Louis E. Michelson, A Professional Corporation

What is the difference between a charity which is tax-exempt under IRC Section 501(c) (3) and Social Welfare Organization tax-exempt under IRC Section 501(c) (4)?

Per the Regulations, a 501(c)(4) organization is one that is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community.  A 501(c)(4) is one which is operated primarily for the purpose of bringing about civic betterments and social improvements.

Furthering this purpose, namely, “bringing about civic betterments and social improvements” could also qualify an organization for exemption under IRC Section 501(c) (3).  The charitable purpose is “improving society.”  So what is the difference between a charitable organization that is tax-exempt under IRC Section 501(c) (3) and social welfare organization that is tax-exempt under IRC Section 501(c) (4)?

The distinction between 501(c)(3) and 501(c)(4) lies lobbying and political electioneering.   501(c)(3) organizations cannot engage in a “substantial” amount of lobbying, and cannot engage in any political campaign activity.  If a 501(c) (3) engages is substantial lobbying it risks forfeiture of its tax-exempt status.  Similarly, if a 501(c)(3) participates in any political campaign on behalf of (or in opposition to) any candidate for public office, it puts its tax-exempt status at risk.

Contrast this with lobbying and electioneering by 501(c)(4) organizations.   501(c)(4) organizations) can engage in an unlimited amount of lobbying.  The IRS’s position is that lobbying to advance social welfare is itself a social welfare purpose.  While political campaign activity is not a social welfare purpose, but 501(c)(4) organizations are not bound by the absolute prohibition against political campaign activity that apply to 501(c)(3) organizations.  A 501(c)(4) can engage in political campaign activity, as long as its primary purpose remains promotion of social welfare.