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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The Purposes of a 501(c)(4)
 

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501(c)(3) Auxiliary Restrictions

A 501(c)(3) auxiliary organization is an independent legal entity organized to support a parent organization that is organized as a 501(c)(3), such as a church, university, hospital or other charity. With some exceptions, a 501(c)(3) auxiliary must follow the same restrictions as its parent organization. These restrictions include rules about the organization's purpose, activities and profit distributions.

How Can a Church Lose Its 501(c) Status?

The IRS generally recognizes any distinct legal organization with a recognized creed and form of worship, a formal religious doctrine, a religious history, or a defined ecclesiastical government as a church. Churches like many other charitable organizations, qualify for exemption from federal income tax under IRC section 501(c)(3). Contributions to an IRC section 501(c) organization are deductible for the donor to a certain extent. By taking certain actions or participating in certain activities, a church can lose its 501(c)(3) status.

Can a 501(c)(3) Donate to a 501(c)(4)?

A nonprofit organization formed under a state statute can apply for exemption from federal income taxes under one of the various provisions of Internal Revenue Code (IRC) section 501(c). The most popular section is 501(c)(3), which exempts public charities from paying taxes on income and also allows donors to those charities to claim a tax deduction for their donation against their income. Other sections of 501(c), such as 501(c)(4), which exempts civic leagues and social welfare organizations, allow other types of organizations to apply for tax-exempt status, but donations to these organizations are not tax-deductible. The benefit of being a 501(c)(3) comes with increased restrictions on the types of activities the nonprofit can engage in and support.

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