What are the advantages and disadvantages of becoming a 501(c)(3) charity instead of a 501(c)(6) trade association?
A full answer to this question would require a lengthy treatise. In the simplest response, however, there are a few major differences.
A 501(c)(3) public charity is able to attract tax-deductible charitable contributions from individuals and corporations and grants from private foundations. A donor does not obtain a charitable contribution deduction for a gift to a 501(c)(6) trade association and as a practical matter private foundations will not make grants to them.
A trade association is not limited in the amount of lobbying it may do in pursuing its members' interests, while a charity may lobby only so long as it is not a substantial portion of its activities. (See Ready Reference Page: "Lobbying Rules Create Opportunity for Charities.”)
As a matter of governance, the IRS likes a (c)(6) trade association to be a membership organization, while a (c)(3) charity can be governed by a self-perpetuating Board. (See Ready Reference Page: “The Key Question: Whose Organization Is It?”)
May 15, 2013
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In today’s challenging times, few nonprofit organizations can afford boards that are not performing up to their potential. Yet many executive directors and individual directors express frustration with their boards. Engaging in effective board self-assessment is a constructive way to improve board performance. Learn how to gain the support of board members for this process and do it in ways that will reap important benefits. Learn More
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