501 Non-ProfitsThis is a featured page

When most people think of nonprofit organizations, they are actually thinking of a 501c3, though many other types of not-for-profit organizations exist.


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.
501 c3
501(c)(3) is a tax-exempt designation given the IRS, These organizations are named after section 501(c)(3) of the Internal Revenue Code (IRC). All 501cs – and they go from 501(c)1 to 501(c)25 – are exempt from paying federal income taxes. Many 501(c)s are also tax-exempt in their own states.
Of all the tax-exempt organizations*, 501c3s are the most common. So, what is a 501c3? It can be any organization that fits the following criteria: 1. It must fall exclusively under one of these categories:
  • religious
  • charitable
  • scientific
  • public safety
  • literary
  • educational
  • national/international amateur sports
  • prevention of cruelty to children or animal
2. It can be any of the following structures:
  • corporation
  • community chest
  • fund
  • foundation
3. It must abide by the following restrictions:
  • an individual person is not eligible for the 501c3 designation
  • the organization's earnings cannot benefit a private shareholder or individual
  • the organization cannot be involved in any political campaign activity
  • the organization is limited in the degree it can lobby
Why would an organization want to be a 501(c)(3)? First, there’s the tax-exemption. Almost as importantly, donations to 501c3 nonprofits are generally tax-deductible to the individuals making the contribution. This is done to encourage charitable giving.
*While many people use the terms “non-profit” and “tax-exempt” interchangeably, strictly speaking they are not the same thing. Nonprofit status is decided by state law, while tax-exempt status is based on the IRC. Thus, not all nonprofits might be tax-exempt, and not all tax-exempt organizations might be nonprofits.
501 c4
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.




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FDU_Soule 		Latest page update: made by FDU_Soule , Aug 27 2008, 2:22 PM EDT (about this update About This Update FDU_Soule Edited by FDU_Soule

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