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The choice of entity between C3 and C4 does not cost them their tax exempt status. They still are able to keep from paying taxes on all of the money they receive. However, as you pointed out donations to a 501(c)(4) organization is generally not tax deductible and most people do not know that donations to these groups are not deductible because they are not 501c3 entities (or volunteer fire departments which have a special exemption). The IRS pretty much considers IFA's illegal and many booster clubs have to form a 501c4 and then form a separate 501c3 for the sole purpose of taking donations.
The reason people still do this is because they simply do not know about the deduction for donations or do not care.
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