IRS Differences Between a 501c4 and a 501c3

501(c)(3) and 501(c)(4) are classes of non-profit organizations that enjoy tax-exempt status. In other words, they don't get taxed on donations. Your gifts to 501(c)(3) organizations -- treated by the Internal Revenue Service as charities -- not only are exempt from federal income taxes, they also are tax deductible for you. You won't get tax relief for giving to a 501(c)(4), which are either "social welfare organizations" or "local employee associations."

Promoting Charity

The Internal Revenue Service defines charities as organizations that exist for religious, educational, charitable, scientific, literary, or public safety testing purposes. The promotion of national or international sports and the prevention of animal or child abuse also count as charitable. The Internal Revenue Service lists as examples of charitable organizations:

  • Churches
  • Red Cross chapters
  • Parent-teacher organizations
  • Charitable hospitals
  • Alumni associations
  • Human and civil rights organizations

  • Poverty-relief groups

Promoting Social Welfare

The IRS views social welfare organizations as those which promote "general welfare" and "the common good." Groups and associations that fit this bill include those that:

  • Provide employment rehabilitation and placement services
  • Publish free community newspapers
  • Encourage economic development and reduction of unemployment through loans to business
  • Sponsor community sports leagues

  • Engage in housing and community development

  • Carries on crime prevention and public safety activities

Your organization won't necessarily lose its tax-exemption by having members, but its benefits must go beyond the members. For example, an organization representing only the tenants of a rental complex doesn't promote the "general welfare" or "common good." Similarly, the IRS won't recognize as social welfare organizations those that provide recreation or pleasure primarily for the members.

Participating in Politics

Campaigning

A charitable organization must stay out of political campaigns, while a social welfare organization can participate if campaigning is not the primary function. The IRS considers as examples of participating or intervening in a campaign:

  • Publishing or handing out literature in favor of or in opposition to candidates

  • Endorsing or opposing candidates

  • Conducting non-scientific polls designed to create the appearance of support for a candidate who shares the organization's positions
  • Hosting appearances by only candidates who favor the organization's positions
  • Partisan voter guides

Lobbying and Advocating Issues

According to the IRS, an organization promotes the social welfare by trying to get laws passed that are related to its programs. Thus, lobbying and issue advocacy won't jepoardize a social welfare organization's tax-exemption -- even if the activities are a primary purpose. A charitable organization, however, doesn't get that luxury. Attempts to influence legislation, whether through public opinion or contact with lawmakers, must be "insubstantial." The IRS says lobbying doesn't include actions such as:

  • Publishing or posting the results of non-partisan studies, analysis or research

  • Taking on broad social, economic and similar problems

  • Answering a governing body's request for technical advice or assistance
  • Addressing a legislative body's decision or action that might affect the charity's existence, tax-exempt status, its powers or its duties