What Is Required for 501(c)(8) Tax-Exempt Status?

A 501(c)(8) organization is a nonprofit known as a fraternal beneficiary society. These organizations consist of members who share common principles or a collective purpose. The mission of a 501(c)(8) is to operate under a lodge system and provide for the payment of life, sick, accident, or other benefits to its members and their dependents. This structure has historical roots in the United States, with many societies forming in the 19th century to offer mutual support to communities.

Qualification Requirements for 501(c)(8) Status

To receive tax-exempt status under Internal Revenue Code (IRC) Section 501(c)(8), an organization must satisfy three requirements. First, the organization must have a fraternal purpose. This means membership is based on a common tie or shared objective, and the organization must maintain a program of fraternal activities, such as rituals, ceremonies, and social events.

Second, the organization must operate under a lodge system. The IRS defines this as a hierarchical structure with a parent organization and at least one subordinate lodge it has chartered. While subordinate lodges are self-governing and hold regular meetings, they must operate in alignment with the mission and regulations established by the parent body.

Third, the organization must provide for the payment of life, sick, accident, or other similar benefits to its members or their dependents. These benefits can also include scholarships, educational programs, and travel opportunities. An organization may qualify if the majority of members are eligible for benefits. This provision of benefits separates 501(c)(8) societies from 501(c)(10) domestic fraternal societies, which do not provide such payments.

Taxation and Contribution Rules

The financial advantage of 501(c)(8) status is exemption from federal income tax on revenue from activities related to its exempt purpose. This includes income from member dues and investments used to fund the benefit programs for members.

This tax exemption is not absolute. An organization may be subject to the Unrelated Business Income Tax (UBIT) on profits from activities not substantially related to its exempt purpose. For instance, if a society regularly rents its hall to the public for commercial events, the net income would likely be subject to UBIT. If an organization has $1,000 or more in gross income from an unrelated business, it must file Form 990-T.

Donations made to a 501(c)(8) society are generally not tax-deductible for the donor, unlike contributions to 501(c)(3) charitable organizations. An exception exists if the donor directs that the contribution be used exclusively for religious, charitable, scientific, literary, or educational purposes. For general operational support, the donor cannot claim a deduction.

Applying for Tax-Exempt Status

To seek recognition as a tax-exempt 501(c)(8) organization, an entity must prepare IRS Form 1024, Application for Recognition of Exemption Under Section 501(a). The organization must gather its organizing documents, including its articles of association, constitution, and bylaws. It will also need a narrative describing its past and planned activities, along with financial data, such as historical financial statements or a projected budget.

The application must be filed electronically through the Pay.gov portal, and a user fee is required. Applicants should verify the current fee on the IRS website before filing. After submission, the application enters a review process that can take several months. Upon successful review, the IRS will issue a determination letter recognizing the organization’s tax-exempt status.

Annual Reporting Obligations

Maintaining tax-exempt status requires filing an annual information return with the IRS. The specific form an organization must file depends on its financial activity, which is determined by its gross receipts and total assets.

The forms are tiered based on finances. Organizations with gross receipts of $50,000 or less typically file Form 990-N (e-Postcard). Those with gross receipts under $200,000 and total assets under $500,000 can file Form 990-EZ. Organizations with gross receipts of $200,000 or more, or total assets of $500,000 or more, must file the full Form 990.

Failure to file the required information return for three consecutive years will result in the automatic revocation of an organization’s tax-exempt status. This policy makes diligent annual reporting necessary to preserve the designation.