As military servicemembers transition to life as a civilian, they are met with a variety of personal and financial challenges. To meet those challenges, the Department of Veterans Affairs (“V.A.”) provides those who served with numerous benefits – namely healthcare, insurance, tuition assistance, home loans, and employment resources. While those benefits have proven to be well-used by veterans[1], nonprofit veterans organizations fill a critical support role. The various local and national non-profit organizations provide essential assistance to ensure our veterans receive the care and resources they deserve. Nonprofits support like the V.A., advocate for veteran’s issues and support local youth groups and sports teams. If you, a board, or a local organization desires to form a nonprofit entity to support veterans, the following are some tax-exempt options to consider pursuant to Section 501(c) of the Internal Revenue Code.
Veterans Organizations: Entities formed as a post of past or present members of the United States Armed Forces, or an auxiliary, trust or foundation to support a post can engage in a broad range of veteran-related activities and maintain their tax-exempt status. The post-entity members must consist of at least 75% active servicemembers or veterans, and nearly all members must be either veterans, active servicemembers, or family members and descendants of veterans. Examples are the American Legion and local Veterans of Foreign Wars posts.[2] Notably, these entities are permitted to provide insurance benefits to its members, dependents of members, or both.
Social Welfare Organizations:[3] A veterans nonprofit formed as a “social welfare” organization must be organized as a not-for-profit entity and exists solely to engage in social welfare programs that promote the common good and general welfare of the community.
Social Clubs:[4] A veterans nonprofit may be formed as a social club, organized for pleasure, recreation, and other similar purposes. These clubs may have different categories of members and do not need require a specific percentage of veterans. The club’s members must share common goals and interests which are enhanced through the club’s social and recreational activities. Additionally, a club’s governing documents must not include any purpose that is not directed toward pleasure or recreation – otherwise, it will lose exemption status.[5]
Fraternal Organizations: These veteran groups have unique requirements. To qualify as a tax-exempt nonprofit, the entity must be “fraternal” in nature, operate under the “lodge system” and provide life, sick, accident and other benefits to its members.[6] To be “fraternal” literally means to be friendly or brotherly. In other words, members must share common ties and pursue common goals. To operate under the “lodge system” means that the entity operates on a form of organization that is made up of local branches under a parent organization.
The attorneys of Partridge Snow & Hahn’s Nonprofit & Tax-Exempt Practice help nonprofits strengthen the legal and operational foundations that support sustainable growth and access to capital. For questions about veterans-focused nonprofit governance, financing, or organizational readiness, please contact Elizabeth Manchester.
[1]Are Transitioning Veterans Using VA Benefits and Services?, U.S. Department of Veterans Affairs, https://www.data.va.gov/stories/s/Are-Transitioning-Veterans-Using-the-VA-Benefits-a/9jtx-xawd/.
[2] 26 U.S.C.A. § 501(c)(19).
[3] 26 U.S.C.A. § 501(c)(4).
[4] 26 U.S.C.A. § 501(c)(7).
[5] Tax Guide for Veteran’s Organizations. Internal Revenue Service. April 2018.
[6] Id.
