First off: review this chart prepared by the Alliance for Justice. Learn it, memorize it, love it. It breaks down the entities by what kinds of advocacy each can do.
Short version: a 501(c)(3) is a non-profit for religious, charitable, or educational purposes. They are limited in terms of the amount of lobbying and advocacy they can do, and cannot touch elections. But donations are tax-deductible. This category includes institutions like the Red Cross, but also includes entities like The Heritage Foundation—which focuses on research and education on public policies, but doesn't do any lobbying on behalf of particular legislation and does no work to elect people to enact said policies. (It has an affiliated 501(c)(4), Heritage Action for America, for its lobbying work.)
A 501(c)(4) is a "social welfare" organization. It can do more than a (c)(3) in terms of advocacy, but donations to them are not tax-deductible. However, as with (c)(3)s, individual donors are not publicly disclosed. The current IRS scandal regards 501(c)(4) organizations. As they explain, their definition of "social welfare" is broader than yours:
To be operated exclusively to promote social welfare, an organization must operate primarily to further the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). For example, an organization that restricts the use of its facilities to employees of selected corporations and their guests is primarily benefiting a private group rather than the community and, therefore, does not qualify as a section 501(c)(4) organization. Similarly, an organization formed to represent member-tenants of an apartment complex does not qualify, because its activities benefit the member-tenants and not all tenants in the community, while an organization formed to promote the legal rights of all tenants in a particular community may qualify under section 501(c)(4) as a social welfare organization. An organization is not operated primarily for the promotion of social welfare if its primary activity is operating a social club for the benefit, pleasure or recreation of its members, or is carrying on a business with the general public in a manner similar to organizations operated for profit link].Follow below the fold for a breakdown of all that.
Seeking legislation germane to the organization's programs is a permissible means of attaining social welfare purposes. Thus, a section 501(c)(4) social welfare organization may further its exempt purposes through lobbying as its primary activity without jeopardizing its exempt status. An organization that has lost its section 501(c)(3) status due to substantial attempts to influence legislation may not thereafter qualify as a section 501(c)(4) organization. In addition, a section 501(c)(4) organization that engages in lobbying may be required to either provide notice to its members regarding the percentage of dues paid that are applicable to lobbying activities or pay a proxy tax. For more information, see Lobbying Issues.
The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity. However, any expenditure it makes for political activities may be subject to tax under section 527(f). For further information regarding political and lobbying activities of section 501(c) organizations, see Election Year Issues, Political Campaign and Lobbying Activities of IRC 501(c)(4), (c)(5), and (c)(6) Organizations, and Revenue Ruling 2004-6.
- "Social welfare" does not only mean things like feeding the homeless and saving the whales, and a 501(c)(4) can be completely ideological. Ideological is not the same as "political" in this context—it's the difference between "I support lower taxes" and "Vote for Rep. [X], because she supports lower taxes," or "Obama's policies are bad" versus "So don't vote for him."
- Before Citizens United, corporations could not engage in pro-federal candidate independent speech. Now they can, and that includes 501(c)(4) corporations. That's why applications rose dramatically in 2010.
- So what does the "primary purpose" test mean? No one's sure if that allows for a 51 percent/49 percent split between policy advocacy and electioneering work, requires more on the non-election side than that, or what. Some Democrats have asked the IRS to create a bright-line rule, as have others, but for now that remains up in the air.
- This WonkBlog piece is a good explainer of how the IRS vetting process is supposed to work, and what happened here.
- So as long as the Tea Party groups in question stated that their primary mission was promoting limited government, etc., then 501(c)(4) status would be warranted. There has been some interesting analysis as to whether heightened scrutiny was warranted, but it clearly was not given to similar progressive groups either in terms of level of review or pace of review.
First, a single umbrella organization can have multiple types of entities under it. For example, Planned Parenthood and the National Rifle Association each have a (c)(3) arm (research, education), a (c)(4) "action fund" arm (public advocacy), and a PAC (candidate support). There's a fantastic Alliance for Justice guide on how these wings can and can't coordinate.
So, for example, a 501(c)(4) can have an affiliated PAC or Super PAC. (See, e.g., the Priorities USA (c)(4), and Priorities USA Action Super PAC in 2012.) If it's a federal PAC, it can make direct contributions to candidates but has to derive money separately from individual donors, not the (c)(4) itself (because it's a corporation). If it's a Super PAC, then you can move unlimited funds (except as to the limits of the primary purpose test) directly from the (c)(4) to the Super PAC and use it to make independent expenditure ads on behalf of candidates, so long as it never coordinates with the candidates, and while the Super PAC has to disclose its contributors it need not disclose the underlying sources of who gave to the (c)(4) which gave to the Super PAC. (And that's what "dark money" is all about.)
A hybrid PAC, while we're on the topic, is a single entity combining a federal PAC (direct contributions to candidates, from limited sources) with a Super PAC (unlimited IEs, unlimited sources) in one entity with a single set of FEC filings. Totally legal.
Any questions? I've tried to focus this on (c)(4)s generally, and not so much the particulars of this situation.