In Notice 2016-09, the IRS issued guidance with respect to the new Section 506 requirement for organizations to notify the IRS of their intent to operate under Section 501(c)(4), delaying the due date for providing such notice until after the IRS has issued regulations under Section 506.

Section 506 was added to the Code by the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act), enacted on December 18, 2015, as part of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113). Section 506 generally requires social welfare organizations to notify the IRS of their intent to operate under Section 501(c)(4) within 60 days of formation. The notice must include: (1) the organization's name, address, and TIN; (2) the date on which and State in which the entity was organized, and (3) a statement explaining the organization's purposes. A user fee must also be included with the notice. The requirement applies to organizations formed after December 18, 2015, and, under a modified 180-day deadline, to organizations formed on or before December 18, 2015, that had not filed a Form 1024 or at least one Form 990-series return or notice as of December 18, 2015. Penalties apply for failure to timely file the required notice. See Tax Alert 2016-58 for more information on this and other PATH Act provisions relating to tax-exempt organizations.

Notice 2016-09 states that the IRS is extending the due date for organizations to submit the notice required under Section 506 until at least 60 days from the date on which regulations addressing the requirement are issued. No penalties will apply before the future due date set by the regulations. The IRS will solicit comments on the guidance as part of the normal rulemaking process.

Notice 2016-09 also reminds organizations that IRS acknowledgment of receipt of an organization's Section 506 notification is not a determination that the organization qualifies for Section 501(c)(4) status. The Notice states that organizations requesting such IRS recognition should continue to use Form 1024 until further guidance is issued. It also states that filing a Form 1024 will not relieve an organization of the requirement to provide notice under Section 506.

Implications

To provide adequate transition time for Section 501(c)(4) organizations to comply with the new Section 506 notice requirement, the IRS is extending the due date for submitting the notification until 60 days after the regulations are issued. As stated in the Notice, Section 501(c)(4) organizations required to comply with the new rule should wait to send in their notices until the regulations are issued. So long as organizations provide the notice by the due date set forth in the regulations, the IRS will not impose failure to file penalties.

Once the regulations are finalized, Section 501(c)(4) organizations that submit the required notice will receive an acknowledgement of the submission from the IRS. This acknowledgement, however, is not a determination by the IRS that the organization qualifies as a tax-exempt organization under Section 501(c)(4). Rather, organizations that want actual IRS recognition of exempt status under Section 501(c)(4) will need to file a separate request for determination with the IRS in such manner as required by the future guidance. In the meantime, until the guidance is issued, organizations seeking official IRS recognition of tax-exempt status under Section 501(c)(4) should file Form 1024 with the IRS. Regardless of whether a Form 1024 is filed, Section 501(c)(4) organizations formed after December 18, 2015, will be required to comply with the new, separate notice requirement of Section 506.

The public will be afforded the opportunity to submit comments to the IRS regarding the new Section 506 notice requirement and related provisions during the rulemaking process.

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RELATED RESOURCES

— For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg

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