While it is obvious that normally a charitable organization will be deemed a nonprofit with the right to apply for 501(c)(3) status, what about a nonprofit business league that would normally not be what one thinks of as a charity? At the outset, the definition of a business league must be clear and unambiguous. Under Treasury Regulation 501(c)(6), a business league is defined as “an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit.”

FAQs — Frequently Asked Questions About forming a 501(c)(6) Business League

The following is a list of five frequently asked questions (FAQs) relating to the unique legal aspects of business leagues.

FAQ # 1 – What are some examples of associations that will be deemed “business leagues?”

IRS regulation § 1.501(c)(6)-1 provides a few examples of business leagues. They include “chambers of commerce, real-estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.”

FAQ # 2 – How must a business league function?

The business league must engage in activities that are devoted to the following objective: “improving business conditions of one or more lines of business (as distinguished from performing particular services for individual persons).” It is important that the organization not promote the private interests of one or more individuals, but instead “[i]t must be shown that the conditions of a particular trade or the interests of the community will be advanced.” Id.

FAQ # 3 What is the difference between a 501(c)(3) and a 501(c)(6)?

The answer can become quite technical, but generally speaking, a 501(c)(3) is a charity while a 501(c)(6) is a non-profit that promotes business or other associational objectives.

FAQ # 4 What are examples of ways that the 501(c)(6) can improve business conditions for one or more lines of business?

There are a number of examples of ways that a business league can improve business conditions without benefiting specific persons. This includes “[a]n organization presenting information, trade statistics, and group opinions to government agencies and bureaus…promoting the members’ line of business by publishing statistics on business conditions in the industry…promoting the common business interests of members through [certain] advocacy…[and] maintaining a non-profit lawyer referral service aimed at improving the image and functioning of the legal profession rather than being just a business referral service for its members.” Exempt Organizations Technical Guide to Business Leagues – IRC Section 501(c)(6) (IRS Revision Date 2-1-2024)

FAQ # 5 Can a 501(c)(6) engage in political and legislative activities?

One of the key distinctions between a 501(c)(6) and a 501(c)(3) entity is that the former has far less restrictions on participating in election activities. Such electioneering can become a major part of the 501(c)(6)’s activities, albeit while generally being required to expend less than half of its resources in doing so.

The Nissenbaum Law Group can Provide Legal Counsel for 501(c)(6) Business Leagues

The Nissenbaum Law Group handles both nonprofit formation, governance issues, compliance matters and even governance and other litigation. The firm welcomes inquiries from persons who are considering forming 501(c)(6) business leagues or who wish to consider whether or not such an organization will be more conducive to their purpose than the standard 501(c)(3). Click here to learn more about our Nonprofit Law Services.