Social welfare and other types of organizations intending to operate as exempt under Internal Revenue Code (IRC) Section 501(c)(4) can no longer self-declare exempt status by filing their Form 990. Instead, they’ll need to file an initial notification along with a user fee and supporting information. Organizations formed after December 18, 2015, and some existing organizations are affected.
The change took effect under the Protecting Americans From Tax Hikes (PATH) Act of 2015, which was implemented December 18 and outlines these requirements by adding Section 506 to the IRC. IRS Notice 2016-09, issued January 19, 2016, provides interim guidance on the Section 506 requirements.
What Organizations Are Affected?
Historically, organizations wishing to gain exemption under IRC Section 501(c)(4) filed their annual Form 990 to self-declare their exempt status rather than applying using Form 1024. Section 506 removes the flexibility to self-declare using Form 990 for organizations created after December 18, 2015, and certain existing organizations. Instead, these organizations must file an initial notification together with a user fee, and they must provide supporting information with the first Form 990–series return filed after submitting their initial notification.
Existing 501(c)(4) organizations that are affected are those that, as of December 18, 2015, hadn’t either:
- Applied for written determination of recognition using Form 1024
- Filed at least one Form 990, Form 990-EZ, or Form 990-N
For organizations that haven’t done either of the above, the initial notification is due June 15, 2016. New organizations have 60 days from their date of formation to file an initial notification with the secretary of the Treasury. The first due date of the initial notification will be 60 days from the date the final regulations are issued, according to Notice 2016-09.
Initial Notification and Supporting Information
The following information must be included in an organization’s initial notification:
- The organization’s name, address, and taxpayer identification number
- The date and state in which the organization was organized
- The organization’s statement of purpose
- A reasonable user fee in an amount yet to be determined
Once the initial notification is received, the secretary of the Treasury has 60 days to send the organization an acknowledgement of the receipt.
Note this acknowledgment isn’t an official IRS determination letter. Organizations must issue a separate request for a determination with respect to the organization’s treatment under Section 501(c)(4). This request will be treated as an application for tax exemption, subject to public inspection requirements. Filing Form 1024 is optional; doing so won’t relieve an organization of the requirement to file the initial notification under Section 506.
Supporting information provided with the organization’s first filed Form 990–series is additional information that supports Section 501(c)(4) status. Details of this information will be provided in the final regulations.
We Can Help
We’ll continue to provide updates on the Section 506 requirements once final regulations are issued. For more insight on the new requirements, your exempt status, or how your organization may be affected, contact your Moss Adams professional.