Certain types of nonprofit corporations may apply to the Internal Revenue Service for recognition of tax-exempt status under section 501(c)(4) of the tax code. Foundations, corporations and government agencies provide grant funding to support the work of nonprofit organizations. Grant-awarding organizations require most potential grantees to have tax-exempt status. Section 501(c)(4) organizations, like the more familiar public charities awarded tax-exempt status under section 501(c)(3) of the tax code, may apply for grants if the organization meets eligibility requirements.
The IRS approves tax-exempt status under section 501(c)(4) for two types of organizations. Social welfare organizations, such as volunteer fire departments, are nonprofits with the sole purpose of promoting the social welfare. Local associations of employees are nonprofit membership organizations established for employees of specific municipalities. Under IRS tax codes, section 501(c)(4) organizations are noncharities that are also nonprofits.
Private foundations, which also are regulated under the IRS tax codes for nonprofit organizations, may award grants to 501(c)(4) corporations. The IRS limits private foundations to funding 501(c)(4) organization activities only if those activities are legally allowed for a 501(c)(3) organization. According to an article on the Northern California Grantmakers’ website, this rule discourages violation of tax codes that limit the use of tax-exempt status by 501(c)(3) organizations that engage in public policy activities. The IRS prohibits private foundations from awarding grants for general support of non-501(c)(3) organizations. Private foundations must designate such grant funds for specific charitable activities and prohibit the use of funds for lobbying activities.
Section 501(c)(4) corporations may apply to local and state municipalities for grants. Federal government agencies also award grants to 501(c)(4) corporations that do not engage in lobbying activities, even if the activities are funded by their own money. Often, a list of eligible applicants do not exclude 501(c)(4) organizations and may use other inclusive language under which the organizations may qualify. For instance, the eligible-applicants lists in federal grant announcements often include “nonprofits not awarded 501(c)(3) status” and “others,” as described in the announcement’s “Additional Information on Eligibility.”
Some corporations award grants to 501(c)(4) organizations under charitable giving programs. Community foundations, while under fewer restrictions than private foundations, still must confirm that grant funds will be used for a charitable purpose that benefits the public when making grants to 501(c)(4) organizations. A grant-making organization may choose to support a 501(c)(4) organization's charitable activities by awarding the grant to a nonprofit that works in partnership with the organization.
