Question: What is the Difference Between a 501(c) (3) and a 501 (c) (4) Organization?

Answer: A 501(c)(3) organization is a nonprofit organization created for charitable, religious, educational, scientific, or literary purposes. The main benefit of this status is that the gifts of donors are tax deductible and the organization is eligible for tax exemption.

All profits must be returned to the organization and while employees may be paid reasonable salaries, they may not receive excess benefits or any portion of the organization’s profit. Lobbying activities are restricted and political campaign activity is prohibited.

A 501 (c) (4) organization must be created exclusively for the promotion of social welfare. Like the 501 (c) (3), 501 (c) (4) organizations must return profits to the organization and may not allow private inurement to individuals. Additionally, gifts to the organization are eligible for tax exemption. However, unlike a 501 (c) (3), these organizations may conduct lobbying or political activities as long as they are related to their social welfare purpose. The drawback to this type of organization is that the gifts of donors are not tax deductible.

When does it make sense to organize as a 501(c) (4)? If the organization requires substantial lobbying and political activities in order to accomplish its purpose.