Starting a nonprofit doesn’t necessarily mean it should be filed as a 501(c)(3). There are more than 1.6 million nonprofit organizations in the U.S., each categorized into one of the 27 designations that nonprofits fall into according to the IRS.
So, if you’re thinking about starting a nonprofit, you should be familiar with the different types of nonprofit designations (27), so you’ll know how to register your business legitimately.
Continue to read as we touch on each of those designations below.
What is a Nonprofit?
A nonprofit is a type of organization created to further a cause or mission. Nonprofits are tax-exempt because the work of the organization benefits communities. Thus, nonprofits are also responsible for keeping the public informed about the work of the organization through financial reports.
Types of Nonprofits
There are 27 different types of categories for a nonprofit. They are:
Foundations: These are nonprofit organizations that fund other nonprofit organizations. They sponsor fundraising events to help bring awareness to various causes. They have an obligation to annually donate a certain portion of their income to other nonprofits. Examples of foundations are the Bill and Melinda Gates Foundation and the Ford Foundation.
Social Advocacy Groups: These are organizations that advocate or lobby for a certain social or political cause such as Greenpeace, NAACP, ACLU, and the National Organization for Women. These organizations are classified under 501(c)(4).
501(c)(1): These types of nonprofits are organized and enacted by Congress and include federal credit unions. Since they are set up by Congress, there is no application to set one up. Contributions are permitted if they are made for public purposes.
501(c)(2): These organizations are controlled by another tax-exempt organization and must pass any revenue to the parent company. Organizations need to complete the IRS Form 1024 to apply and they are required to file annually with forms 990 or 990EZ.
501(c)(3) Charitable Organizations: This type of nonprofit includes religious, scientific, and charitable or literary organizations, such as churches, Salvation Army, education or schools, Special Olympics, Red Cross, and museums. These types of nonprofits are funded through membership dues, donations, and grants. To apply, an organization must complete the IRS Form 1023 or 1023-EZ within 27 days of incorporating. There are five types of 501(c)(3) organizations:
509(a)(1) - Publicly supported charity
509(a)(2) - Exempt purpose activity-supported charity
509(a)(3) - Supporting organizations for 509(a)(1) or 509(a)(2) charities
509(a)(4) - Public safety charities
501(c)(4) Civic League, Social Welfare Organization or Local Employee Association: This type of organization tends to the general welfare of individuals going through hard times. Social Advocacy Groups are also classified in this group, and they advocate or lobby for a certain social or political cause. These types of organizations have fewer restrictions when it comes to political activity like lobbying. To apply for this designation, complete the IRS Form 1024 and file annual returns with Form 990 or 990EZ.
501(c)(5): These organizations work within the agricultural, labor or horticultural fields to improve education and working conditions in these areas. They’re funded through donations and member dues.
501(c)(6) Trade or Professional Association: This type of nonprofit is usually business leagues, chambers of commerce or real estate boards that work to improve conditions for its members. To file for this designation, file the IRS Form 1024.
501(c)(7) Social or Recreational Club: These organizations organize recreational activities or social in nature, like hobby groups, country clubs or sports leagues. File for this designation using IRS Form 1024, and file tax returns using form 990 or 990EZ.
501(c)(8) Fraternal Societies: These organizations, like Knights of Columbus and Shriners, exist to provide for the payment of life, sickness, death or accident benefits to its members. They must have parent and subordinate organizations and must provide some sort of insurance to its members.
501(c)(9) Employee Beneficiary Association: These organizations provide payment or insurance to its members in sickness or traumatic life events. To apply for this designation, complete IRS Form 1024 and annually file form 990 or 990EZ.
501(c)(10) Domestic Fraternal Societies and Associations: These organizations use membership dues to support outside causes without payment to members.
501(c)(11) Teacher’s Retirement Fund Associations: This type of nonprofit sets up or manages retirement funds for teachers. IRS Form 1024 must be filed to claim this designation.
501(c)(13) Cemetery Companies: These organizations exist to assist in the burials of its members. They are funded through membership dues and donations.
501(c)(14) State Chartered Credit Union and Mutual Reserve Fund: These organizations offer financial services to its members, usually at a discount, and receive funding through business activities and government grants. Refer to your state for how to file as each state has different laws for forming this designation. Annual filing is done on form 990 or 990EZ.
501(c)(15) Mutual Insurance Companies of Association: These organizations require members to pay a fee to provide them with insurance benefits, generally for property damage and funerals.
501(c)(16) Cooperative Organizations to Finance Crop Operations: This type of organization is usually created by farmers to pool together resources for agricultural operations. Some examples of how the funds are used is to purchase farm equipment, crop cultivation, livestock, shipping and marketing.
501(c)(17) Supplemental Unemployment Benefits Trust: This type of nonprofit is supported by the employer or employee and provides support to those on sick leave or who are permanently unemployed.
501(c)(18) Employee Funded Pension Trust: This type of nonprofit applies to employee trusts funded exclusively on member contributions and payments can only be used to benefit members.
501(c)(19): Veterans Organizations: 75% of the members of these organizations must be active or previous members of the armed forces. They provide benefits to members of the U.S. Armed Forces.
501(c)(21): Black Lung Benefits Trust: This type of nonprofit pays claims to coal miners who are taken sick due to black lung disease based on the Federal Black Lung Benefits Act of 1969.
501(c)(22): Withdrawal Liability Payment Fund: These organizations help employers fulfill pension obligations and are funded by employers.
501(c)(23) Veterans Organization: This type of nonprofit applies to veteran organizations established before 1880. They provide insurance and benefits to members. To be eligible, at least 75% of members have to be present or past members of the U.S. Armed Forces. Funding is by way of donations and government grants.
501(c)(26) State-Sponsored Organizations Providing Health Coverage for High-Risk Individuals: These organizations are created at the state level for high-risk individuals who may not have access to proper healthcare. It generally benefits patients with health risks or preexisting conditions. Funding comes from donations or government grants.
501(c)(27) State-Sponsored Workers’ Compensation Reinsurance Organizations: These organizations provide insurance for worker’s compensation programs supported by government grants and member dues.
501(d) Religious and Apostolic Associations: These are religious-based organizations that pool members’ income and pay taxes on that amount; they share a common treasury.
501(e) Cooperative Hospital Service Organizations: These types of nonprofits provide cooperative services for two or more hospitals. These are generally service organizations that support sick patients and their families. File IRS form 1023 to qualify for this designation.
Each one of these nonprofit types has its own rules for eligibility, lobbying, electioneering, and tax-deductible contributions. IRS Publication 557 can provide you with specifics regarding each one.
Hopefully, this information has been helpful to you as you work to establish your nonprofit.