The 501(c) section under the Internal Revenue Service guidelines and regulations is designed for non-profit organizations. The difference between a 501(c)(3) and a 501(c)(4) are slight, but is mainly determined by the type of organization that is established. The IRS has different publications and forms to assist non-profits.
A 501(c)(3) and 501(c)(4) are both tax-exempt organizations and do not have to pay taxes on the money donated to the organization, but only the donations provided to a 501(c)(3) are tax write-off for the donors. Donating to a 501(C)(4) organization does not allow the donor to write-off the donation --- except for a few limited types of organizations, such as fire or rescue or certain types of veterans' organizations, as described in the IRS code. A 501(c)(3) must also provide the donor with a receipt for the amount of the donation or a receipt for the value of the donation, while the 501(c)(4) does not have to do the same.
One difference between a 501(c)(3) and 501(c)(4) organization is the type of organization established. Examples of 501(c)(3) organizations include churches, boys' and girls' clubs, charitable hospitals, non-profit retirement homes or elderly homes, parent-teacher associations and different chapters of the Red Cross. 501(c)(4) organizations include civic leagues such as the Lions Club, social welfare organizations, homeowners' and tenants' associations, veterans organizations such as the Veterans of Foreign Wars (VFW), and employee associations, as well as other non-profit organizations that devote the net of their donations to charitable, educational or recreational purposes.
Even though the differences between a 501(c)(3) and 501(c)(4) are determined by the type of organization, another difference is how the organization is set-up or established. For example, a 501(c)(3) must be a corporation, fund, foundation or community chest, and follow all the state regulations pertaining to these types of organizations. A 501(c)(4) does not have to be any one of these types of organizations; the 501(c)(4) only has to be a organization that is not established for profits and only uses the funds for social welfare.
As tax-exempt entities, both 501(c)(3) and 501(c)(4) organizations are not allowed to participate or intervene in any political activity, such as promoting a candidate or opposing a candidate. The difference is that a 501(c)(3) organization loses it rights to be a tax-exempt even if the organization indirectly participates in a political activity. A 501(c)(4) has a way to get an exception to the political activity regulation. The 501(c)(4) must provide proof to the IRS that it works exclusively for the betterment of the community or is concentrated on the social welfare of the community. Then and only then can the organization get an exemption from the IRS to participate in a political activity, such as promoting or opposing a candidate or publishing political information in organization newsletters or via other communications channels.
- Jupiterimages/Comstock/Getty Images