DIFFERENCES BETWEEN SELECTED 501(C) CATEGORIES



Differences Between Selected 501(c) Categories

|Categories |501(c) 3 |501(c) 4 |501(c) 6 |

|Primary Purpose |Organization must serve the general public and |A Social welfare organization That may engage in |Organization must provide benefits to members of the |

| |the members of the selected industry. |a variety of political activities, some of which |industry, not necessarily the needs of the general |

| |These organizations are not allowed to engage in |are unrestricted and other are restricted to some|public. |

| |political activity and only limited lobbying. |degree. Organization must engage in activities | |

| | |which promote social welfare and may engage in | |

| |A 501c3 is permitted to expend up to |political activity. *the balance between social | |

| |approximately 20% of total funds on lobbying |welfare and lobbying is what makes this nonprofit| |

| |under this election. |designation so difficult to define and regulate. | |

| | | | |

| |Many 501c3 organizations have continued to opt | | |

| |for the substantiality test. This is in part due| | |

| |to the perceived burden the expenditures test | | |

| |places on the organization and the fear that | | |

| |electing the latter will increase scrutiny from | | |

| |the IRS. To date, there are no cases to support | | |

| |this contention. | | |

|Charitable Contributions |Yes, organization may accept charitable |No, organization may not accept charitable |No, organization may not accept charitable |

| |contributions |contributions. Typically have a foundation or |contributions |

| | |other 501c3 affiliation attached for fundraising | |

| | |purposes. | |

|Limits on Lobbying Expenditures |Yes, organization has limits on lobbying |No, organization does not have limits on lobbying|No, organization does not have limits on lobbying |

| |expenditures |expenditures. The primary focus must still be on|expenditures |

| | |the foundational social welfare mission, not | |

| | |lobbying efforts. | |

|Political Campaign Restrictions |Yes, organization has restrictions on political |No, organization does not have restrictions on |No, organization does not have restrictions on |

| |campaigning |political campaigning though campaigning cannot |political campaigning though campaigning cannot be |

| | |be their primary activity. Funds used for |their primary activity |

| | |political campaigning and activities must | |

| | |represent less than half of total budget. These | |

| | |efforts are taxable by the IRS | |

|Income-Support Restrictions |Yes, organization has restrictions on how much of|Yes, organization has restrictions on how much of|Yes, organization has restrictions on how much of its|

| |its income can be unrelated business income |its income can be unrelated business income |income can be unrelated business income |

|Subject to Unrelated Business Tax |Yes |Yes |Yes |

Advocacy – makes your voice heard regarding the issues most closely related to your organization’s purpose or mission. Typically, advocacy takes a long time. It is an ongoing effort to engage representatives, policy makers, the community, donors and other stakeholders. It’s more about education and promotion of services than trying to make a particular legislative change. Advocating your mission may include:

➢ Contacting your city, state, and federal representatives to explain your mission and share information about the work that you’re doing.

➢ Inviting representatives or members of the community to visit your site or to engage in informational sessions about your organization.

➢ Creating email or social media campaign to share information and to promote events, projects or initiatives.

The IRS code also lists exceptions to the term “influencing legislation. These non-lobbying (advocacy) activities include:

• Making the results of a non-partisan analysis, studies, or research available.

• Providing technical advice or assistance in response to a written request by a government body, committee, or subcommittee.

• Appearing before, or communicating to, any legislative body with respect to a possible decision by that body that could affect the organization’s existence, powers, and duties, its tax-exempt status or the deduction of contributions to it.

• Communicating with its members regarding legislation or proposed legislation of direct interest to the organization or its members, unless the communication directly encourages the member to become involved in direct or grass roots lobbying.

• Communicating with government officials or employees on routine matters.

When nonprofit organizations advocate on their own behalf, they seek to affect some aspect of society, whether they appeal to individuals about their behavior, employers about their rules, or the government about its laws.

Lobbying – supports or opposes a specific piece of legislation, regulation, or candidate or official. Staff or volunteers may work to influence legislation or legislators on behalf of the organization, or an organization may ask for public support on a specific issue. Types of legislation that nonprofit organizations frequently lobby for or against include:

➢ Laws

➢ Resolutions

➢ Nominations

➢ Initiatives

➢ Proposals

➢ Referendums

IRS DEFINITION OF LOBBYING

In general, no organization may qualify for section 501(c)(3) status if a substantial part of its activities is attempting to influence legislation (commonly known as lobbying).  A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status.

Legislation includes action by Congress, any state legislature, any local council, or similar governing body, with respect to acts, bills, resolutions, or similar items (such as legislative confirmation of appointive office), or by the public in referendum, ballot initiative, constitutional amendment, or similar procedure.  It does not include actions by executive, judicial, or administrative bodies.

An organization will be regarded as attempting to influence legislation if it contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or if the organization advocates the adoption or rejection of legislation.

Organizations may, however, involve themselves in issues of public policy without the activity being considered as lobbying.  For example, organizations may conduct educational meetings, prepare and distribute educational materials, or otherwise consider public policy issues in an educational manner without jeopardizing their tax-exempt status.

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