With the enactment of the Protecting Americans from Tax Increases (PATH) Act on December 18, 2015, social welfare organizations exempt from tax under Section 501(c)(4) are now required to notify the IRS of their intention to operate as a 501(c)(4) organization within 60 days of formation.
Organizations established before the December 18, 2015, enactment date that didn’t submit an application for determination of tax-exempt status or file an annual return by that date were required to submit notification within 180 days of the enactment of the act, or by June 15, 2016. Failing to meet the new notification requirements within these periods results in a penalty, provided as part of the PATH Act, of $20 per day, but not exceeding $5,000.
Previously, a social welfare organization was described in Section 501(c)(4)—and, therefore, exempt from tax under Section 501(a)—if it satisfied the requirements applicable to that status.
Although the organization was permitted to apply to the IRS for recognition that it qualified for section 501(c)(4) tax-exempt status, it wasn’t required. The only exception was for organizations that failed to file required information returns or notices, according to Section 6033(j)(2). Accordingly, an organization described in section 501(c)(4) that filed the required annual information return or notice, as applicable, wasn’t required to seek an IRS determination of its qualification for tax-exempt status.
In July 2016, the IRS issued final and temporary regulations and Revenue Procedure 2016-41 providing additional guidance and methods so applicable 501(c)(4) organizations can comply with the new notification requirements under the PATH Act. This followed Notice 2016-09, which provided interim guidance and relief from the requirements of the PATH Act.
The interim notice also extended the due date and provided relief from notification requirements until 60 days after the final and temporary regulations were issued. Organizations established between December 18, 2015, and July 8, 2016, don’t need to file if they’ve filed an annual return or submitted an application for determination of exempt status. Organizations established within that period that haven’t met the relief requirements had until September 6, 2016 to submit notification.