What Is a 501c4 Organization?
The difference between a 501(c)3 and a 501(c)4
501c4s are a common type of non-profit organization that can engage in lobbying or political campaigning.
501(c)4s are tax-exempt non-profit organizations. More specifically, according to the Internal Revenue Code (IRC), 501(c)(4)s are:
- “civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare,
- "or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality,
- "and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.”
Comparing 501(c)3s and 501(c)4s
501c3 and 501c4 organizations are very similar in many respects. In fact, any organization that qualifies for a 501c3 tax-exemption would also qualify for a 501c4. There are, however, important differences.
Non-profit status:
- Both 501(c)(3)s and 501(c)(4)s must be run as not for profits.
- Neither 501(c)(3)s nor 501(c)(4) earnings may benefit a private shareholder or individual.
Tax-exemption:
- Both 501c3 and 501c4 organizations are exempt from paying federal income tax. State tax-exemption status varies by state.
Lobbying (trying to affect legislation):
- 501(c)3s are limited in the amount of time and/or money they can put into lobbying.
- 501(c)4s can do an unlimited amount of lobbying (but then become ineligible to receive federal monies like grants).
Political campaign activity:
- 501(c)3s cannot in any way support or oppose anyone running for public office, though they may be involved in political campaigns by way of non-partisan public forums, voter registration drives, etc.
- 501(c)4s can engage in political campaign activity, so long as this is consistent with the organization’s purpose and is not the organization’s primary activity.
Charitable Donations:
- Donations to 501(c)3s are deductible to the full extent of the law.
- Donations to 501(c)4s are not deductible.
Should your organization be a 501(c)3 or a 501(c)4?
If you are planning on doing limited or no lobbying and no campaigning, then you probably want the 501(c)3 tax-exemption so that people can benefit from donating to your organization. However, if your organization will be doing substantial lobbying or any campaigning, you should form a 501(c)4.
If you want the best of both worlds, you can have two separate but affiliated organizations – one a charitable 501(c)(3) and the other a 501(c)(4). Many trade organizations lobby extensively on behalf of their members, but have an affiliated 501c3 foundation for charitable giving.
