The IRS published temporary proposed regulations on July 12, 2016 that will impact all 501(c)(4) social welfare organizations formed after July 8, 2016. The proposed regulations will also impact many existing 501(c)(4) organizations.
The temporary proposed regulations implement section 506 of the Internal Revenue Code, which became law in the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) on December 18, 2015.
New 501(c)(4) organizations formed after July 8, 2016 must submit Form 8976 to the IRS within 60 days after they are organized. For organizations formed as corporations, the filing clock starts ticking when the organization’s articles of incorporation are approved by a state official. For unincorporated associations, the organization is formed when its governing principles are adopted by directors or members.
All 501(c)(4) organizations formed any time prior to July 8, 2016 that: (1) have not yet filed a Form 990 Annual Information Return and (2) have not applied for recognition of 501(c)(4) status with the IRS must also submit Form 8976. Organizations that fall in this category have until September 6, 2016 to submit the notice.
Form 8976, Notice of Intent to Operate Under Section 501(c)(4) includes the following:
- The name, address and taxpayer identification number (EIN) of the organization;
- The date on which the organization formed and under the laws of which state;
- A statement of the organization’s purpose; and
- The organization’s annual accounting period.
Form 8976 must be submitted online. In order to use the online system, authorized individuals (an organization’s officers, directors and staff) must first establish an account in the IRS online registration system and then pay $50 to submit the form. Revenue Procedure 2016-41 provides more detailed information about submitting the form.
Within 60 days of receiving the Form 8976, the IRS will send the organization an acknowledgement of receipt. This is not an IRS determination of tax-exempt status on which the organization may rely; the organization must still file Form 1024 to receive a determination letter.
The law imposes penalties on organizations that fail to file Form 8976 by their submission deadline as well as their managers and directors responsible for filing. The penalty on either the organization or its managers and directors is $20 per day, starting on the first day after the 60 day notification period, up to a maximum penalty of $5,000. See 26 U.S.C. § 6652(c)(1)(A), (B).
The IRS can waive the penalty if the organization can demonstrate that it failed to file due to “reasonable cause,” which is not defined in the regulations.
Please reach out to experienced counsel with any questions about how these proposed regulations will impact your organization.
© 2016 Perkins Coie LLP