August 2, 2016
Newly created and certain existing 501(c)(4) social welfare organizations must now file a notice with the IRS.
Generally, 501(c)(4) organizations are not required to file Form 1024 to seek tax-exempt status; they may “self-declare”. As a result, until a self-declared 501(c)(4) filed a Form 990, the IRS had no record of its existence. The Protecting Americans From Tax Increases (PATH) Act of 2015 added Section 506 to the Internal Revenue Code. This new provision requires an organization described in Section 501(c)(4) to notify the IRS within 60 days of formation of its intent to operate as such.
Recently, the IRS issued regulations, effective on July 8, 2016, along with Revenue Procedure 2016-41. Together these documents provide clear instructions on the manner in which to notify the IRS that an organization is operating as a 501(c)(4) organization.
Who does it effect?
Newly Formed 501(c)(4) Organizations – Pursuant to Section 506, an organization described as 501(c)(4) formed after December 18, 2015 has to provide notice to the IRS no later than 60 days after the organization is established.
Existing 501(c)(4) Organizations – Pursuant to Notice 2016-9, existing organizations that have not filed a Form 1024 or at least one annual information return/notice (Form 990/990-EZ/990-N) on or before the date of issuance of the regulations (July 8, 2016) must file the section 506 notice within 60 days of that issuance date (September 6, 2016).
Rev. Proc. 2016-41 provides that an organization that filed a Form 1024 or Form 990 after December 18, 2015, but before July 8, 2016, is not required to submit Form 8976.
How to Notify the IRS
Organizations notify the IRS by electronically submitting Form 8976, “Notice of Intent to Operate Under Section 501(C)(4)”. The form must be submitted with a $50 user fee and is available at an online registration and submission portal. The form requests certain information regarding the organization, including:
• the name, address, and taxpayer identification number of the organization;
• the date and state of organization;
• a statement of the purpose of the organization; and
• the month of that the organization’s annual accounting period ends.
As required under Section 506(c), the IRS will electronically send an acknowledgment of receipt within 60 days of receiving a properly completed and submitted Form 8976. In addition, the regulations provide clarification that the submission notification itself is not a request for determination from the IRS that the organization qualifies for tax-exempt status.
Failure to Notify
In accordance with Section 6652(c)(4)(A) and Rev. Proc. 2016-41, an organization that fails to file the notice within 60 days of formation is subject to a penalty equal to $20 per day up to a maximum of $5,000.