Trade associations seeking additional non-dues revenue often consider expanding their footprint with additional revenue opportunities that may best be served through different entities than a 501(c)(6).
For instance, a 501(c)(3) organization can receive tax-deductible contributions and is eligible for government and private grants. However, 501(c)(3) organizations have restrictions on substantial lobbying and political activity. When adding a new corporation to the group, care must be taken to ensure that each entity respects corporate formalities to avoid jeopardizing the 501(c)(3) entity’s exempt status.
Unrelated business activities can also be revenue generators, but they may require a taxable entity to avoid jeopardizing the tax-exempt status. An LLC can be a good option for joint ventures related to the association’s exempt purpose, as it limits liability and income is not taxed in the LLC but is passed through to the partners.
A trade association can add a nonprofit corporation to its group and apply for exemption to the IRS for 501(c)(3) status. Alternatively, they could consider converting to a 501(c)(3) if they do not engage in substantial lobbying or have a PAC or certain certification programs. However, once an association converts to a 501(c)(3) organization, it can never convert back to a 501(c)(6), since its assets must be used for 501(c)(3) purposes forever.
The strategic options available are nearly endless and ultimately depend on the goals and objectives of your trade association initiatives. Mapping out those initiatives clearly will go a long way in helping to determine the best structure to support them over the long-term.
