Holifield & Associates, P.C., lawyers in Knoxville, TN, Tennessee

Social Welfare Organizations

An organization that operates only to promote social welfare may qualify for tax-exempt status under Internal Revenue Code Section 501(c)(4). The organization must be operated exclusively to promote social welfare, which means that it must work primarily to further the common good and general welfare of the community, such as by bringing about civic betterment and social improvements. No part of the organization's net earnings may benefit any private shareholder or individual, and if the organization provides an excess benefit to certain persons, the Internal Revenue Service may impose an excise tax on the group.

The IRS has concluded that an organization whose primary activity is operating a social club for the benefit, pleasure, or recreation of its members is not operating primarily for the promotion of social welfare, nor is one that carries on a business with the general public in a manner similar to a for-profit business.

A tax-exempt social welfare organization is permitted to seek legislation germane to the organization's programs. Thus, a social welfare organization does not jeopardize its tax-exempt status when it lobbies as a primary activity. However, a social welfare organization that engages in lobbying may be required to either notify its members regarding the percentage of dues paid that apply to lobbying activities or pay a proxy tax.

Although a social welfare organization is permitted to lobby as a primary activity, it may not participate or intervene directly or indirectly in political campaigns on behalf of or in opposition to any candidate for public office. However, it may engage in some political activities so long as that is not its primary activity, and any expenditure made for political activities may be subject to tax.

Examples of nonprofit organizations that qualify as social welfare organizations include:

Volunteer fire company that actively engages in fire fighting and similar disaster assistance.
Homeowners' association formed by a real estate developer to own and maintain common green areas, streets, and sidewalks and to enforce covenants to preserve the appearance of the area for the benefit of all members of the community.
Organization operating an airport on land owned by a local government and serving the community in an area with no other airport.
Community association working to improve public services, housing, and residential parking.
Community association operating to preserve a community's architecture, traditions, and appearance by representing the community before local governments and agencies.
Organization working to encourage industrial development and relieve unemployment.
Organization holding an annual festival of regional traditions.