Tackling 501(c)(6) Challenges as a chamber of commerce
April 4, 2019 | Chamber Tips
Navigating red tape as a chamber of commerce is not easy. There are many things to be aware of - and taxes are certainly one of the most important. It is no secret that section 501(c)(6) of the Internal Revenue Code (IRC) can cause headaches for chambers if you’re not aware of them.
Luckily, chamber Discoveries is well-versed in section 501(c)(6), especially through the lens of arranging chamber travel. Let’s take a closer look at some of the 501(c)(6) challenges, and how to manage them.
Overview: What Is 501(c)(6) and Why Does It Matter?
You may be familiar with the term 501(c)(6), but it’s worth taking a quick look due to its importance for chambers of commerce.
Section 501(c)(6) is a subsection of the Federal Internal Revenue Code which governs the United States’ tax laws. Specifically, this section provides some tax exemptions to certain organizations including business leagues such as chambers of commerce.
The section sets out requirements that chambers must meet in order to keep their tax-exempt status. For this reason, it is critical that your chamber is aware of its obligations and meets them. The loss of tax-exempt status could be fatal to the operation of a chamber.
501(c)(6) Requirements and How to Respond to Challenges
501(c)(6) and its corresponding regulations break down the circumstances when a business league (including a chamber of commerce) is exempt from some taxes. Let’s take a closer look at the most important factors.
Challenge #1: It Must Be Operating as A Not-For-Profit, with No Persons Receiving Profit.
As is standard for all 501(c) organizations, a chamber of commerce cannot be operating to distribute profit to any particular person or corporation. Money that comes into the chamber must flow out to benefit members and their business interests.
Any money raised from activities must not be distributed to any individuals as profit. It must be used in line with the chamber’s aims.
Challenge #2: Its Primary Purpose Must Be to Improve Business Conditions in an Area or Industry.
The key to a 501(c)(6) exemption is that the organization’s main focus is to promote the common business interests of its members. This can be achieved in many ways, such as lobbying for better conditions, submitting opinions and policy documents, organizing events, and generally improving the landscape for businesses in your area or industries.
What a chamber of commerce cannot do is operate mainly to promote its own interests. A chamber of commerce also can’t promote the business interests of particular members, businesses or services. It must promote business interests as a whole. A chamber of commerce cannot, for example, lobby the government to pass laws that will unfairly advantage one of its members over other businesses in the area or industry.
The purposes of any events must be in line with your overarching purpose to promote and facilitate the common business interests of your members. Often, this will be obvious - travel can help you to raise funds that will allow you to hold events or lobby the government, or perhaps facilitate new interstate or overseas business relationships between your members and industry.
Make sure you’re clear on the long-term benefits of your events and fundraising to promoting business interests - don’t just think about maximizing profit or how it will benefit the chamber itself.
Challenge #3: Its Primary Purpose Is Not to Provide Services for Particular Persons, or to Engage in Regular Business of a Kind Usually Carried On for Profit.
This requirement can sound a little complicated, so let’s break it down. Essentially, a chamber of commerce can never forget that its main purpose is improving business interests, and that it is not a business itself. Most of your chamber’s money, energy and efforts should be directed towards improving business conditions, not carrying on business or providing services.
It gets a little complex here, because many chambers make a lot of their money through providing goods or services, such as travel. In fact, while most people think of donations or membership fees as a not-for-profit’s main income source, often providing goods or services can be more fruitful.
This is absolutely fine, so long as carrying on this business is not your prime purpose or activity as a chamber.
You should always be careful that your chamber is true to its objectives of promoting common business interests. Any “business” you conduct should facilitate these goals, but not be the main reason your chamber exists. Also, you should have multiple revenue streams, not just rely on one service or operation.
As a rule of thumb, it’s worth exploring where the bulk of your effort and expenses are going. Can you see a clear and direct link with the improvement of business conditions? Don’t get so caught up in raising revenue through services that you are no longer true to the purposes of your organization.
While they may seem a bit intimidating at first, the requirements of s 501(c)(6) are actually pretty straight forward. So long as your chamber is continuously promoting business interests, then you have a lot of flexibility in terms of how to carry on your activities. That said, it’s important to be aware of the challenges of 501(c)(6) so that you can easily respond to them.
If chamber travel is part of your planning for the coming tax year, Chamber Discoveries can help make the entire process a breeze. We handle the details so you can focus on your relationships. Contact us today to learn more!
*Note: this information is general in nature and is not legal advice. For advice that is specific to your chamber’s unique circumstances, you should consult an attorney.