14 July 2016 IRS issues guidance on the new Section 501(c)(4) notification requirement The IRS has issued final, temporary (TD 9775) and proposed (REG-101689-16) regulations on the new Section 506 requirement for organizations to notify the IRS of their intent to operate under Section 501(c)(4). Concurrently, the IRS released Revenue Procedure 2016-41 with additional details on submitting the notification. 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). For a general discussion of PATH Act provisions relating to tax-exempt organizations, see Tax Alert 2016-58{}. 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 purpose. A user fee must also be included with the notice. This notice does not, however, grant the organization a determination that the organization qualifies for exemption under Section 501(a) as an organization described in Section 501(c)(4). If the organization seeks a favorable determination letter, it must complete and submit an exemption application. 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. The PATH Act also amended Section 6033(f) to require Section 501(c)(4) organizations submitting the notification to include with their first annual information return after submitting the notification any additional information that may be prescribed by regulation that supports the organization's treatment as a Section 501(c)(4) organization. In addition, the PATH Act amended Section 6652(c) to impose penalties for failure to submit the notification by the date and in the manner prescribed in regulations. Specifically, any entity that fails to timely file a notice is subject to penalties of $20 per day, up to a maximum of $5,000. In January 2016, the IRS issued Notice 2016-09 regarding the new Section 506 requirement, extending the due date for submitting such notice until at least 60 days from the date that implementing regulations were issued to provide adequate transition time for Section 501(c)(4) organizations to comply with the new notification requirement. See Tax Alert 2016-172{}. The temporary regulations incorporate the provisions of Section 506 and provide guidance on satisfying the new notification requirement. The text of the temporary regulations also serves as the text of the proposed regulations. The temporary regulations are effective as of July 8, 2016. The preamble to the temporary regulations states that the IRS has developed a new electronic form for organizations to use to submit the Section 506 notification: Form 8976, "Notice of Intent to Operate Under Section 501(c)(4)." Form 8976 must be submitted no later than 60 days after the date the 501(c)(4) organization is formed. It must contain all the information specified in Section 506(b) and be submitted with the appropriate user fee. The IRS will provide organizations with acknowledgement of its receipt of the notification, but it reminds organizations that this acknowledgement is not a determination of tax-exempt status. Organizations seeking IRS recognition of tax-exempt status under Section 501(c)(4) may separately request such a determination in the manner prescribed in Revenue Procedure 2016-5 (or its successor). The temporary regulations also clarify that a Section 501(c)(4) organization must submit the notification whether it is organized in or outside the US. A foreign Section 501(c)(4) organization may, however, be eligible for relief from penalties under Section 6652 if it meets certain conditions described in Revenue Procedure 2016-41. Additional guidance on the procedures for submitting the notification is included in Revenue Procedure 2016-41, discussed further below. With respect to the Section 6033(f)(2) provision — under which the IRS may require an organization that submits the notification to include additional information in support of the organization's treatment as a Section 501(c)(4) organization on the first Form 990 or Form 990-EZ that is filed by the organization after submitting the notification — the temporary regulations do not prescribe any additional information that will need to be reported on Form 990 or 990-EZ at this time. Instead, the IRS states in the preamble to the regulations that it will monitor the issue of whether such additional information is necessary. The temporary regulations include transitional relief for certain organizations organized after the enactment of the PATH Act but before the availability of the new electronic Form 8976. Specifically, they provide relief from the requirement to submit the notification for any Section 501(c)(4) organization that, on or before July 8, 2016, either: (1) applied for a written determination of recognition as a Section 501(c)(4) organization (using Form 1024) or (2) filed at least one annual return or notice required under Section 6033(a)(1) or (i) (i.e., Form 990, Form 990-EZ or Form 990-N, as applicable). For organizations that were organized on or before July 8, 2016, but do not qualify for this transition relief, additional relief applies. Such organizations will have until September 6, 2016, to submit the required notification. Revenue Procedure 2016-41 sets forth the specific procedures for submitting the notification required by Section 506. It not only restates the requirements that are included in the statute and temporary regulations, but also adds further detail as to the type of information that will need to be provided. Revenue Procedure 2016-41 explains that new 501(c)(4) organizations must submit their notification on Form 8976, which can only be submitted electronically here; paper submissions will not be accepted and will be treated as incomplete submissions by the IRS. Authorized individuals submitting Form 8976 for their respective Section 501(c)(4) organizations must establish an account in the organization's name at the site previously noted to submit the notification. The submission of this notification must be accompanied by a user fee, which is $50 for 2016. Only complete Forms 8976 will be accepted. Revenue Procedure 2016-41 provides a comprehensive list of all the information that is necessary for submitting a complete form, which includes some additional information that is not specified in the temporary regulations, including the month the organization's annual accounting period ends, and an attestation that the information provided is correct and the person submitting the Form is authorized to do so on behalf of the organization. The IRS will not process incomplete forms and will return them with any user fee paid. Under the new regulations, exempt organizations formed after July 8, 2016, that intend to operate as a Section 501(c)(4) organization must notify the IRS of this intent on Form 8976. This form must be submitted to the IRS within 60 days after the organization is established and must include the following information about the organization: (i) business name; (ii) address; (iii) taxpayer identification number; (iv) date organized; (v) state or other jurisdiction of organization; (vi) filing year and month the organization's annual accounting period ends; and (vii) statement of purpose, including whether the organization intends to operate as a social welfare organization or local association of employees. Additionally, Form 8976 must be accompanied by an attestation that the information provided on the form is correct and by a user fee (i.e., $50 for 2016). The submission of a Form 8796 is not required for any Section 501(c)(4) organization that either applied for a determination letter that recognized the organization as a Section 501(c)(4) organization (on Form 1024) or filed at least one annual return (i.e., Form 990, Form 990-EZ, or Form 990-N) on or before July 8, 2016. Section 501(c)(4) organizations that do not qualify for this transitional relief will have until September 6, 2016, to submit their notification on Form 8976. The IRS will send an acknowledgement of receipt electronically within 60 days of receiving a complete and properly submitted Form 8976. 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 seeking IRS recognition of exempt status under Section 501(c)(4) will need to a file a separate request for determination with the IRS using Form 1024. Organizations, especially newly-established 501(c)(4) organizations, should review this new guidance to analyze its effects on their operations. The IRS will consider written comments on Revenue Procedure 2016-41, and will consider comments on the proposed regulations that are timely submitted by October 11, 2016. — For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg.
Document ID: 2016-1224 | ||||||||||||||||||||||||||||||
