Exempt organizations have been in the news a lot lately. All this talk about 501(c)(4) organizations may have you confused about what exactly an exempt organization can and can’t do when it comes to political activities. The following chart summarizes the general guidelines. It has been adapted from an article by Matt Bernius, who analyzes the distinctions in greater detail http://www.outsidethebeltway.com/501c4-vs-501c3-vs-527/.
If you have specific questions about the types of activities allowed in your nonprofit organization, please do not hesitate to call us.
| Characteristics of Certain Common Types of Tax-Exempt Organizations | ||||
| Characteristics | 501(c)(3) | 501(c)(4), (c)(5), (c)(6) | Section 527 Organization | |
| Contributions | Accepts unlimited tax deductible donations | Accepts unlimited non tax deductible donations | Accepts limited* non tax deductible donations | |
| Donor Reporting | Anonymous | Anonymous | Publically reported | |
| General types of activities | Religious, educational, charitable, scientific, literacy, etc. | Civic leagues, social welfare organizations, local associates of employees | Political activities | |
| Ability to engage in politics | Not supposed to engage in any political activities, though some voter registration activities are permitted | May engage in political activities, provided it is not the primary** purpose of the organization | Allowed and required | |
| Endorse Candidates | Prohibited | Allowed | CAN endorse and field candidates | |
| Campaign Spending | Prohibited | Permitted, but taxed | Required | |
| Lobbying | Some lobbying | Substantial lobbying | No direct lobbying | |
| General Political Advocacy | Yes (as an educational activity) | Yes, provided it is not the primary** activity of the organization | Allowed | |
| Apply with IRS? | Yes | No | Yes | |
| Form Application | 1023 | 1024 | 8871 | |
| Tax Exempt? | Yes | Yes | Yes | |
| **This is generally taken to mean less then 50% of the group’s activities * A Section 527 organization is governed by the Federal Election Campaign Act of 1974 which limits the amount of money any individual donor can give directly to any single candidate or Section 527 organization/ Political Action Committee (PAC) in a federal election. These donations are referred to as “hard money” donations and face limitations of $1,000 to any candidate and $5,000 to any PAC. | ||||
