What Does It Mean to Be a 501(c)(5) Organization?
How Unrelated Business Income Can Jeopardize Tax-Exempt Status
(This article first appeared in the May-June 2018 issue of The American Postal Worker magazine)
By Secretary-Treasurer Liz Powell
IRS 501(c)(5) status provides exemption from federal income tax to labor, agricultural or horticultural organizations. APWU affiliates are 501(c)(5) organizations and provided tax-exempt status. Tax-exempt status refers to federal income tax exemption under the Internal Revenue Code. APWU locals do not pay income tax on dues collected nor taxes on the interest earned on investments. However, they must pay sales tax for purchases and payroll taxes for employees.
What is the difference between non-profit and tax-exempt status?
Non-profit status is a state law concept. Non-profit status may make an organization eligible for certain benefits, such as state sales, property and income tax exemptions. Tax-exempt status is generally considered a federal IRS category.
As a tax-exempt organization, it is important a local consider the nature and extent of all their business activities to avoid the loss of their tax-exempt status. If the IRS determines that the percentage of your local’s income from business activities – unrelated to your local’s specific exempt purposed – is excessive, APWU affiliates can jeopardize their tax-exempt status.
What is Unrelated Business Income?
Unrelated Business Income (UBI) means APWU affiliates may not receive income from a regularly carried-on trade or business not related to the union’s mission. Locals need to be aware of what constitutes UBI and how it should be assessed. Locals will be required to pay taxes on income that is not substantially related to an organization’s tax-exempt purpose.
The following components, collectively, are required to meet the criteria of UBI: Trade or business, regularly conducted, and not substantially related to the organization’s exempt purpose or function.
Trade or business is any activity to obtain income, including selling goods and/or performing services, with the intent of generating a profit.
Regularly conducted are activities that show frequency and continuity, comparable to activities of a non-exempt provider. For example, maintaining an ongoing activity with established business hours and perma- nent employees is considered “regularly conducted.”
Not substantially related to the organization’s exempt purpose or function is activity not related enough to the affiliate’s exempt purpose. It does not contribute significantly to accomplishing that purpose, even if the profits generated provide it support.
It is important that locals find ways to increase their local budget by expanding their membership. This can be achieved by merging with Members-at-Large (MALs) in your area and organizing non-members. Both examples increase your local budget without jeopardizing your 501(c)(5) tax-exempt status and keeps your local out of the unfortunate circumstance that unrelated business income can cause for your local.
Convention 2018 Resolutions
In accordance with the APWU Constitution and Bylaws, resolutions must be received by Monday June 4, 2018, to be printed in the convention booklet. There will be no exceptions.
Resolutions are accepted from local or state affiliates, or from Members-at-Large (MALs). Resolutions from local or state affiliates must be submitted online by a form that is accessible to presidents, secretaries and secretary- treasurers on the Members Only website (apwumembers.apwu.org).
MALs are the only individuals who may submit resolutions under their own signatures. Resolutions from MALs must be sent directly to Secretary-Treasurer Elizabeth “Liz” Powell. They must be typed, double-spaced and submitted individually (one resolution per page) to: 1300 L Street NW, Washington, DC 20005.