The Wizarding World of Tax-Exempt Organizations

Blog

Tim Mooney

Topics

501(c)(4) Advocacy, Advocacy Capacity Building, Evaluating Advocacy, Lobbying, Private and Public Foundation Advocacy, Recordkeeping


At Bolder Advocacy, we demystify the rules of lobbying and elections for nonprofit advocates, but let’s be honest — the laws that govern this important topic are a bit dry. Sometimes we need to spice things up a bit to convey the important parts without inducing a sleep spell on folks who need the information. One of the more challenging nuggets is comparing the various tax-exempt organization structures, particularly given the naming convention for them is snatched from their relevant sections of the tax code, separated by a single digit. The difference between a 501(c)(3) and a 501(c)(5) isn’t easily remembered without a little more… magic?

Halloween being the season of warlocks, witches, and — perhaps most importantly — wizards, let’s borrow some of that magic from Hogwarts, a particularly famous fictional boarding school that loses more defense against dark arts teachers than Spinal Tap drummers. While it’s important to acknowledge the real world creator’s unsavory stance on transgender people suggests that the Death Eaters in her books may have been semi-autobiographical references, Potterverse fans have found ways to enjoy the creation separate and apart from the author. In celebrating that element of fandom, welcome to the wizarding world of tax-exempt organizations!

The Houses of the Tax Code

As you may know, after taking a very specific train to Hogwarts, first year students are assigned admittance to one of four houses by a mystical sorting hat. These houses — Ravenclaw, Slytherin, Hufflepuff, and Gryffindor — serve as the students’ home and extended family while attending Hogwarts. Every house is distinct and has a certain flair and personality that tends to match the student residents. In our tax-exempt wizarding world, we celebrate four organizational types that hew closely to Hogwarts’ famous houses:

501(c)(3) Public Charities: Ravenclaw

Ravenclaw house values knowledge, wisdom, and intellectual pursuits. Similarly, 501(c)(3) organizations are dedicated to educational, charitable, and philanthropic endeavors. They are known for their commitment to the greater good and have what some consider a tax status that is more favorable than a custom wand from Olivanders. Like Ravenclaw’s pursuit of wisdom, these organizations aim to enlighten and improve society through their work.

Section 527 Political Organizations: Slytherin

Slytherin house values ambition, cunning, and resourcefulness. Similarly, Section 527 organizations are often involved in political activities, advocacy, and campaigning. They are skilled at navigating the political landscape to achieve their goals, much like Slytherin’s knack for strategy. These organizations, however, focus on political objectives and have different tax implications than 501(c)(3) organizations that often puts them at odds with one another.

501(c)(7) Social Clubs: Hufflepuff

Hufflepuff house values hard work, loyalty, and a sense of community. Similarly, 501(c)(7) organizations serving as social clubs and recreational groups, are all about fostering camaraderie and shared interests among their members. Like Hufflepuff’s dedication to friendship, these organizations create close-knit communities.

501(c)(4) Social Welfare Organizations: Gryffindor

Gryffindor house values bravery, courage, and doing what is right. Similarly, 501(c)(4) organizations often engage in advocacy, lobbying, and sometimes political activities to champion causes they believe in. These organizations are not afraid to take bold actions and stand up for their principles, much like Gryffindor’s fearless and valiant spirit.

We’ve run out of Hogwarts houses!

And what of the numerous other tax-exempt types? What of the beloved 501(c)(13) qualified cemeteries? The 501(c)(5) labor unions? Those stories have yet to be told, but one would have to assume the 501(c)(13) house has to be a spooky story for a future Halloween entry.