An organization that wishes to operate as a social welfare organization under Sec. 501(c)(4) must notify the IRS within 60 days after the organization is established of its intent to operate as a Sec. 501(c)(4) organization under tax legislation enacted in December (Protecting Americans From Tax Hikes Act (PATH), part of the Consolidated Appropriations Act, 2016, P.L. 114-113).
However, to give itself time to issue regulations governing the new requirement, the IRS is delaying its implementation. In Notice 2016-9, the IRS announced that Sec. 501(c)(4) organizations will not have to send the required notification to the IRS until 60 days after the regulations are issued and that organizations should not send the notices until then. The IRS will not impose penalties under Sec. 6652(c)(4) (penalty for failure to file notice required under Sec. 506)) on organizations that provide the notice by the due date in the regulations.
Unlike organizations seeking tax-exempt status under Sec. 501(c)(3) as public charities, which are required to have their tax-exempt status recognized by the IRS and must file Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code (or Form 1023-EZ for smaller charities), social welfare organizations seeking to operate under Sec. 501(c)(4) are not required by law to submit applications for recognition of their exemption.
However, social welfare organizations can choose to submit Form 1024, Application for Recognition of Exemption Under Section 501(a). Because this application is not required, there was uncertainty in the not-for-profit community about how the recognition process worked. That, coupled with the controversy over the IRS’s handling of the Forms 1024 of “tea party” and other organizations and confusion about how much political activity these organizations could undertake, doubtless prompted Congress to enact this notification requirement.
The new notice requirement applies to social welfare organizations established after Dec. 18, 2015, the date Sec. 506 was enacted. It also applies to existing Sec. 501(c)(4) organizations that had not, on or before Dec. 18, 2015, either (1) applied for a written determination using Form 1024 or (2) filed at least one information return or notice required under Sec. 6033(a)(1) or Sec. 6033(i), specifically, 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)). These existing organizations have until June 15, 2016, to notify the IRS, 180 days after PATH was enacted.
The IRS also explained in the notice that it is required by law to notify Sec. 501(c)(4) organizations that it received their Sec. 506 notices within 60 days of receipt and that this acknowledgment is not a determination that the organizations qualify under Sec. 501(c)(4). In addition, organizations that have submitted applications for exempt status using Form 1024 are not relieved of the notice requirement.
—Sally P. Schreiber (email@example.com) is a Tax Adviser senior editor.