Legally, nonprofit organizations are created to carry out a certain mission without looking to generate a profit. The IRS grants them tax-exempt status, which exempts them from having to pay federal income taxes on their income. A 501(c)(4) organization is a specific kind of nonprofit group that prioritizes social welfare initiatives. Donations to 501(c)(4) organizations, however, are not tax deductible for the donor like those made to 501(c)(3) organizations are. While 501(c)(3) organizations are expressly forbidden from engaging in any political activity, 501(c)(4) organizations are permitted to engage in political activities including lobbying. This makes 501(c)(4) organizations a desirable choice for organizations looking to have an impact on politics. However, this also implies that there are some limitations and restrictions placed on their ability to engage in political activity.
The time and effort needed to retain tax-exempt status is one of a nonprofit organization’s biggest drawbacks. For their tax-exempt status to remain in effect, nonprofits must submit yearly tax returns to the IRS and adhere to a number of rules. Additionally, the ability to generate income is not always flexible for nonprofit organizations. They are required to use their earnings to further their charity mission and are not permitted to distribute profits to shareholders or investors.
Because they are primarily concerned with religious and charitable endeavors, churches are frequently categorized as 501(c)(3) organizations. Churches can benefit from being recognized as a 501(c)(3) organization, including tax-exempt status and the capacity to accept contributions that can be deducted from income taxes. Additionally, it offers the church and its leaders some legal protection.
When the IRS statute was changed in 1954 to cover religious groups, churches became 501(c)(3) entities. This was done to ensure that churches were held to the same standards as other nonprofits and to stop religious organizations from abusing their tax-exempt status.
A 501(c)(3) organization and a 501(c)(6) organization are distinguished primarily by the purposes they pursue. While 501(c)(6) companies are primarily concerned with advancing the shared commercial interests of their members, 501(c)(3) organizations are concentrated on charitable, religious, educational, and scientific activities. This means that activities like lobbying and political advocacy, which are forbidden for 501(c)(3) groups, are permitted for 501(c)(6) organizations.
The bottom line is that while 501(c)(4) organizations are tax-exempt, gifts made to them are not tax deductible for the donor. Churches and other nonprofit organizations must abide by a number of rules to keep their tax-exempt status. A 501(c)(3) organization and a 501(c)(6) organization are distinguished primarily by their purposes and permitted activities.
A 501(c)(6) organization is permitted to lobby in certain circumstances, but lobbying cannot be its main activity. For the group to keep its tax-exempt status, it must also adhere to a number of regulations and restrictions on lobbying actions.