What Is a 501(c)(8) Organization? Requirements and Tax Rules

A 501(c)(8) organization is a fraternal beneficiary society that qualifies for federal tax exemption by meeting two conditions at the same time: it operates under a lodge system, and it provides life, sick, accident, or similar benefits to its members or their dependents.¹ Familiar examples include the Knights of Columbus, the Loyal Order of Moose, the Elks, the Freemasons, and the Shriners. Both requirements have to be satisfied together. A fraternal group with a lodge structure but no member benefits falls into a different tax category, and an insurance provider without a lodge structure doesn’t qualify at all.

The Two Qualifying Requirements

Operating Under a Lodge System

The first requirement is structural. A parent body charters local, largely self-governing branches, usually called lodges, chapters, or councils.² Those local units meet regularly at designated locations, use a representative form of government, and perform ritualistic work as part of their operations.³

The ritualistic element does real work in the definition. The IRS treats it as what separates a fraternal organization from an ordinary membership club or trade association. A group that just collects dues and runs social events, with no ritual, will not pass the lodge system test.

There is an alternative path. An organization does not have to operate the lodge system itself if it exists for the exclusive benefit of members of a fraternity that does.¹ That lets a parent fraternal organization spin off a separate entity to handle the insurance side while the parent runs the lodges.

Providing Member Benefits

The second requirement is functional. The organization must provide for the payment of life, sick, accident, or other benefits to members or their dependents, using an established system funded through member contributions.¹ It may partner with an insurance company to deliver the coverage.

The phrase “other benefits” is not open-ended. The IRS reads it to mean benefits similar in nature to life, sick, and accident coverage, generally aimed at compensating for bodily injury or loss of earning power.⁴ Recognized examples include legal defense expenses for members accused of misconduct arising during their employment, orphanage care for surviving children of deceased members, and annuities that protect against loss of earning power in retirement.

Benefits have to go to members or their dependents, but not every member class must be covered. The IRS has approved a fraternal association with both “beneficial” and “social” membership tiers, because substantially all members held beneficial memberships that included the benefit program.⁴

How 501(c)(8) Differs From 501(c)(10)

This is where a lot of fraternal groups get confused. A 501(c)(10) organization is a domestic fraternal society that also operates under a lodge system but does not provide insurance-type benefits to members.⁵ Instead, its net earnings go exclusively to religious, charitable, scientific, literary, educational, or fraternal purposes. Congress created the (c)(10) category largely for fraternal groups that either never offered or stopped offering member benefits.⁶

An organization cannot claim exemption under both sections. If it provides insurance-type benefits, it belongs under 501(c)(8). If it doesn’t, but meets the lodge system and charitable-purpose requirements, it belongs under 501(c)(10). One practical result: contributions to a 501(c)(10) may be tax-deductible because net earnings fund charitable purposes, while deductibility for a 501(c)(8) is far more limited.

What the Tax Exemption Actually Covers

Federal Income Tax

A qualifying 501(c)(8) is exempt from federal income tax under IRC Section 501(a).¹ Income from providing insurance benefits to members is generally not taxed, so more revenue can flow into member benefits and community programs.

Donor Deductions

Donations to a 501(c)(8) are generally not tax-deductible for the donor. There is a narrow exception: an individual’s contribution qualifies as a charitable deduction if the funds are used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.⁷ Dues paid for insurance coverage or general membership do not qualify.

Unrelated Business Income

Exemption does not cover every dollar the organization earns. If it regularly runs a trade or business that isn’t substantially related to its exempt purpose, that income is subject to unrelated business income tax (UBIT).⁸ A classic example is a lodge bar or banquet hall open to the general public. The fact that profits fund fraternal or charitable work does not, on its own, make the activity related.

Passive income like dividends, interest, royalties, and most rents from real property is generally excluded from UBIT.⁹ Any 501(c)(8) with $1,000 or more in gross income from unrelated business activities must file Form 990-T and pay tax on that income.¹⁰

Annual Filing Requirements

Getting a determination letter is only the start. Every 501(c)(8) has to file an annual information return, and the form depends on size:

Form 990 for organizations with gross receipts of $200,000 or more, or total assets of $500,000 or more.
Form 990-EZ for organizations with gross receipts under $200,000 and total assets under $500,000.¹¹
Form 990-N, the electronic “e-Postcard,” for organizations with gross receipts normally $50,000 or less.¹²

Returns are due on the 15th day of the fifth month after the fiscal year ends. A six-month extension is available by filing Form 8868 before the deadline.¹³

Miss three consecutive years and the IRS automatically revokes tax-exempt status. No warning letter, no grace period. Once revoked, the organization owes income tax from the date of revocation and has to file a new exemption application to get its status back.¹⁴ Smaller lodges with rotating volunteer leadership are especially vulnerable. A new treasurer assumes the last one filed, and three years slip by.

How to Apply

Fraternal organizations apply for recognition of exemption on IRS Form 1024, submitted electronically through Pay.gov with a user fee. Current fee amounts appear in the IRS’s annual revenue procedures.¹⁵

The application asks for organizing documents (articles of incorporation, constitution, or articles of association showing state approval), bylaws or other operating rules if adopted, a narrative describing past, present, and planned activities, and financial statements covering the current year and three preceding years.² Schedule E of the form is specific to fraternal organizations. It asks whether the group operates under a lodge system and whether it provides insurance or benefit arrangements, and it requires sample copies of any plan documents or insurance policies.¹⁶

The IRS reviews applications in the order received. If the application is complete and meets the requirements, the IRS issues a determination letter confirming tax-exempt status. If something is missing, the IRS will ask for more information before deciding.² Many fraternal organizations also need to register with their state’s insurance department, since offering member benefits often triggers state insurance regulation separate from the federal exemption process.

1
Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc.
2
Internal Revenue Service. Instructions for Form 1024 (01/2022)
3
Internal Revenue Service. Fraternal Organizations: What Constitutes a Lodge System
4
Internal Revenue Service. Benefits Considerations for Fraternal Organizations Described in IRC Section 501(c)(8)
5
Office of the Law Revision Counsel. 26 US Code 501 – Exemption From Tax on Corporations, Certain Trusts, Etc.
6
Internal Revenue Service. Fraternal Beneficiary Societies and Fraternal Societies
7
Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts
8
Internal Revenue Service. Publication 598 Tax on Unrelated Business Income of Exempt Organizations
9
Office of the Law Revision Counsel. 26 US Code 512 – Unrelated Business Taxable Income
10
Internal Revenue Service. Unrelated Business Income Tax
11
Internal Revenue Service. 2025 Instructions for Form 990-EZ
12
Internal Revenue Service. Who Must File Form 990-N (e-Postcard)?
13
Internal Revenue Service. Exempt Organization Annual Filing Requirements Overview
14
Internal Revenue Service. Automatic Revocation of Exemption for Non-Filing: Frequently Asked Questions
15
Internal Revenue Service. User Fees for Tax Exempt and Government Entities Division
16
Internal Revenue Service. Form 1024 – Application for Recognition of Exemption Under Section 501(a)