501(c)(3) vs 501(c)(4): Which Is Right for Your Organization?

If you're starting a mission-driven organization, you'll likely choose between two tax-exempt structures: 501(c)(3) and 501(c)(4). Both are exempt from federal income tax, but they serve different purposes and come with very different rules about donations, lobbying, and political activity.

This guide breaks down every meaningful difference, explains the lobbying and political activity rules, covers the hybrid structure option, and gives you a decision framework to choose the right path.

Complete Comparison

Factor	501(c)(3)	501(c)(4)
Tax-deductible donations	Yes — donors can deduct on their taxes	No — donations are not tax-deductible
Federal income tax exempt	Yes	Yes
State income tax exempt	Usually yes (with application)	Varies by state
Lobbying	Limited — cannot be a "substantial part"	Unlimited — can be primary activity
Political campaign activity	Absolutely prohibited	Allowed if not primary activity
Donor disclosure	Public (donors >$5K on Schedule B)	Private (donors not disclosed publicly)
Foundation grants	Eligible	Usually not eligible
Government grants	Eligible	Sometimes eligible
IRS application form	Form 1023 or 1023-EZ	Form 1024
IRS filing fee	$275 (1023-EZ) or $600 (1023)	$600
Annual filing	Form 990, 990-EZ, or 990-N	Form 990 or 990-EZ
Organizational test	Organized exclusively for exempt purposes	Organized to promote social welfare
Operational test	Operated exclusively for exempt purposes	Primarily engaged in social welfare
Private benefit restriction	Strict — no private inurement	Strict — no private inurement
Public charity vs. private foundation	Must qualify as one or the other	N/A — no classification

Understanding the Key Differences

Tax-Deductible Donations

This is the single biggest practical difference.

501(c)(3): Donations are tax-deductible for the donor under Section 170 of the Internal Revenue Code. This matters enormously for fundraising — individual donors, especially major donors, expect their gifts to be deductible. Corporate donors often require it. Foundation grants almost always require 501(c)(3) status.

501(c)(4): Donations are not tax-deductible. Donors can still give, but they receive no tax benefit. This limits your fundraising pool — most individual and institutional donors prefer to give to 501(c)(3) organizations. However, dues paid to a 501(c)(4) may be deductible as a business expense if the organization serves the donor's business interests.

Lobbying Rules

501(c)(3) — Limited lobbying:

A 501(c)(3) can engage in lobbying (attempting to influence legislation), but it cannot be a "substantial part" of its activities. There are two ways the IRS measures this:

Test	How It Works	Safe Harbor
Substantial part test (default)	Subjective — IRS evaluates based on time, money, and effort spent on lobbying	No specific threshold; the IRS considers "all relevant facts and circumstances"
501(h) election (opt-in)	Objective — specific dollar limits based on exempt purpose expenditures	Up to 20% of the first $500K, with decreasing percentages for larger budgets; max $1M total

Types of lobbying under 501(c)(3):

• Direct lobbying — Communicating with legislators about specific legislation
• Grassroots lobbying — Encouraging the public to contact legislators about specific legislation

What's NOT lobbying for a 501(c)(3):

• Nonpartisan analysis, study, or research made available to the public
• Providing technical assistance to a legislative body at its request
• Self-defense lobbying (on matters affecting the organization's existence, powers, or tax-exempt status)

501(c)(4) — Unlimited lobbying:

A 501(c)(4) can spend 100% of its resources on lobbying. This is the primary advantage of the 501(c)(4) structure for advocacy organizations.

Political Campaign Activity

501(c)(3) — Absolutely prohibited:

A 501(c)(3) cannot participate or intervene in any political campaign for or against any candidate for public office. Period. This includes:

• Endorsing or opposing candidates
• Making donations to campaigns
• Publishing voter guides that favor one candidate
• Allowing candidates to use organizational resources
• Posting partisan content on the organization's social media

Violation = loss of tax-exempt status. The IRS takes this seriously.

What a 501(c)(3) CAN do:

• Nonpartisan voter registration drives
• Nonpartisan voter education (presenting all candidates equally)
• Hosting nonpartisan candidate forums (all candidates invited, equal time)
• Encouraging civic participation generally

501(c)(4) — Limited political activity:

A 501(c)(4) can engage in political campaign activity as long as it's not the organization's primary activity. The IRS generally interprets this to mean less than 50% of time, money, and effort — though there's no bright-line rule.

This includes:

• Endorsing candidates
• Running issue ads that reference candidates
• Contributing to political campaigns
• Operating a connected PAC (Political Action Committee)

Donor Privacy

501(c)(3): Donor names and amounts over $5,000 are reported to the IRS on Schedule B of Form 990. While Schedule B is not required to be made public, the rest of Form 990 is available for public inspection.

501(c)(4): Donor information is reported to the IRS but is not available for public inspection. This makes 501(c)(4) organizations attractive for donors who want to support advocacy without public disclosure. This is sometimes called "dark money" in political contexts.

Foundation and Government Grants

501(c)(3): Eligible for grants from private foundations, community foundations, and government agencies. Most institutional funders require 501(c)(3) status.

501(c)(4): Generally not eligible for private foundation grants. Foundations can face excise taxes for grants to non-501(c)(3) organizations. Some government grants are available to 501(c)(4) organizations, but it's less common.

When to Choose 501(c)(3)

Choose 501(c)(3) if:

• Your primary purpose is charitable, educational, religious, or scientific — direct service delivery, research, education, poverty relief, healthcare, etc.
• You need tax-deductible donations — individual donors, major gifts, planned giving
• You want foundation grants — nearly all require 501(c)(3) status
• You want government grants — most require or prefer 501(c)(3)
• Lobbying is secondary — you may advocate, but it's not your primary activity
• You don't need to endorse candidates — political campaign activity is completely off the table

Examples of 501(c)(3) organizations:

• Habitat for Humanity (housing)
• American Red Cross (disaster relief)
• Local food bank (hunger relief)
• University (education)
• Church or synagogue (religion)
• Community health clinic (healthcare)

For a step-by-step guide, see How to Start a 501(c)(3).

When to Choose 501(c)(4)

Choose 501(c)(4) if:

• Your primary purpose is social welfare or civic engagement — community improvement, voter engagement, neighborhood associations
• Lobbying is central to your mission — you want to spend the majority of your resources influencing legislation
• You want to engage in political activity — endorsements, issue ads, campaign support
• Donor privacy matters — your supporters prefer anonymous giving
• You don't depend on tax-deductible donations — your funding comes from membership dues, earned revenue, or donors who don't need the deduction

Examples of 501(c)(4) organizations:

• Sierra Club (environmental advocacy)
• National Rifle Association (gun rights advocacy)
• AARP (senior advocacy)
• Homeowners associations
• Volunteer fire departments
• Local civic leagues

The Hybrid Structure: Having Both

Many organizations create affiliated entities — a 501(c)(3) and a 501(c)(4) that work together:

Entity	Purpose	Funding
501(c)(3) arm	Charitable programs, education, research	Tax-deductible donations, foundation grants, government grants
501(c)(4) arm	Lobbying, advocacy, political activity	Membership dues, non-deductible donations

Requirements for a hybrid structure:

• Separate legal entities (separate incorporation, separate EIN)
• Separate boards (some overlap is acceptable, but not identical)
• Separate books and bank accounts
• Separate fundraising (501(c)(3) funds cannot be used for political activity)
• Arm's-length transactions between the entities

Example: The Sierra Club Foundation is a 501(c)(3) that funds conservation research and education. The Sierra Club itself is a 501(c)(4) that engages in lobbying and political endorsements. They're separate legal entities with separate governance.

This is complex and expensive to maintain. Most new organizations should start with one entity and consider adding a second only if their activities clearly require both structures.

Application Process Comparison

Step	501(c)(3)	501(c)(4)
Incorporate in your state	Required	Required
Get an EIN	Required	Required
Draft bylaws	Required	Required
IRS application	Form 1023 ($600) or 1023-EZ ($275)	Form 1024 ($600)
Approval time	2-4 weeks (1023-EZ) or 3-6 months (1023)	3-6 months
State registrations	Tax exemption + charitable solicitation	Tax exemption (if applicable)
Annual filing	Form 990 (public)	Form 990 (public, but Schedule B is private)

Note: A 501(c)(4) can begin operating before receiving its IRS determination letter. A 501(c)(3) technically can too, but most donors and funders won't give until you have your determination letter in hand.

Decision Framework

Ask yourself these five questions:

1. Do you need tax-deductible donations to fund your work?

• Yes → 501(c)(3)
• No → Either structure works

2. Will lobbying be your primary activity?

• Yes → 501(c)(4)
• No → 501(c)(3)

3. Do you want to endorse or oppose political candidates?

• Yes → 501(c)(4) (or hybrid)
• No → 501(c)(3)

4. Do you need foundation or government grants?

• Yes → 501(c)(3)
• No → Either structure works

5. Is donor privacy a priority?

• Yes → 501(c)(4)
• No → Either structure works

If most of your answers point to 501(c)(3), start there. You can always add a 501(c)(4) affiliate later if your advocacy work grows.

If most of your answers point to 501(c)(4), be prepared for more limited fundraising options. Consider whether a hybrid structure makes sense from the start.

Not sure? Take our 501(c)(3) Eligibility Quiz — it takes 2 minutes and recommends the best path based on your specific situation.

Other Tax-Exempt Structures

501(c)(3) and 501(c)(4) aren't the only options:

Structure	Purpose	Examples
501(c)(6)	Business leagues, trade associations	Chamber of Commerce, industry associations
501(c)(7)	Social and recreational clubs	Country clubs, hobby clubs
501(c)(13)	Cemetery companies	Nonprofit cemeteries
501(c)(19)	Veterans' organizations	VFW posts, American Legion
527	Political organizations	PACs, campaign committees
Fiscal sponsorship	Projects that don't need their own entity	New initiatives under an existing 501(c)(3)

For most mission-driven organizations, the choice is between 501(c)(3) and 501(c)(4). If neither fits, consult a nonprofit attorney.

For the complete startup process, see How to Start a Nonprofit. If fiscal sponsorship might be a better fit, see Fiscal Sponsorship for New Projects. Whichever structure you choose, fund accounting keeps your finances organized from day one.

Ready to set up your new nonprofit? Schedule Your Free Setup | Start Free — Under $100K in Donations

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Related:

• How to Start a Nonprofit: The Complete 2026 Guide
• How to Start a 501(c)(3)
• Fiscal Sponsorship vs. Starting a 501(c)(3)
• How to File IRS Form 1023