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There are 29 different types of exempt organizations under 501(c). The gold standard is 501(c)(3) which unlike almost all the others allows for tax deductible contributions. Sometimes I wonder about many of the others having much of a point. If they operate at roughly a break even, as many of them do, there is really no federal tax benefit. However, there can be significance in areas unrelated to federal taxation, such as state liquor licenses. Also exempt status under 501(c) tends to create an entirely undeserved aura of respectability, credibility and community goodwill. It ends up involving the IRS in matters that it is entirely unsuited to deal with, as the now perennial scandal about 501(c)(4), which is now at Day 456 by the Tax Prof's reckoning makes painfully clear.
The latest, possibly pointless, application for exempt status turned down by the IRS is explained in Private Letter Ruling 201431032. PLRs are redacted so I get to make up the names. I'm going to call this organization the Brotherhood of Shop Bosses (BSB). I could not penetrate the redaction, but I bet someone more familiar with the automobile industry might be able to. If you do, please share it in the comments section. BSB is a membership organization. The members are shop foremen at dealerships for a particular brand of car. The ruling calls the brand N, which is boring, but I'll stick with it.
BSB apparently desperately wants to be an exempt organization of some sort or other, because it applied under four different subsections. 501(c)(3), 501(c)(4), 501(c)(5) and 501(c)(6). It failed on all four. Here is why
501(c)(3)
(c)(3) organizations, the gold standard, are operated exclusively for religious, charitable and educational purposes.
.... the organization conducted meetings and seminars at which operational and technical problems relating to the use of this computer were discussed. Representatives of the manufacturer were invited to attend these functions to answer questions concerning the computer's operation. By making specialized information available to its members focusing on a specific type of computer , it was found the organization served the private interest of its members rather than a public interest and was not exempt from federal income tax under section 501(c)(3) of the Code.
501(c)(4)
(c)(4) organizations promote social welfare. The fact that they can make some political expenditures without disclosing donors is what made them attractive to dark money groups, which led to the current scandal. Local associations of employees are also exempt under (c)(4).
You do not meet Section 501(c)(4) of the Code because you are operating primarily for the convenience of members, N dealerships and N. This is illustrated by the fact that your training is solely focused on the N automobile and members must be a foreman at N dealerships and generally only personnel from N headquarters provides the training.
Furthermore, your goal is for foremen to share the knowledge with their particular dealership to provide better service. Consequently your activities do not promote the common good and general welfare of the people of the community as a whole because you are serving primarily the private interests of N and N dealerships. In addition, you are further precluded from qualifying as a Local Association of Employees within the meaning of 501(c)(4) because your membership is not local in nature; your membership is comprised of individuals from several states.
501(c)(5)
(c)(5) is for labor organisations.
You were not formed to negotiate wages, hours and working conditions but you are operating for the convenience of members, N dealerships and N headquarters by providing educational events directed toward private interests precluding you from qualifying for exemption.
501(c)(6)
(c)(6) is for business leagues. Probably the best know (c)(6), due to recent controversy, is the National Football League. Not as well known, but certainly not less loved by those of us who belong, is the American Institute of Certified Public Accountants. If you want a (c)(6) to dislike besides the NFL, consider the American Bar Association.
BSB does not qualify as a business league, because it is only about one brand, rather than the whole industry.
Why Do They Do This?
It would seem that the N company could just sponsor this program with the dealers kicking in or not. Certainly having all those foremen get together to swap war stories and best practices would be good for the brand. Whatever was spent would be an ordinary and necessary business expense. The new IRS Commissioner is going to greatly streamline the exempt application process, which is a good thing in some ways, because the IRS should focus on collecting taxes. On the other hand, you should keep in mind that exempt status should add absolutely nothing to an organization's credibility. If the organization implies otherwise, kick your bs detector into high gear.
