The Purposes of a 501(c)(4)

By A.L. Kennedy

A "501(c)(4)" is a tax-exempt organization that falls under section 501(c)(4) of the Internal Revenue Code. Like other classifications in the IRC, 501(c)(4) specifies that this type of organization is restricted to certain purposes. The IRC also spells out what acts the organization is allowed to engage in when it raises money or is involved in political activities.

A "501(c)(4)" is a tax-exempt organization that falls under section 501(c)(4) of the Internal Revenue Code. Like other classifications in the IRC, 501(c)(4) specifies that this type of organization is restricted to certain purposes. The IRC also spells out what acts the organization is allowed to engage in when it raises money or is involved in political activities.

Social Welfare

A primary purpose of 501(c)(4) organizations is to serve as "civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare," according to the IRC. These organizations may have a wide range of social welfare aims, from teaching literacy to helping the homeless.

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Employee Associations

Employee associations may also be designated as 501(c)(4) organizations under the IRC. In order to receive 501(c)(4) tax-exempt status, the employee association must be limited to employees of a particular business that is within a particular location and be "devoted exclusively to charitable, educational, or recreational purposes," according to the IRC.

Political Activities

Some organizations choose a 501(c)(4) designation rather than a similar designation, like 501(c)(3), because 501(c)(4) organizations are allowed to engage in political activities in ways that other tax-exempt organizations are not. For example, a 501(c)(4) may spend as much money as it wants on lobbying activities. It may also endorse or oppose any political candidates of its choosing, and participate in campaigns by offering money, time or the use of its facilities.

Public Benefit

A 501(c)(4) must be able to demonstrate to the Internal Revenue Service that its activities benefit the community in some way, even if they are not accessible to all community members. For example, a 501(c)(4) that offers low-income housing to its members may be able to show that it benefits the community as a whole by making it possible for its members to find safe and sanitary housing, which they could not do otherwise. A 501(c)(4) that does not have any public benefit as part of its purpose may lose its tax-exempt status.

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Foundation Vs. 501(c)(4)

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How to Protect a 501 C 3 Status

Many organizations that operate for a charitable purpose apply to the Internal Revenue Service to become a 501(c)(3) organization. The chief benefit of being a 501(c)(3) is that donations to the organization may be tax deductible. Since this can boost the organization’s income, protecting the 501(c)(3) status is very important. Hundreds of organizations lose their 501(c)(3) status every year, often unnecessarily.

What Are 501(c)4 Organizations?

Under federal tax law, an organization that promotes social welfare, and operates as a non-profit, can identify itself as a 501(c)(4) for tax purposes. The Internal Revenue Service sets the rules and guidelines for these groups, reviewing their statuses from time to time to ensure they are meeting legal requirements.

Benefits for a 501(c)(4)

If you operate or have management responsibilities within a nonprofit organization, you may want to evaluate whether it satisfies the requirements of Internal Revenue Code 501(c)(4). In the event it does, there are a number of tax benefits of which the organization can take advantage that are only available to nonprofits that obtain tax-exempt status with the IRS.

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