The 501(c)(4) social welfare organization is one of the most popular categories of tax-exemption in the United States, second only to 501(c)(3). Unlike 501(c)(3) organizations that are mainly focused on charitable and educational purposes, 501(c)(4) organizations are geared towards promoting social welfare.
Social welfare organizations include a wide range of groups such as advocacy organizations, civic leagues, and chambers of commerce. These organizations play an essential role in promoting social welfare by advocating for policies and actions that address the needs and well-being of individuals and communities.
To qualify for tax-exemption under Section 501(c)(4) of the Internal Revenue Code, an organization must not be organized for profit and must be operated primarily to promote social welfare. The regulations clarify that the term “exclusively” means primarily, meaning that social welfare must be the primary focus of the organization’s activities. Social welfare includes activities that promote the common good and general welfare of the community, such as advocating for education, healthcare, and environmental protection.
While 501(c)(4) organizations have more flexibility than 501(c)(3) organizations in engaging in political activities, they are still subject to certain limitations. For example, they may not engage in partisan political activities, such as supporting or opposing a particular political candidate, as their primary activity. However, 501(c)(4) organizations are allowed to engage in unlimited lobbying in furtherance of their social welfare purposes.
501(c)(4) organizations may not use their earnings to benefit any private shareholder or individual. In addition, excessive benefits provided to a disqualified person may subject them to excess benefit transaction penalty taxes. Despite these limitations, 501(c)(4) organizations are attractive to donors due to their ability to engage in political activities without disclosing their identities or contributions publicly.
While the lack of public disclosure of donor information may be attractive to some, it has also raised concerns about the role of 501(c)(4) organizations in promoting “dark money” in politics. This is because, unlike other types of organizations, 501(c)(4) organizations are not required to disclose their donors’ identities to the public.
Another limitation for 501(c)(4) organizations is that they may not be eligible to receive deductible charitable contributions. This is because they have a broader allowance of exempt purposes, which includes political and lobbying activities. Nevertheless, some donors may choose to contribute to 501(c)(4) organizations instead of 501(c)(3) organizations, which are eligible to receive tax-deductible donations, as they feel that their contributions will have a more direct impact on promoting social welfare.
It is clear that, at this time, 501(c)(4) organizations play a crucial role in advocacy and promoting social welfare in the United States and may be a viable option depending on the goals and objectives.