501(c)(6) vs. 501(c)(3)

Two hands pointing at a 501c6 nonprofit balance sheet.

As a nonprofit entrepreneur, creating change in your chosen community is at the root of everything you do. But as you prepare your organization’s paperwork for state and federal incorporation, you may find yourself weighing the benefits of filing 501(c)6 vs. 501c(3). Understanding the difference between 501(c)(3) and 501(c)(6) is important. In fact, many new nonprofit administrators often ask, “Is a 501(c)(6) a nonprofit?” Fortunately, it is! But it does have some critical differences when comparing it to the 501(c)(3). Here’s what you need to know to make an informed decision.

501(c)6 vs. 501c(3): An Overview of Each Classification

A 501(c)(3) is classified as a “charitable” tax-exempt organization (such as churches, education programs, cultural organizations, medical research groups, health support groups, and more) and limited in the amount and nature of the political activity or advocacy work they can engage in. Donations to 501(c)(3) tax-deductible organizations are often the life-blood necessary for keeping the organization operational.

A 501(c)(6) is a nonprofit business association – and it’s because of the focus on lines of business that those unfamiliar with nonprofit classifications often become confused! The difference between 501(c)(3) and 501(c)(6) is that nonprofit business associations (also referred to as business leagues) can directly participate in lobbying and politics. This means the organization can endorse political candidates, lobby for specific interests they represent, and make political contributions.

Charitable and Business Association Classifications in 501(c)(6)s vs. 501c(3)s

501(c)(3)s are general education- and advocacy-based. Because of their charitable classification, 501(c)(3) organizations engage in public outreach that pertains to their mission. While charitable organizations in this classification cannot endorse political candidates, they can endorse measures brought to a public vote if the issue aligns with the organization’s mission. They are also allowed to lobby in a nonpartisan manner, such as holding voter registration drives, hosting voter education events, or promoting voter access.

A “business league,” as defined by classification 501(c)(6), is a nonprofit business association of people who share a business-related interest and who promote that interest within their group and to their community at large. This includes trade associations, chambers of commerce, and professional associations. A key difference between 501(c)(3) and 501(c)(6) is lobbying. A 501c6 can lobby for legislation supporting its mission and directly oppose or support political candidates. However, the organization must limit its political activities to no more than 49% of its resources to maintain compliance.

501(c)6 vs. 501c(3): Are Donations Tax Deductible?

With 501(c)(3) organizations, fundraising is essential. When it comes to reporting fundraising outcomes and donations, this nonprofit classification must disclose all charitable gifts worth $5,000 or more to the IRS. In addition, 501(c)(3) organizations rely heavily on securing grants from private foundations and state and federal agencies. As part of a grant application, a 501(c)(3) organization may be required to show its fundraising balance sheet and provide information about its donors.

One of the most significant differences between 501(c)(3) and 501(c)(6) is that donations are not tax-deductible. This unique aspect is likely why many nonprofit entrepreneurs question if 501c6 is a nonprofit. Fortunately, the nonprofit business association structure means it is perfectly aligned to create a membership-based enterprise, and the membership fees paid by participating business members are typically tax-deductible. When considering 501(c)6 vs. 501c(3) nonprofit classification, the most crucial distinction to remember is collecting membership dues vs. collecting charitable donations. With a 501(c)6, your organization needs to create robust member-exclusive benefits and incentives desired by the membership base. By offering benefits that cannot be obtained elsewhere, your organization will develop cause awareness that will help to establish the league and grow it over time.

501(c)6 vs. 501c(3): Real-World Examples

The Cystic Fibrosis Foundation is an example of a 501(c)(3) nonprofit. The organization fundraises to conduct medical and pharmaceutical research to eliminate this childhood disease. The Foundation also endorses or advocates against federal and state propositions related to its mission, such as stem cell research and health care access; however, it does not endorse political candidates.

In comparison, an example of a 501c6 organization is the California Milk Processor Board, which promotes the dairy industry’s products on behalf of its membership base. Their famous “Got Milk?” advertising campaigns helped promote their business and lobbying efforts. As a business league, this nonprofit organization is required to conduct outreach and advocate for the industry or sector each member conducts business in. A business league may not promote or lobby for individual members, but rather on behalf of the entire organization’s collective interests.

501(c)6 vs. 501c(3): Choose What’s Best for Your Cause

After reviewing the differences between 501(c)(3) and 501(c)(6), take time to think about which classification will work best for your organization’s strategic plans and mission statement. Then, review our full list of nonprofit classifications. Regardless of the classification you ultimately select, you’ll still contribute to your community and create change in the world!

Colleagues reviewing the differences between 501(c)(3) and 501(c)(6) registration

Is a 501(c)(6) a Nonprofit? Yes! Create Yours Today with BryteBridge

If you’re ready to move forward with securing a 501(c)(6) classification for your nonprofit, we can help! When you partner with BryteBridge Nonprofit Solutions, we’ll ensure your new organization is incorporated under the most effective classification. As you consider the 501(c)6 vs. 501c(3) choice, don’t hesitate to contact us with any questions you have or browse through our nonprofit resources. We’re here to help turn your nonprofit dreams into a reality!