Foundation Vs. 501(c)(4)

By Ellis Roanhorse

According to the Internal Revenue Code, a foundation qualifies as a 501(c)(3) nonprofit organization. The Internal Revenue Code identifies 501(c)(4) organizations as nonprofits as well. However, these two types of nonprofits are distinct from each other in that they provide different services and are organized for different purposes.

Foundations

Foundations can be public or private and are created for charitable purposes. These 501(c)(3) organizations receive donations from individuals, corporations or other foundations; they grant funds to specific recipients. Private foundations generally do not solicit funds from the public; rather, the foundation's founders and other charitable organizations make contributions. Foundations may support a particular cause or offer funding to other nonprofits through grants.

501(c)(4) Organizations

A 501(c)(4) organization exists to promote the social welfare of the community in which it is located. These organizations are associations of local employees or civic leagues with strong ties to the community. A 501(c)(4) generally contributes to the social welfare of a community by providing recreational facilities and other services. These organizations may organize community cleanup projects or facilitate other projects that benefit the community's health and welfare.

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Tax Deductible Contributions

One difference between 501(c)(3) foundations and 501(c)(4) organizations is the way the Internal Revenue Service treats charitable contributions. Contributions made to 501(c)(4) organizations are not tax deductible. However, charitable contributions of $250 or more to 501(c)(3) organizations may be deducted from a donor's federal income tax.

Political Influence

A 501(c)(4) organization is not restricted from participating in political campaigns; it is also allowed to lobby for legislation. However, a 501(c)(4) organization's primary purpose cannot be lobbying or campaigning. On the other hand, 501(c)(3) organizations are prohibited from influencing political campaigns, lobbying for legislation or donating funds to political candidates.

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501(c)(3) Types

References

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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.

What Is a 501 C 7 Corporation?

Provided the Internal Revenue Service guidelines for exempt status are met, individuals that choose to organize around a shared social interest may operate as exempt social clubs. This IRS designation is available for people who share a particular purpose, so long as the organization is supported by member fees and dues. In addition, some contact among members is required, and no club may discriminate against certain protected classes.

Can a Non-Profit Also Have a For-Profit Division?

Many nonprofit organizations find it difficult to generate sufficient funding to maintain their operations. Especially with the ongoing challenges associated with the global financial crisis, generating revenue is a constant struggle. One strategy nonprofit agencies may employ to generate additional income is through one or more for-profit ventures associated with the nonprofit organization. While this arrangement is possible, both the law and federal tax code place limits on how nonprofit organizations are allowed to coordinate with for-profit enterprises.

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