Regulations Issued on Requirement to Notify IRS of Intent to Operate as Code Sec. 501(c)(4) Organization (T.D. 9775, NPRM REG-1101689-16; Rev. Proc. 2016-41)

CCH Tax Day Report

The Treasury and the IRS have issued final and temporary regulations relating to the requirement, added by the Protecting Americans from Tax Hikes (PATH) Act of 2015 (P.L. 114-113), that organizations must notify the IRS of their intent to operate under Code Sec. 501(c)(4). The regulations affect Code Sec. 501(c)(4) organizations that are organized after December 18, 2015, and certain Code Sec. 501(c)(4) organizations existing on that date.

Comment. The PATH Act added Code Sec. 506, which requires certain Code Sec. 501(c)(4) organizations to notify the IRS within 60 days of formation. The regulations provide guidance to enable Code Sec. 501(c)(4) organizations to satisfy the new statutory notification requirement and provide transition relief.

The regulations prescribe the manner in which an organization must notify the IRS, consistent with Code Sec. 506, that it is operating as a Code Sec. 501(c)(4) organization. The regulations also clarify that the submission of the notification does not constitute a request by an organization for a determination from the IRS that it qualifies for tax-exempt status.

The Notification

The regulations generally require a Code Sec. 501(c)(4) organization to submit the notification to the IRS on a new electronic form, Form 8976, Notice of Intent to Operate Under Section 501(c)(4), (or its successor) no later than 60 days after the date the organization is organized.

The regulations specify that the notification must include: (1) the name, address, and taxpayer identification number of the organization; (2) the date on which, and the state or other jurisdiction under the laws of which, the organization was organized; and (3) a statement of the purpose of the organization. In addition, the notification must include any additional information as may be specified in published guidance in the Internal Revenue Bulletin or in other guidance, such as forms or instructions. To ensure that the statutorily required items of information in the notification are correlated accurately within existing IRS systems, Form 8976 requires organizations to provide their annual accounting period.

The regulations also provide that the notification must be accompanied by payment of the reasonable user fee authorized by Code Sec. 506(e). For 2016 the fee is $50.

Further, the regulations provide that, within 60 days after receipt of the notification, the IRS will send the organization an acknowledgment of receipt. The regulations clarify that this acknowledgment is not a determination of tax-exempt status. Thus, it is not a determination on which an organization may rely or a determination or a failure to make a determination with respect to which the organization may seek declaratory judgment under Code Sec. 7428.

Penalties for Failure to Timely File

Organizations and persons who fail to submit a completed Form 8976 by the due date must pay a penalty of $20 a day for each day the failure continues (maximum $5,000), unless the failure was due to reasonable cause.

Foreign Organizations

The regulations clarify that a Code Sec. 501(c)(4) organization must submit the notification whether it is organized in the United States or outside the United States. However, a foreign organization may be eligible for relief from penalties under Code Sec. 6652 if it submits the notification promptly after first commencing activities or receiving income that would cause it to have a filing requirement under Code Sec. 6033.

Special Rules

The regulations provide relief from the requirement to submit the notification for any Code Sec. 501(c)(4) organization that, on or before July 8, 2016, either: (1) applied for a determination letter that recognizes the organization as a Code Sec. 501(c)(4) organization (using Form 1024); or (2) filed at least one annual return or notice required under Code Sec. 6033(a)(1) or Code Sec. 6033(i) (that is, a Form 990 or, if eligible, Form 990-EZ or Form 990-N). An organization that was organized on or before July 8, 2016, will have until September 6, 2016, to submit the notification.

T.D. 9775, 2016FED ¶47,035

Proposed Regulations, NPRM REG-101689-16, 2016FED ¶49,705

Rev. Proc. 2016-41, 2016FED ¶46,368

Other References:

Code Sec. 506

CCH Reference – 2016FED ¶22,742

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