Starting a 501c8 Nonprofit - Our Complete Guide

Starting a 501c8 Nonprofit - Our Complete Guide

Starting a 501(c)(8) Fraternal Beneficiary Society isn’t that much different than other types of 501(c) organizations, and their formation can allow your organization many tax advantages if it is recognized by the IRS under the 501(c)(8) tax exemption code including the ability to accept donations for charitable purposes which are tax-deductible if used exclusively for religious, charitable, scientific, literary, or educational purposes.

These community-focused nonprofits often combine social activities with essential benefits like life, sick, and accident insurance for its members as well as other advantages we’ll dive into more deeply in this article.

The most common reason to start a 501(c)(8) organization is to create a strong sense of community and mutual support among its members which typically share a common bond or goal, such as a profession, ethnicity, or a shared interest. This is usually achieved through various fraternal activities including rituals and ceremonies unique to each organization.

In order for your organization to qualify for tax-exempt status under section 501(c)(8) of the Internal Revenue Code, your organization must meet specific requirements including operating under a lodge system, engaging in fraternal activities, and providing specific benefits to your members. This lodge system means your organization’s hierarchical structure must include a parent body and local lodges or branches that function independently of each other yet stay in alignment with the overall mission and regulations set by the parent organization.

A few notable examples of this type of hierarchical structure are the Knights of Columbus, a global Catholic fraternal service organization that provides insurance and engages in charitable activities, the Modern Woodmen of America, a fraternal financial services organization offering insurance and member benefits and does include women as well, and the Benevolent and Protective Order of Elks, which is dedicated to charitable works, community services, while also providing benefits to members.

What is a 501c8 Organization?

501c8 organizations are a type of fraternal benefit society that operates under a lodge system and enjoys tax-exempt status under the Internal Revenue Code. What makes these types of organizations different than other types is they do create a sense of community and have social activities like other similar organization, but an added benefit of a IRC 501(c)(8) is that there is are financial benefits involved for their members as well in the form of life insurance, health benefits, and/or accident coverage.

These fraternal benefit societies still create a sense of community among members and usually share a common bond, whether it be a profession, ethnicity, or shared interests. These groups also usually entail some for of ritual or ceremony specific to their group.

In order to qualify as 501(c)(8) by the IRS, there are a few specific criteria that must be adhered to starting with the lodge system. A lodge system means it should have a parent organization with subordinate lodges or branches that are largely self-governing and hold regular meetings. Furthermore the organization must have some sort of fraternal purpose, by either promoting the social, moral, and intellectual welfare of its members through various activities and events held at each branch.

Organization must also have an established system for providing life, sick, accident, or other benefits to its members or their dependents in order to be granted a 501(c)(8) status by the IRS. This aspect is what defines distinguishes these societies from ordinary social clubs or for-profit insurance companies and are essential to maintaining the organization’s tax-exempt status.

Once your designation is granted, your organization is able to take donations that are tax exempt for both the organization as well as your donors as long as they are used exclusively for religious, charitable, scientific, literary, or educational purposes that align with the nonprofit’s mission statement.

501(c)(8) vs 501(c)(10) vs 501(c)(7)

A 501(c)(8) organization is a specific type of nonprofit that caters to fraternal societies and can easily be confused for 501(c)(10) or 501(c)(7) nonprofits due to the wording used, fraternal, to describe all three types of organizations.

A 501(c)(10) Domestic Fraternal Society is very similar to a 501(c)(8) organization in that it follows the same lodge or branch type organizational structure of a 501(c)(8). The separation has to do with a 501(c)(10) can not provide for the payment of life, sick, accident, or other benefits to their members like a 501(c)(8). Otherwise their fraternal and organizational structures are basically the same. Shriners International and the Order of the Eastern Star are some better known orders that are registered as 501(c)(10) Domestic Fraternal Societies as examples.

A 501(c)(7) nonprofit is also often used for fraternal societies but meaning a brotherhood in the way of a college fraternity or sorority, although the most common formations are for social clubs, country clubs and sports and hobby clubs. So although the terminology may be confusing, they are in no way connected to a A 501(c)(8) designation and do not follow the lodge system nor payout any benefits to its members.

So while all three seem to be the same, there are differences no matter how subtle and are important when it comes time to submit your application to the IRS. So be sure exactly how your organization will be run and where to be sure you’re filling out the proper forms.

How to Start a 501(c)(8) Organization

Starting a 501c8 organization is similar to starting any other 501(c) and requires filing out Form 1024 in order to take advantage of the tax-exempt status granted to them by the IRS as well as some state filings to make your organization legit. This also requires you to pay fees depending on your local, although the Form 1024 application fee is $600 regardless of where you are in the United States.

Otherwise, it’s possible to start your nonprofit with very little money if you do all the steps yourself, although we do believe using a professional for the application form can save you a lot of time and effort in the end and would definitely be worth the investment if your organization can afford it.

Name Your Organization

The first thing to think about is the name of your organization. Your name should be as short and clear as possible, and hopefully strike some sort of fraternal idea within the name. Also, once you have a name or a few ideas, look to see if the domain is open so you’re able to create a website with the proper domain name. It’s customary for charitable organizations to have a .org, although a .com is still acceptable. If both choices are taken, we strongly advise choosing a different name.

Create Your Mission Statement

Your mission statement is very important as it details what your organization is about and what it hopes to achieve. Unlike a vision statement, your mission statement will guide every single aspect of your organization from step one. This includes how you go about hiring staff to what marketing strategies to use. So take your time to create a solid statement as the clearer and more concise it is, the easier it will be to make decisions that are aligned with your mission for years to come.

Recruit Board Members

Recruiting board members should be a strategic choice as these people will have a great deal of impact on your organization for years to come. Your board is responsible for making decisions based on your mission statement and compliance issues of running a nonprofit. They can also bring a wealth of financial backing, large networks of friends, and valuable skills that can propel your organization further faster. So think about each person you bring on board as an asset, and see what they can bring to your project. Choosing successful business people with ties to the community or an accountant or lawyer can help your organization right from the start.

Form Bylaws

Your bylaws are required by the IRS and must be attached to your Form 1024 application at the time of submission, so they are extremely important! Your company’s bylaws are primarily designed to guide the Board of Directors on how to govern your organization in its daily operations according to your organization's core mission and objectives. Your bylaws dictate everything from officers and their roles to your mandatory Conflict of Interest Policy if there is ever a problem. Items like employee payment structures to rules on financial management and oversight should be included in your bylaws.

File Articles of Incorporation

Filing for your Articles of Incorporation happens on a state level and is the same for any small business in your state, so the procedures for this step will depend on where your organization resides in the United States and is completed at your appropriate Secretary of State's office. Your articles of incorporation serve as the legal foundation and official document that formally establishes your nonprofit entity in the eyes of state and must be completed before submitting any documents to the IRS as they will need to be included with your application.

Obtain an EIN

Obtaining your EIN number will be the easiest and fastest step of this entire process. This is because everything can be done online and only takes a few minutes. Once you’ve finished answering a few basic questions you will be given your EIN instantly. You can go here to better understand what information you need. Once you’re ready hit the blue button halfway down the page to begin the process.

Apply for IRS Tax-Exempt Status

This is the last step of the process and also the most time consuming and expensive one, so have everything we’ve written about previous to this step and payment ready or your application won’t be accepted. We always advise start ups to seek the help of a professional when filling out this form as it is complicated and any problems can cause major delays.

In order to be seen as a tax-free entity, your parent entity or the lodge or branch will need to fill out Form 1024 which is a 42 page document, although not every single item needs to be filled out depending on your entity structure. Although it is most common for the main entity to apply for a group exemption covering its subordinate lodges, a single lodge can apply as well.

You will need to go to the pay.gov website and create an account in order to download your form. There is a preview form available here if you’d like to see all the form entails. Also, you will need to use the PDF you download as your filing can only be done online, there are no more paper filings for Form 1024.

Once you have your Form 1024 in PDF format completed, it will need to be filed at the pay.gov site using the account you created when downloading the Form. You will also need to include an attachment of your Bylaws and Articles of Incorporation, so have them on hand. Once all of your information is filed, the last thing to do is pay the $600 processing fee. Payment can be made directly from a bank account or by credit or debit card.

Running Your Organization

One other item to note on starting your nonprofit is what software or platform you should be using to run the everyday activities it will take to keep your entity organized and operating smoothly. This entails using a solution that should work as your hub where everyone on staff is connected to a central database of software solutions and information. A place that can run your entire business as well as having specialized nonprofit solutions like donor tracking, event management and other solutions that allow your entity to grow. PayBee’s suite of specialized solutions created specifically for nonprofits is one of a kind and can not only run your daily operations, but can help to grow your charity right from the start. Just take a look at our free demo to see how we help charities grow.

Wrapping up

So there it is, all seven steps to starting your own 501(c)(8) organization from scratch. And although there are definitely some hurtles to jump through, each step is more than just the process. When done correctly, each one helps solidify what you want your charity to be about, how it will go about its business, and how it will look going forward into the future. So be sure to put the time and effort into each of these steps so you and your supporters can make the most of your new charitable entity.

What specific benefits does a 501(c)(8) nonprofit offer compared to other types of nonprofits?

A 501(c)(8) provides specific benefits such as tax-exempt status which gives the organization the ability to receive deductible charitable contributions, and a focus on fraternal beneficiary services such as insurance and other financial services which is unique among nonprofit classifications.

Can a 501(c)(8) organization have paid employees, and what are the considerations for compensation?

Yes, a 501(c)(8) can hire paid employees. Employee compensation must be reasonable and not excessively benefit any individual. All salaries must also be available to anyone upon request or posted on the entity’s website for financial transparency as a 501(c).

What are the ongoing reporting and compliance requirements for a 501(c)(8) organization?

Ongoing requirements include filing annual returns with the IRS (Form 990), maintaining detailed records of meetings and financial transactions, and adhering to both federal and state-specific nonprofit regulations.

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Bill Allen

Bill Allen is an expat that has been travelling the world for the past 25 years. He received his MA in writing in New York too long ago to remember, but has been writing on all sorts of subjects far varied publications ever since. When he isn't writing he enjoys meditating and working on his own website, UpscaleDrinks.com. Feel free to connect with him any time.