26 U.S.C. § 501 — Exemption from tax on corporations, certain trusts, etc.

(a) Exemption from taxation. An organization listed in subsection (c) or (d), or in section 401(a), does not pay federal income tax. This does not apply if the exemption is taken away under section 502 or 503.

(b) Tax on unrelated business income and certain other activities. A tax-exempt organization still must pay tax on some income, as described in parts II, III, and VI of this subchapter. But for any other law that talks about "organizations exempt from income taxes," the organization still counts as exempt.

(c) List of exempt organizations. Subsection (a) covers each of these types of organizations:

(1) A corporation^* set up by an Act of Congress that is an arm of the U.S. government. It qualifies only if it was tax-exempt under that Act as of July 18, 1984, or is tax-exempt under this title without relying on any law outside this title, or if it is one of the government corporations listed in subsection (l).

(2) A corporation set up only to hold title to property, collect the income from it, and hand over all of that income (minus expenses) to another organization that is itself tax-exempt under this section. The same rules that apply to real-estate holding companies in paragraph (25)(G) apply here too.

(3) Groups organized and run only for religious, charitable, scientific, public-safety-testing, literary, or educational purposes, or to promote national or international amateur sports (as long as they don't provide athletic facilities or equipment), or to prevent cruelty to children or animals. None of the organization's earnings can benefit any private person. It cannot spend a substantial part of its activities on lobbying to influence legislation (unless it elects the special rules in subsection (h)), and it cannot support or oppose candidates for public office in any way, including publishing statements about them.

(4)(A) Civic leagues and organizations run only to promote social welfare, or local employee^* associations whose members all work for one specific employer in one city, and whose earnings go only to charity, education, or recreation. (B) None of these can have any earnings benefit a private shareholder^* or individual.

(5) Labor, agricultural, or horticultural organizations.

(6) Business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues (even ones that run a pension fund^* for players), as long as they are not run for profit and none of their earnings benefit a private shareholder or individual.

(7) Clubs organized for pleasure and recreation, where almost all activities serve that purpose and none of the earnings benefit a private shareholder.

(8) Fraternal societies that (A) operate under a lodge system, or exist only to benefit members of a lodge-based fraternity, and (B) pay life, sickness, accident, or similar benefits to members or their dependents.

(9) Voluntary employee benefit associations that pay life, sickness, accident, or similar benefits to members, their dependents, or named beneficiaries, as long as no earnings benefit a private shareholder or individual except through those payments. For sickness and accident benefits, "dependent" includes a member's child who has not yet turned 27 by the end of the year.

(10) Domestic fraternal societies operating under a lodge system, where (A) earnings go only to religious, charitable, scientific, literary, educational, and fraternal purposes, and (B) the society does not pay life, sickness, accident, or similar benefits.

(11) Local teachers' retirement fund associations, if (A) earnings benefit no private shareholder or individual except through retirement payments, and (B) income comes only from taxes, assessments on members' teaching salaries, and investments.

(12)(A) Local benevolent life insurance associations, mutual ditch or irrigation companies, mutual or cooperative telephone companies, and similar organizations qualify only if at least 85% of their income is money collected from members just to cover losses and expenses. (B) For a mutual or cooperative telephone company, that 85% test ignores income from: servicing nonmember telephone companies' calls involving its own members, renting poles under a "qualified pole rental" (defined below), selling directory listings to members, or prepaying certain loans under the Rural Electrification Act. (C) For a mutual or cooperative electric company, the 85% test also ignores income from: qualified pole rentals; providing open-access electric transmission or distribution services under a nondiscriminatory, government-approved tariff (unless the money comes from a member); nuclear decommissioning transactions; or asset exchange or conversion transactions. (D) A "qualified pole rental" is renting a pole used by the company for its own telephone or electric service, where the rental also lets someone else attach wires for carrying electricity or communications. (E) "FERC" means the Federal Energy Regulatory Commission, or, for a utility whose power stays entirely within one state, that state's utility regulator. (F) A "nuclear decommissioning transaction" covers money moving into, out of, or earned by a trust set up to pay for shutting down a nuclear plant, tied to the company's sale of its interest in that plant. (G) An "asset exchange or conversion transaction" is a swap or forced conversion of electric-related property where the gain qualifies for deferred tax treatment under section 1031 or 1033, as long as the replacement property is used for generating, transmitting, distributing, or selling electricity or natural gas. (H) Income from a "load loss transaction" — wholesale or retail electricity sales to nonmembers that make up for a drop in sales to members after the company opens to open access — also counts as money collected from members, up to limits defined by the company's yearly "load loss," measured against a "base year" chosen by the company, over a 7-year recovery period starting when the company opens to open access. This special treatment doesn't stop the company from otherwise qualifying as a cooperative. Indirect income from members also counts as income collected from members. (I) Income tied to an election under section 45J(e)(1) is likewise treated as money collected from members. (J) The 85% test also ignores disaster-relief grants (federal, state, local, or regional) and other government grants meant to help build, restore, or relocate utility infrastructure.

(13) Cemetery companies run only for their members' benefit or on a not-for-profit basis, and corporations set up only to bury or cremate bodies, as long as they stick to that purpose and no earnings benefit a private shareholder or individual.

(14)(A) Credit unions with no capital stock^*, run for mutual, not-for-profit purposes. (B) Corporations or associations with no capital stock, formed before September 1, 1957, run for mutual, not-for-profit purposes to provide reserve funds and insurance for building and loan associations, capital-stock-free cooperative banks, or mutual savings banks. (C) Similar reserve-fund organizations formed before September 1, 1957, for the associations or banks in (B)(i)-(iii), if at least 85% of their income comes from providing those reserve funds and from investments; this doesn't apply to anything already covered by (B).

(15)(A) Insurance companies other than life insurers (including reciprocal and interinsurance arrangements) if: (i) their gross receipts for the year are $600,000 or less and more than half of that is premiums, or (ii) for a mutual insurance company, gross receipts are $150,000 or less and more than 35% is premiums — except that this mutual-company rule doesn't apply if an employee (or their family) also works for another company exempt under this same paragraph. (B) In deciding whether a company qualifies, its receipts are combined with those of every other company in the same controlled group. (C) "Controlled group" has the meaning given in section 831(b)(2)(B)(ii), except two specific sub-rules in section 1563(b)(2) are ignored.

(16) Corporations set up by a farm cooperative (or its members) just to finance the members' or other producers' ordinary crop operations, run together with that cooperative. Having capital stock doesn't disqualify it, as long as dividends are capped at the state's legal interest rate or 8% a year (whichever is higher), and almost all the stock is owned by the cooperative or its members. Keeping a reserve required by state law, or a reasonable reserve for a real need, doesn't disqualify it either.

(17)(A) A trust funding a plan that pays supplemental unemployment benefits, if: (i) no money can ever be diverted from paying those benefits, (ii) the Secretary^* finds the plan's rules for who gets benefits don't favor highly paid employees, and (iii) the actual benefits don't favor them either. A plan isn't discriminatory just because benefits scale with pay. (B) In testing for discrimination, benefits from other plans are usually ignored — except a plan isn't discriminatory just because it reduces benefits by state or federal unemployment/sick/accident benefits the employee also gets, or because it only covers employees who don't qualify for those state/federal benefits or for another employer-paid supplemental plan (giving them a matching benefit instead), as long as combining both plans' employees would still not be discriminatory. (C) A plan counts as meeting these rules for the whole year if it meets them on one day each quarter. (D) "Supplemental unemployment compensation benefits" means (i) benefits paid for involuntary job loss from a layoff, plant closing, or similar cause, and (ii) sick and accident benefits that are secondary to those. (E) An organization otherwise exempt under paragraph (9) doesn't lose that exemption just for also paying these supplemental unemployment benefits.

(18) A trust created before June 25, 1959, funding a pension plan paid for only by employee contributions, if: (A) money can never be diverted from paying plan benefits, (B) and (C) the plan's eligibility rules and actual benefits don't favor highly paid employees (again, scaling with pay alone isn't discriminatory), and (D) if employees can designate contributions as tax-deductible, those contributions must stay under the section 219(b)(3) limit, follow nondiscrimination rules like section 401(k)(3)(A)(ii), count as elective deferrals under section 402(g), and meet section 401(a)(30). Excess contributions here are treated like excess 401(k) contributions for section 4979 purposes.

(19) A post, organization, or its auxiliary or trust, for past or current members of the U.S. armed forces, if: (A) it's organized in the U.S. or its territories, (B) at least 75% of its members are past or present armed-forces members (and nearly all the rest are cadets or their spouses, widows, widowers, ancestors, or descendants), and (C) no earnings benefit a private shareholder or individual.

(20) Repealed in 2014.

(21)(A) A trust set up in writing in the U.S. and funded by anyone except an insurance company, if it exists only to: (I) pay black-lung disability or death claims, (II) pay premiums for insurance covering that liability, (III) pay the trust's own administrative and claims-processing costs, and (IV) pay health benefits for retired miners and their families (plus related admin costs) or premiums for insurance covering those benefits. (ii) The trust's assets can only be used for those purposes, invested in "qualified investments," or paid into the Black Lung Disability Trust Fund or the general U.S. Treasury. (B) No tax deduction is allowed for payments described in (A)(i)(IV) (retiree health payments). (C) Those retiree health payments in a year are capped at the amount by which the trust's assets exceed 110% of the present value of its black-lung liability, as of the end of the prior year, figured by an independent actuary using reasonable methods. (D) Definitions: "Black Lung Acts" means the federal black lung law and similar state laws; "qualified investments" means U.S. public debt, non-defaulted state/local government bonds, and bank or credit union deposits; "miner" has its meaning from the Black Lung Benefits Act; "incidental expenses" includes legal, accounting, actuarial, and trustee costs.

(22) A trust created in the U.S. by sponsors of multiemployer pension plans, if: (A) it exists only to pay certain ERISA withdrawal-liability amounts and the trust's own administrative expenses, (B) its assets are used only for those purposes or for the same kinds of investments allowed under paragraph (21), (C) it meets specific ERISA requirements, and (D) on dissolution, its assets go only to plans that took part in it.

(23) An association formed before 1880 where more than 75% of members are present or past armed-forces members, and whose main purpose is providing insurance and benefits to veterans or their dependents.

(24) A trust described in ERISA section 4049, as that law read before it was amended in 1986.

(25)(A) A corporation or trust that: (i) has no more than 35 shareholders^* or beneficiaries, (ii) has only one class of stock or interest, and (iii) exists only to buy and hold real property, collect its income, and pass that income (minus expenses) to one or more qualifying organizations described in (C) that own it. "Real property" here excludes tenant-in-common or indirect interests. (B) It doesn't matter whether a (C)-type organization set it up. (C) A qualifying owner is a tax-qualified pension/profit-sharing/stock-bonus plan, a governmental plan, a government body, or a charity described in paragraph (3). (D) It must let its owners (i) vote by majority to fire its investment adviser, and (ii) exit either by selling their stake to another qualifying owner (without pushing the total past 35 owners) or by having the company redeem their stake after 90 days' notice. (E) A wholly-owned "qualified subsidiary" isn't treated as separate — its assets, debts, income, and deductions count as the parent's; if it stops being wholly owned, it's treated as a brand-new corporation getting the assets and debts from the parent in exchange for stock. (F) "Real property" also includes personal property leased along with real property, as long as the rent for that personal property is no more than 15% of the total rent for the year. (G)(i) Receiving some disqualifying income incidentally from holding real property doesn't disqualify the organization, (ii) unless that income tops 10% of its gross income for the year — and even then, it's forgiven if the organization shows the excess was accidental and it is fixing the problem.

(26) A state-created membership organization if: (A) the state set it up only to provide not-for-profit medical coverage, through its own insurance or through an HMO arrangement, (B) it only covers state residents who, because of an existing or past medical condition, either can't get coverage elsewhere or can only get it at a much higher price, (C) the state controls who can be a member, and (D) no earnings benefit a private shareholder or individual. A covered person's spouse and qualifying child^* are treated as covered too.

(27)(A) A state-created membership organization set up before June 1, 1996, exclusively to reimburse members for workers'-compensation losses, if the state requires every workers'-comp insurer and every self-insured employer to be a member, and the organization runs as a nonprofit by returning surplus income to members and cutting initial premiums using its investment income. (B) An organization (including a mutual insurance company) created and run under state law exclusively to provide required workers'-compensation insurance (and closely related coverage), if it must insure any employer in the state that asks and meets reasonable conditions, the state has backed it financially (by guaranteeing its debt or providing startup capital, and its assets revert to the state on dissolution or state law bars dissolving it), and most of its governing board is appointed by state officials or the legislature.

(28) The National Railroad Retirement Investment Trust.

(29)(A) A qualified nonprofit health insurance issuer that has received a CO-OP program loan or grant under the Affordable Care Act, but only for periods when it is following that program's rules and its loan or grant agreement. (B) This only applies if the organization: (i) has notified the Secretary it's applying under this paragraph, (ii) has no earnings benefiting a private shareholder or individual (except as the Affordable Care Act allows), (iii) doesn't spend a substantial part of its activities on lobbying, and (iv) doesn't support or oppose political candidates.

(d) Religious and apostolic organizations. A religious or apostolic association or corporation with a shared community treasury qualifies even if it runs a business for its members' common benefit — but only if each member reports their full share of the group's taxable income on their own tax return, whether or not it was actually paid out to them. That reported amount counts as a dividend to the member.

(e) Cooperative hospital service organizations. An organization counts as a charitable (c)(3) organization if it: (1) exists only to centrally provide services — like data processing, group purchasing (including group insurance), warehousing, billing and collections (including buying patient accounts owed to hospitals), food, clinical, engineering, lab, printing, communications, records, or personnel services — that a tax-exempt (c)(3) hospital could otherwise provide itself as part of its exempt purpose, and only for two or more hospitals that are each tax-exempt (c)(3) hospitals, exempt parts of a (c)(3) organization, or government-owned hospitals; (2) runs as a true cooperative, paying out all net earnings to the hospitals it serves within 8½ months after its year ends, based on how much each hospital used its services; and (3) if it has capital stock, that stock is owned entirely by the hospitals it serves. Such an organization is treated as a hospital for other tax purposes too.

(f) Cooperative service organizations of educational institutions. An organization counts as a charitable (c)(3) organization if it: (1) exists only to pool, invest, and reinvest its members' money in stocks and securities (including hiring outside managers) and pass the income back to members minus expenses; (2) is controlled by one or more of those members; and (3) is made up only of tax-exempt or government-funded educational institutions described in section 170(b)(1)(A)(ii) or (iv).

(g) Definition of "agricultural." For the farm-organization exemption in (c)(5), "agricultural" includes farming land, harvesting crops or aquatic resources, and raising livestock.

(h) Expenditures by public charities to influence legislation. (1) A charity that elects into this subsection loses its exemption for excessive lobbying only if it regularly spends more than its "lobbying ceiling amount" (A) or its "grass roots ceiling amount" (B) in a year. (2) "Lobbying expenditures" and "grass roots expenditures" are defined by cross-reference to section 4911(d); each "ceiling amount" is 150% of the matching "nontaxable amount" set under section 4911. (3) Only a (c)(3) organization that formally elects this treatment, and that fits paragraph (4) without being disqualified under paragraph (5), can use this subsection. (4) Eligible organizations include schools, hospitals and medical research organizations, supporters of public schools, publicly-supported charities, agricultural research organizations, organizations publicly supported through admissions and sales, and certain supporting organizations. (5) Disqualified organizations are churches, integrated auxiliaries of churches, and members of an affiliated group that includes a church or church auxiliary. (6) An election stays in effect for every year that starts before the organization revokes it and ends after the election was made. (7) For organizations that don't elect, or that are disqualified, nothing here changes how "substantial part... lobbying" is interpreted under (c)(3). (8) Rules for affiliated organizations are in section 4911(f).

(i) Prohibition of discrimination by certain social clubs. A social club under (c)(7) loses its exemption for any year in which its charter, bylaws, or written policy allows discrimination based on race, color, or religion. The religion part of this rule doesn't apply to (1) an auxiliary of a fraternal society that is itself tax-exempt under (c)(8) and limits its own membership to one religion, or (2) a club that, in good faith, limits membership to one religion to support that religion's teachings — not to exclude people by race or color.

(j) Special rules for certain amateur sports organizations. (1) A "qualified amateur sports organization" (A) can provide athletic facilities or equipment without losing its (c)(3) status, and (B) doesn't fail (c)(3) status just because its membership is local or regional. (2) That term means an organization organized and run only to promote national or international amateur sports competition, and mainly to run or support that competition or its athletes.

(k) Treatment of certain organizations providing child care. For purposes of the charitable exemption and related charitable-deduction sections, "educational purposes" includes off-site child care, if (1) it's mainly there to let parents work, and (2) it's open to the general public.

(l) Government corporations exempt under subsection (c)(1). These count as government instrumentalities under (c)(1): (1) the Central Liquidity Facility, (2) the Resolution Trust Corporation, (3) the Resolution Funding Corporation, and (4) the Patient-Centered Outcomes Research Institute.

(m) Certain organizations providing commercial-type insurance not exempt from tax. (1) A (c)(3) or (c)(4) organization stays exempt only if providing commercial-type insurance isn't a substantial part of what it does. (2) If it is exempt but does provide a substantial amount of such insurance, that insurance activity is taxed as an unrelated business, and instead of the normal unrelated-business tax, the organization is taxed like an insurance company on that activity. (3) "Commercial-type insurance" does not include: (A) insurance sold well below cost to a group of charity recipients, (B) incidental HMO health coverage of a normal kind, (C) property or casualty insurance a church provides for itself, (D) retirement or welfare benefits a church provides for its own employees, or (E) charitable gift annuities. (4) Issuing annuity contracts counts as providing insurance for this rule. (5) A "charitable gift annuity" is one where part of the payment is deductible under section 170 or 2055, and the annuity is described in section 514(c)(5).

(n) Charitable risk pools. (1) A qualifying charitable risk pool is treated as a (c)(3) charity, and the commercial-insurance rule in (m) doesn't apply to it. (2) It must: (A) exist only to pool its members' insurable risks (excluding medical malpractice) and share loss-control information, (B) have only tax-exempt (c)(3) organizations as members, and (C) meet the organizational requirements below. (3) It must: (A) be a nonprofit set up under a state risk-pooling law, (B) be exempt from state income tax, (C) have raised at least $1,000,000 in startup capital from charities that aren't members, (D) be run by a board its members elect, and (E) require in its founding documents that members stay (c)(3) organizations, must report immediately if they lose that status, and lose insurance coverage for events after that date. The pool itself doesn't lose its own status just because a member later becomes disqualified, as long as the pool acts within a reasonable time to remove that member once notified. (4) "Startup capital" includes program-related investments made before the pool began operating; a "nonmember charitable organization" is a (c)(3) charity that isn't a member and gets no benefit from the pool's coverage.

(o) Treatment of hospitals participating in provider-sponsored organizations. A charity doesn't lose its (c)(3) status just because a hospital it owns takes part in a Medicare provider-sponsored organization, whether or not that organization is itself tax-exempt. But anyone with a real financial stake in that provider-sponsored organization is treated as a private shareholder with respect to the hospital, for purposes of the no-private-benefit rule.

(p) Suspension of tax-exempt status of terrorist organizations. (1) An organization described in (2) loses its exemption, and its ability to even apply for one, during the period in (3). (2) This covers an organization officially named as a terrorist organization under specific immigration law sections, or named in a terrorism-related Executive Order issued under specific emergency-powers laws, or named in any other Executive Order that both identifies it as supporting terrorism and specifically says this subsection applies. (3) The suspension starts on the later of the date the organization is first publicly named or the date this law was enacted, and ends once every one of those terrorist designations is officially withdrawn. (4) No tax deduction is allowed for gifts to the organization during the suspension, under any of the usual charitable-deduction sections. (5) No one can challenge the suspension, the designation, its timing, or the denied deduction in any court or agency proceeding. (6)(A) If every designation against the organization is later found to have been made in error, and that error caused it to overpay its taxes, it gets a refund with interest. (B) Even if normal deadlines would otherwise block that refund, the organization can still claim it within one year of the last error being confirmed. (7) If an organization's exemption is suspended, the IRS must update its public list of tax-exempt organizations and publicly announce the suspension and that donations are no longer deductible.

(q) Special rules for credit counseling organizations. (1) An organization mainly in the business of credit counseling loses its exemption unless it's a (c)(3) or (c)(4) organization that also follows all of these rules: (A) it must tailor its counseling to each consumer, make no loans (except free, no-interest ones) and not arrange loans for consumers, offer credit-repair services only as a minor part of counseling, and never charge a separate fee just for credit repair. (B) It cannot turn away a consumer because they can't pay, don't qualify for a debt management plan, or won't enroll in one. (C) It must have a fee policy that keeps fees reasonable, allows fee waivers for people who can't pay, and (except where state law says otherwise) bars charging fees based on a percentage of the consumer's debt, planned payments, or expected savings. (D) Its board must, at all times, be led by people representing the public interest (officials, credit or finance experts, community leaders); no more than 20% of board voting power can belong to employees or others who profit from the organization (not counting reasonable director fees or repaying debts to outside creditors); and no more than 49% of voting power can belong to anyone who profits from the organization at all (again, not counting reasonable director fees). (E) It can't own more than 35% of the voting power, profits, or beneficial interest of any business (other than another exempt (c)(3)) that lends money, repairs credit, or provides debt-management, payment-processing, or similar services. (F) It can't be paid for referring people to other debt-management services, or pay others for referring consumers to it. (2) A (c)(3) organization doing credit counseling must also: (A)(i) not solicit donations from a consumer during initial counseling or while serving them, and (ii) keep the share of its revenue that comes from creditors' payments for debt-management plans under an "applicable percentage" of its total revenue. (B) That percentage is normally 50%, but for organizations already exempt when this rule was enacted, it phases in at 80% the first year (starting a year after enactment), 70% the second year, and 60% the third year. (3) A (c)(4) organization doing credit counseling must simply notify the Secretary that it is applying as a credit counseling organization. (4) "Credit counseling services" means giving the public educational information on budgeting and credit, counseling individuals and families with financial problems, or both. "Debt management plan services" means help with repaying, consolidating, or restructuring consumer debt, including negotiating lower rates, getting fees waived, and marketing or processing such plans.

(r) Additional requirements for certain hospitals. (1) A hospital organization covered by this subsection is not treated as a (c)(3) charity unless it: (A) meets the community health needs assessment rules in (3), (B) meets the financial assistance policy rules in (4), (C) meets the charge limits in (5), and (D) meets the billing and collection rule in (6). (2)(A) This subsection covers organizations that run a state-licensed hospital facility, and any other organization the Secretary decides has running a hospital as the main reason for its (c)(3) exemption. (B) An organization running more than one hospital facility must meet these rules separately for each facility, and loses (c)(3) treatment only for a facility that fails to meet them. (3)(A) An organization meets the community-needs rule only if, within the current or the two prior years, it has done a community health needs assessment meeting (B)'s standards and adopted a plan to address what it found. (B) That assessment must consider input from people representing the broader community, including public health experts, and be made widely available to the public. (4) The organization must adopt: (A) a written financial assistance policy covering who qualifies (and whether they get free or discounted care), how patient charges are calculated, how to apply, what the organization may do if a patient doesn't pay when there's no separate billing policy, and how it will publicize the policy in the community; and (B) a written policy requiring it to give emergency medical care (as defined under the Social Security Act's emergency-care rule) to anyone, without discrimination, regardless of whether they qualify for financial assistance. (5) The organization must (A) cap what it charges patients eligible for financial assistance, for emergency or medically necessary care, at no more than what it generally charges insured patients, and (B) not use undiscounted "gross charges." (6) The organization must not use aggressive debt-collection actions against a patient before making a reasonable effort to find out if that patient qualifies for financial assistance. (7) The Secretary will issue regulations explaining these rules, including what counts as a "reasonable effort" to check a patient's eligibility.