Tax Planning and Compliance for Tax-Exempt Organizations, 6th Edition

CHAPTER 7Labor, Agricultural, and Horticultural Organizations: §501(c)(5)

• 7.1 Labor Unions
  • (a) Organizational Structure and Documents
  • (b) Scope of Activities
  • (c) Non-(c)(5) Activities
  • (d) Political Activities
  • (e) Membership
• 7.2 Agricultural Groups
  • (a) Types of Crops
  • (b) Services to Members
  • (c) Special Exception
• 7.3 Horticultural Groups
• 7.4 Disclosures of Nondeductibility

Internal Revenue Code (IRC) §501(c)(5) encompasses three specific kinds of organizations: labor unions, agricultural groups, and horticultural groups. These groups are distinguishable from those classified as business leagues partly because their members may represent a range of pursuits rather than a narrow “line of business” as required under (c)(6). An organization qualifying under this category may now allow its net earnings to inure to the private benefit of any member, although a labor union can provide some individual benefits.¹ Comparatively, the inurement provision applied to (c)(3) and (c)(4) organizations applies to those who are in a position to control the organization.² On a positive note, the intermediate sanction penalties are not imposed on members of a (c)(5) organization that receive impermissible benefits.³ These worker-oriented groups may serve only the three purposes provided in regulations that have not been revised since 1958:

1. Betterment of conditions of those engaged in such pursuit.
2. Improvement of the grade of their products.
3. Development of a high degree of efficiency in ...