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501(c)(8) Organization: What It Is, Requirements & How to Start One
April 20, 2026
⚡TL;DR — The Short Answer
Verdict: A 501(c)(8) fraternal beneficiary society is a viable tax-exempt structure for lodge-based organizations that provide member insurance benefits — but only if you meet all IRS structural requirements.
What works: Operating under a true lodge system with representative governance, offering life/sickness/accident insurance to members, and applying via IRS Form 1024 with a $600 filing fee.
Best for: Established fraternal orders — think Knights of Columbus or the Elks — and new organizations that can demonstrate a parent-chartered lodge structure, shared rituals, and member insurance benefits from the outset.
Worth considering if: Your organization doesn't offer insurance benefits, in which case 501(c)(10) may be the more accurate classification. Consult a nonprofit attorney before applying if your benefit structure is unclear.
There are many types of nonprofits, so what is a 501(c)(8)? 501(c)(8) organizations are fraternal beneficiary societies. They provide a unique opportunity for individuals with shared interests or vocations to unite and support each other through various benefits and charitable activities.
This guide explores the definition, eligibility criteria, and steps to start a nonprofit 501(c)(8) organization. It also explores how to create a thriving fraternal society that positively impacts its members and the community and how to gain tax exempt status.
The Internal Revenue Code (IRC) defines a 501(c)(8) nonprofit organization as a fraternal beneficiary society that must pay for life, sickness, accident, or other benefits. These societies operate under a lodge system, where members share common bonds, principles, or callings.
The IRS recognizes 501(c)(8) organizations as tax-exempt, allowing them to focus on supporting their members and engaging in charitable activities.
501(c)(8), fraternal organizations may pay directly for their members' insurance or other benefits. They often partner with third-party insurance companies to offer insurance services.
Like 501(c)(4) or 501(c)(6) nonprofits with tax exemption, fraternal benefit societies can participate in political activities, but it cannot be their primary purpose. The money spent on such activities is not tax-deductible.
The organization started in 1882 as a congregation of Catholic men. Its members are connected by their Catholic beliefs, and its primary principles are charity, unity, fraternity, and patriotism.
Elks
The organization, formerly known as the "Jolly Corks," was started in 1868 as a group of actors and theatre professionals. It operates on charity, justice, brotherly love, and fidelity. The organization provides scholarships, veterans' services, and drug awareness programs.
Royal Neighbors of America
It was started in 1895 by nine women to support other women. The organization protects its members and offers benefits like life insurance and annuities.
Modern Woodmen of America
This is a member-owned fraternal financial services organization established in 1883. It has nearly 730,000 members and focuses on touching lives and securing futures.
The IRS enlists several requirements for nonprofit organizations to acquire a 501(c)(8) tax-exempt status:
An organization must have a fraternal purpose, which means its membership is based on a shared interest, goal, or background. The organization must also have a substantial program of fraternal activities that aligns with this common purpose.
An organization must operate under a lodge system consisting of a parent organization and subordinate units (lodges or branches). These subordinate units must follow the parent organization's bylaws, membership levels, rights, and privileges. The parent charters are self-governing subordinate organizations (called lodges or branches).
An organization must provide life, sick, or accident insurance and other benefits to members of the society or their dependents.
An organization must have clearly defined membership standards, including membership tiers, admission process, and a list of rights and privileges.
The Lodge System Requirement: What the IRS Actually Means
Of all the 501(c)(8) eligibility requirements, the "lodge system" test generates the most confusion — and the most IRS scrutiny. Understanding the basic eligibility criteria is a starting point, but the lodge system requirement deserves a deeper look before you move to the application process. Here's what the requirement actually means, where it comes from, and how organizations have passed or failed it in practice.
What Qualifies as a Lodge System?
The IRS defines a lodge system as a network in which a parent organization charters and supervises local units — called lodges, councils, chapters, or similar bodies — that operate under a common set of rules and rituals. The key word is system: there must be a hierarchical structure where the parent body grants charters to subordinate lodges, and those lodges are bound to the parent's constitution, bylaws, and ceremonial practices. This requirement flows directly from IRC Section 501(c)(8), which conditions tax-exempt status on operating under the lodge system.
The IRS specifically looks for:
A grand or national lodge (the parent) that holds supreme authority over the organization's laws and rituals
Local lodges that operate as chartered subordinates, not independent entities
Representative governance, meaning local lodges send delegates to the parent body to participate in governance — not merely receive top-down directives
Shared ritual or ceremonial practice that creates organizational continuity across chapters
An organization can't simply call its chapters "lodges" and claim the exemption. The structural and governance reality must match the terminology. Revenue Ruling 73-165 is one of the key IRS rulings that defines the lodge system test and clarifies what representative governance actually requires in practice.
IRS Rulings: Who Has Passed and Who Has Failed
The IRS has denied or revoked 501(c)(8) status in cases where the purported lodge system lacked genuine representative governance. In one notable ruling, an organization structured as a single national body with regional affiliates was found not to operate under a true lodge system because the local units lacked independent governance authority and did not send delegates to a governing convention.
Conversely, well-established fraternal orders like the Benevolent and Protective Order of Elks, the Fraternal Order of Eagles, and Knights of Columbus councils consistently satisfy the test because local lodges or councils hold their own elections, maintain their own treasuries, and send representatives to grand lodge sessions.
The practical takeaway: if your organization's local chapters are administrative offices of a national entity rather than self-governing lodges with charter rights, you likely don't qualify under 501(c)(8).
501(c)(8) vs. 501(c)(10): A Critical Distinction
Many fraternal societies don't realize there are two separate IRS exemption categories for fraternal organizations — and the difference matters significantly for your members.
Feature
501(c)(8)
501(c)(10)
Lodge system required
Yes
Yes
Life/health/accident insurance for members
Required
Not required
Charitable contributions deductible by donors
Yes (to the extent used for charitable purposes)
Yes
Primary purpose
Member benefit via insurance + fraternal activities
Fraternal/charitable activities only
501(c)(10) covers domestic fraternal societies that operate under the lodge system but don't provide insurance benefits to members. Instead, their net earnings must be devoted exclusively to religious, charitable, scientific, literary, or educational purposes. If your organization dropped its insurance program or never offered one, 501(c)(10) may be the more accurate classification.
Misclassifying your organization between these two categories can create compliance problems at renewal and jeopardize your tax-exempt status. If your organization's benefit structure has changed since incorporation, consult a nonprofit attorney to confirm which exemption currently applies.
501(c)(8) vs 501(c)(3): Similarities and Differences
Category
501(c)(3)
501(c)(8)
Definition
A nonprofit for the public operated solely for religious, scientific, educational, or charitable purposes — or to prevent child and animal abuse and support national and international sports.
Fraternal benefit societies provide life sickness accident and other benefits to their members. They must operate under a lodge system where memberships are based on common ties or interests. They are largely self governing.
Notable Examples
New York Cancer Foundation, United Way, Metropolitan Museum of Art, etc.
Elks, Knights of Columbus, Modern Woodmen of America, etc.
Donation tax deduction eligibility
Donations are entirely tax-deductible.
Only donations used for the 501(c)(3) fraternal purpose are tax-deductible.
Tax-exemption
Nonprofits are tax-exempt from federal, state, and local income taxes.
Nonprofits are exempt from federal income taxes, which exclude the funds spent on political activities.
Membership details
Having members is optional.
All members must share a common vocation. All membership standards must be recorded, including membership tiers, admission process, membership privileges, etc. Most members must be eligible for the benefits.
Donor disclosure on Form 990
Private foundations and public charities must disclose donor information for $5000 or more contributions on Schedule B.
Not required.
Donor disclosure to the public
Only private foundations need to disclose donor information to the public.
Not required.
Political campaigning
They can campaign for the organization's purpose without influencing legislation or supporting a political candidate.
Can participate in political activities if it is not the primary purpose.
Application form
IRS Form 1023
IRS Form 1024
501(c)(8) Tax Treatment: UBIT, Investment Income, and Insurance Reserves
Understanding the basic exemption is one thing. Knowing how the IRS taxes the income your organization actually generates is what keeps your status intact year after year.
Unrelated Business Income Tax (UBIT)
501(c)(8) organizations are tax-exempt, but that exemption doesn't cover everything. If your fraternal society earns income from activities that aren't substantially related to your exempt purpose, that income is subject to Unrelated Business Income Tax (UBIT) under IRC Sections 511–514.
Common examples that can trigger UBIT for fraternal societies include renting lodge hall space to outside parties, running a bar or restaurant primarily serving non-members, and advertising income from member publications. The key test is whether the activity is regularly carried on and whether it's substantially related to your fraternal mission. A one-time hall rental for a community event is different from operating a weekly for-profit venue.
If your organization has UBIT exposure, you'll report it on Form 990-T. Not every fraternal society needs to file it, but any organization earning $1,000 or more in gross unrelated business income in a tax year is required to.
Investment Income
Investment income — dividends, interest, and capital gains — is generally exempt from federal income tax for 501(c)(8) organizations, as long as it flows from investments that support your exempt purpose. This is one of the practical financial advantages of maintaining your exempt status. However, debt-financed investment income can become taxable as UBIT under the debt-financed property rules in IRC Section 514, so organizations carrying loans against investment assets should consult a tax advisor.
How Insurance Reserves Are Handled
One of the unique features of 501(c)(8) organizations is the insurance component. The IRS and state insurance regulators both have rules about how insurance reserves must be maintained. Reserves set aside to pay future member benefits — life insurance death benefits, accident claims, and similar obligations — are generally treated as restricted funds that aren't available for general operating use or investment without restriction.
From a tax perspective, contributions to a legitimate insurance reserve don't generate taxable income for the organization. But if reserves are distributed to members in ways that don't align with the stated benefit purpose, the IRS may scrutinize whether the organization is actually operating under a genuine insurance program or simply using the structure to pass income to members tax-free. Fraternal societies that administer their own insurance programs rather than partnering with a third-party insurer face the most scrutiny here.
State-Level Registration and Compliance for Fraternal Societies
Getting your federal 501(c)(8) status is a major milestone — but it's not the finish line. Most states require fraternal beneficiary societies to register and comply with state-level rules that are separate from IRS requirements entirely.
State Insurance Department Registration
Because 501(c)(8) organizations provide insurance benefits to members, many states require them to register with the state insurance department — not just the secretary of state. California, New York, Texas, and most other states have specific provisions in their insurance codes for fraternal benefit societies. Requirements typically include filing annual statements of financial condition, maintaining minimum reserve levels, and submitting your benefit certificate (the insurance contract you offer members) for state approval.
This registration is separate from your state charitable solicitation registration, which you may also need if you solicit donations from the public. Failing to register with the insurance department can result in fines and restrictions on your ability to offer member benefits — even if your federal tax status is perfectly intact.
State Charitable Solicitation Registration
If your 501(c)(8) organization raises funds from the public — not just from dues-paying members — most states require you to register as a charitable solicitation organization before you start fundraising. Requirements vary significantly by state. Some states exempt fraternal organizations from this requirement if their fundraising is limited to members. Others require registration regardless of source.
California's Franchise Tax Board (FTB), for example, administers its own state tax exemption for fraternal benefit societies under California Revenue and Taxation Code Section 23701g, which mirrors the federal 501(c)(8) framework but requires a separate state exemption application. Many states follow a similar parallel structure. Don't assume your federal exemption letter automatically satisfies your state's requirements.
Annual State Reporting
Beyond initial registration, most states require annual reporting to maintain good standing. This typically includes filing an annual report with the secretary of state (to keep your corporate status active), submitting financial statements to the state insurance department (if you administer insurance benefits), and renewing your charitable solicitation registration if applicable.
The specific forms, deadlines, and fees vary by state. A nonprofit attorney or registered agent familiar with fraternal societies in your state is the most reliable resource for getting this right. The cost of missing a state filing deadline — reinstatement fees, lapsed insurance authority, or loss of good standing — almost always exceeds the cost of professional guidance upfront.
Your nonprofit's name must showcase its purpose and what it intends to accomplish. Pick a name that will be memorable. Check your state's criteria before choosing your nonprofit's name.
2. Create Your Mission Statement
The mission statement should clearly define what your nonprofit does and how it helps improve people's lives. You can use your mission statement to spread awareness about your nonprofit through marketing channels.
3. Establish the Nonprofit Board
Your board members will lead the entire team and should be able to support your nonprofit's operations and fundraising efforts.
4. Determine if you need a parent organization
Local branches of 501(c)(8) organizations must be chartered by a parent organization. Even though they are self-governing, knowing which way you'd like to operate is helpful.
5. Define Your Bylaws
When creating bylaws for your 501(c)(8) organization, the Internal Revenue Code asks that you include essential information such as:
Organization's name
Purpose of the fraternal benefit society
Board member roles and responsibilities
Membership details
Meeting frequency
Conflict of interest policies
Dissolution procedures
If you are a subordinate unit in a lodge system of fraternal societies, your bylaws may mirror those of the parent organization.
6. Apply for an Employer Identification Number (EIN)
Applying for an EIN is necessary to fill out IRS Form 1024, even if you do not plan on hiring team members. Fraternal societies will require this information.
7. Submit Form 1024 to become a tax exempt organization
You must file Form 1024 with the IRS to claim tax exempt status.
The Form 1024 filing fee is $600, paid electronically through Pay.gov when you submit. Unlike 501(c)(3) nonprofits, there's no deadline to file for tax-exempt status. The IRS typically processes Form 1024 applications within 90 days for straightforward cases, though complex applications or those requiring additional information can take longer. If you don't receive your letter of determination from the IRS after submitting the form, you must file tax Form 990.
If you start as a small 501(c)(8) nonprofit in a lodge system, your parent organization might have completed some of these steps. Contact your parent group to clarify the steps you must complete.
Case Study: How Knights of Columbus Lexington Council 94 Raised Over $3,800 Using Zeffy
Knights of Columbus Lexington Council 94 successfully organized their "K'Night at the Races" event using Zeffy's ticketing system with zero fees. By using Zeffy's user-friendly platform, they raised over $2,500 through ticket sales (based on approximately 50 tickets at an average price of $50) and saved $125 in fees.
Zeffy made the whole ticketing process seamless for our council. We didn't have to worry about fees eating into what we raised — every dollar went exactly where it was supposed to go. — Grand Knight, Knights of Columbus Lexington Council 94
The council also secured corporate sponsorships totaling $1,370 (based on 2 sponsorship transactions), saving an additional $70 in fees. 501(c)(8) organizations can organize events and initiatives like the Knights of Columbus Lexington Council 94 did using Zeffy's zero-fee features. Zeffy supports 100K+ nonprofits and has helped facilitate over $2B+ raised — all with no fees charged to the organization.
Establishing a 501(c)(8) nonprofit organization can be fulfilling to create a strong community of like-minded individuals. Your domestic fraternal society can make a significant difference by providing benefits and engaging in charitable activities. Zeffy supports 100K+ nonprofits and has helped power over $2B+ raised — all at zero cost to the organizations we serve.
501(c)(8) organizations are fraternal beneficiary societies with members who share a purpose and vocation. Their activities focus on benefiting all members through life, sickness, accident, or other insurance benefits, and they must operate under a lodge system.
Donations to 501(c)(8) fraternal societies are tax-deductible only if the funds are used for charitable activities like a 501(c)(3) tax-exempt organization.
The lodge system is a structure that a domestic fraternal society uses to charter local units called lodges. Each lodge is self-governing, holds its own meetings, and sends representatives to the parent organization to participate in governance.
To maintain status as a 501(c)(8) fraternal benefit society, an organization must operate under a lodge system, benefit its members, and engage in fraternal activities such as rituals and ceremonies. It must also comply with IRS regulations regarding membership and benefits.
These organizations can benefit their members, including life, sick, accident insurance, scholarships, and educational programs. They also engage in social and recreational activities as part of their fraternal mission.
Both categories require a lodge system, but 501(c)(8) organizations must provide life, health, or accident insurance benefits to members. 501(c)(10) organizations operate under the lodge system without offering insurance — their net earnings must go exclusively to charitable, religious, scientific, literary, or educational purposes.
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Keep reading :
How to start a nonprofit
How to Start a Nonprofit for Free (2025)
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