IRS 501(c)(3) Organizations vs. IRS 501(c)(4) Organizations: New York Non-Profit Law Basics

We have clients at our law firm in New York operating non-profit businesses in New York that require advice on IRS 501(c)(3) vs. IRS 501(c)(4) organizations. We hope this and a few other articles we have will be useful for the reader.

Whether your New York nonprofit should apply for tax exemption under IRS 501(c)(4) depends upon the type of organization you have and the political activities it may be undertaking.

New York nonprofits that are civil leagues and local associations that further a social welfare objective, but do not quite meet the level of a charitable organization (religious, educational, charitable purposes), may pursue exemption under 501(c)(3). For example, a local civic association, homeowner’s association, or the local Lions Club, are organizations that meet this description.

New York nonprofits that wish to freely conduct political or lobbying efforts, gain support or opposition for political candidates or take action to pass or repeal laws and legislation should choose to apply for 501(c)(4) exemption.

A New York nonprofit that obtained 501(c)(3) exemption is limited to conducting “insubstantial” lobbying efforts that allocate less than 10% of its total operating budget. A New York nonprofit that obtained 501(c)(4) exemption may engage in unlimited lobbying and political activity so long as there is some relation to the purpose of the organization.

You should note that should your NY nonprofit obtain 501(c)(4) exemption, individuals and businesses that donate to your organization will most likely be unable to take a tax deduction.

If you are considering applying for exemption under IRS 501(c)(4) for your New York nonprofit, you should consult an attorney that knows the eligibility requirements and costs and benefits to each classification so you can make an informed decision.

Please note that we will be writing about more issues related to non-profit law over the next few weeks.