The Italian American Business Association (IABA) was incorporated by Joe Aiello on April 14, 2006 with the Colorado Secretary of State’s Office. We are organized as a Non-Profit Corporation in the State of Colorado and as a 501(c)(6) Business League with the Internal Revenue Service.
The following is an explanation from the Code of the Internal Revenue Service (IRS) documents about what constitutes a 501(c)(6) Business League. All of the following citations that are in quotations are from the IRS documents. Business Leagues are similar to Chambers of Commerce, which are also are classified as a 501(c)(6).
IABA Colorado is the only Italian American Business Association (Business League) in the state of Colorado. Questions have arisen as to how the 501(c)(6) designation compares to other community groups, including Italian American organizations. Below is a brief description, taken from the IRS documents and the manual, of organizations classified as a 501(c)(3) or a 501(c)(10). It is done in a question and answer format. Following that section is an in-depth explanation from IRS literature about the 501(c)(6) designation.
As members of IABA Colorado, it is very important that we know these differences as we make plans both strategically and operationally for our monthly meetings; programs; activities; events; fund raising activities; literature; member recruitment; website; social media and other matters.
How Organizations That Are a 501(c)(3) Differ From IABA Colorado Which is a 501(c)(6)
Organizations classified as a 501(c)(3)
Question: I belong to another Italian American organization and the designation is 501(c)(3). How does that differ from IABA Colorado's designation?
Response: Almost all of the Italian American organizations in Colorado are designated as 501(c)(3) unless they have a fraternal designation such as a 501(c)(10). Their purposes and their federal requirements are different from IABA Colorado.
From the IRS Guidelines: “Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Other than testing for public safety organizations, they are eligible to receive tax deductible contributions in accordance with Code section 170.” Some other types included under the designation are churches and religious organizations and private foundations.
“The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.”
"To be organized exclusively for a charitable purpose, the organization must be a corporation (or unincorporated association), community chest, fund, or foundation. A charitable trust is a fund or foundation and will qualify. However, an individual will not qualify. The organizing documents must limit the organization's purposes to exempt purposes in section 501(c)(3) and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that are not in furtherance of one or more of those purposes. This requirement may be met if the purposes stated in the organizing documents are limited by reference to section 501(c)(3).”
“Section 501(c)(3) organizations are restricted in how much political and legislative (lobbying) activities they may conduct. For a detailed discussion, see Political and Lobbying Activities.” “In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.”
Organizations classified as Domestic Fraternal Societies (501(c)(10))
Question: The organization to which I belong is a lodge, classified as a 501(c)(10). How does that differ from IABA Colorado's designation?
Response: These are similar to the 501(c)(3) organizations.
“A domestic fraternal society, order, or association must file an application for “recognition of exemption from federal income tax on Form 1024." The "application and accompanying statements should establish that the organization: 1. Is a domestic fraternal organization organized in the U.S., 2. Operates under the lodge system, 3. Devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and 4. Does not provide for the payment of life, sick, accident, or other benefits to its members.”
“Lodge system. Operating under the lodge system means carrying on activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like.” (For additional information about what is meant in #3 above, see the explanation under 501(c)(3).
IABA COLORADO - Italian American Business Association
From IABA Colorado Articles of Incorporation 501(c)(6)
IABA Colorado was incorporated in 2006. "Article VII: (a) The Corporation is organized and shall be operated exclusively as a business league under Section 501(c)(6) of the Internal Revenue Code of 1986 (or the corresponding provision of any future United States Internal Revenue Law)."
From the code of the Internal Revenue Service explanation of 501(c)(6) Business Leagues
“Business Leagues: “[The code) provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual."
“A business league is an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Trade associations and professional associations are business leagues."
“To be exempt, a business league’s activities must be devoted to improving business conditions of one or more lines of business as distinguished from performing particular services for individual persons. It must be shown that the conditions of a particular trade or the interests of the community will be advanced. Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose..."
“The term line of business generally refers either to an entire industry or to all components of an industry within a geographic area. It does not include a group composed of businesses that market a particular brand within an industry."
“No part of a business league’s net earnings may inure to the benefit of any private shareholder or individual and it may not be organized for profit to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only enough income to be self-sustaining)."
“Chambers of commerce and boards of trade are organizations of the same general type as business leagues. They direct their efforts at promoting the common economic interests of all commercial enterprises in a trade or community...Similarly the activities of chambers of commerce and boards of trade are directed towards improving business conditions in a trade community."
“Trade associations and professional associations are business leagues. Chambers of commerce and boards of trades are of the same class as business leagues.....The requirements for exemption of these organizations are substantially the same as for business leagues.”
“To be exempt, a section 501(c)(6) organization must receive meaningful membership support.”
“A business league exempt under Code 501(c)(6)is a membership organization characteristically supported by dues. Although an organization may receive a substantial portion or even the primary part of its income from non-member sources, membership support, either in the form of dues paid to or involvement in the organization’s activities, must be meaningful. For this purpose, membership support includes the following items:
“To determine if a business activity is substantially related requires examining the relationship between the activities that generate income and the accomplishment of the organization’s exempt purpose. Trade or business is related to exempt purposes, in the statutory sense, only when the conduct of the business activities has causal relationship to achieving exempt purposes (other than through the production of income)."
" The causal relationship must be substantial. The activities that generate the income must contribute importantly to accomplishing the organization’s exempt purposes to be substantially related.”
“A business league will jeopardize its exemption under section (501)(c)(6) of the Internal Revenue Code if it ceases to have as its purpose promoting the common business interests of persons engaged in a line of business. In addition, an organization’s net earnings may not insure to the benefit of its members...”
“An organization’s performance of particular services for its members or others is not an exempt activity under Code section 501(c)(6). Although such activities do not alone preclude exemption, an organization engaged primarily in performing particular services is not exempt under section 501(c)(6).”
“To be exempt as a business league, an organization must show that its purpose is improving business conditions of one or more lines of business. Similarly, the activities of chambers of commerce and boards of trade are directed towards improving business conditions in a trade community.”
“Providing particular services that are a convenience or economy to individual members in their businesses do not further section 501(c)(6) exempt purposes."
Examples of Particular Services. These services DO NOT further section 501(c)(6) exempt purposes:
" "Providing a convenience or economy to individual members in their businesses."
" "Interest free loans."
The following are examples of Non-Particular Services. These services DO further section 501(c)(6). The following are examples of Common Business Interests. These DO further section 501(c)(6).
"Improvement of business conditions. Generally, this must be shown to be the purpose of the organization...The members of a business league must have a common business interest."
These are examples of Non-Particular Services and of Common Business Interests that DO further section 501(c)(6)