A 501(c)(4) is a tax-exempt organization under the Internal Revenue Code (IRC). Section 501(c)(4) of the IRC exempts civic leagues, social welfare organizations, and local associations of employees from federal income taxation.
To qualify for 501(c)(4) status, an organization must be organized and operated exclusively to promote social welfare. Promoting social welfare includes:
- Advancing such purposes as improving community health.
- Preventing disease.
- Providing safe and adequate housing.
- Building better roads and bridges.
- Providing care for the aged and disabled.
- Improving job opportunities.
In addition to being organized and operated for the promotion of social welfare, a 501(c)(4) organization must not be organized or operated for profit. The organization must also be engaged in activities that benefit the community rather than primarily benefit its members.
Who Can Achieve This Status?
The IRS grants 501(c)(4) status to organizations it believes promote social welfare. The IRS does not require that 501(c)(4) organizations engage in any specific activity or meet any specific criteria. However, the IRS has stated that for an organization to be considered exempt under 501(c)(4), it must not be organized or operated for the benefit of private interests.
Organizations that meet the requirements for 501(c)(4) status are exempt from federal income tax on their earnings. In addition, donors to 501(c)(4) organizations can deduct their contributions from their federal income taxes.
Why The 501(c)(4) Appeals To Crypto Organizations
Cryptocurrency companies may want to register as a 501(c)(4) to take advantage of the tax-exempt status. It may be tricky to qualify for tax exemption. Additionally, 501(c)(4) status would allow crypto companies to accept tax-deductible donations.
A few potential risks are associated with registering a crypto company as a 501(c)(4).
First, it is essential to note that 501(c)(4) status is reserved for organizations that are considered “social welfare” organizations. As such, there is a risk that the IRS could question whether a crypto company’s primary purpose is social welfare and whether it is engaging in activities that further social welfare.
Second, 501(c)(4) status comes with a few restrictions, including the prohibition of political activities and lobbying. If the IRS believes that a crypto company is engaging in these activities, it could revoke the company’s 501(c)(4) status.
Finally, it is worth noting that 501(c)(4) status does not exempt an organization from paying taxes. Crypto companies that register as 501(c)(4)s will still be required to pay taxes on their income.
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