Is Your 501(c)(4) Protected? Financial Best Practices to Reduce Risk

Protecting your organization starts with strong financial management. For 501(c)(4) and related political organizations, that means more than keeping clean books, but also safeguarding your assets, staying compliant with IRS and campaign finance rules, and maintaining the trust of donors, members, and the public.

A proactive approach to oversight, internal controls, and cybersecurity reduces risk and supports your mission’s long-term success.

What is a 501(c)(4) organization?

A 501(c)(4) is a tax-exempt nonprofit whose primary mission is to engage in social welfare activities. These entities are:

• Tax-exempt, though contributions are not tax-deductible
• Allowed to lobby or advocate for nonprofit causes
• Allowed to engage in some political activity, as long as it is not the organization’s primary purpose

The IRS generally treats two categories of activities as lobbying:

Political activity (campaign-related)

Activities connected to supporting or opposing candidates. Examples include:

• Voter education (public forums or nonpartisan voter guides)
• Voter registration and GOTV efforts
• Endorsing candidates (as long as political activity is not the primary purpose)

Legislative activity

Activities aimed at influencing legislation or asking legislators to act. Examples include:

• Hosting educational sessions on policy issues
• Preparing and distributing public policy briefs

At Wegner CPAs, we work with many advocacy and political organizations. Below are key best practices we recommend to our 501(c)(4) and political organization clients.

1. Governance & Oversight

Goal: Strong leadership and accountability

• Maintain an active, engaged Board that reviews financial statements regularly.
• Adopt clear policies covering:
  • Conflicts of interest
  • Whistleblower protection
  • Cybersecurity
  • Risk assessment
  • Document retention and destruction
• Document all major financial and compliance decisions in Board minutes.
• Consider creating an affiliated PAC to handle direct candidate contributions and other political activities. PACs are generally taxed under Section 527 and allow for clearer separation of political work.

2. Accounting & Recordkeeping

Goal: Accurate, transparent, and organized financial records

• Use a dedicated accounting system (QuickBooks, Sage Intacct, etc.) with fund tracking for programs, lobbying, and political activities.
• Record cost-sharing allocations for wages, professional fees, rent, and other shared costs.
• Partner with a CPA firm experienced in political compliance and, when needed, campaign finance attorneys.
• Reconcile bank accounts monthly and review transaction coding.
• Monitor political expenditures to ensure political activity does not become the organization’s primary purpose.

Donor disclosure considerations:

• Most 501(c)(4)s are not required to disclose donors on Schedule B of Form 990, except in New York and Connecticut.
• Internally, organizations must maintain names and addresses of substantial contributors for IRS inspection if requested.
• Clearly separate restricted, general, and political activity funds.

3. Compliance & Reporting

Goal: Stay current with IRS and campaign finance requirements

• Track lobbying and political expenditures separately to support accurate Form 990 reporting.
• File all required federal, state, and local campaign finance reports on time.
• Maintain documentation of all donations, contributor limits, and required disclosures.
• Establish procedures to:
  • Avoid impermissible coordination with political campaigns
  • Ensure required disclaimers appear on communications and ads
• Evaluate whether Form 1120-POL applies and file when required.

4. Internal Controls

Goal: Prevent errors, misuse, and fraud

• Require dual approval for payments, reimbursements, and other disbursements.
• Use secure electronic payment/approval systems (Bill.com, Ramp, MineralTree, etc.) to maintain a clear audit trail.
• Conduct periodic reviews of expense reports and vendor payments.

5. Cybersecurity & Data Protection

Goal: Protect sensitive financial and donor information

• Implement multi-factor authentication (MFA) and strong password policies.
• Restrict system access to authorized personnel based on role.
• Regularly back up financial and donor data in secure, encrypted systems.
• Provide cybersecurity training for staff and Board members.
• Consider cyber liability insurance to protect against cyber-attacks and data breaches.

6. Transparency & Communication

Goal: Build trust through openness and consistency

• Provide regular financial updates to the Board and key stakeholders.
• Maintain accurate donor and grant records, including restrictions and reporting requirements.
• Ensure your activities and communications consistently support your stated exempt purpose.

Need help assessing your current practices?

The rules for 501(c)(4)s and political organizations are complex and regularly evolving. A proactive review of your governance, accounting, compliance, controls, and cybersecurity can reduce risk and free you to focus on your mission.

For support with structuring your 501(c)(4), tracking political and lobbying activity, or strengthening your financial systems, reach out to the Wegner CPAs advisors to start a conversation.