Choosing the Right Nonprofit Classification: 501(c)(3) vs. 501(c)(6)

Choosing the Right Nonprofit Classification: 501(c)(3) vs. 501(c)(6)

An article by Wild Apricot suggests that when deciding between 501(c)(3) and 501(c)(6) nonprofit classifications, it’s essential to understand their distinct missions and benefits, as each impacts fundraising strategies, political activities, and revenue models.

501(c)(3) organizations focus on public-serving causes such as education, healthcare, and social welfare. These nonprofits can accept tax-deductible donations, which helps attract individual and corporate donors, foundations, and grants. Fundraising strategies include annual drives, major donor programs, and recurring donations. However, they face restrictions on political activities, with lobbying allowed only as a small part of operations. Examples include the American Heart Association and Feeding America.

On the other hand, 501(c)(6) organizations serve specific industries or professions, such as chambers of commerce or trade associations. Their revenue typically comes from membership dues, conferences, and professional certification programs. Unlike 501(c)(3)s, they can engage extensively in political lobbying, support candidates, and advocate for industry-specific legislation. For example, a real estate association may lobby for zoning laws that benefit its members. However, donations to 501(c)(6)s are not tax-deductible.

The article reminds association executives that the decision depends on whether their mission centers on public service or advancing a profession. If the focus is on social causes and needs access to tax-deductible donations, 501(c)(3) is likely the better choice. If the goal is advocacy for a specific industry, a 501(c)(6) structure may better align with your mission and fundraising approach. Carefully consider your organization’s vision and long-term impact to determine the right classification for success.