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How to Start a 501(c)(4) Nonprofit: The Beginner’s Handbook

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Published January 4, 2023 Reading Time: 4 minutes

There are several different types of nonprofits. 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

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 organizations
  • 501(c)(6): Business leagues
  • 501(c)(7): Social and recreational clubs
  • 501(c)(8): Fraternal societies
  • 501(c)(12): Life insurance associations

Examples of 501(c)(4) nonprofits include:

  • Advocacy groups
  • Political groups
  • Interest groups
  • Public accommodations
  • Homeowner associations (HOAs)
  • Disabled veteran programs
  • Rotary 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:

  1. 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 LinkedIn
  2. Create 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 activity
  3. File paperwork with the state: Incorporate your nonprofit organization in your home state. The steps for incorporation will vary depending on your geographic location 
  4. 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) organization³
  5. Submit Form 1024: Acquire tax-exemption status by filing Form 1024 with the IRS
  6. File Form 990 annually: Submit Form 990 every year. This ensures you stay compliant with your nonprofit bank account activity and any additional spending

Wondering, what is a 990 form? 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. 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 initiatives
  • Tax exemption: 501(c)(3) donations are tax-deductible donations, but donations made to 501(c)(4)s aren’t
  • Political lobbying: 501(c)(4) nonprofits can publicly support or oppose political organizations and candidates, while 501(c)(3)s can’t
  • Political views: 501(c)(4) organizations can share partisan political messages on social media and other online channels, while 501(c)(3) nonprofits can’t
  • Freedom to influence: 501(c)(4) nonprofits can compare organizational positions with a political candidate‘s position, while 501(c)(3) organizations can’t

Power Your Public Charities With Classy

Want to increase your online donations and amplify your nonprofit organization’s impact? Classy’s fundraising software can help optimize the donation experience and encourage charitable giving. Making the process easier for everyone involved helps your organization demonstrate donor and volunteer appreciation while strengthening relationships and advancing your cause. 

From purpose-built forms to nonprofit payment processing to virtual events, Classy provides your organization with all the end-to-end tools and resources needed to raise funds for your cause. 

See for yourself. Request a demo to learn how your nonprofit can use Classy for donation management, peer-to-peer fundraising, event experiences, recurring giving, and more.

Citations

  1. 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 
  2. “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
  3. “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
  4. “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
  5. “Form 1024,” Forms and Instructions, IRS, Last Modified 9/9/2016, https://www.irs.gov/forms-pubs/about-form-1024

Posted in Fundraising

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