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501(C)(5) Nonprofit: Agricultural

By Dean ‘Mac’ Nichols, Attorney


This is the third of a four-part series on nonprofit business entities.

501(c)(5) | Layman & NicholsAn organization that falls under the 501(c)(5) category is tax-exempt as a labor, agricultural, or horticultural organization. The conditions for exemption of these organizations include:

• That the net earnings of the organization do not inure to benefit any member,
• And that the objectives of the organization are the betterment of conditions of those engaged in labor, agricultural, or horticultural pursuits; the improvement of their products; and the development of a higher degree of efficiency in their occupations.

It’s important to note that the term “labor organization” is broadly construed; it includes labor unions, but is commonly defined as an association of workers who have united to protect/promote their interests through collective bargaining. These organizations operate as mutual benefit organizations and, as such, payment to members for certain benefits (strike, lockout, sickness, accident, etc.) does not constitute inurement or preclude exemption.

Agricultural and horticultural organizations include a variety of pursuits that are involved in the art or science of cultivating land, raising crops, and rearing/feeding/managing livestock. It is useful to note that agricultural organizations under 501(c)(5) frequently qualify for 501(c)(3) agricultural status as an educational organization. Also, while labor organizations are allowed to provide certain benefits to their members, agricultural and horticultural organizations are not provided this benefit.

If your organization is interested and may be qualified to apply for 501(c)(5) agricultural organization status, call us to discuss your options today.

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