April 29, 2016

By Karen Dunn, JD, LLM

The Protecting Americans from Tax Hikes Act of 2015 (PATH) was signed into law December 18th and includes many provisions affecting charities. Last month, we focused on the permanent extensions in the bill. This month, we focus on the new notice requirements for self-declared 501(c)(4) social welfare organizations in Code Section 506, added by PATH.

This legislation requires Section 501(c)(4) organizations, established after December 18, 2015, to notify the IRS of its formation and intent to operate as a 501(c)(4) social welfare organization. The notice and user fee must be submitted within 60 days of the organization’s formation and must include:

  1. Name, address, and taxpayer identification number of the organization;
  2. Date and State of formation; and
  3. Statement of the purpose of the organization.

The IRS may extend the 60-day deadline for reasonable cause. The IRS has not yet released the notice form but is expected to do so soon.

Organizations already in existence on the effective date of PATH (December 18) that have not yet filed an application for exemption (Form 1024) or an annual Form 990 (or 990-EZ or 990-N) must provide the required notification to the IRS by June 15, 2016, 180 days from the effective date.

To provide 501(c)(4) organizations with adequate time to comply with the new procedures, the IRS, in Notice 2016-9, provides a blanket extension for the 501(c)(4) notice requirement until further guidance is provided in temporary regulations. The due date for the notification will be at least 60 days from the date the temporary regulations are issued. Presumably, the regulations should extend the 60 days to 180 days for already existing organizations, but that was not mentioned in Notice 2016-9.

Within 60 days of receipt of the organization’s registration notice, the IRS must send the organization an acknowledgment of receipt. This acknowledgement is not a determination that the organization qualifies for exempt status under Code Section 501(c)(4). However, the organization’s notification and receipt of the IRS’s acknowledgement have the same public inspection and disclosure requirements as Form 1024.

An organization that fails to file a notice by the deadline is subject to a penalty equal to $20 per day, up to a maximum of $5,000.

In addition, PATH requires certain specific information to be included in the organization’s first annual Form 990 (or Form 990-EZ, or Form 990-N), demonstrating that the organization qualifies for 501(c)(4) status. The specific information required is still unclear, but will be set forth in future treasury regulations.

If an organization wants more certainty regarding its qualification under section 501(c)(4), it may voluntarily file a full Form 1024 with the IRS. This is in addition to, not in lieu of, filing the required notice discussed above. There has been speculation that the IRS may issue a new exemption application form specifically for 501(c)(4) organizations, however, nothing has been announced yet. Until the new form is released, organizations should continue using the existing Form 1024 if an IRS determination of exempt status is desired.

If your organization is a social welfare organization exempt under Code Section 501(c)(4), please consult your tax advisor for more information.

© 2016 Clark Nuber PS. All Rights Reserved.

This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.