Nonprofits come in all shapes and sizes. Some focus on charitable giving, while others promote social or recreational clubs. Then, you have 501(c)(4) organizations, and these tax-exempt nonprofits concentrate on social welfare for the public good.
Want to start a 501(c)(4) nonprofit? You’ve come to the right place. Below, we’ll walk you through everything you need to know about these types of organizations, including special traits, advantages, and disadvantages.
What Is a 501(c)(4)?
Internal Revenue Code section 501(c)(4) provides for the exemption of social welfare organizations. These nonprofits tend to participate in lobbying activities, political activities, and campaign activities to influence legislation and endorse candidates.
Employees can also form 501(c)(4) nonprofit groups to serve charitable, educational, or recreational purposes for employees of a specific business or members of a municipality.¹
While a 501(c)(4) is a tax-exempt organization, donations to these nonprofits aren’t tax-deductible donations for donors.
Committed to the Promotion of Social Welfare
The term social welfare has various interpretations, but the Internal Revenue Service (IRS) has its definition and qualifiers.
According to the IRS, “To be operated exclusively to promote social welfare, an organization must operate primarily to further the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements).”²
One of the callouts in that definition is “people of the community.” This means 501(c)(4) organizations shouldn’t prioritize private foundations, groups, or individuals. Instead, these organizations’ primary activity should focus on improving the community as a whole.
Classification of Tax-exempt Organizations
Every 501(c) corporation is a tax-exempt organization, but each number indicator refers to a different industry or purpose. For example, see the following classifications:
501(c)(5): Agricultural organizations501(c)(6): Business leagues501(c)(7): Social and recreational clubs501(c)(8): Fraternal societies501(c)(12): Life insurance associations
Examples of 501(c)(4) nonprofits include:
Advocacy groupsPolitical groupsInterest groupsPublic accommodationsHomeowner associations (HOAs)Disabled veteran programsRotary clubs
How to Start a 501(c)(4) Nonprofit
You’ll need to follow the IRS‘s rules and processes to establish a 501(c)(4) and qualify for tax exemption. Each state requires different forms and application procedures, but here’s a general how-to for starting a social welfare organization:
Form a board of directors: Organize your nonprofit board members, which the IRS requires to consist of at least three people. Look for interested individuals on job boards, across your network, and on LinkedInCreate your nonprofit bylaws: Establish your organization’s purpose. This must prove to the IRS that your nonprofit is a civic league or organization operated to serve social welfare purposes or promote political activityFile paperwork with the state: Incorporate your nonprofit organization in your home state. The steps for incorporation will vary depending on your geographic location.Submit Form 8976: File Form 8976 with the IRS. This form notifies the IRS that you plan to operate your nonprofit as a section 501(c)(4) organization³Submit Form 1024: Acquire tax-exemption status by filing Form 1024 with the IRS⁴File Form 990 annually: Submit Form 990 every year. This ensures you stay compliant with your organization’s financial activity
Wondering, what is a 990 form? Be sure to check out our blog to learn all you need to know before filling out this annual form for your nonprofit.
Benefits of Starting a 501(c)(4)
501(c)(4) nonprofit organizations provide a few benefits that make them an attractive choice for qualifying businesses. Here are a few of our favorites:
1. Obtain Tax-exempt Status
The most obvious (and important) benefit of becoming a 501(c)(4) organization is the tax-exempt status. Avoiding a tax obligation will help you grow faster and better serve your community as a nonprofit startup.
2. Engage in Political Activities
501(c)(4) organizations can engage in political campaign activities with fewer restrictions than a 501(c)(3). These nonprofits can promote legislation and endorse political candidates without losing tax-exemption status. A 501(c)(4) can also compare its issue position to that of a political candidate and share partisan political messages on online channels, whereas 501(c)(3) organizations can’t.
3. Pledge Unlimited Expenditures Toward Political Causes
Nonprofits with 501(c)(4) status can spend as much as desired on political campaigns. That means paying for necessary expenditures, earning pledges on issues, and backing candidates financially for public office that support the organization’s mission.
4. Protect Donor Information
501(c)(3) organizations must disclose donor information to the IRS for any donation of at least $5,000. Even private organizations and Super Political Action Committees (PACs) must submit donor names for public inspections. However, that’s not the case with a 501(c)(4). 501(c)(4) nonprofits are exempt from disclosure, allowing them to protect the privacy and anonymity of donors and their contributions.
501(c)(4) vs. 501(c)(3): What’s the Difference?
501(c)(4) and 501(c)(3) organizations share a lot in common, but there are a few differences between the two. Below, we’ll look at the variations in more detail:
Charitable status: 501(c)(4)s promote social welfare through political lobbying and advocacy, while 501(c)(3)s impact targeted populations through education-based initiativesTax exemption: 501(c)(3) donations are tax-deductible donations, but donations made to 501(c)(4)s aren’tPolitical lobbying: 501(c)(4) nonprofits can publicly support or oppose political organizations and candidates, while 501(c)(3)s can’tPolitical views: 501(c)(4) organizations can share partisan political messages on social media and other online channels, while 501(c)(3) nonprofits can’tFreedom to influence: 501(c)(4) nonprofits can compare organizational positions with a political candidate‘s position, while 501(c)(3) organizations can’t
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Citations
“M. Local Associations of Employees Exempt Under IRC 501(c)(4),” IRS, Last Modified 20/4/2017, https://www.irs.gov/pub/irs-tege/eotopicm84.pdf “Social Welfare Organizations,” Charities and Nonprofits, IRS, Last Modified 8/9/2016, https://www.irs.gov/charities-non-profits/other-non-profits/social-welfare-organizations“Other Tax-exempt Organizations,” Lifecycle of an Exempt Organization, IRS, Last Modified 7/2/2017, https://www.irs.gov/charities-non-profits/other-tax-exempt-organizations“Form 8976,” Charities and Nonprofits, IRS, Last Modified 19/4/2017, https://www.irs.gov/charities-non-profits/electronically-submit-your-form-8976-notice-of-intent-to-operate-under-section-501c4“Form 1024,” Forms and Instructions, IRS, Last Modified 9/9/2016, https://www.irs.gov/forms-pubs/about-form-1024