DEADLINE IS APPROACHING FOR ORGANIZATIONS THAT MUST FILE FORM 8976

 

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:

  • An organization organized after December 18, 2015 intending to operate as a social welfare organization must notify the IRS of its existence within 60 days of formation by submitting electronic Form 8976, and paying a fee ($50 for 2016).
  • An organization organized before July 9, 2016 is exempt from the notice requirement if it has, before that date, either filed a request for recognition of exemption (using Form 1024, Application for Recognition of Exemption Under Section 501(a)) or filed at least one annual information return or notice. An organization organized before July 9, 2016 that does not satisfy these criteria must file Form 8976 by September 6, 2016.
  • Form 8976 must include: (1) the name, address, and taxpayer identification number of the organization; (2) the date of the organization’s formation, and the state or other jurisdiction under whose laws it was organized; (3) a statement that the purpose of the organization is to operate either as a social welfare organization/civic league or a local association of employees; (4) the month the organization’s annual accounting period ends; and (5) an attestation that the information provided on the form is correct and that the individual submitting it is authorized to do so on behalf of the organization.
  • Submission of the notice does not constitute a request by an organization for a determination that it qualifies for tax-exempt status under §501(c)(4). Social welfare organizations seeking recognition of tax-exempt status as social welfare organizations must submit a request for determination to the IRS by filing Form 1024, along with a user fee.

Penalties

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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