A labor organization will jeopardize its exemption under Code section 501(c)(5) if it ceases to have as its purposes bettering the conditions of persons engaged in the pursuit of labor; improving the grade of their products; and developing a higher degree of efficiency in their occupations. In addition, an organization's net earnings may not inure to the benefit of its members. These organizations may conduct political campaign and lobbying activities furthering their exempt purposes but may have to pay a proxy tax if they use member dues for this purpose.

In addition, a tax-exempt labor organization that does not file a required annual return or notice for three consecutive years automatically loses its tax-exempt status.

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