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Must we close (c)(6) to switch to (c)(3)

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Must we close (c)(6) to switch to (c)(3)

I'm on the board of a 501(c)(6) trade association. The board is looking into changing to a 501(c)(3) charitable organization (educational purpose). Is this possible without having to close the association and start from scratch? Or do we just need to complete and submit a Form 1023?

You would not need to shut down the organization to apply for 501(c)(3) charitable exempt status, but you would probably have to amend your articles of incorporation to include the “magic language” required of (c)(3) organizations by the IRS.  (See Ready Reference Page: “Articles of Incorporation Establish Basic Form of Nonprofit Corporations") You may also have to reduce or eliminate some of your trade association programming in order to qualify for (c)(3) status.  When you are sure you will qualify, then you can file the Form 1023 to apply for your recognition of charitable status.

But you ought to consider carefully whether you really want to give up the benefits of a (c)(6) trade association.  As a trade association, you are probably interested in legislation that affects your members.  If you switch to a 501(c)(3) charity, your ability to lobby is limited.  As a trade association, you can support or oppose candidates for elective office, and even run political advertising so long as it is not coordinated with the candidate.  As a 501(c)(3), of course, you can lose your exemption if you participate in a campaign (See Ready Reference Page: “IRS Issues New Guidance on Electioneering”) You can keep these benefits of a (c)(6) and establish a separate 501(c)(3) to conduct your educational program if you wish.  There is a little more administrative cost, but you can have the best of both possible worlds.

Tuesday, February 14, 2012

Comments

Great Information - Immediately found the answer to my first question. Thank you.

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