Understanding 501(c)(4) Social Welfare Organizations

A social welfare organization falls under the auspices of a 501(c)(4) organization. Social welfare organizations may also be called social welfare nonprofits, civic leagues, or public benefit organizations. By all accounts, the name is less important than the important work a social welfare organization does.

While all 501(c) organizations are tax-exempt, the federal government established various IRS subcodes to designate the specific type of work a nonprofit does. Social welfare organizations are classified as 501(c)(4) organizations because their primary purpose is to provide social benefits to communities rather than charity.

In this article, we will define social welfare organizations and list types and examples. We will also explore the advantages of 501(c)(4) organizations and provide some insight into how to start one.

When a Tax-Exempt Organization Isn’t a Charity

The IRS grants tax-exempt status to certain religious, educational, charitable, and other organizations that are focused on fulfilling their missions. Because associations are a subset of the nonprofit realm, we don’t hear about them as much as charitable organizations.

In addition to Section 501(c)(3) of the IRS code, there is also a Section 501(c)(4) which is more appropriate for social welfare associations.

What Are 501(c)(4) Social Welfare Organizations?

According to the IRS, the 501(c)(4) definition includes organizations that are either:

1. Social welfare organizations, such as civic organizations or leagues that exist for the express purpose of promoting social profit.
2. Local associations of employees in a particular geographical location that use all their profits for charitable, educational, or recreational needs.

The IRS will also consider homeowners associations and volunteer fire departments under the social welfare classification as long as they meet the criteria under the 501(c)(4) code. Organizations that are formed for political lobbying may also be eligible for 501(c)(4) status.

What Are the Types of Social Welfare Organizations?

The types of social welfare organizations cover a broad array of associations including:

• Housing associations
• Political organizations
• Advocacy groups
• Organizations that make loans to businesses to encourage industrial development and employment
• Organizations that hold festivals annually to spread awareness of regional customs and traditions

Examples of Social Welfare Organizations

The following social welfare organizations are examples of groups that qualify for 501(c)(4) status:

• Concerned Veterans for America
• Patients for Affordable Drugs NOW
• 314 Action
• Planned Parenthood Action Fund
• Project Veritas Action
• Kiwanis Clubs
• Rotary Clubs
• Lions Clubs

Many of these social welfare organizations utilize board management software programs to store documents, collaborate, and communicate.

What Are the Advantages of a 501(c)(4)?

There are six main advantages of registering as a 501(c)(4) organization.

1. The organization is eligible for tax-exempt status.
2. The organization is allowed more flexibility with advocacy and lobbying than other 501(c) organizations. (For example, they can endorse political candidates).
3. Communities benefit from them.
4. The founders, directors, members, and employees are not liable for the organization’s debts.
5. Donors can deduct their contributions from their taxes.
6. The organization does not have to disclose its donors.

How to Start a 501(c)(4) Organization

Once you have determined that your organization fits more appropriately into 501(c)(4) than another classification, your board will need properly set up the social welfare organization.

We will walk you through the process of how to form a social welfare organization step-by-step:

1. State your organization’s purpose in writing.
2. Give your 501(c)(4) organization a unique name that speaks to its cause.
3. Establish a board of directors including a President, Treasurer, Secretary, and possibly a Vice President.
4. Create a set of bylaws for the organization.
5. File paperwork at the state level to incorporate the organization.
6. Get an Employer Identification Number (EIN) for the organization.
7. Complete and submit IRS Form 8976, which is a notice of intent to operate as a 501(c)(4).
8. Complete and file Form 1024A with the IRS, which is the 501(c)(4) application for tax-exempt status.
9. File IRS Form 990 in consecutive years to ensure the organization continues to meet the qualifications for 501(c)(4).

501(c)(4) Political Activity: What Is Allowable?

Political campaign groups commonly file under the 501(c)(4) classification. This is legal and acceptable whether the group supports or opposes a particular candidate.

Organizations operating as 501(c)(4) are allowed to engage in political lobbying as long as their advocacy efforts are directly related to the organization’s stated purpose. Members of the group can lobby and still keep their tax-exempt status as long as lobbying isn’t the group’s primary activity.

Other activities that are allowed under 501(c)(4) are:

• Educating the public about the political process
• Educating candidates on issues
• Participating in political campaigning
• Hosting voter registration activities
• Endorsing candidates

Social Welfare Associations Under Section 501(c)(6)

The IRS code for nonprofit organizations also allows for tax-exempt status for business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, as long as they aren’t organized for profit and no part of their earnings benefit any individuals or shareholders. These associations qualify for tax exemption under Section 501(c)(6).

Like social welfare associations that qualify under IRS Section 501(c)(4), these associations may engage in some political lobbying and other activities when it pertains to their exempt purposes.

Associations that choose to participate in political lobbying may be required to give their members notice that their dues may be used for that purpose. Associations that fail to provide this notice may be taxed on the amount they spend on lobbying.

Business Leagues

Business leagues also fall under Section 501(c)(6). A business league is an association where the members have some common business interest and share a purpose of promoting their common interest. Members of business leagues don’t profit from their joint activities — their interest is solely to promote a particular type of business or industry.

Trade and Professional Associations

An example of a trade association is the United Brotherhood of Carpenters. An example of a professional association is the Independent Insurance Agents of Illinois (IIAI). Both are business leagues. Business leagues must commit to improving business conditions of one or more lines of business, rather than supply products or perform services for the benefit of individuals.

In the examples given, the United Brotherhood of Carpenters works to improve safety standards and promote the trade as it pertains to all facets of carpentry, including residential and commercial buildings. Insurance associations promote the quality of education for insurance agents and work with legislators to enact fair laws within the insurance industry.

It’s also important to note that “line of business” does not refer to a group of businesses that exist to promote a certain brand within the industry.

Chambers of Commerce

Chambers of commerce exist at the state and local levels. Chambers of commerce are considered associations and also fall under the Section 501(c)(6) IRS code, much like business leagues. The main difference is that chambers of commerce collectively promote the common economic interests of all businesses within a certain state or community.

All types of nonprofit and social welfare associations should have a board of directors and operate under best practices for nonprofit organizations. Nonprofit organizations are trending toward using board portals to help them remain in compliance with tax-exempt statutes and manage their organizations with fidelity and integrity.

Social Welfare Associations And Funding

Social welfare associations may secure funds to support their associations through grants, fundraising, government funding, and public donations, much like nonprofit organizations. Typically, social welfare associations get the bulk of their funding through membership dues or fees.

Members of associations may make extra donations to the association if they choose. Because the members draw benefits directly from the association, the IRS doesn’t allow association members to claim their donations at tax time.

The 501(c)(4) Code Supports the Work of Social Welfare Organizations

The federal government set up the 501(c) codes as a means of helping nonprofit associations and social welfare organizations to enjoy tax-exempt status so they would have more money to help our society. Overall, the 501(c)(4) organization classification benefits state and federal governments and the people they serve.

Frequently Asked Questions

Can a 501c4 donate to a political campaign?

The IRS does not allow 501(c)(4) organizations to make donations to political campaigns.

Are 501c4 donations tax deductible?

Donations by non-members are tax deductible. Members of a 501(c)(4) can deduct their dues or contributions on their taxes, but they cannot deduct expenses for participating in political campaigns.

Can a 501c4 donate to a PAC?

Some 501(c)(4) organizations are registered as PACS, and they are free to use their funds to support or oppose candidates. According to the Federal Election Commission, non-political 501(c)(4) organizations such as trade unions or corporations are not allowed to contribute to a PAC.

Do 501c4 organizations have to disclose donors?

According to IRS rules, 501(c)(4) organizations do not have to disclose their donors either publicly or to the United States government.