12 December 2017 New exempt application form in development for Section 501(c)(4) organizations The IRS is currently creating a new Form 1024-A, Application for Recognition of Exemption, specifically for Section 501(c)(4) organizations. According to reports from Bloomberg BNA (230 DTR G-1) and Tax Analysts (2017 TNT 230-10, 2017 TNT 234-7), the new form should be available in January 2018. A draft version of the form was released earlier this year. While the draft form partly parallels the existing Form 1024, it includes a number of new or modified sections. The following discussion highlights some similarities to and differences from existing Form 1024 across the various parts of the draft Form 1024-A. Part II of the draft form requests information on organizational structure — whether the organization is a corporation, limited liability company, unincorporated association or trust — as well as asking if the organization has adopted bylaws. In each instance, supporting documentation must be attached. Part III of the draft form asks for a narrative description of the organization's activities — similar to the information requested in Part II, line 1, of the existing Form 1024. Part IV requires a listing of the names, titles and addresses of the organization's officers, directors and trustees. It also specifically requests information on any "family or business relationship or agreement" with any of the officers, directors, trustees, employees, members or independent contractors other than through their position as such. Part IV also requests information on the compensation of these parties. Part V asks about specific activities. Many of the questions address the same or similar issues as in the existing Form 1024 — e.g., involvement in elections; a successor to another organization; has connections to other organizations; has members or shareholders; plans to provide distributions to those members or shareholders; completes payments for services; and has plans to lease property. Line 2 of Part V, however, specifically asks if the organization has previously had its exempt status under Section 501(c)(3) revoked as a result of political activity. Lines 9 and 10 ask if the organization is a homeowners' association or local association of employees, respectively. Line 11 asks if the organization will make foreign grants or conduct activities in any foreign countries. Part VII asks if the organization claims to be excused from requirements to file an information return and requests that the organization attach an explanation. Part VIII reminds organizations of the new requirement under Section 506 for organizations to notify the IRS of their intent to operate under Section 501(c)(4). For more information on this requirement, see Tax Alert 2016-1224. Part IX reminds organizations to include the correct user fee and to provide an authorized officer's signature. Form 1024-A was created to implement the provisions of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). The PATH Act also created the requirement for organizations that intend to operate as social welfare organizations tax-exempt under Section 501(c)(4) to file a notice (Form 8976) with the IRS within 60 days of formation (see Revenue Procedure 2016-41, Tax Alert 2016-1224). As the draft Form 1024-A specifically notes, however, obtaining IRS recognition of Section 501(c)(4) status is optional (in general, a Section 501(c)(4) organization is not required to apply to the IRS for recognition of its tax-exempt status). Rather, as previously stated (with some exceptions not discussed herein), an organization is only required to notify the IRS of its intention to treat itself as tax exempt under Section 501(c)(4). Organizations that operate or seek to operate under Section 501(c)(4) should carefully review the notification requirement to ensure that they comply with it. Organizations that decide not to file the Form 1024-A to request formal IRS recognition of tax-exempt status under Section 501(c)(4) should carefully evaluate the consequences of not having IRS recognition of such status in the form of a determination letter. The aim of the PATH Act and Form 1024-A are to simplify the process for organizations seeking an official Section 501(c)(4) determination from the IRS. Form 1024-A streamlines the application by removing portions of Form 1024 not applicable to organizations seeking exemption under Section 501(c)(4). Compared to the current Form 1024 and Form 1023 applications, the questions found in the draft Form 1024-A are also phrased in a less technical fashion. The draft instructions to Form 1024-A further reduce the burden on organizations by requiring financial information for only two preceding years (in addition to the current year), instead of the three preceding years currently requested in Form 1024. However, draft Form 1024-A retains the requirement to provide both financial data for the current year and proposed budgets for the following two years in the case of: (1) any applicant in existence for less than one year and (2) any applicant that has existed for more than one year but that seeks recognition of exemption only for the current year and future years (rather than from the date of its formation). The final version of Form 1024-A and its instructions have not been released. Both the draft form and instructions, however, indicate that these documents — as reported in the tax press — may be expected in January 2018 (i.e., the draft documents are dated "January 2018"). Tax Analysts has also reported (2017 TNT 234-7) that IRS Exempt Organizations Director Margaret Von Lienen has stated that, upon the release of Form 1024-A, the IRS will provide transition relief to applicants that will have already used Form 1024. Von Lienen did not specify, however, how long the transition period will be. Organizations are advised to monitor and review further guidance as it becomes available. — For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg.
Document ID: 2017-2099 | |||||||||||||||||
