501(c)(5) Labor Organizations​

Labor, agricultural or horticultural organizations.
                                                                                                                                                                      - Internal Revenue Code Section 501(c)(5)

Exemption Application

• Form 1024, including Schedule C (current form is dated 9/98).
• $400 for organizations with gross receipts normally $10,000 or less; $850 for larger organizations.
  
• Submit fee using Form 8718.
  
• There is no filing deadline for a 501(c)(5) application. 
  
• In late 2015, 501(c)(5) organizations were given the right to go to court to seek a Declaratory Judgment when the IRS denies an exemption application.
  

Annual filing

• Gross receipts normally less than $50,000 - file Form 990-N
• Gross receipts normally less than $200,000 - file Form 990-EZ
  
• Gross receipts normally more than $200,000 - file Form 990
  
• Check instructions: an organization's assets can also affect which form must be filed
  

Caution: An organization that fails to file a required return for three years in a row will have its exempt status automatically revoked.

Basic Rules

• qualifying purposes include the betterment of the conditions of those engaged in a common pursuit, the improvement of the grade of their products, and the development of a higher degree of efficiency in their respective occupations
• qualifying activities include collective bargaining, allocating work assignments among eligible members, coordinating legislative, legal, and public relations efforts on behalf of members, and otherwise protecting and promoting the interests of members 
  
• A 501(c)(5) can have self-employed members
  
• A 501(c)(5) organization may not allow any part of its net earnings to inure to the benefit of any private shareholder or individual
  
• Donations are not deductible as charitable contributions but union dues may be deductible as a miscellaneous itemized deduction.
  
• Larger organizations may be required to disclose that donations are not deductible in their solicitation materials
  
• (c)(5)'s usually cannot qualify for the special low rate non-profit bulk mailing permit.
  

Lobbying

• 501(c)(5) organizations are permitted unlimited amounts of legislative activity as long as it is in furtherance of the exempt purpose.
• In some cases, (c)(5)s may be required to notify members that a portion of dues is not deductible because of lobbying carried on by the organization.  Organizations may elect to pay a proxy tax instead of making this notification.
  

Political Activity

• Political activity is permitted, but cannot be the organization's primary purpose, and will in most cases incur a penalty tax.
• In some cases, (c)(5)s may be required to notify members that a portion of dues is not deductible because of political activity carried on by the organization.  Organizations may elect to pay a proxy tax instead of making this notification.
  

Examples

• Labor unions 
• other organizations engaged in collective bargaining or other labor negotiating
  
• apprenticeship committees
  
• Labor Temples
  
• Member controlled strike/lockout funds
  
• At the end of fiscal year 2015, there were 46,576 501(c)(5) organizations, about 3.01% of all 501(c) organizations

Links:

• Information about points of intersection between labor organizations and the IRS.  Life Cycle of a Labor Organization
• IRS Publication 557, Tax Exempt Status for Your Organization
  
• There are a few Exempt Organizations Continuing Professional Education articles on labor organizations.  The best way to access these is through the Exempt Organizations CPE Topical Index.
  
• IRC 501(c)(5) Organizations, 2003 Exempt Organizations Continuing Professional Education Technical Instruction Program, Topic J.  This is the most recent CPE article.
  
• Compliance Guide for Tax-Exempt Organizations (Other than 501(c)(3) Public Charities and Private Foundations)  IRS Publication 4221-NC
  
• Section 7.25.5 of the Internal Revenue Manual​​

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