501(d) A Different Type Of Nonprofit

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There are thousands of people in the United States who choose to break away from mainstream life to live, work and worship with a small group of religiously likeminded individuals. And you know what, some of them are taking advantage of federal tax exemption status while doing so.


Most people associate nonprofit with the IRS 501(3)(c) exemption status. The 501(3)(c) provides a tax exemption for corporations whose purpose is charitable, religious, educational, scientific, literary, testing for public safety, fostering amateur sports competition, or preventing cruelty to children or animals. This status has access to grant money, income and property tax exemptions and provides tax deductions to those who donate to the nonprofit organization. The most important feature of this structure is that the profits are not distributed among its owners but are used to further the charitable purpose it is created. Although this tax exemption status is the most recognizable, there are almost thirty other tax exemption statuses available each with its own eligibility requirements.


The 501(d) status provides tax exemptions for religious and apostolic communities that share a common treasury. The IRS has failed to define religious/apostolic and thus the terms can be construed to mean any strongly held spiritual or secular belief. The business that the community decides to partake is not taxable as long as all the proceeds are deposited into the designated common treasury and distributed. This includes all income whether produced through the community’s revenue source or by the individual. The community’s business can have either a not for profit or a for profit purpose. The 501(d) exemption does not have any restrictions on political activity, unlike the 501(3)(c). In addition, donations made to the community are not tax exempt.


I find this particular exemption interesting but imagine that it is fairly difficult to execute.  Living in a 501(d) community requires individuals to shift their primary focus from themselves to the community.  Those interested in growing or rebuilding communities through group economics should seriously consider organizing as a 501(d).  Here is an example of 501(d) community in Virginia.


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