501c3 Or 501c10

[Hototo]

I am president of a Washington State Non profit Corperation. We currently fly under the radar with the IRS. We want to get set up with a 501c3 or 501c10. We are a mens only fraternal organization that is focused on Historical Preservation. We will help other Historical societies with their ongoing projects by providing them sweat labor and materials. We do a yearly schollarship at a local National History Day competion. We also most importantly provide and install plaques at historic sites. The way we pay for this is by giving shirts, pins,and buttons to our members for donating a certain amount of money. We also pass the hat for cash donations.  We do two small raffles per year. Also we put on two functions where our members pay money to attend and we provide food and libations. We would like our members to be able to deduct their donations.  

We also sometime will pass the hat to help out ailing brothers. We then deposite the funds into the chapter acount and write a check but that is flexible.   

We don't usually end up with a lot of money at the end of the year.  A few thousand. We dont usually have a total revenue of over about $12,000 Other chapters in our organization are a mixture of 501c3, c8, and c10. What do you think would fit us best.

[Dane]

Section 501(c)(10) is available athttp://pages.citebite.com/p3h2b2q8plbu

and is:

---Start of Excerpt--

(10) Domestic fraternal societies, orders, or associations,

operating under the lodge system -

(A) the net earnings of which are devoted exclusively to

religious, charitable, scientific, literary, educational, and

fraternal purposes, and

(B) which do not provide for the payment of life, sick,

accident, or other benefits.

---End of Excerpt--

Internal Revenue Code section 501(c)(3) which is available at:http://pages.citebite.com/w8p5e1ayxjv has, in part, that the 501(c)(3) organization must be "operated

exclusively for religious, charitable, scientific, testing for

public safety, literary, or educational purposes ... no part of the

net earnings of which inures to the benefit of any private

shareholder or individual".

Note that subsection(A) allows "fraternal" purposes, whereas section 501(c)(3) does not.  You appear to have fraternal purposes, as you wrote that you are a mens-only fraternal organization. Attaining to 501(c)(3) organization status is preferable if you can qualify, because donations to 501(c)(3) organizations are deductible, but donations to 501(c)(10) and 501(c)(8) organization  organizations are allowed only  "if for certain Sec. 501(c)(3) purposes." You can see that in IRS Publication 557 "Tax Exempt Status for Your Organization"

www.irs.gov/pub/irs-pdf/p557.pdf

starting on page 65 as to the different types of 501(c) organizations.  But you indicated that you would not be qualified, for example, if any of your scholarships or other benefits only go to your fraternal members.

I am assuming that the "shirts, pins, and buttons" that you give to your "members for donating a certain amount of money" prominently display the name of your organization on them.  That way the activity and income derived would not be considered by the IRS as unrelated business.  IRS Publication 598 "Tax on Unrelated Business Income of Exempt

Organizations" at

www.irs.gov/pub/irs-pdf/p598.pdf

explains that,  if products or services are not directly related to

the charitable, educational, religious or other purpose or function

constituting the basis for its exemption(other than for production

of income), then the activities are generally taxable.

I suggest that you read IRS Publication "Fraternal Beneficiary Societies and Fraternal Societies" which is available

at:

www.irs.gov/pub/irs-tege/eotopich80.pdf

On page 5 is "Fraternal societies are essentially the same as fraternal beneficiary societies except that no payments of benefits are offered. " Above in that publication is a discussion of the types of benefits that fraternal beneficiary societies may provide. Also above, starting on the bottom of page 4 is "Individual gifts to a fraternal beneficiary society may be deductible under IRC 170(c)(4); however, this deductibility applies only when the gift is to be used exclusively for religious, charitable, scientific, literary or educational purposes, or for the prevention of cruelty to children or animals. Contributions for fraternal or social purposes are not deductible. In addition, IRC 170(c)(4) does not permit a deduction for contributions made for testing for public safety or fostering national or international amateur sports competitions."

If you provide any payments of the benefits that are mentioned for 501(c)(8) organizations, you would not be qualified as a 501(c)(10) organization and, therefore, the only option left, of the three that you mentioned, would be to become a 501(c)(8) organization. Harvey Mechanic, Attorney at Law - [email protected]