Late last year, Congress enacted Section 506, which requires any organization seeking to operate as a tax-exempt social welfare organization pursuant to Section 501(c)(4) to register with the IRS within 60 days of formation. Failure to do so exposes the organization to a penalty of $20 per day, up to a maximum of $5,000. Late filings may, however, be excused for reasonable cause.
The new section was adopted as part of the Protecting Americans from Tax Hikes Act (“PATH Act”), which the President signed into law on Dec. 18, 2015. Public Law 114-113, Dec. 18, 2015. It applies only to social welfare organizations established after Dec. 18, 2015 and social welfare organizations formed before that date if they have not previously filed (i) an application with the IRS (Form 1024) requesting a formal determination of tax-exemption under Code Section 501(c)(4) or (ii) at least one annual report on IRS Forms 990, 990-EZ, or Form 990-N.
Section 506 was enacted to promote better oversight over social welfare organizations and particularly those that have become involved in political campaigns. Without Section 506, a social welfare organization would be able to start operating without notifying the IRS of its existence, engage in political campaigns actively in an election year, and then disappear before filing its first (and possibly only) Form 990, which would have provided the IRS initial notice of the organization’s existence and activities. The new notice will give the IRS more lead time to monitor the activities of Section 501(c)(4) organizations.
After enactment of the law, the IRS issued Notice 2016-9, in which it announced its extension of the initial due date for filing with the IRS until 60 days from the issuance of temporary regulations. Temporary regulations (26 C.F.R. § 1.506-1T) were issued on July 8, 2016. The new regulations, contained in Treasury Decision 9775, provide that organizations subject to the notice requirement had until Sept. 6, 2016 to register with the IRS. On the same day that the IRS issued the temporary regulations, it also issued Revenue Procedure 2016-41, which sets forth the procedure for filing the required notice with the IRS.
The new notice is submitted electronically on Form 8976 (Notice of Intent to Operate under Section 501(c)(4)). A $50 user fee is required. The user must register before filing the form. Organizations need provide only the organization’s name, address, employer identification number, date of organization, state or other jurisdiction, and month in which its annual accounting period ends. The IRS is required to send an acknowledgment of its receipt of each Form 8976.
Unlike charitable organizations described in Section 501(c)(3), social welfare organizations are not required to obtain a determination from the IRS as a condition of tax-exempt status. The new notice requirement does not replace the current procedure allowing social welfare organizations to apply voluntarily for a determination from the IRS confirming the organization qualifies for exemption pursuant to Section 501(c)(4). As a result, social welfare organizations still may “self-declare” themselves as eligible for Section 501(c)(4) status without obtaining an IRS determination letter.
The PATH Act also modified Section 6033(f)(2) to authorize the IRS to require an organization that submits the Form 8976 notification to include additional information in support of the organization’s treatment as an organization described in Section 501(c)(4) on its first Form 990 or 990-EZ, as applicable, filed after submitting the notification. The temporary regulations issued under Section 506 do not require any additional information to be reported on Form 990 or 990-EZ, but the IRS stated it will monitor the notification process to determine whether additional information is needed.
Steven B. Long is an attorney with Parker Poe in Raleigh.