All About 501c4 Social Welfare Organizations

The term ‘nonprofits’ is usually associated with public charities and for good reason. There are more than 1.54 million charitable organizations in the US.

Despite the majority, public charities are not the only tax-exempt organizations in the country.

There are nonprofits operating exclusively for social welfare and can register under Internal Revenue Code section 501 c 4. 

If your nonprofit goals align with civic betterment and social welfare, registering for 501 c 4 can be rewarding. This article will explain everything about 501 c 4, its benefits, and how to register in easy steps. 

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While the term nonprofit is commonly associated with public charities, there are other types of tax-exempt nonprofit organizations in the United States. 

In addition to the over 1.5 million public charities, some nonprofits operate exclusively for purposes of social welfare and civic betterment. These organizations can attain a tax-exempt status by registering under Section 501(c)(4) of the Internal Revenue Service (IRS).  

If your nonprofit's goals align with promoting the common good and general welfare of the community, then seeking 501(c)(4) tax-exempt status may be beneficial. 

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What is 501c4?

A 501 c 4 organization is a tax-exempted entity that promotes social welfare. These organizations go by several names:

• Civic Leagues

• Public Benefit Organizations

• Social Welfare Nonprofits

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It’s not the name but the work it does that distinguishes a 501 c 4 organization.  As per the Internal Revenue Service (IRS), an organization that works primarily for a community’s social welfare can qualify for tax-exemption under section 501 c 4.

What does ‘social welfare’ mean? One can define it as a nonprofit activity that benefits the general public, yet the benefit is not charitable. 

These social welfare organizations often participate in political lobbying and other activities. They also launch campaigns to impact legislation and promote candidates. 

Although 501 c 4 organizations get tax-exemption, donors do not get tax-deduction benefits by contributing to these entities.

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Types of Organizations Exempt Under Section 501c4

The Internal Revenue Service allows several organizations to attain tax-exempt status under section 501 c 4. We can broadly divide these organizations into two categories:

• Social welfare organizations.

• Local Associations of Employees.

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Social Welfare Organization

A social welfare organization is not designed for profit but works for the benefit of its community. Social welfare organizations can be classified into these groups:

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Homeowners Associations (HOA)

An HOA can qualify for tax-exemption under 501 c 4.  The number of beneficiaries in these associations is limited, but their activities benefit the broad public. It does not involve commercial transactions as no goods or services are sold. 

Most homeowners’ associations collect donations from community members. They use the funds to maintain and improve the public areas within their community.

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Advocacy Groups

Advocacy groups are nonprofits with a mission to educate and advocate particular causes and issues. This itself is a very broad category and can include several organizations. 

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Examples include:

• National Rifle Association to the Sierra Club

• NARAL Pro-Choice America 

• National Right to Life and more

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These groups have a common characteristic - their motto is to inform, influence, and educate. 

Interestingly, most of these groups could qualify for 501 c 3 charitable organizations. Why do they choose 501 c 4? 501 c 4 does not restrict them from spending huge funds for lobbying activities. 

Yet, many popular advocacy groups run charitable organizations to conduct 501 c 3-approved activities.

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Political Groups

Although some features of these groups might coincide with advocacy groups, they are different.

The primary mission of political organizations is to elect a particular candidate for public office. People may often confuse these groups with Political Action Committees or an actual candidate’s election committee. 

While the activities appear similar, 501 c 4 political associations are not allowed to interact directly with a candidate’s political campaign activities.

These nonprofit groups conduct lobbying activities for candidates who represent a specific perspective. 

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Public Accommodations

Public accommodations are targeted in their scope and geographical reach.

The IRS uses this example to provide a  501 c 4 definition for these nonprofit groups:

An organization operating an airport that serves the general public in an area with no other airport and that is on land owned by a local government, which supervises the airport’s operation.  

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Social welfare organizations also include:

• Volunteer fire departments.

• Nonprofits that organize annual festivals to promote a cause or uphold regional customs and traditions.

• Free community newspapers that operate primarily for civic betterment.  

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Local Associations of Employees

Employee groups can create a tax-exempt organization and use the profits to fulfill their charitable, educational, or recreational missions. 

These nonprofit groups restrict membership to employees working under a specific individual or organization within a given community.

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Educational initiatives of these organizations can include:

• Training workers to enhance their skills.

• Promoting public knowledge on topics beneficial to the community and important for the general welfare.

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Similarly, an employee welfare organization’s mission for recreational benefits may include activities like:

• Arranging an annual holiday party for the employees.

• Organizing picnics for the families of the members.

• After work social gatherings, and more.

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Here are some examples of 501 c 4 employee associations:

• The Guild of Massachusetts Nurses Association Employees

• Internal Revenue Service Employee Association

• General Dynamics Land Systems Employee Association

• Oklahoma Bureau of Narcotics Employee Association

• New Mexico Conservation District Employees

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How to Start a 501c4 Organization

Establishing a 501 4 c organization is similar to starting any other nonprofit. You must first incorporate your social welfare organization at the state level, and then apply to the IRS for a tax-exempt status. 

The difference lies in the form required. Unlike 501 c 3, 501 c 4 groups use Form 1024 or Form 1024-A.  

Summarizing the 9 steps to acquiring 501 c 4 social welfare organization status below:

• 1. State your organization’s purpose.

• 2. Pick a unique name for your 501 c 4 organization that reflects its cause.

• 3. Create a board of directors for your nonprofit to take up significant responsibilities. It must include a President, Treasurer, Secretary, and maybe a Vice President.

• 4. Write the bylaws for your organization.

• 5. File incorporation paperwork at the state level.

• 6. Apply for an Employer Identification Number (EIN) for your organization.

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• 7. Fill and submit IRS Form 8976. It is a notice of intent to operate as a 501 c 4 group.

• 8. Submit Form 1024 or Form 1024-A with the IRS for a tax-exempt status.

• 9. File IRS Form 990 every year to ensure your organization is maintaining its status as a 501c 4 group.

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Advantages and Disadvantages of a 501 c 4

Registering as a 501 c 4 nonprofit offers the following advantages:

• Your organization qualifies for tax-exempt status.

• Organizations with 501 c 4 are given more flexibility with advocacy and political lobbying than other 501 c organizations. For instance, as a 501 c 4 you are free to endorse political candidates.

• You are equipped to promote social welfare for an entire community.

• You do not need to disclose donors of your organization. 

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Yet, you must also consider the disadvantages, which include:

• Possibility of extra taxation if your organization engages in higher benefit transactions in an individual’s interest.

• Engaging in political activities cannot be your primary operating purpose.

• Entails an application fee of $600.

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Donor contributions are not tax-deductible donations. In some cases, companies may get expense deductions, if applicable. 

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Political Engagement Under 501 c 4

Politically active nonprofit groups usually register for 501 c 4 status. However, 501(c)(4) groups cannot have political campaign activity as their primary purpose.

501(c)(4) organizations are allowed to engage in lobbying activities as long as that is not their primary activity. Their lobbying must relate to their stated tax-exempt purpose. 

Group members can lobby and keep their nonprofit status intact, given that lobbying is not the group’s primary activity.

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Tax-exempt organizations under 501 c 4 can also be involved in activities like:

• Educating the masses about political processes.

• Educating candidates on the issues they should address.

• Participating in political campaigns.

• Conducting voter registration activities.

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Summing Up 501 (c)(4)

501 c 4 nonprofits include a diverse range of organizations that often have specific missions. While their goals are unique, attaining social welfare purposes is central to every group.

If your nonprofit aims for social improvements in your community, getting a 501 c 4 status will benefit you. 

Your nonprofit’s political, educational, or welfare activities will require time and substantial donations to create a higher impact. 

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FAQs on 501 (c)(4)

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