Choosing 501(c)(3) or 501(c)(4), and Applying to the IRS

By the time a group reaches this lesson it usually exists under Idaho law: an unincorporated association or a nonprofit corporation with articles on file (lesson 1 and lesson 2). Idaho has no opinion on which federal tax status you pick. The Secretary of State registers the corporation; the IRS decides whether its income is exempt and whether gifts to it are deductible. The choice between (c)(3) and (c)(4) is the most consequential decision a new advocacy group makes after its name, because it decides who can fund you, how much you may lobby and what your donors' names are exposed to. It is also hard to undo. A charity's assets are permanently dedicated to charitable purposes, so a (c)(3) cannot simply convert itself into a (c)(4) and take its bank balance along.

The campaign side of this choice, what each type may say and spend in an election, is covered in depth in Nonprofits in Politics in the PACs and electioneering course. Lobbying limits get their own worked calculation in lesson 9. This lesson is about the organizational decision and the paperwork.

What each status is for

The Internal Revenue Code lists more than two dozen kinds of exempt organizations in section 501(c). Four matter to most advocacy groups.

• 501(c)(3) covers groups organized and operated exclusively for charitable, educational, religious, scientific and similar purposes. For an advocacy group the hook is usually "educational": research, public education, nonpartisan analysis, training. No part of its earnings may benefit insiders, no substantial part of its activity may be lobbying, and it may not intervene in any candidate campaign.
• 501(c)(4) covers civic leagues and social welfare organizations, operated primarily to promote the common good of a community. The Form 1024-A instructions put the political limit plainly: promoting social welfare does not include campaign intervention, but a group organized primarily for social welfare can still be exempt "even if you participate legally in some political activity" for or against candidates. Lobbying for its cause can be its main activity.
• 501(c)(6) covers business leagues, chambers of commerce and trade associations, formed to improve conditions in a line of business. Some political activity is allowed. It is the right status for a group of businesses, not for a citizens' group.
• Section 527 political organizations exist mainly to influence elections. In Idaho that role is usually filled by a PAC registered with the Secretary of State. Forming and Running a PAC covers it.

Question	501(c)(3) public charity	501(c)(4) social welfare	501(c)(6) business league	527 / Idaho PAC
Main purpose	Charitable, educational, religious, scientific	Social welfare of a community	Common business interest of members	Influencing elections
Gifts deductible as charity?	Yes, under IRC 170(c)(2)	No	No (dues may be a business expense, minus the lobbying share)	No
Lobbying	Limited (substantial part test or 501(h) dollar limits)	Unlimited if it serves the purpose	Allowed if it serves the purpose	Allowed
Candidate campaigns	Banned outright	Allowed if not the primary activity; 527(f) tax may apply	Allowed if not the primary activity	Its main purpose
Donor names on Schedule B for the IRS	Yes (never on the public copy)	No, amounts only since 2020	No, amounts only since 2020	527s yes; Idaho PACs report donors to the Secretary of State
How to get recognized	Form 1023 ($600) or 1023-EZ ($275)	Form 8976 notice ($50) required; Form 1024-A ($600) optional	Form 1024 ($600) optional	Idaho PAC registers in the Sunshine portal
Private foundation grants	Routine	Possible, for charitable projects, with expenditure responsibility	Rare	Effectively none
Idaho charitable raffle license	Eligible	Eligible	Eligible	Not eligible

Fees are the 2026 amounts in Rev. Proc. 2026-5, Appendix A, as of October 2026; the IRS updates them each January. The raffle row comes from the definition of "charitable organization" in Idaho Code 67-7702, which lists 501(c)(3), (c)(4) and (c)(6) groups among others and also requires at least one year of continuous existence in the county and charitable activities; the licensing rules, run by the Idaho Lottery, are in lesson 7.

Deductibility: why donors ask first

The charitable deduction belongs to the donor, but it shapes the whole budget. Individuals who itemize, corporations and, above all, private foundations care whether a gift counts as a contribution to an organization described in IRC 170(c)(2). Only a (c)(3) (and a few other categories such as governments and veterans' groups) qualifies. A gift to a (c)(4) is not a charitable deduction, though a business may sometimes deduct (c)(4) or (c)(6) dues as an ordinary expense minus the part spent on lobbying, which those groups must tell members about or pay a proxy tax (see lesson 9).

Two federal rules soften the (c)(4) side. Large gifts to a (c)(4), (c)(5) or (c)(6) are outside the federal gift tax under 26 U.S.C. 2501(a)(6), so a donor who gives a social welfare group $100,000 does not use up a lifetime exemption. And no one has to guess: a (c)(4) whose gross receipts are normally over $100,000 must say in its fundraising solicitations that gifts are not deductible as charitable contributions. That notice rule is in lesson 7.

What about gifts that arrive while a charity's application is pending? The IRS's page on pending applications says donors get no advance assurance. If the group is later recognized for the period when the gift was made, the gift is deductible. If not, it is not. Tell early donors exactly that.

Donor disclosure: what the IRS sees and what the public sees

Every Form 990 or 990-EZ filer that takes in large gifts attaches Schedule B. The Schedule B instructions set the general rule at contributors who gave $5,000 or more in the year. A (c)(3) that meets the one-third public support test lists only donors whose gifts exceeded the greater of $5,000 or 2 percent of its total contributions. The IRS's own example: a charity with $700,000 in contributions lists only donors above $14,000.

Since T.D. 9898 took effect in 2020, only 501(c)(3)s and 527s give donor names and addresses to the IRS. A (c)(4) or (c)(6) reports amounts and writes "N/A" for names, but the instructions say it must still collect and keep the names. Either way, the public copy of a charity's or (c)(4)'s Schedule B leaves names out. Private foundations and 527s that file the 990 are the exceptions; their Schedule B is open.

That is the federal picture, and it is the one most boards know. The Idaho picture is different once the group spends money on Idaho elections. Under Idaho Code 67-6606, a nonbusiness entity that spends more than $1,000 in a calendar year supporting or opposing Idaho candidates or measures files a statement within 30 days listing everyone who paid it more than $500 in either of the two prior calendar years, or who paid or agreed to pay more than $500 in the current year. Tax status does not change that. A (c)(4) chosen partly for donor privacy loses that privacy the day it writes a large check on a levy, unless it routes the political work through a separate PAC, as course 46, lesson 8 explains.

Lobbying, campaigns and grants in one view

The (c)(3) lobbying limit is real but often larger than people think. A charity that elects 501(h) and spends $300,000 a year on its programs may spend up to 20 percent of that, $60,000, on lobbying, with a lower sub-limit for grassroots lobbying. Ballot measures count as lobbying, not campaigning, so a charity may work on a bond or an initiative within that limit. What it may never do is help or oppose a candidate. Lesson 9 walks the numbers.

Grants are where the (c)(3) label pays for itself. A private foundation that gives to another public charity has a simple job. A foundation that gives to anyone else, a (c)(4) included, must exercise "expenditure responsibility" under 26 U.S.C. 4945(d)(4) and (h): pre-grant inquiry, a written agreement, reports from the grantee and reports to the IRS. The grant must still be for a charitable purpose, and none of it may pay for lobbying. Many foundations decline that paperwork and fund only public charities. A new group whose budget depends on foundation money almost always needs to be a (c)(3), or to start under a fiscal sponsor that is one (see lesson 1).

Applying for 501(c)(3): Form 1023 or Form 1023-EZ

Most charities must apply. The Form 1023 instructions list the groups that are treated as exempt without applying: churches and their integrated auxiliaries, and any organization whose gross receipts are normally not more than $5,000 a year. Even those may apply for a determination letter, and most advocacy groups want one, because banks, foundations, the Idaho Lottery and donors ask for it.

Both applications are online only, through Pay.gov, with the user fee paid at submission; the IRS stopped taking paper Form 1023s after a grace period that began January 31, 2020. The full Form 1023 asks for a narrative of past, present and planned activities, three to five years of actual or projected income and expenses, depending on how long the group has existed, the organizing documents and bylaws, compensation details and answers on conflicts of interest. The fee is $600. The Form 1023-EZ is a short set of attestations and a brief description of the group's mission or most significant activities. The fee is $275. Rev. Proc. 2026-5 sets both amounts for 2026.

The 1023-EZ is only open to groups that answer "no" to every question on the eligibility worksheet at the back of the 1023-EZ instructions. The ones that trip up advocacy groups:

Worksheet question (paraphrased)	"Yes" means use Form 1023
Do you project annual gross receipts over $50,000 in any of the next 3 years (this year and the next two)?	Gross receipts are everything received, before costs
Did annual gross receipts exceed $50,000 in any of the past 3 years?	A one-time big year counts
Do you have total assets with fair market value over $250,000?	Includes land, buildings, equipment, investments
Are you organized as something other than a corporation, unincorporated association or trust?	An LLC must use Form 1023
Are you formed as, or a successor to, a for-profit entity? Were you, or a group you succeeded, previously revoked (other than an automatic revocation for not filing)?	Full application needed
Are you currently or previously exempt under another part of 501(a)?	A (c)(4) moving to (c)(3) files the full form
Are you a church, school, hospital, supporting organization or private operating foundation?	Full application needed

The worksheet has more questions than this table; read the whole thing. Separately from the worksheet, a group past its 27-month window that wants an earlier effective date must use the full form. The EZ route is fast and cheap but thin. The IRS reviews a statistically valid random sample of 1023-EZ filings before deciding, and the attestations are made under penalties of perjury, including that your articles contain the required purpose and dissolution clauses. If they do not, fix the articles first (lesson 2 has the IRS's sample language). A group that is close to the $50,000 line, expects a large grant, or wants the IRS to bless an unusual structure is usually better served by the full form.

The 27-month rule and the effective date

Exemption is not just yes or no; it has a start date. The 1023 and 1023-EZ instructions say that if you file within 27 months after the end of the month in which you were legally formed, and the IRS approves, the effective date is your formation date. File later and the effective date is generally the day you filed. Gifts in the gap are not deductible, and income in the gap could be taxable.

There is a way back. A group past 27 months can ask for an earlier date on the full Form 1023, Schedule E, by showing it acted reasonably and in good faith and that relief will not prejudice the government. The 1023-EZ cannot make that request at all; past 27 months, a group wanting an earlier date must use the full form. The same 27-month timing appears in the 1024-A instructions for (c)(4) recognition.

Public charity or private foundation

Every (c)(3) starts out presumed to be a private foundation. The Form 1023 instructions say so in their first line on the subject: every section 501(c)(3) organization "is classified as a private foundation unless it qualifies for one of the public charity exceptions." Foundations face excise taxes on investment income, strict self-dealing rules, a payout requirement and lower deduction limits for donors. Advocacy groups want to be public charities, and most qualify by showing broad support.

The 509(a)(1) and 170(b)(1)(A)(vi) test. Publication 557 says a charity is publicly supported if it normally gets at least one-third of its total support from governmental units, from contributions made directly or indirectly by the general public, or from a mix. "Normally" means over the current year and the four before it, added together. The key limit: each donor's gifts count in the public portion only up to 2 percent of total support for the period, with a donor and related persons treated as one. Support from governmental units and grants from other publicly supported charities are not capped, unless a donor earmarked them for your group. A charity that falls below one-third but stays at or above 10 percent can still qualify under a facts and circumstances test that weighs things like an ongoing fundraising program, a board that represents the public and whether it serves the public directly.

The 509(a)(2) test fits groups that earn much of their money from activities tied to their mission: workshop fees, ticket sales, publications. It counts gifts, membership fees and gross receipts from related activities, but receipts from any one person or agency count only up to the greater of $5,000 or 1 percent of support in a year, and gifts from insiders (disqualified persons) do not count. The group must get more than one-third of its support from those sources and no more than one-third from investment income and net unrelated business income.

The first five years. A new charity cannot show five years of history, so Publication 557 says that if it can reasonably be expected to meet a support test during its first five tax years, it is treated as a public charity for those five years regardless of what support it actually receives. Starting in year six, it must pass the test on Schedule A of its Form 990. This replaced the old advance ruling system, under which new charities got a temporary ruling and later proved their support on Form 8734. The IRS's transition page says groups whose advance rulings expired on or after June 9, 2008 no longer file Form 8734, and that groups whose rulings expired before that date without filing are treated as private foundations until they request reclassification on Form 8940.

Starting a 501(c)(4): Form 8976 and Form 1024-A

A social welfare group is exempt by law if it meets the requirements; it does not need IRS permission. It does need to tell the IRS it exists. Section 506 of the tax code, added in 2015, requires a new (c)(4) to file Form 8976 within 60 days of being established. The IRS's Form 8976 page spells out the rest, as of October 2026:

• It is filed online only, through Pay.gov, with a $50 fee. If the fee is not paid within 14 days, the form is rejected.
• It asks for the name, address, EIN, date and state of organization, the month the tax year ends and a statement of purpose.
• Miss the 60 days and the penalty is $20 per day, up to $5,000.
• It is filed once. The group still files a Form 990, 990-EZ or 990-N every year.
• The IRS acknowledges a complete notice, generally within 60 days.

Form 1024-A is the optional application for a determination letter recognizing (c)(4) status. The 1024-A instructions list the reasons to bother: public recognition of exempt status, possible state tax exemptions, and nonprofit mailing privileges. It is filed online through Pay.gov with a $600 fee in 2026. Filing it does not satisfy the Form 8976 requirement. Form 1024 is a different form, used for most other 501(c) types, including (c)(6) business leagues; its instructions say not to use it for (c)(3) or (c)(4) applications.

Running a (c)(3) and a (c)(4) side by side

Plenty of causes need both kinds of money and both kinds of work. Research, public education and training fit a charity. Lobbying campaigns, bill tracking with calls to action and some election work fit a social welfare group. The Supreme Court described this arrangement in Regan v. Taxation With Representation of Washington (1983). It upheld the (c)(3) lobbying limit partly because the group could set up a (c)(4) affiliate to lobby, as long as the two were separately incorporated and kept records showing deductible gifts did not pay for lobbying.

The IRS spelled out its expectations in a 2000 training text for its own agents, Affiliations Among Political, Lobbying and Educational Organizations. It will respect a (c)(4) affiliate as separate from a (c)(3) when:

1. The (c)(4) is separately organized.
2. It keeps records and bank accounts separate from the (c)(3)'s.
3. Paid officers, directors or employees who work for both have their time allocated by what they actually work on.
4. Other shared goods, services and facilities are reasonably allocated.

The text sums it up: the affiliate must observe the formalities of its separate status and deal with the charity at arm's length, or its activities may be treated as the charity's own, "especially if the IRC 501(c)(3) organization provides any subsidy." A (c)(3) may create and control a (c)(4). The rules are stricter for a political committee: the same text says a charity may not formally control a 527 or use any of its assets, including staff, mailing lists and its name or goodwill, to set one up or run it. In Idaho, a PAC tied to the pair should hang off the (c)(4), not the (c)(3).

Deciding which fits

Most new Idaho advocacy groups can answer the question with three facts: where the first two years of money will come from, how much of the work is lobbying, and whether anyone wants to work on candidate races.

Questions and answers

Can we start as a (c)(4) and become a (c)(3) later?

Yes, but the (c)(3) must meet the charitable rules from its start date, and the 1023-EZ is closed to a group that is or was exempt under another part of 501(a). Many groups that start as a (c)(4) end up forming a new (c)(3) beside it instead.

Can a (c)(3) give money to its (c)(4)?

Only for charitable purposes, with a written grant agreement restricting the money to that use, and it still may not pay for the (c)(4)'s lobbying beyond the charity's own limit or for any campaign work. Payments for shared costs should run the other way: the (c)(4) reimburses the (c)(3).

Do we need a determination letter to open a bank account?

No. Banks open accounts with the articles, the EIN letter and a board resolution. Some ask for the letter later for nonprofit pricing.

Our (c)(4) wants Idaho Lottery raffle eligibility. Does it need the 1024-A letter?

Idaho Code 67-7711(2)(c) asks charitable organizations for a copy of the exemption application and an IRS determination letter stating the section of exemption, and asks incorporated nonprofits for a Secretary of State certificate of existence showing good standing. The statute does not say how the Lottery treats a (c)(4) that never filed Form 1024-A, so ask the Lottery's charitable gaming staff before counting on a license without the letter. Only raffles whose merchandise prizes exceed $5,000 in total need a license at all (67-7713). Raffle rules are in lesson 7.