Charitable organizations provide services to the public. These include services to underprivileged people, promotion of religious activities or promotion of civil rights. Statutory provisions that distinguish the respective privileges of such organizations are contained in Section 501(a) and Section 501 (c)(3) of the Internal Revenue Code. The major differences between 501(a) and 501(c)(3) organizations involve their membership, involvement in political activities, funding, incorporation and the tax regulations on contributions made to them. However, the main aim of establishing such organizations isn't to enrich their founders but to take care of public interests.
Although both 501(a) and 501(c)(3) organizations are nonprofit, there are differences in how they are established. A 501(c)(3) is formed as a public charity or private foundation whose membership is open to the public. A 501(a) organization is formed exclusively to promote the welfare of a certain group of people such as employees. Membership is limited to the group whom the organization represents.
Political Campaigns and Lobbying
Charitable organizations formed under Section 501(a) are allowed to lobby for political candidates. This may include printing or publishing supportive literature or organizing for public debates and public opinion polls. Section 501(c)(3) organizations are prohibited from lobbying and shouldn't engage in campaigns for people seeking political office.
Contributions and Tax Liability
Contributions to 501(a) organizations aren't tax deductible. However, contributions to a 501(c)(3) are deducted from the donor's tax liability. Businesses making such donations are permitted to write off the donations as legitimate business expenses.
A 501(c)(3) is also classified as a private entity. Its funding comes from an individual, family, corporate organization or any other unitary source. Such organizations are restricted from soliciting funds from the public. In contrast, a 501(a) organization also classified as public entity can receive donations from the government, individuals or another organization.
Under the Internal Revenue Code, 501(c)(3) organizations should be established as funds, foundations or corporations. Assets owned by such associations should be used only for tax-exempt purposes. A 501(a) can be formed as a partnership. It's allowed to take part not only in activities that promote the interests of its members but also those that generate additional income.