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Will this affect our ability to get (c)(3) classification?

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Will this affect our ability to get (c)(3) classification?

Our Orchid Society provides education on orchid culture to our members and other clubs who request our service. We have applied for 501(c)(3) charitable and educational classification. We have an annual orchid show and plant sale as our only fund raising event. Our members sell plants and supplies at this function and provide us with 20% of the sale proceeds. I've been told that this is wrong and it appears that we are organized to benefit the members. Will this affect our ability to get (c)(3) classification?

The Internal Revenue Service has denied 501(c)(3) charitable exemption to cooperative art galleries that exhibit and sell their members’ work throughout the year.  It has taken the position that such a gallery is operated primarily for the benefit of the members and not the general public.  I think your single annual fundraising event is readily distinguishable, and, while the IRS might take note, these sales alone should not suggest that the Society is conducted primarily for the economic benefit of your members.

I am actually more concerned with your statement that you provide education “to our members and other clubs who request our service.”  I would have expected you to say that you provide education for your members and the general public, and that you have some specific means to let the public know of the availability of your information.  In addition, when you talk about “other clubs,” you are associating yourself, perhaps unintentionally, with a separate non-charitable class of social clubs exempt under section 501(c)(7).  You will need to convince the IRS that your program is broadly educational for a whole lot of people, and not primarily a social activity for a limited number of members.

Thursday, June 16, 2011

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