The majority of tax-exempt organizations formed each year typically fall within IRS tax code 501(c)(3), which operate as either public charities, private foundations, or private operating foundations. The purposes for which 501(c)(3) organizations may be established are extremely broad and are generally defined as being for religious, educational, charitable, scientific, or literary purposes, or for testing for public safety, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.
That said, there are a great many purposes that are not covered under the 501(c)(3) designation. One major category of organization is the 501(c)(4) organization, which covers civic leagues, social welfare organizations, and local associations of employees.
Before we get into the particulars of starting a 501(c)(4), it would be best to take a step back and clarify what such an organization is in practical terms and why one would elect to form one.
What is a 501(c)(4)?
Its IRS code notwithstanding, a 501(c)(4) organization is one that fundamentally promotes “social welfare.” The working definition provided by the IRS is: organizations that may perform some type of public or community benefit but whose principal feature is a lack of private benefit or profit.
This is a vague designation; however, a great many 501(c)(4) organizations are usually involved in politics (including the support of specific candidates) as well as policy advocacy and lobbying. A great many large and influential national organizations, including the AARP, The NRA, and Planned Parenthood are 501(c)(4) organizations. Why? Because, unlike 501(c)(3) organizations, a 501(c)(4) is not limited in terms of its political/lobbying activity.
By comparison, A 501(c)(3) must be careful to limit its lobbying efforts to a certain percentage of its annual budget and cannot, in any case, endorse political candidates. At the same time, it is not as if all 501(c)(4) organizations are major, national nonprofits with activist agendas. There are plenty of activist, “social welfare” 501(c)(4) groups that are concerned exclusively with their local communities, and there are also plenty of 501(c)(4) organizations that are not engaged in politics at all. These include military veterans associations, Rotary International, volunteer fire departments, and many others.
So, while plenty of 501(c)(4) organizations are not politically motivated, organizations that are specifically interested in participating in political affairs, including working on behalf of candidates as well as lobbying for specific policies, will gravitate toward starting a 501(c)(4).
Tax Exemption vs. Tax Deductible Donations — A Crucial Difference
Despite this marked difference in the ability to advocate for candidates and lobby for causes, 501(c)(4) organizations are also exempt from federal income tax. Where they differ— greatly — with 501(c)(3) organizations is in the way the IRS treats their donors. There are two major distinctions:
- Donations to 501(c)(4) organizations are not tax deductible.
- Unlike 501(c)(3) organizations, 501(c)(4) organizations are not required to disclose the names of their donors to either the IRS or the public. They are required to document the information and provide it if called upon to do so in the case of an audit or compliance issue, but they are not required to submit the information as a matter of course.
Other 501(c)(4) Restrictions
Beyond the IRS treatment of their donors, certain other restrictions apply to 501(c)(4) organizations. For instance, they must be organized to promote the common good and general social welfare rather than provide a unique benefit to any private donor, stakeholder, or individual. Additionally, their expenditures for political activities may be subject to tax. They may also be required to disclose lobbying efforts and expenditures to organizational members.
Starting a 501(c)(4)
Despite some of the restrictions, and because of the favorable treatment of 501(c)(4) organizations in terms of privacy with regard to donors, many more people are looking to form 501(c)(4) organizations. In fact, the 2010 Supreme Court ruling on Citizens United has served as a catalyst for 501(c)(4) formation.
Assuming that you have carefully considered your options in terms of nonprofit formation and have decided that a 501(c)(4) is the right type of organization for your purposes, here are the simple steps to starting a 501(c)(4):
- Define Your Mission. There’s very little you can accomplish as an organization without having a clearly defined mission, including attracting leaders, volunteers, donors, and supporters to your cause. This mission must be defined in writing and used as an essential tool to communicate with stakeholders of all types.
- Incorporate. That includes naming your organization, recruiting a board of directors, forming bylaws, and filing the necessary paperwork to incorporate through the state.
- Submit Relevant Applications & Paperwork with the IRS. These include:
- Application for an Employer Identification Number
- Submit IRS Form 8976, Intent to operate under section 501(c)(4)
- File Form 1024-A with the IRS for Tax-Exempt Status
Make Life Easy for Yourself & Your Organization
Nonprofit founders should be able to focus all of their energy on their organization’s mission and the community they desire to serve. You have more important things to do than learning the ins- and outs- of articles of incorporation and IRS applications and filings, so it’s important to find a trusted partner in ensuring the growth and success of your cause.
Effective leaders avail themselves of experienced, capable resources that can make quick work of relatively straightforward tasks. There’s no need to spend precious hours delving into the technicalities of how to form a 501(c)(4).
Contact BryteBridge Nonprofit Solutions for assistance if you’re looking to start a 501(c)(4). We can help you with 501(c)(4) formation or with any other issue relative to nonprofit startup, management, leadership, strategic planning, or governance.
