Funding 501 (c)(4) Organizations
Public policy advocacy is often conducted within the nonprofit sector by the following types of organizations exempt under other sections of the IRS Code than Section 501(c)(3):

• Section 501(c)(4) social welfare organizations
• Section 501(c)(5) unions
• Section 501(c)(6) trade and professional associations, business leagues, and chambers of commerce.

These non-charitable organizations can conduct any activities permitted to a Section 501(c)(3) public charity, plus unlimited legislative lobbying and some partisan candidate electioneering without violating their tax-exempt status.  

Private foundations can legally make grants to Section 501(c)(4) and other non-501(c)(3) organizations, but this is not a way to circumvent the tax-law limits on public policy activities of Section 501(c)(3) organizations. This is because private foundations can only fund the activities of these non-charitable organizations which could have been legally conducted by a Section 501(c)(3) public charity. For this reason, grants by private foundations to non-501(c)(3) grantees may never be made for general support, but must instead be earmarked for a specifically identified charitable program or activity of the non-charity. Since such grants must be earmarked, however, none of the funded activities may be lobbying; but non-lobbying public policy activities such as a public charity could have conducted are fine.

All grants to non-public charities require the private foundation funder to exercise "expenditure responsibility" as described in Section 4945(h) of the IRS Code and the related regulations. Generally, "expenditure responsibility" means the private foundation must:

• conduct an appropriate pre-grant inquiry
• impose certain obligations on the grantee
• embody said obligations in a written grant agreement
• receive and review regular reports from the grantee on expenditures from grant funds
• follow-up as needed in the event any grant funds are misspent
• report the grant to the IRS properly on Form 990-PF as an expenditure responsibility grant

Failure to properly exercise expenditure responsibility usually results in such grants becoming prohibited taxable expenditures under Section 4945, and not counting as qualified distributions for purposes of the private foundation's minimum distribution requirement under Section 4942.

Resource Links
"Election Year Activities for 501(c)(4) Social Welfare Organizations" Alliance for Justice

"Investing in Change: A Funders Guide to Supporting Advocacy" Alliance for Justice