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Non Profit Member Dues/umbrella 501(c)(3)

Corporate Law Discussions

Non Profit Member Dues/umbrella 501(c)(3)

Postby Fridgeir » Fri Apr 28, 2017 12:21 am

We are in the Organizational phase of establishing a non profit organization for our Competitive Dance Company.  I have spent a lot of time researching but am still confused with Membership Dues and the disadvantages/advantages of collecting them from members.  Specifically I'd like to know if the collection of membership dues jeopardize our chances at getting final approval for 501(c)(3)?  Or if it's even possible to be a non profit and require membership dues.  

Also we have come across "Umbrella 501(c)(3)" clubs where you pay a membership fee to join and are then covered under the Groups 501(c)(3).  Is there a benefit or any drawback to doing this type of organization?

Many thanks for you continued free assistance especially for those of us with limited funds.



ANSWER: The collecting of dues does not jeopardize your ability to gain or maintain 501(c)(3) organization status.  It is the tie in between dues and the organization's giving benefits that may cause a problem. The main point is that your organization is for the public at large and not a small group. Some organizations would qualify for 501(c)(3) organization status whereas others would not, but could be 501(c)(7) organizations.  See:

www.irs.gov/pub/irs-tege/rr67-139.pdf in which the IRS discusses

a gemological organization and the two options.

When you refer to "umbrella" that is a vague term.  Are you referring to your group being organized like as a corporation and then your corporation joins, in some way, the other corporation?  If so, that is what the IRS refers to as a group exemption. Group Exemption is discussed starting on the right column of page 6 to page 7 of IRS Publication 557 at


I don't see any drawbacks as long as the law is followed and there needs to be, as you can see there, "A central organization is an organization that has one or more subordinates under its general supervision or control."  Receiving dues from a subordinate is not enough to indicate general supervision or control. www.irs.gov/pub/irs-pdf/p4573.pdf is much more information about group exemption.

Harvey Mechanic

Attorney at Law

[email protected]

[an error occurred while processing this directive]---------- FOLLOW-UP ----------

Thank you for you extremely fast reply and references.

ParentBooster organization has a group letter ruling from the IRS.  They state with this ruling, we would be eligible for tax-exempt under section 501(c)(3), eligible for grants, able to accept tax deductible contributions, and eligible for assistance with incorporation, bylaws, and IRS federal tax exemption(for a membership fee).  We are currently weighing our options on which method would be the best for our organization.  Although we are small, we would like to make a larger impact within the community and plan on approaching all of our fundraising with a group philosophy. There are approximately 40 dancers in our group and all fundraising we do will benefit the group at large with no consideration given to contributions and volunteer time.  For future consideration with the IRS federal tax exempt ruling, would we position ourselves better if we suggest a voluntary contribution versus mandatory membership dues?  Thanks again...

ANSWER: As a general rule, for future consideration with the IRS federal tax exempt ruling, you would position ourselves better if you suggest a voluntary contribution versus mandatory membership dues. I hope for your sake that the IRS does not audit that ParentBooster club and find that they do not have "general supervision or control" over your organization. Harvey Mechanic

Attorney at Law

[email protected]

---------- FOLLOW-UP ----------

Thanks for the advice - we will definitely ask if they have a "general supervision of control" over our organization.  If not, then I am assuming that it may cause legal issues for us in the future.  Then the other option is to file our Articles of Incorporation ourselves, along with the other steps(Trade Name, FEIN) within our state.  The only drawback to not taking the next more costly step, is we would only be operating as a charitable non profit without the benefit of tax exempt status.  Is there a certain period of time that the IRS gives start-ups before they are not eligible to apply with the 1023?  MANY thanks!
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Non Profit Member Dues/umbrella 501(c)(3)

Postby Mayfield » Mon May 01, 2017 10:37 am

See IRS Publication 557 "Tax Exempt Status for Your Organization"


which has on page 20 that the exemption determination is granted

retroactively to the date of formation which is normal for

501(c)(3) organizations that apply for exemption within the first

15 months of their formation.

See instructions to Application for Exemption


in the right column on the first page under "Form 1023

not necessary" discusses who does not need to file and

among those is "Any organization that has gross

receipts in each taxable year of normally not more than


You are welcome. Harvey Mechanic

Attorney at Law

[email protected]
Posts: 31
Joined: Sat Mar 29, 2014 8:22 pm

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