The IRS issued final and temporary regulations and a revenue procedure in July providing guidance and methods by which tax-exempt "social welfare" organizations described in Sec. 501(c)(4) may comply with new statutory requirements under the Protecting Americans From Tax Hikes (PATH) Act of 2015, Division Q of the Consolidated Appropriations Act, 2016, P.L. 114-113. The text of the temporary regulations was also issued as proposed regulations (REG-101689-16).
The PATH Act added Sec. 506 to the Code, which requires Sec. 501(c)(4) organizations to notify the IRS within 60 days of their formation that they intend to operate as Sec. 501(c)(4) organizations. Because neither submitting the new notification nor the IRS's acknowledgment of it provides a determination of tax-exempt status, organizations may also, under Sec. 506(f), request a determination from the IRS that they qualify for tax-exempt status.
The PATH Act also amended Sec. 6652(c)(4) to provide a penalty for failure to file the new notification within the prescribed period. The penalty amount under Sec. 6652(c)(4)(A) and Rev. Proc. 2016-41 is $20 per day that the failure continues, not to exceed $5,000.
The requirement took effect with organizations established after the PATH Act was enacted on Dec. 18, 2015. The PATH Act also required organizations that had been established before Dec. 18, 2015, but had not by that date applied for a tax-exemption determination or filed an annual return or notice to submit the new notification within 180 days of enactment of the PATH Act (i.e., June 15, 2016). The temporary regulations provide that an organization is not required to submit the notification if it applied for a determination letter that recognizes the organization as described in Sec. 501(c)(4) (using Form 1024, Application for Recognition of Exemption Under Section 501(a)) or filed a Form 990, Return of Organization Exempt From Income Tax, or, if eligible, Form 990-EZ, Short Form Return of Organization Exempt From Income Tax, or Form 990-N (e-Postcard) after Dec. 18, 2015, but on or before July 8, 2016. For an organization that has a date of organization on or before July 8, 2016, but does not qualify for this relief, the temporary regulations extended the due date of the notification until Sept. 6, 2016.
Under Sec. 506(d) and the temporary regulations, the 60-day period for submitting the notification may be extended for reasonable cause (described in Rev. Proc. 2016-41).
The notification may be submitted in electronic form only on new Form 8976, Notice of Intent to Operate Under Section 501(c)(4), available at an online registration and submission portal (available at services.irs.gov, with a $50 user fee). Organizations must provide on the form the organization's name, address, employer identification number, date of organization, state or other jurisdiction, and month in which its annual accounting period ends. Organizations must also specify whether their purpose is as a social welfare organization/civic league or local association of employees. The IRS will electronically send an acknowledgment of receipt as required under Sec. 506(c) within 60 days of receiving a completed and properly submitted Form 8976 (which should not be confused with an initial confirmation of successful transmission).
- T.D. 9775; Rev. Proc. 2016-41
—By Paul Bonner, a JofA senior editor.