To be exempt from tax as a social welfare organization described in Section 501(c)(4) of the Internal Revenue Code (IRC), an organization must not be organized for profit. It must operate only to promote well-being. An organization's profits under section 501(c)(4) cannot be accrued for the benefit of individual or private shareholders. Suppose the organization engages in a surplus profit transaction with a substantial influence over the organization. In that case, special fees may be imposed on the person or managers who accept the transaction.
New legislation passed at the end of 2015 added Section 506 to the Internal Revenue Code. Section 506 requires an organization to notify the IRS of its intention to operate as an organization under Section 501(c). The IRS has developed a new form, Form 8976, that organizations must use to provide this notice.
This requirement only applies to organizations that intend to operate per Section 501(c)(4). Organizations operating under any other Section 501(c) are not required to file this notice. To be managed exclusively to promote social well-being, an organization must function primarily to promote the common good and the general well-being of community members (for example, by achieving civic and social improvement). For example, an organization that restricts its facilities to selected company employees and their guests primarily benefit from a private group rather than the community. It, therefore, cannot be considered an organization under section 501(c)(4). Likewise, an organization formed to represent tenants who are members of an apartment complex is not eligible because its activities benefit member tenants and not all tenants in the community, while an organization formed to promote the legal rights of all tenants in a certain community can qualify under section 501 (c)(4) as a welfare organization.
An organization does not function primarily to promote social welfare if its primary activity is to operate a social club for the benefit, pleasure, or entertainment of its members or conduct business with the public in a similar manner to for-profit organizations.
Seeking laws relevant to the organization's programs is an acceptable way to achieve social protection goals. Therefore, a 501 (c)(4) social welfare organization can further its exempt purposes through lobbying as its core activity without compromising its exemption status. An organization that has lost its section 501(c)(3) status due to substantial attempts to influence legislation can no longer be considered a section 501(c)(4) organization. In addition, a section 501(c)(4) organization that engages in lobbying may be required to inform its members of the percentage of fees paid that apply to lobbying or to pay a proxy tax.
The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns for or against any candidate for public office. However, a 501(c)(4) social assistance organization may participate in certain political activities, as long as this is not its main activity. However, any political activity expense may be taxed per Section 527(f).
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