The IRS issued final and temporary regulations (T.D. 9775) and a revenue procedure (Rev. Proc. 2016-41) Friday 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 Increases (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 enactment of the PATH Act 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). However, the IRS provided transition relief and interim guidance under Notice 2016-9, extending the due date and providing relief from penalties until 60 days after implementing regulations (these final and temporary regulations) are issued.
Organizations that were established between Dec. 18, 2015, and July 8, 2016, that either applied for a determination of tax-exempt status or filed at least one required annual return or notice (Form 990 series) are relieved from the notification requirement. Organizations formed during that interim period that do not qualify for that relief have until Sept. 6 to submit the notification.
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).
Submitting Form 8976
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, 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).
—Paul Bonner (email@example.com) is a Tax Adviser senior editor.