The Differences Between 501(c)(3) and 501(c)(4) Organizations Explained

3 minute read

Originally published October 24, 2023 in The Daily Tar Heel

The Friends of Bolin Creek "meet and greet" at Umstead Park on Sept. 24 and comments from mayoral candidate Adam Searing on "dark money" have raised questions about the types of nonprofit organizations and what roles they can play in municipal elections.

The two main types of nonprofit organizations under federal law are 501(c)(3)s and 501(c)(4)s.

501(c)(3)s are often referred to as public charities, while 501(c)(4)s are referred to as social welfare organizations.

One of the main differences between the two types is that 501(c)(3)s are prohibited from endorsing political candidates or participating in partisan political advocacy.

They are also tax deductible, meaning donors can deduct their donations to these organizations on their tax returns. Some well-known examples of these organizations are the Habitat for Humanity, the American Red Cross and the Chapel Hill Public Library Foundation.

Meanwhile, 501(c)(4)s do not have to disclose their donors and can participate in political activity, as long as it is not their primary activity. Two local examples of 501(c)(4) corporations are Shameful Nuisance — which runs Triangle Blog Blog — and NC Blue Cross Blue Shield.

Donors do not receive tax breaks from donating to 501(c)(4) corporations like they do with 501(c)(3)s.

David Heinen, the vice president for public policy and advocacy at the North Carolina Center for Nonprofits, said there are further important differences between the two types of organizations. He said 501(c)(3)s have limited lobbying capabilities and cannot contribute to political action committees.

On the other hand, 501(c)(4) nonprofits can do an unlimited amount of lobbying, endorse or oppose candidates, make campaign contributions and work with PACs, Heinen said.

Although political involvement is not supposed to be a 501(c)(4) nonprofit’s primary activity, Heinen said the IRS has failed to establish clear guidelines.

Adam Searing, a Chapel Hill Town Council member and mayoral candidate, said he thinks the IRS does not enforce its guidelines well. He said a campaign finance lawyer would likely suggest that a 501(c)(4) not spend more than 49.5 percent of its budget on political activities.

While PACs are required to reveal their donors and spending on a regular basis, 501(c)(4)s are not.

Searing said he thinks that this can often lead to abuses of donations — especially at the national level. 

“Who paid for those ads, who donated to them, how much they spent and where they spent the money, they [501(c)(4)s] don't have to ever detail that,” he said.

Often, nonprofit organizations have a 501(c)(3) arm and a 501(c)(4) arm, according to Heinen.

A local example of this is the 501(c)(3) NEXT Chapel Hill-Carrboro and its 501(c)(4) arm, the NEXT Chapel Hill-Carrboro Action Fund.

Molly De Marco, a co-founder and board member of NEXT, said NEXT Chapel Hill-Carrboro, the group's 501(c)(3), can only provide educational materials to the community and cannot use funds to tell others how to vote.

"We do educational activities, so things around putting on events like bikes rides, helping people learn how to ride the bus, doing promotion of information relating to affordable housing options," De Marco said.

During election years, she said the NEXT Action Fund, the group's 501(c)(4), is allowed to use half of its money specifically towards promoting and endorsing candidates. NEXT Action Fund has endorsed candidates for the upcoming Carrboro and Chapel Hill elections.

She said, in non-election years, the 501(c)(4) runs similarly to its 501(c)(3) counterpart by holding educational events and forums.

Searing has accused Triangle Blog Blog and the NEXT Chapel Hill-Carrboro Action Fund of being "dark money" holding up the "powers-that-be" in his newsletters, saying they are nefarious organizations who hide their donors.

Triangle Blog Blog says on its website that it conceals its donors partially because the addresses and names of some of their donors were posted on social media earlier this year. A link in Searing's newsletter sent out on Oct. 3 on "dark money" also contained the names and addresses of TBB's board.

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