30 January 2018 New exempt application Form 1024-A for Section 501(c)(4) organizations is now available The IRS has released the final version of Form 1024-A, Application for Recognition of Exemption under Section 501(c)(4) of the Internal Revenue Code. The IRS has also released the accompanying instructions to be used by organizations seeking tax-exempt status under Section 501(c)(4). The IRS created Form 1024-A to serve as the form for Section 501(c)(4) organizations that choose to apply for recognition of tax-exempt status. The final version of Form 1024-A follows a draft version of the form that was released in the fall of 2017. Like the draft form, the final Form 1024-A partly parallels the existing Form 1024, but it also includes a number of new or modified sections. The following discussion highlights some similarities to and differences between the existing Form 1024 and the final Form 1024-A. Part II of the 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 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 the applicant to list the names, titles and addresses of the organization's officers, directors and trustees. 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. whether the applicant: will be involved in elections; will be the successor to another organization; has connections to other organizations; has members or shareholders; plans to provide distributions to members or shareholders; completes payments for services, and; has plans to lease property. 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 the 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). Part IX reminds organizations to include the correct user fee and to provide an authorized officer's signature. Although there were no significant changes from the draft version to the final version of Form 1024-A, there were a number of significant changes made to the draft instructions. These changes include further information regarding fees (as determined on Form 8718), where to file Form 1024-A, and which entities are exempt from the annual filing requirements. Additional changes found in the instructions include language in Part IV asking the applicant to describe the family or business relationships between officers, directors, trustees, employees, members or independent contractors other than in their official capacity. For entities that lost their tax-exempt status as an Section 501(c)(3) organization, Part V, Line 2 defines "certain activities" to include carrying on propaganda or otherwise attempting to influence legislation or participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office. The 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. Form 1024-A, however, retains the requirement to provide both financial data for the current year and proposed budgets for the following two years for: (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). New information found in the instructions for Form 1024-A includes guidance for Part VI, Line 17. This guidance provides specific instructions for users of fund accounting and what should be included in net assets for organizations that do not use fund accounting. In addition, the instructions for Part IX now allows directors to sign Form1024-A, in addition to officers and trustees. Form 1024-A was created to implement the provisions of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), which also created the requirement for organizations that intend to operate as tax-exempt social welfare organizations under Section 501(c)(4) to file a notice (Form 8976) with the IRS within 60 days of formation. As 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). Organizations that operate or seek to operate under Section 501(c)(4) should carefully review the notification requirement to ensure that they have complied. Organizations that decide not to request formal recognition of their tax-exempt status under Section 501(c)(4) should carefully evaluate the consequences of not having an IRS determination letter to that effect. The final version of Form 1024-A features a wide range of changes that should be observed by all applicants. In completing Form 1024-A, applicants are advised to read the instructions carefully to determine the correct responses to the information requested by the IRS as well as to identify situations in which additional attachments may be needed, including the obligation to file Form 8976, Notice of Intent to Operate Under Section 501(c)(4). Applicants are also advised to monitor further guidance as it becomes available. — For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg.
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