What Is a 501(c)(8) Organization and How Do You Apply?
Understand the operational and legal framework for 501(c)(8) fraternal beneficiary societies, from initial qualification to ongoing IRS compliance.
A 501(c)(8) organization is a type of nonprofit recognized by the Internal Revenue Service (IRS) as a Fraternal Beneficiary Society. These organizations are comprised of members united by a common bond, such as a shared profession or ethnicity. The primary function of a 501(c)(8) is providing life, sick, accident, or other benefits to its members and their dependents.
The establishment of these societies dates back to the 19th century, often formed by immigrant and underserved populations to access medical care and support. While they engage in social and fraternal activities, their defining characteristic under the tax code is the provision of these tangible benefits. This focus on member support distinguishes them from other charitable organizations.
Qualification Requirements
To qualify for 501(c)(8) status, an organization must meet two main requirements. First, it must operate under a lodge system, which consists of a parent organization and at least one subordinate, self-governing chapter chartered by the parent.
Second, the organization must provide life, sick, accident, or other benefits to its members or their dependents as a primary activity. While not all members must be covered, a majority must be eligible for benefits. The society is responsible for this system, even if benefits are provided through insurance partnerships.
Finally, the organization must have a fraternal purpose, demonstrated by a common tie among members and a substantial program of ongoing fraternal activities. The combination of a lodge system, member benefits, and a genuine fraternal purpose is necessary to qualify for and maintain this tax-exempt status.
Required Documentation for Application
To apply for 501(c)(8) status, an organization must file IRS Form 1024, Application for Recognition of Exemption Under Section 501(a). This form requires a detailed description of the organization’s activities and purposes. The application must explain the benefits offered to members, including eligibility and how they are funded and administered.
The Form 1024 submission must also include a thorough description of the lodge system. The organization must explain the relationship between the parent and subordinate lodges, including how lodges are chartered and their degree of self-governance.
Several attachments are required, including a signed copy of the organizing document, such as its articles of incorporation or constitution. The organization’s bylaws must also be attached. The language in these governing documents must support the required fraternal purpose and provision of benefits.
The Application Process
The completed Form 1024 and all supporting documents must be submitted electronically through Pay.gov, as paper applications are not accepted. The required user fee must be paid online at the time of submission. The current fee amount is listed on the IRS website.
Processing time can take several months, and during its review, the IRS may request additional information to make a determination. If the IRS sends a written request for more details, a prompt and complete response is required. Upon completing its review, the IRS will issue a determination letter that either grants or denies tax-exempt status.
Annual Filing and Tax Obligations
After receiving tax-exempt status, a 501(c)(8) organization has ongoing compliance responsibilities. Most must file an annual information return with the IRS, such as Form 990, 990-EZ, or 990-N. The specific form required depends on the organization’s gross receipts and total assets.
An organization may be subject to the Unrelated Business Income Tax (UBIT). This tax applies to income from a regularly conducted trade or business that is not substantially related to the organization’s exempt purpose. For instance, net income from a business operated for the general public would be taxable.
While the organization is tax-exempt, payments from members are generally not tax-deductible as charitable contributions for the donor. However, a donation may be deductible if it is specifically designated for a qualified charitable purpose.