Non-Profits: The Differences Between 501(c)(3) & 501(c)(4)

Thinking about starting a non-profit? There are two choices available under Internal Revenue Service (IRS) rules.

1. 501(c)(3)

2. 501(c)(4)

A 501(c)(3) is a non-profit for religious, charitable or educational purposes. These types of non-profits typically conduct research and can only engage in a limited amount of lobbying, advocacy or political activity. Donations to these organizations ARE tax deductible. Section 501(c)(3) charities are further subdivided under Section 509(a), basically between public charities and private foundations. An example of a public charity is Susan G. Komen supporting breast cancer awareness. An example of a foundation is the Bill and Melinda Gates Foundation. The difference between these two is the method by which money flows in. A public charity seeks funds through broad fundraising and donation campaigns while a foundation is held privately and usually funded by a single source.

A 501(c)(4) is a social welfare group and can engage in more advocacy and lobbying. A U.S. Supreme Court ruling allows businesses and unions to donate unlimited money to 501(c)4 groups, and they can be tied to so-called “super PACs”. Donations to 501(c)4 groups ARE NOT tax-deductible, and donors are often not disclosed.