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Boston, Massachusetts 02108-3002

Phone: (617) 720-2444
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Business and Non-Profit Law

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Pierce & Mandell Attorney Sam Hoff Explains the Distinctions in Tax-Exempt Status Choices

William M. Mandell - Tuesday, December 05, 2017

501(c)(3) v. 501(c)(6): What Every Non-Profit Incorporator Needs to Know

Sam Hoff, Pierce and Mandell, P.C., Boston, MABy Sam Hoff

One question that we often receive from clients seeking to form a new non-profit corporation is “Should I apply for 501(c)(3) or 501(c)(6) tax-exempt status?” The short answer is that it depends! The type of tax-exempt status that a corporation can obtain is influenced by its stated purpose, if it intends to engage in political activity, its Board structure and membership, and several other factors. Understanding the differences between 501(c)(3) and 501(c)(6) tax-exempt status, which are explained in greater detail below, is critical in order for your corporation to operate legally and efficiently.

Before exploring the differences between 501(c)(3) and 501(c)(6) tax-exempt status, it’s useful to understand the difference between forming a non-profit corporation and obtaining tax-exempt status. The formation of a corporation occurs at the state level, according to state law. In Massachusetts for example, a corporation is formed by filing Articles of Organization with the Massachusetts Secretary of State and registering with the Massachusetts Attorney General’s Office, the Department of Revenue, and the Department of Unemployment Assistance. Once the corporation is formed, it may apply for tax-exempt status at the federal level with the Internal Revenue Service (“IRS”) by filing Form 1023 if it seeks 501(c)(3) tax-exempt status, or Form 1024 if it seeks 501(c)(6) tax-exempt status.

501(c)(3) tax-exempt status. An organization that is organized and operated exclusively for the purpose(s) of religion, charity, science, public safety, literature, education, amateur athletics, and/or the prevention of cruelty to children or animals may file IRS Form 1023 to apply for 501(c)(3) tax-exempt status. To qualify, the organization must generally be a corporation, trust, or fund. An individual or partnership will not qualify. Contributions to corporations with 501(c)(3) tax-exempt status are deductible as charitable contributions on the donor’s federal income tax return.

The assets of a corporation with 501(c)(3) tax-exempt status must be permanently dedicated to one or more of the “exempt” purposes stated above. This means that, should the corporation dissolve, its assets must be distributed in a manner that benefits the exempt purpose(s). The assets cannot be distributed to members of the corporation or private individuals or for any purpose other than the corporation’s exempt purpose(s).

A corporation with 501(c)(3) tax-exempt status may not engage in political activity, such as campaigning for or against a national, state, or local candidate, and generally may not devote a substantial part of its activities to lobbying.

501(c)(6) tax-exempt status. An organization that is a non-profit business league, chamber of commerce, real estate board, or board of trade may file IRS Form 1024 to apply for 501(c)(6) tax-exempt status. No part of the net earnings of a corporation with 501(c)(6) tax-exempt status may inure to the benefit of any private shareholder or individual. The corporation must be primarily engaged in activities or functions that are the basis for its exempt purpose(s). It must be supported by membership dues and other income from activities substantially related to its exempt purpose(s).

Unlike a corporation with 501(c)(3) tax-exempt status, contributions to a corporation with 501(c)(6) tax-exempt status are not deductible as charitable contributions on the donor’s federal income tax return. Such contributions may be deductible, however, as a trade or business expense if they are ordinary and necessary in the conduct of the donor’s business. Further, a member may be able to deduct the dues that he or she pays to the corporation from his or her taxes depending on what the dues are used for.

Unlike a corporation with 501(c)(3) tax-exempt status, a corporation with 501(c)(6) tax-exempt status may generally engage in political activity and lobbying and work toward the enactment of laws which advance the common business interests of the corporation’s members.

So, which is the correct tax-exempt status for you? As you can see, a variety of factors go into the determination of whether your new non-profit corporation should apply for 501(c)(3) or 501(c)(6) tax-exempt status. If you find yourself wondering which tax-exempt status is correct for your corporation and how to obtain it, the experienced Business Law and Non-Profit Organizations attorneys at Pierce & Mandell are here to assist you.

The Trademark Owner’s Dilemma - Vigorous Enforcement of Rights or Bullying by Thomas E. Kenney

William M. Mandell - Friday, July 17, 2015

by Thomas E. Kenney

U.S. trademark law is deeply rooted in Common law, but even after Congress enacted federal law prescribing trademark rights in 1870, those rights have been repeatedly tested and redefined. But trademark protection is a door that swings both ways, writes Pierce & Mandell attorney Thomas Kenney  in a recent article which appeared in the July 2015 edition of Massachusetts Lawyers Journal.  “The trademark owner’s dilemma — vigorous enforcement of rights or bullying?”“The trademark owner’s dilemma — vigorous enforcement of rights or bullying?”

“A trademark owner not only enjoys the exclusive right to use its marks in commerce, but also has the right (and in fact the obligation) to stop others from using similar marks in a manner that causes consumer confusion,” Kenney writes. “However, a trademark owner is not permitted to misuse its trademark rights so as to intimidate another business into abandoning a mark that does not conflict with the trademark owner’s mark.  As a result of these competing principles of trademark law — a trademark owner is obligated to vigorously enforce its rights but at the same time must respect the fact that those rights are limited and not monopolistic — a trademark owner frequently is left in a quandary. What measure of enforcement is sufficient to protect its rights without crossing the line? Adding to that tension is the developing concept of ‘trademark bullying.’”


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