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Out of all the types of nonprofits, most people will think of 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.
Nonprofits operate exclusively for social welfare and can register under Internal Revenue Code section 501c4.
If your nonprofit goals align with civic betterment and social welfare, registering for 501c4 status can be rewarding. This article will explain everything about starting a nonprofit and registering for 501c4 tax-deductible status in a few easy steps.
A 501c4 organization is a tax-exempted entity that promotes social welfare. These organizations are not operated exclusively for political activity; however, they may participate (which we'll detail below). They go by several names:
Civic Leagues
Public Benefit Organizations
Social Welfare Nonprofits
It’s not the name but the work it does that distinguishes a 501c4 organization. According to the Internal Revenue Service (IRS), an organization that works primarily for a community’s social welfare can qualify for tax exemption under section 501c4.
What does ‘promote 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 501c4 organizations get tax exemption, donors do not get tax-deduction benefits by contributing to these entities.
Tax deductible revenue includes:
Grants
Local and federal government funds
Business expenses
Contributions made to programs
Charitable donations
Donor Privacy for 501(c)(4) donors
Charitable organizations operating with 501(c)(4) status do not need to disclose donors publicly. The IRS does not require it, so supporters have more privacy than 501(c)(3) nonprofit organizations, which must share this information on an annual tax return.
This way, political activity or involvement in political campaigns is kept more discrete, and the donor experience for various social welfare groups remains intact.
The Internal Revenue Service allows several organizations to attain tax-exempt status under section 501c4. We can broadly divide these organizations into two categories:
Social welfare organizations
Local Associations of Employees
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:
Homeowners Associations (HOA)
An HOA can qualify for tax exemption under 501c4. Although the number of beneficiaries in these associations is limited, their activities benefit the broad public. They do not involve commercial transactions, as no goods or services are sold.
Most homeowners’ associations collect donations from community members. The funds are used to maintain and improve the public areas within their community.
Advocacy Groups
Advocacy groups are nonprofits that educate and advocate for particular causes and issues. This is a very broad category that can include several organizations.
These groups have a common motto: to inform, influence, and educate.
Interestingly, most groups could qualify for 501c3 charitable organizations. Why do they choose 501c4? 501c4 does not restrict them from spending enormous funds for lobbying activities.
Yet, many popular advocacy groups run charitable organizations to conduct 501c3-approved activities.
Political Groups
Although some features of these groups might coincide with advocacy groups, they differ.
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, 501c4 political associations cannot interact directly with a candidate’s political campaign activities. Political campaign intervention and lobbying for or against a candidate for public office cannot be the primary purpose.
These nonprofit groups conduct lobbying activities for candidates who represent a specific perspective.
Public Accommodations
Public accommodations are targeted in their scope and geographical reach.
The IRS uses this example to provide a 501c4 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.”
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
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.
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.
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
Here are some examples of 501c4 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
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 required form. Unlike 501c3 groups, 501c4 groups use Form 1024 or Form 1024-A.
Summarizing the nine steps to acquiring 501c4 social welfare organization status below:
1. State your organization’s purpose.
2. Pick a unique name for your 501c4 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 Vice President.
4. Write the bylaws for your organization.
5. File incorporation paperwork at the state level.
6. Apply for your organization's Employer Identification Number (EIN).
Organizations with 501c4 are given more flexibility with advocacy and political lobbying than other 501c organizations. For instance, as a 501c4, you can endorse political candidates
You are equipped to promote social welfare for an entire community
You do not need to disclose your organization's donors.
501c4 nonprofit disadvantages
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
Donor contributions are not tax-deductible donations. In some cases, companies may get expense deductions, if applicable.
Political Engagement Under 501c4
Politically active nonprofit groups usually register for 501 (c)(4) status. However, these groups cannot have political campaign activity as their primary purpose.
501(c)(4) organizations can engage in lobbying activities if 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.
Tax-exempt organizations under 501c4 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
Summing Up 501 (c)(4)
501c4 nonprofits include diverse organizations that often have specific missions. While their goals are unique, attaining social welfare purposes is central to every group.
If your nonprofit aims to improve the social environment in your community, getting a 501c4 status will benefit you.
Your nonprofit’s political, educational, or welfare activities will require time and substantial donations to create a higher impact. Start fundraising with a comprehensive fundraising tool.
According to the Internal Revenue Code, a 501c3 is a nonprofit organization with religious, scientific, educational, or charitable causes. Donations to 501c3 organizations are tax deductible.
On the other hand, 501c4 status is offered to social welfare organizations that promote community benefits. Donations to 501c4 groups are not tax-deductible.
501c4 organizations cannot primarily engage in political activity and are restricted from influencing the election of a political candidate for federal, state, or local office.
On the contrary, a 501c4 organization may participate in extensive lobbying or create advocacy campaigns for the public good.
Although some tax-exempt organizations are not bound to file annual returns with the IRS, 501c4 organizations must report their yearly accounts and fill out and submit Form 990, Return of Organization Exempt from Income Tax.
501(c)(3) vs 501(c)(4): Understanding the Key Differences [2024]
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501(c)(3) Guide for Nonprofits: What You Need to Know [2024]
Discover the benefits and requirements of 501(c)(3) tax-exempt status for your nonprofit. Learn how to apply, maintain compliance, and maximize your impact.
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