Section 506, which was added by the Protecting Americans From Tax Hikes Act of 2015 (PATH Act), requires an organization to notify the IRS of its intent to operate as a §501(c)(4) organization. The IRS recently issued final and temporary regulations clarifying the process by which a social welfare organization must notify the IRS of its intent to operate as a tax-exempt organization. The IRS concurrently issued Rev. Proc. 2016-41, detailing the procedure for submitting newly created Form 8976, Notice of Intent to Operate Under Section 501(c)(4), which is used by an organization to notify the IRS that the organization is operating as a §501(c)(4) organization.
The new guidance provides important information on deadlines and forms, and provides some relief for practitioners, for example exempting certain organizations from the notice requirement. However, the guidance does not provide new details on what is needed to actually be exempt under §501(c)(4), for example defining political activities. With the first deadline for organizations that must file Form 8976 fast approaching — September 6, 2016 — here are some important details to help comply with the new notice requirement:
The PATH Act also amended §6652(c) to impose penalties on an organization that fails to timely file a completed Form 8976, unless it is shown that the failure was due to reasonable cause. The penalty is $20 per day for each day the failure continues, up to a maximum of $5,000. Furthermore, the IRS may make written demand on any organization subject to the penalty, providing a due date by which the notice must be filed. If the required notice is not submitted by the due date, the entity managers responsible for the failure are subject to a penalty of $20 per day with a cumulative maximum of $5,000 on all persons with respect to any one notice. Therefore, as stated above, an organization that was created before July, 8 2016 and is not exempt from the notice requirement, must file Form 8976 by September 6, 2016 to avoid penalties being assessed against both the organization and managers.
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