Choosing a Tax-Exempt Status
Most people who contact AMIBA already recognize the value of making their local business coalition or “buy local” campaign a non-profit organization, but we’re asked regularly by U.S. groups whether 501c3 or 501c6 status is the best federal tax status to obtain (after incorporating at the state level).
501c3 tax-exempt status carries the benefits of allowing a group to provide individual donors with a tax deduction and to directly accept foundation grants. However, your member businesses already can deduct membership dues or sponsorship from their tax liability as a business expense, so 501c3 status provides no added benefit to them.
501c3 status has severe limitations that handicap a group aiming to entice more customers to patronize their members or sponsors. IRS regulations require 501c3 organizations to be exclusively charitable (public education is one such purpose). The IRS regards directories of member businesses, online search tools spotlighting your member and loyalty programs as business promotion, not public education, which means they cannot legally be done by a 501c3 organization.
Since these are among essential components for most pro-local groups, we discourage new groups from filing for 501c3 status. The good news is your group may seek foundation funding or large tax-deductible donations through our Fiscal Sponsorship Program, which allows you to accept grants and tax-deductible contributions without the need to gain and maintain your own 501c3.
If you already have gained 501c3 status, see our advice on incorporating a separate entity that operates in accordance with 501c6 regulations (the 501c3 entity can pursue funding from foundations and individual donors and carry out educational activities that lack promotional content).
AMIBA strongly suggests organizations form in accordance with 501c6 rules, designed for “business leagues.” The IRS defines a business league 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.” Our templates and guidance will position you properly to gain this tax-exempt status when it becomes useful to you.
|Cost||$850 (not including any attorney’s fee)||$75|
|Wait time||up to 6 months per exchange||days|
|You deal with||IRS phone tree and hold music consisting of one song over and over…..||Jennifer|
|Need an attorney?
As a benefit to our affiliates, AMIBA gained a group exemption from the IRS, which authorizes us to bestow 501c6 status upon qualified U.S. affiliates wishing to attain it for their organization. Our IRS-approved application walks you through everything you need, asks you all the pertinent questions, and tells you exactly what to send us. We make it easy for you and eliminate the need to engage an attorney.
We review your application upon receipt, and we often can provide your group with tax-exempt status within days. This is a major benefit that will save most groups $800 or more. As of 2016, the cost just for filing a 501c6 application to the IRS $850 for most groups. You pay the IRS application fee when filing and it is not refundable if you are denied tax-exempt status. There is a one-time $75 cost for AMIBA affiliates to apply to the group exemption program.
Another important consideration: as a 501c6 organization, your group is free to lobby or endorse political candidates without IRS restriction, while 501c3 organizations are severely limited from engaging in any advocacy and are prohibited from endorsing candidates. Lobbying to support pro-local business policy (or stop harmful actions) is an important component of a strong local alliance. (Business members should be informed of the amount of annual lobbying their dues support, and they are not allowed to deduct this portion of their dues as a business expense.)
Note: AMIBA itself is a 501c3 educational organization, but we operate differently than local alliances because our mission does not depend on promoting particular businesses. Presumably, a local group strives, in part, to deliver customers to its members.