What’s the Difference Between a 501c3 and 501c4?

501c3 and 501c4 are legal tax-exempt statuses conferred on U.S. nonprofits by the IRS. 501c3s include both public charities (what you probably think of when you think “nonprofit”) and private foundations. 501c4s include things like homeowners and employee associations, civic leagues, local fire departments, and, increasingly, nonprofits that want to engage in political advocacy, like the National Rifle Association.

• Having 501c3 or 501c4 status means an organization is exempt from paying federal corporate income tax, also known as tax exemption. 
• 501c3s are more common—they’re what most people think of when they think “nonprofit.” Donations to 501c3s are tax-deductible. 
• Increasingly, 501c4 status is used by organizations that want to engage in partisan political work, which 501c3s can’t do.
• Gifts to 501c4s are not tax-deductible.

Key Differences Summarized:

What is the primary difference between the two?

The differences that really matter for readers are linked to levels of allowable political activity, deductibility and transparency:

• As long as it’s not their primary activity, 501c4s can engage in political activities, including lobbying and partisan political work like endorsing or opposing candidates. By contrast, 501c3s can’t—or can only engage in politics in certain ways, and to a limited extent.
• Donations to 501c3s are usually tax-deductible, donations to 501c4s are usually not. Third, as long as politics is not their primary activity, a 501c4 can spend money in the political arena, and doesn’t have to disclose its donors’ names. This has led to the rise of so-called “dark money” in U.S. politics. 

How can 501c3s participate in politics?

While both a 501c3 and a 501c4 can participate in politics, the difference between the two is how much they can participate in politics.

• For a 501c3 to defend any political activity, such as lobbying, it has to represent a very small share of what they do—like, 10 or 20% of their activities. As a result, most 501c3s opt out of any activity that could remotely be construed as political. 501c4s have a lot more leeway—political activity just has to represent less than 50% of their spending or activity. 
  • More simply, a 501c3 can’t publicly endorse or oppose a candidate or piece of legislation.
  • They also can’t make partisan public statements or give money to a political campaign.
  • They can do a bit of lobbying, or activities like a (nonpartisan) voter-registration drive or get-out-the-vote efforts tied to specific issues, often in the form of voter education.
  • Overall political activity has to represent an “insubstantial” amount of their overall activity (usually interpreted as under 10 or 20%). 

• A 501c4, on the other hand, can make partisan statements, endorse candidates and specific pieces of legislation, move money to support political campaigns, and lobby—as long as all of their political activities don’t amount to more than half of what they do. 

Why do some groups have a 501c3 and a 501c4? 

You may have noticed that some groups have both a 501c3 and a 501c4 entity, usually with slightly different names. For instance, the ACLU Foundation is a 501c3 and the ACLU is a 501c4. 

• Under the c3, a group can do things like provide direct services to their constituents.
• Under the c4, they can engage in partisan political activity. Both sets of activities should serve their mission (whether it’s to defend civil liberties or advance cancer research or something else), just in distinctly different ways. 

P.S. 

A 527 organization is a whole other story. These organizations exist for the specific purpose of influencing elections, and they have to disclose their donors.