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.

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.

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.

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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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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.

What Is a 501C Non Profit?

Many nonprofit organizations pursue 501(c), or exempt, status from the Internal Revenue Service for tax benefits, and in some cases, to increase donations to the nonprofit. While there are 28 different types of exempt organizations, among the most common include 501(c)(3), 501(c)(4), and 501(c)(7) organizations. In most cases, nonprofits are formed under state law, while the IRS independently grants exempt status to qualified organizations.

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.

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