It’s Not a 501(c)(3)
A 501(c)(4) organization is an organization not organized for profit and operated exclusively to promote social welfare.
501(c)(3) and 501(c)(4) organizations are different.
- 501(c)(3) organizations are organized for charitable purposes; 501(c)(4) for social welfare purposes
- Both types of organizations are exempt from federal taxes, but only the 501(c)(3) organizations may receive deductions that are tax deductible
- 501(c)(3) status must be applied for; theoretically, 501(c)(4) status may be simply declared by the organization
Some nonprofit organizations that qualify as social welfare organizations include:
- An organization operating an airport that serves the general public in an area with no other airport,
- A community association that works to improve public services
- A community association devoted to preserving the community’s traditions, architecture and appearance by representing it before the local legislature and administrative agencies
- An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses
- An organization that holds an annual festival of regional customs and traditions
The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity. However, any expenditure it makes for political activities may be subject to tax.
If you feel comfortable working with forms and legal concepts, you may be able to form a 501(c)(4) organization on your own. If not, engage a lawyer.
Step 1: Check Your Name
Your name is something indicates that identifies and distinguishes your services. It’s your brand.
It’s beyond the scope of this post to go too much into the details of tradenames. Generally speaking, if you wish to have tradename protection for the name of your organization, you need to avoid names that are purely generic names, such as ‘Help’, or descriptive names, such as ‘Teledoctor’. You can combine these words with other words and probably get protection.
There are companies that to do comprehensive searches; they search all fifty states’ filing offices, and all sorts of publications, including ones you’ve never heard of. The cost of their services start at around $1,000 and go up from there. If you don’t want to spend the money, there are things you can do on your own.
Conduct a search on Google or other online search engine to see if anyone else is using the same or similar name. Even if they are, you may be able to use your pick, if you’re in different markets or supplying different services.
Check the name at the United States Patent and Trademark Office.
Finally, when you go to form your organization, the state agency of formation will check, or force you to check, the name against other entities formed in that state.
Step 2: Formation
In the United States, entities are generally formed on the state level. Head over to the website of the agency that handles this in your state. (In New Jersey, this is the NJ Business Gateway Services.) You’ll probably want to form a nonprofit corporation to avoid any possibility that you might have to pay taxes on the state level. Answer some simple questions, pay your fee and you’re set. You’ve formed a nonprofit corporation.
Step 3: Organize
Organize you corporation by:
- Naming directors
- Appointing officers
- Adopting bylaws
Bylaws can be tricky, so don’t just you can download an example from the internet. Consult with a lawyer to make sure you’re doing it right.
Step 4: Tax ID
Head over to the Internal Revenue Service site and get a tax identification number or EIN. There’s no charge for this.
Step 5: Register or … ?
Some states may have additional requirements for a new corporation. Find out what these are. In New Jersey, for example, you must register your corporation in addition to forming it. For a New Jersey corporation, go to the Online Business Registration Service and answer a series of questions about the your organization. You’ll also need your EIN and the 10 digit number you received when you formed the organization.
Step 6: Form 8976
Within 60 days of formation of the corporation, you must file Form 8976, Notice of Intent to Operate Under Section 501(c)(4) with the IRS. And this must be done online at Form 8976 Electronic Notice Registration System. The IRS will acknowledge that the form has been submitted. However, it will not necessarily inform you that your organization has 501(c)(4) status unless you file a Form 1024-A.
Step 7: Form 1024-A
The title of Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4) of the Internal Revenue Code speaks for itself. The filing of this form is optional. You’ll have to weigh the comfort of knowing you have 501(c)(4) status versus the cost of filing, currently $600.