PATH Act 501(c)(4) Matters Update #2: Notification Requirement Clarified; Temporary Regulations and Notification Form Issued
As specified in Notice 2016-09 (discussed in our recent blog post on the PATH Act), the IRS has issued temporary regulations describing new notification procedures and a notification form for certain (current and prospective) Section 501(c)(4) organizations.
Section 506 of the Internal Revenue Code (the “Code”), enacted on December 18, 2015, as part of the PATH Act, imposes notification requirements on certain newly established (and already existing) Section 501(c)(4) organizations.
Section 506(a) requires an organization described in Section 501(c)(4) to notify the IRS that it is operating as such no later than 60 days after it is established. Section 506(b) details the information that must be included in the notification, including the organization’s name and address, its date and state of organization, and a statement of its purposes. Additional subsections impose supplementary requirements, including a 60-day acknowledgment requirement for the IRS.
These provisions apply to Section 501(c)(4) organizations established after December 18, 2015, and to any other Section 501(c)(4) organization that had not filed Form 1024 (application for exemption) or at least one annual information return (Form 990, 990-EZ, or 990-N) on or before December 18, 2015. For organizations established before December 18, 2015, the PATH Act required submission of the notification within 180 days after December 18. Notice 2016-09 extended the submission due date for all organizations until at least 60 days from the date that implementing regulations are issued, so that organizations would have time to comply with the new requirements.
As a result, Section 501(c)(4) organizations have since been in a holding pattern, waiting for further guidance on how to comply with this new notification regime.
New Temporary Regulations
On July 8, 2016, the IRS released final and temporary regulations under Section 506 (Treas. Reg. §1.506-1T). The regulations are effective as of July 8, 2016 (the temporary regulations also serve as proposed regulations, and comments on them may be submitted to the IRS until October 11, 2016).
Consistent with Section 506, the regulations provide that an organization described in Section 501(c)(4) must notify the IRS that it is operating as a Section 501(c)(4) organization no later than 60 days after its date of organization. The notification must contain the organization’s name, address, taxpayer identification number, date of organization, jurisdiction of organization, a statement of its purposes, and such other information as may be specified in applicable guidance or forms. The submitting organization must pay a user fee (see below) and the regulations give the IRS the power to extend the 60-day deadline for reasonable cause.
The regulations indicate that the notification requirement applies to domestic and foreign organizations. They also contain the following transition relief for organizations that were created on or before July 8, 2016:
● The notification requirement does not apply to Section 501(c)(4) organizations that, on or before July 8, 2016, applied to the IRS for exemption using Form 1024 or filed Form 990, 990-EZ, or 990-N with the IRS.
● The notification must be submitted on or before September 6, 2016 for organizations that were created on or before July 8, 2016 but did not submit Form 1024 or file Form 990, 990-EZ, or 990-N on or before that date.
An organization that fails to submit the notification timely, without a showing of reasonable cause, is subject to penalties of $20 for each day during which the failure continues, up to a maximum penalty of $5,000. Organization managers may also be subject to penalties if the organization does not timely submit the notification.
The IRS must send an acknowledgment of receipt of the notification within 60 days of receipt. (This acknowledgment does not qualify as a determination of exemption by the IRS.) The regulations also clarify that submission of the notification does not qualify as an application for exemption, and if an organization wants to obtain a determination letter from the IRS, it must still file Form 1024.
Note that the PATH Act included a requirement that Section 501(c)(4) organizations must include any additional information prescribed by regulation with their first annual information returns filed after submitting their Section 506 notifications. The technical explanation of the new temporary regulations clarifies that no additional information is required at this time.
New Electronic Form for Submission of Notification
The IRS has developed Form 8976, Notice of Intent to Operate Under Section 501(c)(4), for submission of the Section 501(c)(4) notification, and has issued Rev. Proc. 2016-41 with instructions on how to use the new form.
Form 8976 must be submitted online at https://services.irs.gov/registration/ (paper submissions will not be accepted) by an individual authorized to submit the form on the organization’s behalf and to receive communications relating to the submission. The IRS will send its electronic acknowledgment of the submission within 60 days of receipt to the account through which Form 8976 was submitted. The required user fee for 2016 is $50, and it must be submitted through www.pay.gov.
In addition to general instructions for the form, Rev. Proc. 2016-41 also provides information on how organizations may request penalty relief for late submissions, and an example of reasonable cause for failure to file timely.
We will keep you posted on any further developments.