used for annual financial reporting.
501(c)(27): Qualified State-Sponsored Workers' Compensation Organizations
These nonprofits are created for workers to reimburse members for losses under workers' compensation acts.
Donations to 501(c)(27)s are not deductible. Yearly financial reporting should be done with a 990 or 990-EZ. Application for tax-exempt status is by letter to the address shown on Form 8718. A copy of the organizing document should be attached and the letter should be signed by an officer.
Suzanne hasn't found the type of nonprofit that fits her organization. Keep reading for more types of nonprofits!
501(c)(19): Post or Organization of Past or Present Members of the Armed Forces
To be considered as a 501(c)(19), you must be either a post or organization of past or present members of the United States Armed Forces. You can also qualify if you are an auxiliary unit or society, or a trust or foundation for a post or organization of the US Armed Forces.
In addition, your organization must be operated exclusively for one or more of the following purposes:
- 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).
- 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.
- To provide entertainment, care, and assistance to hospitalized veterans or members of the U.S. Armed Forces.
- To carry on programs to perpetuate the memory of deceased veterans and members of the Armed Forces and to comfort their survivors.
- To conduct programs for religious, charitable, scientific, literary, or educational purposes.
- To sponsor or participate in activities of a patriotic nature.
- To provide insurance benefits for its members or dependents of its members or both.
- To provide social and recreational activities for its members.
If you meet this requirement, you can apply for tax exemption with a 1024 and do your yearly financial reporting with a 990 or 990-EZ. Donations to a 501(c)(19) are deductible if 90% or more of the organization’s members are war veterans.
501(c)(23): Veterans Organization (created before 1880)
Yes, it’s weird, we know. A 501(c)(23) only applies to nonprofits created before 1880. The main purpose of these organizations is to provide insurance and other benefits to veterans. Contributions to these organizations are deductible only if 90% or more of the organization’s members are war veterans. If your nonprofit is a 501(c)(23) you will need to file ongoing compliance forms 990 or 990-EZ.
501(c)(14): State-Chartered Credit Unions, Mutual Reserve Funds
The primary purpose of a 501(c)(14) is to give loans to members. To be considered a 501(c)(14) there is no form to fill out, but you must file a Claim for Exemption from Federal Income.
You will also have to file a 990 or 990-EZ for annual financial reporting. Donations to 501(c)(14) are not deductible.
501(c)(16): Cooperative Organizations to Finance Crop Operations
Usually a cooperative of individuals that pool their resources to finance equipment for farming operations.
To file for tax-exempt status you must fill out an 1120-C form, and either a 990 or 990-EZ for financial reporting. Donations are not deductible for 501(c)(16)s.
Social and/or Membership Oriented
501(c)(7): Social and Recreational Clubs
Calling all of our party people! This type of nonprofit is dedicated to a social mission and serves its members, but not society in general. A common example of a 501(c)(7) would be a college fraternity or sorority.
Social clubs must prove that they limit membership to those with the same interests as the club and they must submit evidence of social contact, commingling, and fellowship.
Donations to these organizations are not deductible. To apply for tax exemption your organization will need to file a 1024 and a 990 or 990-EZ for annual financial reporting.
501(c)(8): Fraternal Beneficiary Societies and Associations
These are fraternal organizations, operating under the lodge system (one parent organization with several locations/chapters), and provides for the payment of life, sickness, accident, or other benefits to members.
Donations are deductible if used for religious, charitable, scientific, literary, or educational purposes; they are also deductible if used towards the prevention of cruelty towards children or animals. To file for tax exemption you must file a 1024, and 990 or 990-EZ for continuous financial compliance.
501(c)(10): Domestic Fraternal Societies and Associations
This organization is similar to 501(c)(8) with a couple of exceptions: a 501(c)(10) is a domestic fraternal organization organized in the U.S., it devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and it doesn’t provide for the payment of life, sick, accident, or other benefits to its members.
Jules is ready to hang out with all of the
social nonprofit organizations!
Focused on Improvement and/or Welfare
501(c)(4): Civic Leagues, Social Welfare Organizations, and Local Associations of Employees
501(c)(4)s are nonprofits that promote community welfare (ex. rotary clubs, homeowners’ association). They also include Local Employees’ associations if they are really local - limiting membership to persons in a specific locality and proceeds go to charitable, educational, or recreational purposes.
These organizations can act politically if it is considered as an act promoting social welfare, but you will need proof of this.
Usually, contributions are not deductible, but some might be if they are for volunteer organizations and considered as for social welfare (ex. volunteer fire companies). You can file to be a 501(c)(4) by using form 1024, and 990 or 990-EZ for ongoing financial compliance.
501(c)(5): Labor, Agricultural, and Horticultural Organizations
The main purpose of these organizations is to improve conditions of work or educate members.
Like a 501(c)(3), they must state that earnings are not being unfairly distributed to members of the organization. Contributions to 501(c)(5)s are nondeductible unless it is a business expense for the organization contributing. To apply for tax exemption you must file form 1024, and annual financial reports 990 or 990-EZ.
501(c)(6): Business Leagues, Chambers of Commerce, Real Estate Boards, etc.
501(c)(6)s operate to improve business conditions. They can participate in legislative activity to advance business interests if you can prove it to be so. Contributions are not deductible unless it is a business expense for the organization contributing. To file for tax-exempt status you will need to file a 1024, and 990 or 990-EZ for annual financial reporting.
These 501(c)s will all limit liability for your organization. Some can be used in coordination with other types of 501(c)s.
501(c)(2): Title Holding Corporations for Exempt Organizations
This type of tax-exempt corporation is typically used to supplement existing exempt organizations. Essentially, they are used when an organization owns property and they want to do a separate filing status to limit their liability on this property. This decreases risk on their physical property (ex. in case of a lawsuit). An example would be a church that wants to file separately for their religious organization and for their house of worship. College sororities and fraternities may also use this to protect campus houses.
To apply for a 501(c)(2) status you must file form 1024 and 990 or 990-EZ for annual financial reporting. Donations are not deductible unless your organization establishes a charitable fund.
501(c)(25): Title-Holding Corporations or Trusts for Multiple Parent Corporations
501(c)(25)s are very similar to 501(c)(2)s. The difference is organizations recognized as exempt under this section can have up to 35 shareholders or beneficiaries, in contrast to title-holding organizations recognized as exempt under section 501(c)(2), which can have only one controlling parent organization.
501(c)(22): Withdrawal Liability Payment Fund
These funds are created to limit liability for employers that are withdrawing from multiple employer pension funds. Donations to 501(c)(25)s are only deductible as a business expense. The tax-exempt application is by letter to the address shown on Form 8718. A copy of the organizing document should be attached and the letter should be signed by an officer. You will also need to file a 990 or 990-EZ for annual financial reporting.
501(c)(1): Corporations Organized Under Acts of Congress
An example of a 501(c)(1) would be a federal credit union. These organizations don’t need to file for tax-exempt status because they are organized by congress. Donations are deductible only if made for public purposes.
501(c)(12): Benevolent Life Insurance Associations, Mutual Ditch or Irrigation Companies, Mutual or Cooperative Telephone Companies and like companies
These organizations must meet requirements based on mutual characteristics and general requirements. A key factor is that 501(c)(12)s must use their income solely to cover losses and expenses, with any excess being returned to members or retained to cover future losses and expenses. In addition, they must collect at least 85% of their income from members for the sole purpose of meeting losses and expenses.
Donations to 501(c)(12)s are not deductible. To apply for tax-exempt status you need to file a 1024 and use a 990 or 990-EZ for ongoing compliance with financial reporting requirements.
501(c)(13): Cemetery Companies
To qualify as a 501(c)(13) there are a few requirements: income must be used to pay the ordinary and necessary expenses of operating, maintaining, and improving the cemetery or crematorium, to buy cemetery property, or 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. Your organization cannot qualify for exemption if preferred stock or common stock with dividends are issued.
Remember earlier when we said only one other type of 501(c) than a 501(c)(3) is considered to allow tax-deductible donations? Donations to 501(c)(13)s are deductible as long as they are not for a specific purpose/person. To apply for tax exemption you will need form 1024, and for annual financial reporting, you need form 990 or 990-EZ.
We hope this article gave you a better understanding of what type of nonprofit your organization could be. Let us know in the comments if we helped you to find your perfect match!
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