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New IRS Notification Filing Requirement - Section 501(c)(4) Tax-Exempt Organizations


August 16, 2016

By: Adam C. Shields

The Internal Revenue Service (“IRS”) recently released guidance setting forth the procedures for Internal Revenue Code Section 501(c)(4) organizations to notify the IRS, as required under the newly added Internal Revenue Code Section 506, which was added to the Internal Revenue Code by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act).  Now that the IRS has issued the final and temporary regulations it is possible that a Code Section 501(c)(4) organization may be required to electronically file a Code Section 506 notification (Form 8976)  by September 6, 2016.

Code Section 501(c)(4) Organizations

Internal Revenue Code Section 501(c)(4) provides for the tax exemption of the following types of organizations:

  • Social welfare organizations – civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare (examples of social welfare organizations include some homeowners’ associations, volunteer fire companies and politically oriented groups (such as Crossroads GPS and Organizing for Action)); and
  • Local associations of employees – if the membership is limited to the employees of a designated person or persons in a particular municipality and the net earnings of the organization are devoted exclusively to charitable, educational or recreational purposes and do not inure to the benefit of any private shareholder or individual.

It should be noted that Code Section 501(c)(4) organizations are able to “self-declare” their status by operating as a Code Section 501(c)(4) organizations and filing the required annual information return/notice (applicable version of Form 990).  Nonetheless, many Code Section 501(c)(4) do file a Form 1024 (Application for Recognition of Exemption) for purposes of obtaining IRS approval of the Code Section 501(c)(4) exempt status for the various reasons, including the “peace of mind” factor of the general assurance that the organization was approved by the IRS for Code Section 501(c)(4) status.  The recent IRS scandal that began in 2013 related to the targeting of certain Code Section 501(c)(4) organizations that had submitted a Form 1024 for approval of their tax-exempt status.

It should be noted that the notification requirements under Code Section 506 are not considered a request for an exemption determination letter from the IRS and the acknowledgment received from the IRS will not indicate tax-exempt status.  Instead, organizations desiring to receive a determination of Code Section 501(c)(4) tax-exempt status will still need to file a Form 1024.

Notification Requirements

The general rule under Code Section 506 is that a Code Section 501(c)(4) organization must submit notification to the IRS within 60 days after its “Date of Organization” (date of incorporation for a corporation or date constitution or articles of association were adopted for an unincorporated organization).  For organizations with a “Date of Organization” prior to July 8, 2016, the organization is required to submit notification on or before September 6, 2016.  However, there is an exception to the notification requirements for such organizations (organized prior to July 8, 2016) if, on or before July 8, 2016, the organization either:

(i)    filed a Form 1024 for a determination letter recognizing the organization as a Code Section 501(c)(4) organization; or
(ii)    filed at least one annual information return/notice (applicable version of Form 990).

The Code Section 506 notification is provided by filing Form 8976 (Notice of Intent to Operate Under Section 501(c)(4)), which is required to be filed electronically on the IRS website.  The Form 8976 is a fairly basic form only requiring the following information:

(a)    Name of organization;
(b)    Address of organization;
(c)    Employer Identification Number (EIN) of the organization;
(d)    Date of organization;
(e)    State or other jurisdiction of organization;
(f)    Statement that the purpose of the organization is to operate as either a (i) social welfare organization/civic league or (ii) local association of employee; and
(g)    Month the organization’s annual accounting period ends.

There is a user fee of $50 for the Form 8976 filing.

The failure to timely file the Form 8976 can result in penalties for the organization ($20 each day of failure with maximum of $5,000 penalty) and organization managers (officer, directors, employees, members) for failing to file after demand for filing by IRS (joint and several liable for $20 for each day of failure with maximum of $5,000 penalty).

Please do not hesitate to contact Adam C. Shields with any questions or assistance with the new Code Section 501(c)(4) notification filing requirements.