Form 1023 Paperwork, In Millions of Hours, 1986 to 2016

Source: U.S. Office of Management and Budget. Click image to learn more.

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Prepare Your Own 501(c)(3) Application

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Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees...the net earnings of which are devoted exclusively to charitable, educational or recreational purposes.                                                                                                                 - Internal Revenue Code Section 501(c)(4)

Exemption Application

  • Form 1024, including Schedule B (current form 1024 is dated 9/98)
  • $400 for organizations with gross receipts normally $10,000 or less; $850 for larger organizations
  • Submit fee using Form 8718
  • In late 2015, 501(c)(4) organizations were given the right to go to court to seek a Declaratory Judgment when the IRS denies an exemption application.
  • Organizations that intend to operate under section 501(c)(4) have 60 days from the date created to notify the IRS that they intend to operate under 501(c)(4). Notice is provided electronically, using Form 8976, at this website. There are penalties for failure to file the notice.  See Revenue Procedure 2016-41 for details.  Notice is not required of 501(c)(4)s that have previously submitted a Form 1024 exemption application or an annual Form 990.  Filing the notice is not a substitute for filing an exemption application.

[Schedule E of Form 1023 says that a 501(c)(3) organization that misses the 27 month deadline for (c)(3) organizations can usually apply for 501(c)(4) status for the period prior to the effective date of their 501(c)(3) status.  It is not clear how this will be affected by the new notice provisions]

Annual filing

  • Gross receipts normally less than $50,000 - file Form 990-N
  • Gross receipts normally less than $200,000 - file Form 990-EZ
  • Gross receipts normally more than $200,000 - file Form 990
  • Check instructions: an organization's assets can also affect which form must be filed

Caution: An organization that fails to file a required return for three years in a row will have its exempt status automatically revoked.

Basic Rules

  • To qualify, an organization must be primarily engaged in promoting in some way the common good and general welfare of the community
  • 501(c)(4) organizations may not allow any part of their net earnings to inure to the benefit of any private shareholder or individual
  • Providing assets or services to insiders for less than fair market value can trigger penalty taxes not only on those insiders but also on board members who approve such transactions (Excess Benefit Rules)
  • Donations are not deductible as charitable contributions (except for contributions made to fire and rescue squads)
  • (c)(4)'s usually cannot qualify for the special low rate non-profit bulk mailing permit.
  • Unlike (c)(3)s, 501(c)(4) organizations are permitted to have more than incidental amounts of social activity.


Lobbying

  • 501(c)(4) organizations are permitted to have unlimited amounts of legislative activity as long as it is in furtherance of the exempt purpose.
  • In some cases, (c)(4)s may be required to notify members that a portion of dues is not deductible because of lobbying carried on by the organization.  Organizations may elect to pay a proxy tax instead of making this notification.
  • Organizations that have lost their 501(c)(3) status because of excess lobbying are barred from applying for 501(c)(4) status.


Political Activity

  • Political activity is permitted, but cannot be the organization's primary purpose, and will in most cases incur a penalty tax.
  • In some cases, (c)(4)s may be required to notify members that a portion of dues is not deductible because of political expenditures made by the organization.  Organizations may elect to pay a proxy tax instead of making this notification.
  • Organizations that have lost their 501(c)(3) status because of political activity are barred from applying for 501(c)(4) status.


Examples

  • Junior Chambers of Commerce (Jaycees) 
  • Lions
  • Rotary
  • volunteer fire departments
  • community-wide athletic or recreational activities, 
  • festivals centered around regional customs or traditions.
  • Before 501(c)(19) was enacted, the IRS recognized many veterans groups under section 501(c)(4)
  • At the end of fiscal year 2015, there were 84,155 501(c)(4) organizations, about 5.43% of all 501(c) organizations

Links:

  • Information about points of intersection between social welfare organizations and the IRS. Life Cycle of a Social Welfare Organization
  • IRS Publication 557, Tax Exempt Status for Your Organization
  • Social welfare organizations are the next most common type of 501(c) organizations after 501(c)(3).  There are many Exempt Organizations Continuing Professional Education articles on social welfare organizations.  The best way to access these is through the Exempt Organizations CPE Topical Index.
  • IRC 501(c)(4) Organizations, 2003 Exempt Organizations Continuing Professional Education Technical Instruction Program, Topic I.  This is the most recent CPE article.
  • Section 504 of the Internal Revenue Code - Organizations that have lost their 501(c)(3) status because of political activity or excess lobbying are barred from applying for 501(c)(4) status.
  • Compliance Guide for Tax-Exempt Organizations (Other than 501(c)(3) Public Charities and Private Foundations)  IRS Publication 4221-NC
  • Section 7.25.4  of the Internal Revenue Manual

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Return to Alternatives to 501(c)(3) Status

This website has only a fraction of the information you can find in Prepare Your Own 501(c)(3) Application:

501(c)(4) Social Welfare Organizations