Political and Advocacy Giving: The difference between 501(c)(3) and 501(c)(4) organizations

501c3 501c4 advocacy donate giving political Nov 04, 2022

Political and Advocacy Giving: The difference between 501(c)(3) and 501(c)(4) organizations

Spencer Kelly & Recha Bergstrom, MD

 With the midterm elections just around the corner, you probably find yourself inundated with requests for donations to support specific political or advocacy groups.  These can be an integral part of your giving and in making systemic changes, so it’s important to be aware of the implications of this type of giving.

 When researching potential donation recipients, philanthropists will undoubtedly encounter the terms “501(c)(3)” and “501(c)(4).” While only one number apart, these two alphanumerics designate distinct organization types, with ramifications for donor tax deduction and for the political capabilities of the organizations themselves.

 Here we will provide an overview of 501(c)(3)s and 501(c)(4)s, describing the similarities and differences between these two types of organizations, with consideration to their benefits and limitations. The implications for political involvement between the two nonprofit statuses are critical for informed donors to understand.

 Overview of 501(c)(3) and 501(c)(4) designations

The titles of these designations refer to the section in the U.S. tax code under which these designations are defined. Section 501 of the tax code details “exemptions from tax on corporations, certain trusts, etc.” Subsection (c) of this section lists the types of the exempt organizations, with parts (3) and (4) referring to two types of nonprofits.

501(c)(3) organizations can include groups “organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or other specified purposes and that meet other specified requirements.”

501(c)(4) organizations are defined as “civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.”

 For the organizations themselves, the fundamental distinguishing factor between the two above designations is the restrictions on political activity.

 501(c)(3) nonprofits are prohibited form “carrying on propaganda, or otherwise attempting, to influence legislation” and cannot “participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.”

 However, 501(c)(3)s can engage in some of the above activities in a nonpartisan manner. For instance, these nonprofits can coordinate nonpartisan voter registration and education drives, promote nonpartisan voter protection, etc.

501(c)(4) nonprofits do not have political restrictions and have unlimited abilities to promote political views, endorse candidates, advocate for specific propositions, engage in lobbying, etc.

 For donors, the two nonprofit designations determine the availability of tax deductions. Donations to 501(c)(3) organizations are tax deductible while donations to 501(c)(4) organizations are not tax deductible.

Examples of 501(c)(3) and 501(c)(4) organizations

 501(c)(3) is the standard designation for nonprofits solely focused on charitable work. For organizations uninterested in political activities, 501(c)(3) status enables nonprofits to attract funding by offering tax deductible donations.

501(c)(3) is the most popular type of nonprofit. For example, all of GiveWell’s Top Charities have 501(c)(3) status in the United States. Overall, as of 2020 there were over 1.5 million 501(c)(3)s in the U.S.

Given that their only advantage is expanded political capabilities, 501(c)(4)s are typically nonprofits with a political bent. Organizations on both sides of the aisle have adopted this designation. For example, both the National Rifle Association and March For Our Lives are 501(c)(4)s. Due to their tax status, the donation pages for both of the above organizations disclose that “contributions are not tax deductible.”

Considerations

For tax purposes for donors, the most important difference to understand is that 501(c)(3) donations are tax deductible and 501(c)(4) donations are not tax deductible. 

However, the difference in political capabilities could in some cases be a factor to review when researching a potential donation. On one hand, an organization’s 501(c)(4) status may be unappealing if you are opposed to a nonprofit being engaged in politics. On the other hand, a 501(c)(3) designation may indicate an unappealing limiting factor, as that nonprofit would not be allowed to engage in partisan politics. Especially during midterm election season, these differences may be meaningful to consider.

 

 

 

 

 

You can be the change you want to see in the world through effective, efficient, and impactful philanthropy. Check out my course, The Physician Philanthropist, for a comprehensive education on and strategy for maximizing the impact of your giving both for you and your causes

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