Key Takeaways:

  • 501(c)(3) organizations are charitable nonprofits that are tax-exempt and allow donors to receive tax deductions.
  • 501(c)(4) organizations promote social welfare and can engage in more lobbying and political activity, but contributions are not tax-deductible.
  • 501(c)(4)s have grown in popularity due to fewer restrictions on advocacy and the post–Citizens United landscape.
  • Both must operate for exempt purposes and restrict personal inurement.
  • The application and reporting processes differ; 501(c)(3)s are more stringently regulated.
  • Choosing between the two depends on the organization’s purpose, desired activities, and funding strategy.

501c3 vs 501c4

To accurately compare a 501c3 vs 501c4 organization, you must know what they are and both of their advantages and disadvantages.

What is a 501c4?

Nonprofit organizations typically classified under 501c4 include:

  • Volunteering fire departments
  • Civil leagues
  • And other groups that promote social well-being

Why has 501c4 Increased in Popularity?

The Supreme Court reached a decision in 2010 called the "Citizens United". This decision allowed for labor union and corporations raise money and spend without limitation, while still being able to register under section 501c4 and be tax-exempt.

What is a 501c3?

501c3 is typically the most popular classification for nonprofit organizations. To qualify to be classified as a 501c3, the organization must fit into one of these exempt purposes, as laid out by the IRS:

  • Religious
  • Charitable
  • Literary
  • Scientific
  • Educational
  • Public safety testing
  • Fosters of amateur sport bouts
  • Prevention of Children or Animal cruelty

The IRS further defines that a 501c3 organization are either a privation foundation that anyone can join, a private foundation altogether, or public charities.

Restrictions of a 501c3

The leading thing to note here is that no gains by the organization can be used to directly benefit any individual of the organization. However, individuals working in the organization can be paid for their work.

One of the main differences between a 501c3 organization and a publicly traded company is that with a publicly traded company the shareholders and directors split the earnings, a 501c3 organization cannot take part in this.

In the event that the 501c3 organization shuts down, it still remains that no assets may be distributed to any individuals of the organization.

All activities associated with lobbying should be less that 10-20 percent of the 501c3's activities.

501c3 Required Annual Filings

A Form 990 must be filed every year by the 501c3 to layout its financial activity for that year. However, schools and churches may have extra filing requirements.

Application and Approval Process

To obtain 501(c)(3) or 501(c)(4) status, organizations must apply to the IRS using different forms:

  • 501(c)(3) applicants file Form 1023 (or the simplified Form 1023-EZ for eligible small organizations). This form is more detailed and requires comprehensive information about the organization’s structure, governance, finances, and planned activities.
  • 501(c)(4) applicants use Form 1024-A to notify the IRS of their intent. However, 501(c)(4)s may begin operating immediately and apply within 60 days of formation to avoid penalties.

The IRS approval process for 501(c)(3)s is more rigorous and often takes longer, reflecting the tax-deductibility of donations and additional oversight.

Restrictions of a 501c4

Similar to a 501c3, no profits of the 501c4 can be used to directly benefits any of its individuals. The 501c4 organization cannot stand in support of or against any politician, whether done indirectly or directly.

However, the 501c4 is allowed to partake in minimal political activity, but those activities cannot become the focus of the organization. Also, when engaging in political activities, the 501c4 risks that any expenses incurred may be taxed.

Lobbying is allowed only for the sake of achieving its social well-being goal. If the 501c4 engages in lobbying, it may have to disclose how much of its members' dues are going toward lobbying.

If an organization engages in lobbying, disclosure must be made of how much of members' fees are going toward lobbying activities or pay a penalty tax.

Transparency and Disclosure Requirements

501(c)(4) organizations must comply with unique disclosure and transparency regulations:

  • They are required to notify the IRS of their formation using Form 8976 within 60 days.
  • If engaged in political activities, they must report expenditures to the IRS and the public.
  • Donations to 501(c)(4)s are not publicly disclosed unless they are earmarked for political spending, which may trigger reporting under Federal Election Commission (FEC) rules.
  • In contrast, 501(c)(3) organizations must provide greater transparency, including public disclosure of major donors on Form 990 Schedule B.

These differences influence how organizations handle public accountability and donor engagement.

Differences in Lobbying Requirement for 501c3 vs 501c4

A key difference in 501c3 vs 501c4 organizations is their lobbying requirements. These lobbying and political efforts include:

  • Attempting to help a legislation pass
  • Attempting to block a legislation
  • And reaching out garner support from the public

A 501c3 must keep its lobbying efforts to an insubstantial level (usually less than 10-20 percent of the organizations activities and budget). The exact "insubstantial" percentage is determined by the organization's size.

Lobbying for the 501c3 allows the following:

  • 501c3 can support legislations based on their cause or issue
  • May appeal to representative and other governing bodies
  • Must file Form 5768 before participating in any of the above
  • Usually has to spend less than 5-20 percent of the budget on acts of lobbying

A 501c4 is not limited on how much lobbying it can engage in, so much as the lobbying pertains to the organization's cause.

Differences in donations made to a 501c3 vs 501c4:

  • 501c3- Charity contributions are deductible to the full extent of the law.
  • 501c4- Although businesses who send donations to 501c4's often write those contributions off as business or advertising expenses, these donations are not deductible.

If your organization plans to do little to no lobbying decide on a 501c3, which allows those who donate to your organization to benefit.

If your organization plans on do a lot of campaigning or lobby go with a 501c4.

Both 501c3 and 501c4 organizations are exempt from federal income taxes on money earned or raised pertaining to their causes.

Political Campaign Activity Rules

Political campaign involvement is a crucial distinction between 501(c)(3) and 501(c)(4) entities:

  • 501(c)(3) organizations are strictly prohibited from participating in or intervening in any political campaign on behalf of or against any candidate for public office. Violating this rule can result in loss of tax-exempt status.
  • 501(c)(4) organizations may engage in political campaign activity, provided it is not their primary activity. This includes endorsing candidates or funding political ads but requires careful tracking to ensure compliance with IRS rules.

Organizations that prioritize political influence should consider these limitations when choosing their tax-exempt classification.

Common Examples of Each Entity Type

Understanding the typical uses of 501(c)(3) vs 501(c)(4) organizations can clarify their roles:

  • 501(c)(3) Examples:
    • Food banks and homeless shelters
    • Public education foundations
    • Environmental conservation charities
    • Animal welfare organizations
  • 501(c)(4) Examples:
    • Advocacy groups like the ACLU or NAACP
    • Civic leagues and community improvement groups
    • Issue-based lobbying organizations

The choice often comes down to whether the nonprofit’s mission is centered on education and direct service or on influencing policy and legislation.

Operating a Dual Structure

Some organizations choose to form both a 501(c)(3) and a 501(c)(4) to maximize their impact:

  • The 501(c)(3) handles charitable, educational, and nonpartisan work, allowing tax-deductible donations.
  • The 501(c)(4) engages in lobbying and limited political activity.

This dual structure must maintain strict financial separation, with clear boundaries between funding, staff time, and communications. While complex, it enables organizations to benefit from both tax-exempt models.

Frequently Asked Questions

  1. Can a 501(c)(4) receive tax-deductible donations?
    No. Donations to a 501(c)(4) are not tax-deductible for donors.
  2. What’s the main reason to choose a 501(c)(4) over a 501(c)(3)?
    501(c)(4) organizations allow for more extensive lobbying and political activities.
  3. Can one organization be both a 501(c)(3) and a 501(c)(4)?
    Yes, but they must be legally separate entities with distinct operations and finances.
  4. How do I apply for 501(c)(3) or 501(c)(4) status?
    File Form 1023 or 1023-EZ for 501(c)(3), and Form 1024-A plus Form 8976 for 501(c)(4).
  5. Which form is required annually for 501(c)(3) organizations?
    Most must file IRS Form 990 annually, unless they meet exceptions like churches.

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