A Section 501(c)(4) organization includes social welfare organizations, local associations of employees, and, in some limited circumstances, a homeowners association (HOA).
The public may also refer to a social welfare organization as a civic league or public benefit organization. These are organizations that don’t quite meet the criteria to be a public charity under Section 501(c)(3), but they still qualify for tax-exempt status under Section 501(c)(4).
The principal purpose of a social welfare organization is to promote social welfare by performing some public or community benefit. The IRS website has more information about what constitutes a social welfare organization.
Compared to a public charity, social welfare organizations have less restrictions on what is a permitted activity. For example, social welfare organizations may engage in lobbying activities and political campaigns, while public charities are expressly prohibited from directly or indirectly participating in any political campaign.
Social welfare organizations should apply for recognition using IRS Form 1024-A. Although the Form 1024-A application is not required to operate a 501(c)(4) organization, it is highly recommended. An organization must, however, provide notice to the IRS using Form 8976, which is required even if the organization submitted Form 1024-A.
It is important to remember that donations to a 501(c)(4) organization are NOT tax-deductible by the donor. In contrast, donations to a 501(c)(3) organization are generally tax deductible as charitable contributions.
For example, John Taxpayer donates $500 to the American Red Cross and $1,000 to Kiwanis International Inc. The American Red Cross is a 501(c)(3) organization and Kiwanis International Inc. is a 501(c)(4) organization. John may claim the $500 contribution to the American Red Cross as a charitable contribution on his Form 1040 Schedule A (Itemized Deductions). However, he may not claim a charitable deduction for the $1,000 contribution to Kiwanis International Inc.