Are You Starting a NPO: 501c3 or 501c4 What's the Difference?

Recently the proposition of a new law by NYS Legistature hit the news concerning the logistics of support from 501c3 orgs to 501c4 orgs. For any non-profit professional this is an attention-worthy topic, but for those just starting out, let's clarify the difference between the two types of non-profits.

What is a 501c3?

A 501c3 is a non-profit that is granted tax-exemptions for charitable purposes. They can be religious, charitable, humanitairan, educational, or other organizations as long as they do not exist for the benefit of private interests. They must file an annual reporting of their donations with the IRS. Their donations are tax-exempt and they are limited to the amount of lobbing they can participate in. 

Which brings us to 501c4 orgs...

A 501c4 is an organization that can lobby as their primary activity without the risk of losing their tax-exempt status. 501c4s can receive unlimited contributions without making the source of their donations public.

Under the IRS tax code, 501c3s donations are tax-deductible and governement lobbying is restricted. However, 501c4s which can include everything from home owner associations to political action groups, are often formed specifically to lobby government on behalf of causes.

Contrary to popular belief 501c3s can lobby and even support 501c4s but with a limit. A rule of thumb is to keep the percentage of support under 5% of the non-profits total budget but check with IRS.gov, a lawyer or your local legislature for what is acceptable in your state.