Tax-Exempt Status of Labor, Agricultural, and Horticultural Organizations

Labor, agricultural, and horticultural organizations meeting certain requirements may be eligible for tax-exempt status under Internal Revenue Code Section 501(c)(5). However, even if a group of this type is entitled to exempt status, contributions made to it are not deductible as charitable donations on the donor's federal income tax return but may be deductible as trade or business expenses if the payments are ordinary and necessary expenses in the conduct of the donor's trade or business.

Labor Organizations

In order to prove that a group is a tax-exempt labor organization, it must show that it is an association of workers who have combined to protect and promote the interests of its members by bargaining collectively with employers to secure better working conditions. This proof should include articles of organization or other information establishing that the organization has the purpose of a labor organization; that is, to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. Even if an organization's membership consists mainly of workers, evidence of this fact does not in itself indicate an exempt purpose.

If a labor organization makes payments of death, sickness, accident, or similar benefits to its individual members with funds contributed by the members under a plan to better the conditions of the members, it is not precluded from a tax-exempt status. However, if an organization lacks the authority to represent members in job-related matters, even if it provides weekly income to its members during a lawful strike in return for members' annual payments, it does not qualify for exemption as a labor organization. In addition, a labor organization will not be entitled to tax-exempt status if its net earnings benefit any of its members.

Agricultural and Horticultural Organizations

Agricultural and horticultural organizations are groups connected with raising livestock, forestry, cultivating land, raising and harvesting crops or aquatic resources, cultivating useful or ornamental plants, and similar activities. In order for a group to qualify as a tax-exempt agricultural and horticultural organization, it must seek to better the conditions of those engaged in agriculture or horticulture, to develop efficiency in these areas, or to improve the products.

When the activities of an organization are directed toward the improvement of marketing or other business conditions rather than the improvement of production techniques or the betterment of the conditions of individuals engaged in agriculture, the organization is not entitled to tax-exempt status under Section 501(c)(5). Instead, it must meet the tax-exempt requirements of a business league, board of trade, or other organization under Section 501(c)(6).

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