501(C)(3)s and 501(C)(4)s are the two most commonly used nonprofits in the United States. While at first glance they might seem similar, there are critical differences between the two. In fact, one little number can tell you a lot about what the organization does.
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What is a 501(c)(3)?
501(c)(3)’s are defined as United States corporations, trusts, or other types of organizations that are exempt from federal income tax according to the IRS. These are organizations that are operated exclusively for religious, charitable, scientific, or educational purposes.
Donations made to a 501(c)(3) are tax-deductible and help those organizations support their religious, charitable, scientific, or educational missions. 501(C)(3)s have limits on the amount of lobbying, advocacy, or other forms of political activity they can take part in.
Examples of 501 (c)(3)s
Since 501 (c)(3)s take on a variety of missions, there are tons of nonprofits listed as 501 (c)(3)s. RoundUp App gives donors a way to donate to any of the 1.5+ million 501(C)(3) organizations in good standing with the IRS. From Addisons Princess for a Day Fundraiser to Zoe’s Home, we’re connecting donors to the causes they support.
Consider a local food bank, i’s likely classified as a 501(C)(3). Food banks take donations from their donors and supply their local communities with needed food assistance. These groups can also educate the general public, including politicians about food insecurity. However, they can’t directly endorse a candidate or directly lobby for a cause.
What type of work can 501(c)(3)s engage in?
501(c)(3)s are often created for advocacy or educational purposes. They might provide a range of diverse services to local communities or a targeted population. 501(c)(3)s could distribute food to the hungry, create educational programs in schools, help set up health clinics in rural areas, or contribute to medical research.
In general, 501(C)(3)s are designed to help raise awareness about specific causes. They can even endorse legal measures and propositions that are relevant to their purpose.
What restrictions do 501(c)(3)s have on the work they do?
Since 501(c)(3)s are tax-exempt and have limits on their political action, they can’t control which candidate receives certain information. If a 501(c)(3) lobbies for their cause, they must lobby all interested parties. They also have limitations on what information they can provide to candidates.
Take for example a 501(c)(3) dedicated to protecting the environment. If they wish to provide a particular candidate with their mailing lists related to their cause, they must also allow every candidate in the field to access that same mailing list. Additionally, when advocating for their causes, nonprofits that are organized as 501(c)(3)s can express an opinion on elected officials, but they can’t make any personal critiques of that official.
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What is a 501(c)(4) non-profit?
A 501(c)(4) is classified as a social welfare group. They can advocate for causes and propositions similar to how a 501(c)(3) can but have some critical differences. The key difference between a 501(c)(3) and a 501(c)(4) is that 501(c)(4)s can endorse specific candidates and directly lobby for their causes.
Given their ability to endorse specific candidates, as well as their increased ability to lobby, advocate, and conduct various types of political activity with their funds, donations to 501(c)(4)s are not tax-deductible.
What type of work can (c)(4)s engage in?
501(c)(4)s operate a bit differently than 501(c)(3)s. Both 501(C)(4)s and 501(C)(3)s are tax-exempt, however 501(C)(4)s have fewer rules on the type of lobbying and endorsement they’re allowed to participate in.
There are no limits to the amount of lobbying 501(c)(4)s can participate in. 501(C)(4)s can also pay political organizations, get candidates to sign pledges on issues, and officially back those candidates who support their mission.
What restrictions do 501(c)(4)s have on the work they do?
Like we mentioned above, 501(c)(4)s have very few restrictions on the type of political advocacy and action they can take. Because of this they’re better able to endorse, lobby, and support their causes in the political realm.
Examples of 501 (c)(4) organizations
A well-known 501(C)(4) organization registered in the United States is The Fairness Project. As they describe it, their mission is to “help us put progressive issues on the ballot to expand health care and win social, racial, and economic justice.” Rather than focusing solely on educating people about issues related to healthcare, social, racial, and economic justice, The Fairness Project participates directly in politics. They might lobby members of Congress to support healthcare-related bills, endorse candidates who support racial justice or advocate for new bills that feature progressive economic ideas.
Since they are a 501(c)(4) that participates directly in politics, donations made to The Fairness Project are not tax-deductible.
Other examples of 501c4 organizations include:
- Equality Texas
- March for Our Lives Action Fund
- Free File Alliance
What are the advantages to a 501c4?
The primary advantage to a 501c4 is the ability to politically support and lobby for causes your organization supports.
Organizations with both 501(c)(3)s and 501(c)(4)s
One point of confusion donors often have about the differences between 501(c)(3)s and 501(c)(4)s comes from the fact that many organizations have both. Take for example the ACLU, or the American Civil Liberties Union. The ACLU has both a registered 501(c)(3) called the ACLU Foundation and a registered 501(c)(4) called the ACLU.
These two different organizations are separate legal entities. The ACLU Foundation cannot subsidize directly or indirectly any of the partisan political work their 501(c)(4) arm, the ACLU does.
Organizations create these distinctions to help them make better use of the donor funds they receive and prevent any legal liabilities. They might share the same office, staff, and equipment but they functionally operate as two different entities.
There are plenty of additional technical rules and regulations that organizations with both a 501(c)(3) and 501(c)(4) have to follow. However, for donors, the most important thing to keep in mind when donating is to consider how they might want their donations used. If donors are primarily looking to give tax-deductible for general advocacy purposes, they should donate to a 501(c)(3). If donors are primarily looking for more lobbying and direct political action, they should donate to 501(c)(4)s.
Wrapping it all up
While the rules may seem confusing at first, 501(c)(3)s and 501(c)(4)s have a lot of similarities. The key difference comes in the type of political action they’re able to take with your donation. You also should keep in mind whether or not you’d like your donation to be tax-deductible or not. By understanding the differences between the two, you’ll make sure that your donation is going exactly where you’d like it to go.