Can 501(c)(4) Nonprofits Help 501(c)(3) Nonprofits Plan?
The differences between 501(c)4 and 501(c)3 charities are subtle. A 501(c)4 organization is one formed for civic and social welfare purposes, as is a 501(c)3. The primary difference is the way each kind of organization raises money. They can act together in some ways, but two differently chartered tax-exempt organizations working together need to be careful with money exchanges. When it comes to planning, 501(c)4s have many opportunities to help 501(c)3s. It often depends on the type of planning relative to the mission of each. If a transfer of funds is involved, the exchange could jeopardize each organization's tax exempt status.
One of the most basic objects of a tax exempt organization is to use its status for a relatively narrow purpose. Funding for 501(c)4 organizations comes from membership dues or other member-supported finances. Donations to 501(c)4 organizations are not tax deductible. Under federal law, a 501(c)4 may lobby politically as long as that is not the group's primary activity. By contrast, funding for 501(c)3 organizations comes from charitable contributions primarily from outside the organization. Donations to these organizations are tax deductible. These organizations may not contribute to political campaigns.
Planning for financial stability or long term mission-oriented goals is something a 501(c)4 can help a 501(c)3 organization accomplish. Also, the 501(c)4 can pay consultants or otherwise fund specialists that further the 501(c)3's mission, but the law does limit what the 501(c)4 can do with funds it claims are tax exempt. If even the suggestion of political activism is present in the planning help provided by a 501(c)4, the boards of directors of each organization should closely examine the implication of any planning help.
If a 501(c)4 wants to help a 501(c)3 plan its long-term finances by funding an internal audit or marketing plan, the potential for conflict is minimal. Likewise, organizational planning, human resources management and even marketing plan development provide opportunities for nonprofit partnerships. If a politically active 501(c)4 aids a 501(c)3 in strategic planning to further a political cause, however, the potential for conflict is great. Boards of directors of both organizations should avoid the appearance of political collusion. Not only could the particular planning project be called into question, but the overall tax exempt status of both the 501(c)4 and 501(c)3 could be jeopardized.
Members of 501(c)4 organizations are not banned from volunteering for 501(c)3 organizations. Rather than provide planning help as an organization, a 501(c)4 might encourage its members to donate time and resources to a particular 501(c)3. Members of the 501(c)4 could be encouraged to make a tax deductible donation to a particular 501(c)3. The laws don't prohibit a person being a member of more than one board of directors and providing help in that way.