New 501(c)(4)s subject to additional filing requirement and other potential changes

On Friday, December 18th, Congress passed and the President signed the Protecting Americans from Tax Hikes Act of 2015 (the “Path Act”).  The Path Act contained multiple provisions of interest to the nonprofit and tax exempt community, but probably of greatest interest, is a new requirement being imposed on certain 501(c)(4) organizations beginning in 2016.

The Path Act creates a new Section 506 of the Internal Revenue Code that will require 501(c)(4) organizations to provide notice of formation.  Currently, 501(c)(4) organizations, like many other non-501(c)(3) organizations, do not have to seek formal recognition of tax exempt status by the IRS, or even provide notice to the IRS that the organization exists (other than through fulfilling the annual requirement to file a 990-series return).  With the passage of the Path Act, 501(c)(4)s will be required to provide notice, along with a user fee, to the IRS no later than 60 days (which may be extended by the IRS for reasonable cause) following the formation of the organization.  That notice will include, at a minimum, the following information:

  1. The name, address, and taxpayer ID number of the organization;
  2. The date on which, under State law, the organization was created; and
  3. A statement of the purpose of the organization.

Within 60 days of the receipt of the notice, the IRS is required to issue an acknowledgement to the organization.  The notice and disclosure will be subject to the same public disclosure requirements as many other federal tax filings for exempt organizations.  Failure to file the notice may subject an organization to a late penalty of $20 per day, with a maximum penalty of $5,000.  The text of the PATH Act indicates that 501(c)(4)s that are subject to this notice requirement may also be subject to expanded reporting on the first 990-series return filed after the notice is filed.

The notice requirement created by the Path Act is not the same as applying for a determination for recognition of tax exempt status.  It is currently unclear between the text of the Path Act and the Joint Tax Committee’s explanation of it as to whether the Form 1024 or some other form will be used to apply for formal recognition as a 501(c)(4) by those organizations seeking a determination.

The legislation is effective as of December 18th and applies to organizations created since then, as well as organizations that were created prior to December 18th that had not yet filed either a 990-series return with the IRS or a Form 1024.

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