The IRS divides most non-profit organizations into two separate categories: 501(c)(3) and 501(c)(4). “Both are chartered in their own state and legally exempt from paying corporate income taxes. They are different in how much lobbying they can do and in whether donors can deduct contributions from the income on which they pay taxes.” (Flanagan, The Successful Volunteer Organization. p. 69)
The percentages and classifications are as follows:
501(c)(3): Donations are tax deductible to the giver; the organization pays no tax on income related to its tax-exempt purpose. The IRS provides that an organization exempt under this section will lose its tax-exempt status and its qualification to receive deductible charitable contributions if a “substantial” part of its activities is carried on to influence legislation. A 501(h) election, however, permits certain 501(c)(3) organizations to spend up to 20 percent of their time on lobbying to influence legislation. This election gives the organization an objective, measurable standard to work with compared with the ambiguous “substantial” criteria. NOW, Inc. is not a 501(c)(3) organization. NOW Foundation is a 501(c)(3) organization with a 501(h) election.
501(c)(4): Donations are not tax deductible to the giver; the organization pays not tax on income related to its tax-exempt purpose. The IRS provides that an organization under this status may spend up to 100 percent of its time lobbying. NOW, Inc. is a 501(c)(4) organization. We are categorized as a social welfare organization.
Neither 501(c)(3) or 501(c)(4) organizations may engage in candidate-related electoral activity. Note that support or opposition to a judicial nominee is considered lobbying and falls under the above guidelines. Also, most states and localities exempt (c)(3) organizations from sales tax, but do not exempt (c)(4)s.
In 1979, NOW filed for inclusion of chapters and states under a Group Exemption. Those chapters and states which apply for inclusion by applying for an EIN (Employer Identification Number) through NOW are accorded 501(c)(4) tax status as a subsidiary of the parent organization (NOW, Inc.). Those states and chapters that already have an EIN are included under NOW’s Group Exemption. Those that do not should request one.
EIN application information is available in this file. Each year, the list of participating chapters and states must be updated for additions, deletions and address/contact corrections. In addition to needing an EIN for financial institutions and IRS records, you would need to have it in order to apply for a bulk mail permit.
Please note that while the copy of the 1979 letter granting chapters and states inclusion under National NOW’s group exemption is valid, some of the information is no longer current. For example, the cut off for filing a Form 990 was $10,000 in 1979, but currently is $25,000.
If you have any questions about NOW’s tax status, please contact our Chapter Services Specialist at (202) 628-8669 or firstname.lastname@example.org.