IRS Establishes New Notice Requirements for 501(c)(4)
A 501(c)(4) organization is either a social welfare organization, or certain employee organizations. While 501(c)(4) organizations are tax exempt, donations to 501(c)(4) organizations are not tax-deductible to the contributor, unless they otherwise qualify as a deductible expense (such as an advertising or business expense). Many 501(c)(4) organizations are involved in lobbying to support their causes, and they became popular in the wake of the Citizens United decision, as well as subject to increased scrutiny. The Protecting Americans from Tax Hikes (PATH) Act passed in December 2015 included changes to the Internal Revenue Code requiring registration and notice of filing for new organizations which seek to claim tax exemption under Section 501(c)(4). The IRS issued temporary guidance in January, 2016, delaying enforcement of the PATH Act requirements until regulations could be created. In July 2016, the IRS published new temporary regulations and a new revenue procedure explaining how the notice process will function, and a new form 8976 that must be submitted along with a $50 user fee by those registering their organization as tax-exempt under Section 501(c)(4). Revenue Procedure 2016-41 dated July 25, 2016 describes the new process in detail.
Organizations in existence prior to July 8, 2016 which have filed Form 1024 or at least one annual 990 on or before July 8, 2016 need not take any action at this time. Whether or not the new requirements apply to newly-formed social welfare organizations depends on when the organization was brought into being, and if that organization has already notified the IRS that it intends to seek tax exemption under Section 501(c)(4). Organizations formed on or before July 8, 2016 which have not filed Form 1024 requesting that the IRS recognize their exempt status under Section 501(c)(4), nor filed any version of Form 990 claiming Section 501(c)(4)-based exemption, will need to complete and submit the electronic-only Form 8976, “Notice of Intent to Operate Under Section 501(c)(4),” along with the required $50 User Fee, by September 6, 2016. Any organization formed after July 8, 2016 is required to follow the new process. Organizations formed after July 8, 2016 have 60 days from the date of formation to submit Form 8976 and the User Fee, whether or not they have already submitted Form 1024 or a version of Form 990.
The new regulation also includes penalties for failure to comply. Existing organizations that miss the September 6 or 60-day deadline to file Form 8976, and new organizations which fail to file within the 60 day window, will be exposed to a $20/day penalty which can reach up to $5,000 in fees. Additionally, managers of these organizations can personally incur these penalties if the IRS issues a notice to comply to the organization with a required response date and the organization fails to meet that date.
The full final and temporary regulations can be found here, and the electronic Form 8976 and the revenue procedure explaining the notice requirement can be found at the IRS website https://www.irs.gov/charities-non-profits/other-non-profits/social-welfare-organizations. Since the IRS is still seeking comments on these regulations, there may be additional changes to the requirements in the near future.
If you are in need of knowledgeable, detail-oriented, and experienced legal assistance for your Chicago-area nonprofit organization, contact the Chicagoland not-for-profit and religious organization law firm MacDonald, Lee & Senechalle, LTD for a consultation, in Hoffman Estates at 847-310-0025, and in Des Plaines at 847-298-5030.