AMIBA strongly encourages IBAs to organize in accordance with 501(c)(6) of the IRS Code (with accordant state incorporation stipulations). AMIBA attained a 501(c)(6) Group Exemption ruling from the IRS as a benefit to our affiliates wishing to attain this status. This is an opt-in program, not an automatic benefit, and requires an application process. If your group already has 501(c)(6) status, you do not need this program. We recognize some of the language may seem overly restrictive. Your group retains local decision making authority within broad parameters under this program. To gain IRS approval, AMIBA was required to demonstrate to the IRS that we have a reasonable degree of oversight of our affiliates participating in the Group Exemption Program. The information we request of applicants in our Group Exemption Application both satisfies the oversight requirement agreed to between AMIBA and the IRS and is submitted to the IRS on your behalf.
About 501(c)(6) Organizations The Internal Revenue Code identifies organizations falling within Section 501(c)(6) as:
What is Group Exemption?The ruling means AMIBA can provide blanket Federal income tax-exempt status under Section 501(c)(6) for our U.S. affiliates desiring to participate in the program and who we determine are qualified under the program parameters. Affiliates apply to AMIBA, not the IRS. Affiliates not under AMIBA’s group exemption or not having gained tax-exempt status independently will be treated as for-profit entities by the IRS and will be required to pay taxes on all gross receipts.
Why should we consider this option instead of pursuing our own 501(c)(6)?
- AMIBA determines your qualifications, not the IRS.
- Your organization saves money.
- Your organization becomes tax-exempt retroactive to its incorporation
What qualifications must our organization meet to be included under AMIBA’s group exemption?Affiliates wishing to be included in AMIBA’s group exemption must meet all of the following criteria:
- has a fiscal year of January 1 – December 31 (will require a bylaws amendment/board vote for you to change)
- is incorporated with their respective State within 15 months of application for tax-exempt status, in accordance with 501(c)(6) stipulations (AMIBA’s recommendation per our IBA Handbook and recommended language we include for articles of incorporation in start-up templates)
- has attained a Federal Employee Identification Number (FEIN)
- is a current, paid AMIBA affiliate
- is based in the United States
- has successfully completed AMIBA’s application and submitted the required materials and $75 one-time fee
Do we retain our tax-exempt status if our organization loses or drops our AMIBA affiliation?No. AMIBA is required by the IRS to have a degree of oversight of affiliates in the program to ensure operation in accordance with Section 501(c)(6) of the IRC. This program is offered as a benefit and privilege of AMIBA affiliation. One requirement of maintaining your organization’s place on our exempt group list is maintaining your affiliation with AMIBA. Even before adding this benefit, AMIBA’s affiliate retention rate remained steadily over 90%. We know this program won’t appeal to all affiliates, but we know it will be a major benefit to many, and helping our affiliates succeed is our job.
What does tax-exempt mean?Tax-exempt means an organization does not pay corporate federal income tax from activities that are largely related to the purposes for which the organization was granted exempt status. It does not relieve your organization from paying employee payroll taxes or taxes on unrelated business income. Federal tax exemption alone will not relieve your organization of obligations to your state and local governments. You must apply for that separately, but you’ll find your federal tax-exempt status necessary for attaining the others (see discussion of state taxes, below). Affiliates covered under AMIBA’s group exemption are expected to read and understand the IRS rules and regulations for maintaining your tax-exempt status under section 501(c)(6) as described in IRS Publication 557, which can be found on the IRS.gov website.
Does inclusion under AMIBA’s group exemption mean we don’t have to file tax returns?No. An affiliate is only covered by AMIBA’s group exemption with respect to federal income tax. Exemption under AMIBA’s group exemption number does not eliminate an affiliate’s need to file an annual informational Form 990, 990-EZ or 990-N with the IRS. And any unrelated business income is taxable (income not associated with the mission of your organization). Affiliates are responsible for any tax filings. All affiliates included in AMIBA’s group exemption or having received recognition as tax-exempt by the IRS are required to file an IRS Form 990 beginning with fiscal year following their incorporation. Below are the limits that determine which IRS Form 990 must be filed with the IRS:
- If gross receipts are normally $25,000 or less ($50,000 for tax years ending on or after December 31, 2010), you are required to file a 990-N postcard. Information and postcard available online at http://www.irs.gov/charities/article/0,,id=169250,00.html.
- If gross receipts are less than $200,000 and total assets are less than $500,000 at the end of the year, then Form 990EZ or 990 may be filed.
- If gross receipts are greater than or equal to $200,000, or total assets are greater than or equal to $500,000 at the end of the year, affiliates are required to file Form 990.
What about state taxes?Taxes and requirements vary from state to state. Although an affiliate may have federal exempt status for reporting purposes, this may not be the case for state income taxes, sales and use taxes, property taxes, local real estate taxes, or any other levy. In general, an affiliate will need to apply to state or local authorities to determine qualifications and to obtain exemptions. In order to be exempt from paying state sales tax in states allowing this exemption for 501(c)(6) organizations, an affiliate must obtain a sales tax exemption certificate from their state department of revenue. In addition, you may be required to collect and pay state sales tax on any commercial products sold through any sales medium — phone, internet, or in person — unless you have been granted state exemption. Most states do tax the sale of tangible goods. For example, a tangible good could be a book sold at an event. Unless it is included in a registration fee and is an integral part of an educational program, it must have sales tax applied to the sale. So if you plan to sell items, investigate sales tax exemption as part of your product exploration.
When can we claim 501(c)(6) tax-exempt status?As soon as we approve your application. We attend to your application shortly upon receiving it and work with you to make sure all is in order. In addition, all groups approved for inclusion in our group exemption gain 501(c)(6) tax-exemption retroactive to their incorporation or association in their state.
What is required of us to maintain our place in the exempt group?Once accepted into the exempt group, you will be required to: Submit to the IRS by May 15:
- your annual informational 990, 990-EZ, or 990-N postcard to the IRS. *See note on page 3
- a copy of your annual informational 990, 990-EZ or 990-N postcard. Why not do this when you submit it to the IRS?
- an income/expenses report for the previous full year to AMIBA. For convenience, consider doing this at the same time you send us your 990.
- any changes in organizational purpose, character or method of operation; any organizational name or address change
- any change to your group’s operation that may prevent it from continuing in the group or expressed desire to pursue tax-exempt status on your own (we will delete you from our exempt group). Affiliate subsequently will be subject to individual filing requirements.
How do we apply?First, be sure your board approves. The decision to pursue tax-exempt status is one your board of directors must make. You apply to AMIBA, not the IRS. We use a rolling application process – qualified affiliates may apply for inclusion in AMIBA’s exempt group at any time. Our Group Exemption Application contains all the information you need to get us what we need to make our determination and add your organization to our 501(c)(6) exempt group. Applications received by August 1 will be included in our list update for the IRS and gain tax-exempt status that year, barring any unforeseeable* problems. Applications arriving after the deadline or with issues delaying acceptance will be included in our submission the following year. *Just because you apply does not guarantee your organization will become part of that year’s submitted group nor gain tax-exempt status for your organization. We do our best to include you, but we may find issues needing resolution before we can add you to our list or determine your organization ineligible. Organizing and operating in accordance with AMIBA’s recommended IBA protocol strongly increases likelihood of acceptance into the exempt group. This program is a benefit, and we do our best to work with you to make sure it is one your organization can enjoy.
About 501(c)(6) Organizations The Internal Revenue Code identifies organizations falling within Section 501(c)(6) as:
Business LeaguesSection 501(c)(6) of the Internal Revenue Code provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual. A business league is 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. Trade associations and professional associations are business leagues. To be exempt, a business league’s activities must be devoted to improving business conditions of one or more lines of business as distinguished from performing particular services for individual persons. No part of a business league’s net earnings may inure to the benefit of any private shareholder or individual and it may not be organized for profit to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only enough income to be self-sustaining). The term line of business generally refers either to an entire industry or to all components of an industry within a geographic area. It does not include a group composed of businesses that market a particular brand within an industry. Chambers of commerce and boards of trade are organizations of the same general type as business leagues. They direct their efforts at promoting the common economic interests of all commercial enterprises in a trade or community, however. Basic Characteristics of a 501(c)(6) Organization
- It must be an association of persons having some common business interest and its purpose must be to promote this common interest.
- It must be a membership organization and have a meaningful extent of membership support.
- It must not be organized for profit.
- No part if its net earnings may directly benefit or profit any private stakeholder or individual.
- Its activities must be directed to the improvement of business/community economic conditions for one or more lines of business as distinguished from the performance of particular services for individuals.
- Its primary activity does not consist of performing particular services for individual persons.
- Its purpose must not be to conduct regular business ordinarily carried on for profit, even if the business is operated as a cooperative or produces only sufficient income to be self-sustaining.