Types of Exemptions

Descriptions of Exempt Organizations R&TC Section IRC Section
Labor, agricultural, or horticultural organizations 23701a 501(c)(5)
Fraternal beneficiary societies 23701b 501(c)(8)
Cemeteries, crematoriums 23701c 501(c)(13)
Religious, charitable, scientific, literary, educational, qualified amateur sports, prevention of cruelty to children or animals 23701d 501(c)(3)
Business leagues, chambers of commerce, real estate boards, etc. 23701e 501(c)(6)
Civic leagues, social welfare organizations, and local associations of employees 23701f 501(c)(4)
Social and recreational organizations 23701g 501(c)(7)
Property title holding corporations 23701h 501(c)(2)
Voluntary employee beneficiary organizations 23701i 501(c)(9)
Teachers’ retirement fund associations 23701j 501(c)(11)
Religious or apostolic organizations 23701k 501(d)
Domestic fraternal societies 23701l 501(c)(10)
Supplemental unemployment compensation trusts 23701n 501(c)(17)
Self-employed individual retirement accounts/trusts 23701p 401
Political organizations 23701r 527
Employee funded pension trusts 23701s 501(c)(18)
Homeowners’ associations 23701t 528
Public facility financial corporations 23701u None
Mobile home park associations 23701v None
Veteran’s organizations 23701w 501(c)(19)
Title-holding organizations 23701x 501(c)(25)
Credit unions 23701y 501(c)(14)
Self-insurance pools for charitable organizations 23701z 501(n)

23701a (IRC 501(c)(5)) Labor, agricultural, or horticultural organizations

  • Labor organizations – A labor organization is an association of workers who have combined to protect and promote their interest by bargaining collectively with their employers to secure better working conditions.
  • Agricultural and horticultural organizations – These organizations promote the interests of persons engaged in raising livestock, harvesting crops or aquatic resources, cultivating useful or ornamental plants, or similar pursuits.
  • Other types: Public Employees Union, AFL-CIO, Teamsters.

23701b (IRC 501(c)(8)) Fraternal beneficiary societies

Fraternal beneficiary society, order, or association must meet the following requirements:

  • It must have a fraternal purpose. An organization has a fraternal purpose if membership is based on a common tie or the pursuit of a common objective.
  • It must operate under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system. Operating under the lodge system requires, at a minimum, two active entities: (1) a parent organization; and (2) a subordinate (called a lodge, branch, or the like) chartered by the parent and largely self-governing.
  • It must provide for the payment of life, sick, accident, or other benefits to the members of such society, order, or association, or their dependents.
  • An organization that provides benefits to some, but not all, of its members may qualify for exemption as long as most of the members are eligible for benefits, and criteria for excluding certain members are reasonable.

23701c (IRC 501(c)(13)) Cemeteries, crematoriums

  • Cemetery companies owned and operated exclusively for the benefit of their members or which are not operated for profit.
  • Any corporation chartered solely for the purpose of the disposal of bodies by burial or cremation which is not permitted by its charter to engage in any business not necessarily incident to that purpose and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

23701d (IRC 501(c)(3)) Religious, charitable, scientific, literary, educational, qualified amateur sports, prevention of cruelty to children or animals

This is an organization not organized exclusively for exempt purposes listed below unless its assets are irrevocably dedicated to one or more purposes listed in this section.

This includes:

Also, there is:

  • No part of the net earnings of which inures to the benefit of any private shareholder.
  • No substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation (except as otherwise provided in Section 23704.5) and which does not participate in, or intervene in (including the publishing or distribution of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.
  • Dedication of assets which requires that in the event of dissolution of an organization, or the impossibility of performing the specific organizational purposes, the assets would continue to be devoted to exempt purposes.

Religious organizations

The following guidelines describe a religious organization:

  • The particular religious beliefs of the organization are truly and sincerely held and the practices and rituals associated with the organization’s religious belief or creed are not illegal or contrary to clearly defined public policy.
  • Religious organizations that are not churches typically include nondenominational ministries, interdenominational and ecumenical organizations, and other entities whose principal purpose is the study or advancement of religion.

Churches

A church, synagogue, association, or convention of churches, religious order, or religious organization that is an integral part of a church and that is engaged in carrying out the function of a church. A church includes mosques, temples, and other forms of religious organizations.

Characteristics generally attributed to churches are as follows:

  • A distinct legal existence
  • A recognized creed and form of worship
  • A definite and distinct ecclesiastical government
  • A formal code of doctrine and discipline
  • A distinct religious history
  • A membership not associated with any other church or denomination
  • An organization of ordained ministers
  • Ordained ministers selected after completing prescribed studies
  • A literature of its own
  • Established places of worship
  • Regular congregations
  • Regular religious services
  • Sunday schools for the religious instruction of the young
  • Schools for the preparation of its ministers

Charitable organizations

Charitable oranizations are organized and operated for purposes that are beneficial to the public interest. The definition of charitable in its generally accepted legal sense includes: relief of the poor and distressed or of the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening of the burdens of government; and promotion of social welfare.

Scientific organizations

Organizations in which research is carried on in the public interest. Scientific research will be considered to be in the public interest if the results of the research (including any patents, copyrights, processes, or formulas) are made available to the public on a nondiscriminatory basis; if the research is performed for the United States or a state, county, or municipal government; or if the research is carried on for one of the following purposes:

  • To aid in the scientific education of college or university students.
  • To obtain scientific information that is published in a treatise, thesis, trade publication, or in any other form that is available to the interested public.
  • To discover a cure for a disease.
  • To aid a community or geographical area by attracting new industry to the community or area, or by encouraging the development or retention of an industry in the community or area.

Literary organizations

An organization that is engaged in publishing activities of any nature. For example: printing, publication, or distribution of your own material or material printed or published by others and distributed by you.

Educational organizations

  • An organization, such as a primary or secondary school, a college, or a professional or trade school, that has a regularly scheduled curriculum, a regular faculty, and a regularly enrolled student body in attendance at a place where the educational activities are regularly carried on.
  • An organization whose activities consist of conducting public discussion groups, forums, panels, lectures, or other similar programs.
  • An organization that presents a course of instruction by correspondence or through the use of television or radio.
  • A museum, zoo, planetarium, symphony orchestra, or other similar organization.
  • A nonprofit children’s day care center.
  • Other types of entities include: literary, hospital, health care center, and low-income housing.

Qualified amateur sports organization

A qualified amateur sports organization means any organization organized and operated exclusively to foster national or international amateur sports competition if the organization:

  • Is also organized and operated primarily to conduct national or international competition in sports, or
  • Supports and develops amateur athletes for national or international competition in sports.

Prevention of cruelty to children or animals

Examples of activities that may qualify this type of organization for tax-exempt status are:

  • Preventing children from working in hazardous trades or occupations.
  • Promoting high standards of care for laboratory animals.
  • Providing funds to pet owners to have their pets spayed or neutered to prevent over-breeding.

23701e (IRC 501(c)(6)) Business league, chambers of commerce, real estate boards, etc.

  • Business leagues, etc. – A business league, in general, is an association of persons having some common business interest, the purpose of which is to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Trade associations and professional associations are considered 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. 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).

    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.

  • 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.

23701f (IRC 501(c)(4)) Civic leagues, social welfare organizations, and local associations of employees

  • Civic leagues and social welfare organizations – To be operated exclusively to promote social welfare, an organization must operate primarily to further the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). An organization whose purposes are charitable within the meaning of IRC Section 501(c)(3) may also be a social welfare organization under IRC Section 501(c)(4).
  • Local employees’ association – A local association of employees in an organization whose membership is limited to employees of a designated person or persons in a particular municipality, and whose net earnings will be devoted exclusively to charitable, educational, or recreational purposes. The organizations must meet the following requirements:
    • It must be of a purely local character.
    • Its membership is limited to employees of a designated person or persons in a particular locality.
    • Its net earnings will be devoted exclusively to charitable, educational, or recreational purposes.
    • No part of its net earnings may inure to the benefit of any private shareholder or individual.
  • Other types: Veterans, legislative activity, festival organizations, police, sheriff, and volunteer fireman’s associations.

23701g (IRC 501(c)(7)) Social and recreational organizations

Clubs organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activities of which are for such purposes and no part of the net earnings of which inures to the benefit of any private shareholder and the club does not have a written policy which discriminates against individuals seeking membership on the basis of race, color, or religion.

Types include:

  • College alumni associations
  • College fraternities or sororities operating chapter houses for students
  • Country clubs
  • Amateur hunting, fishing, tennis, swimming, and other sport clubs
  • Dinner clubs that provide a meeting place, library, and dining room for members
  • Hobby clubs
  • Garden clubs
  • Variety clubs

23701h (IRC 501(c)(2)) Property title holding corporations

Corporations organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization described in IRC Section 501(a). An organization cannot retain its exemption if it accumulates its income rather than turning it over to its parent.

Under this section, the term corporation includes a limited liability company that is classified as a partnership or as a disregarded entity.

Limited Liability Companies and Tax-Exempt Status

23701i (IRC 501(c)(9)) Voluntary employees’ beneficiary organizations

A voluntary employees’ beneficiary association (VEBA) under IRC Section 501(c)(9) is an organization organized to pay life, sick, accident, and similar benefits to members or their dependents or designated beneficiaries if no part of the net earnings of the association inures to the benefit of any private shareholder or individual.

The organization must meet the following requirements. It:

  • Is a voluntary association of employees.
  • Will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries and substantially all of its operations are for this purpose.
  • Will not allow any of its earnings to benefit any private individual or shareholder except in the form of scheduled benefit payments.

23701j (IRC 501(c)(11)) Teachers’ retirement fund associations

Teachers' retirement fund associations must be of a purely local character and no part of their net earnings inures (other than through payment of retirement benefits) to the benefit of any private shareholder or individual and the income consists solely of amounts received from public taxation, amounts received from assessments on the teaching salaries of members, and income in respect of investments.

23701k (IRC 501(d)) Religious or apostolic organizations

These include religious or apostolic corporations, if such corporations have a common treasury or community treasury even if such corporations engage in business for the common benefit of the members, but only if the members thereof include (at the time of filing their returns) in their gross income their entire pro rata shares, whether distributed or not, of the net income of the corporation for such year. Any amount so included in the gross income of a member shall be treated as a dividend received.

23701l (IRC 501(c)(10)) Domestic fraternal societies

  • An organization has a fraternal purpose if membership is based on a common tie or the pursuit of a common objective.
  • It must operate under the lodge system which requires, at a minimum, two active entities: (1) a parent organization; and (2) a subordinate organization (called a lodge, branch, or the like) chartered by the parent and largely self-governing.
  • It must not provide for the payment of life, sick, accident, or other benefits to its members.
  • It must devote its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes.
  • It must be a domestic organization; that is, it must be organized in the United States.

23701n (IRC 501(c)(17)) Supplemental unemployment compensation trusts

This is a trust or trusts forming part of a plan providing for the payment of supplemental unemployment compensation benefits if the requirements of IRC Section 501(c)(17)(A)(i), (ii), and (iii) are met.

23701p (IRC 401) Self-employed individual retirement accounts/trusts

This is a trust or plan for self-employed retirement, which meets the requirements of Public Law 87-792.

23701r (IRC 527) Political organizations

This is a political organization subject to IRC Section 527 which is a party, committee, association, fund, or other organization (whether or not incorporated) organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function. The exempt function of a political organization is to influence or attempt to influence the selection, nomination, election, or appointment of an individual to a federal, state, or local public office or office in a political organization.

23701s (IRC 501(c)(19)) Employee funded pension trusts

Employee-funded pension trusts described in IRC Section 501(c)(18). However, the last sentence in IRC Section 501(c)(18), relating to excess contributions under IRC Section 4979 does not apply in California.

23701t (IRC 528) Homeowners’ association

A homeowners' association is organized and operated to provide for the acquisition, construction, management, maintenance, and care of residential association property if:

  • 60 percent or more of the gross income of the organization for the taxable year consists solely of amounts received as membership dues, fees, and assessments from either of the following:
    • Tenant-stockholders or owners of residential units, residences, or lots.
    • Owners of time-share rights to use, or time-share ownership interest in, association property in the case of a time-share association.
  • 90 percent or more of the expenditures of the organization for the taxable year are expenditures for the acquisition, construction, management, maintenance, and care of association property and, in the case of a time-share association, for activities provided to or on behalf of members of the association.
  • No part of the net earnings inures (other than by providing management, maintenance, and care of association property or by a rebate of excess membership dues, fees, or assessments) to the benefit of any private shareholder or individual.
  • Amounts received as membership dues, fees, and assessments not expended for association purposes during the taxable year are transferred to and held in trust to provide for the management, maintenance, and care of association property and common areas.

    The term “association property” means:

    • Property held by the organization.
    • Property held in common by the members of the organization.
    • Property within the organization privately held by the members of the organization.

23701u (No comparable federal section) Public facility financial corporations

The corporation is formed to render financial assistance to government by financing, refinancing, acquiring, constructing, improving, leasing, selling, or otherwise conveying property of any kind to government. This financing ability shall be limited to the issuance of certificates of participation, or similar security arrangements. For purposes of this section, “government” means the State of California, a city, city and county, county, school district, board of education, public corporation, hospital district, and any other special district.

23701v (No comparable federal section) Mobile home park associations

These associations are organizations of owners of manufactured homes or mobile homes, who are tenants in a mobile home park, formed for the purpose of purchasing the mobile home park to convert it to condominium, stock cooperative, or other resident ownership interests.

23701w (IRC 501(c)(19)) Veteran’s organizations

A veteran’s organization is a post or organization of past or present members of the United States Armed Forces (Armed Forces), or an auxiliary unit or society of, or a trust or foundation for such post or organization.

A veteran's post or organization must meet the following requirements:

  • It must be organized in the United States or any of its possessions.
  • At least 75 percent of its members must be past or present members of the Armed Forces.
  • At least 97.5 percent of its members must be:
    • A) Present or former members of the Armed Forces.
    • B) Cadets (including only students in college or university ROTC programs or at Armed Forces academies).
    • C) Spouses, widows, widowers, ancestors, or lineal descendants of individuals referred to in (A) or (B) above.
  • It must be operated exclusively for one or more of the following purposes:
    • To promote the social welfare of the community (i.e., to promote the common good and general welfare of the people of the community).
    • To assist disabled and needy war veterans and members of the Armed Forces and their dependents, and the widows and orphans of deceased veterans.
    • To provide entertainment, care, and assistance to hospitalized veterans or members of the Armed Forces.
    • To carry on programs to perpetuate the memory of deceased veterans and members of the Armed Forces and to comfort their survivors.
    • To conduct programs for religious, charitable, scientific, literary, or educational purposes.
    • To sponsor or participate in activities of a patriotic nature.
    • To provide insurance benefits for members or their dependents.
    • To provide social and recreational activities for members.
  • No part of its net earnings may inure to the benefit of any private shareholder or individual.

23701x (IRC 501(c)(25)) Title-holding organizations

Title-holding corporations or trusts for multiple parents are organized for the exclusive purposes of acquiring real property and holding title to, and collecting income from, such property, and remitting the entire amount of income from such property (less expenses) to its shareholders or beneficiaries. Under this section, the term corporation includes a limited liability company that is classified as a partnership or as a disregarded entity.

Limited Liability Companies and Tax-Exempt Status

23701y (IRC 501(c)(14)) Credit unions

A credit union as defined in Section 14002 of the Financial Code:

A credit union is a cooperative, organized for the purposes of promoting thrift and savings among its members, creating a source of credit for them at rates of interest set by the board of directors, and providing an opportunity for them to use and control their own money on a democratic basis in order to improve their economic and social conditions. As a cooperative, a credit union conducts its business for the mutual benefit and general welfare of its members with the earnings, savings, benefits, or services of the credit union being distributed to its members as patrons.

23701z (IRC 501(n)) Self-insurance pools for charitable organizations

An organization established pursuant to Section 5005.1 of the Corporations Code by 3 or more corporations as an arrangement for the pooling of self-insured claims or losses of those corporations.

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