In Section 405 of the Protecting Americans from Tax Hikes, organizations that intend to operate as organizations exempt from tax under §501(c)(4) must notify the IRS of that intent. [IRC §506] The IRS has issued temporary regulations [T.D. 9775] that were also issued as proposed regulations [REG-101689-16] to implement these rules, along with a Revenue Procedure [Revenue Procedure 2016-41] outlining the notification procedure.
The provision and dates for filing enacted in the law are described in the preamble the regulations:
Section 405(f) of the PATH Act provides that, in general, the requirement to submit the notification and the related amendments to sections 6033 and 6652 apply to section 501(c)(4) organizations that are established after December 18, 2015, the date of enactment of the PATH Act. Section 405(f)(2) of the PATH Act provides that these provisions also apply to any other section 501(c)(4) organizations that had not, on or before the date of enactment of the PATH Act: (1) applied for a written determination of recognition as a section 501(c)(4) organization (using Form 1024, "Application for Recognition of Exemption Under Section 501(a)"); or (2) filed at least one annual information return or notice required under section 6033(a)(1) or (i) (that is, a Form 990, "Return of Organization Exempt From Income Tax," or, if eligible, Form 990-EZ, "Short Form Return of Organization Exempt From Income Tax," or Form 990-N (e-Postcard)). Organizations described in section 405(f)(2) of the PATH Act must submit the notification within 180 days after the date of enactment of the PATH Act.
Of course, the fact that Congress imposed these due dates was a problem, since no reporting forms or methods existed as of the date the Act came into the law. To deal with this, the IRS had previously issued Notice 2016-09 that extended the due date for submitting initial applications to no earlier than 60 day after implementing regulations were issued.
The temporary and proposed regulations provide the guidance discussed in Notice 2016-9. The IRS has created a new electronically submitted form for this purpose. As the preamble notes:
The IRS has developed a new electronic form, Form 8976, "Notice of Intent to Operate Under Section 501(c)(4)," for use by organizations submitting the notification. In accordance with section 506(a), the temporary regulations generally require a section 501(c)(4) organization to submit the notification to the IRS on Form 8976 (or its successor) no later than 60 days after the date the organization is organized. The Form 8976 must be submitted in accordance with the form and its instructions.
The preamble goes on to note what information will be part of this form:
Consistent with section 506(b), the temporary regulations specify that the notification must include: (1) the name, address, and taxpayer identification number of the organization; (2) the date on which, and the state or other jurisdiction under the laws of which, the organization was organized; and (3) a statement of the purpose of the organization. In addition, the temporary regulations provide that the notification must include such additional information as may be specified in published guidance in the Internal Revenue Bulletin or in other guidance, such as forms or instructions, issued with respect to the notification. To ensure that the statutorily required items of information in the notification are correlated accurately within existing IRS systems, Form 8976 requires organizations to provide their annual accounting period.
The regulations provide for payment of a user fee with this form, which is initially set at $50.
The IRS will acknowledge receipt of the notice within 60 days, but this acknowledgement does not mean that the IRS is stating the organization meets the requirements to be treated as a §501(c)(4) organization. An organization desiring an IRS ruling on that issue will need to submit a Form 1024.
Because of the time period between when Congress passed the law and the issuance of final guidance, the IRS provided special procedures for organizations subject to these requirements established before July 8, 2016 (the publication date of the regulations).
The Treasury Department and the IRS recognize that, since the enactment of the PATH Act but before the availability of the new electronic Form 8976 for submitting the notification, additional section 501(c)(4) organizations may have notified the IRS of their existence by applying for a written determination of tax-exempt status or filing a required annual information return or notice. Accordingly, to reduce the burden on these organizations and the IRS, the temporary regulations provide relief from the requirement to submit the notification for any section 501(c)(4) organization that, on or before July 8, 2016, either: (1) applied for a written determination of recognition as a section 501(c)(4) organization (using Form 1024); or (2) filed at least one annual return or notice required under section 6033(a)(1) or (i) (that is, a Form 990 or, if eligible, Form 990-EZ or Form 990-N).
In order to allow adequate transition time for organizations that do not qualify for this transition relief to submit the notification in the manner prescribed by these regulations, the temporary regulations provide that an organization that was organized on or before July 8, 2016, will have until September 6, 2016, which is 60 days from the date that the regulations are filed with the Federal Register, to submit the notification.
The Revenue Procedure outlines details on how to make this application, stating it must be made at www.services.irs.gov/registration/ (although at the time is was written that address did not resolve properly).
The procedure notes that only a “complete” form will be counted as filed by the IRS, Section 4.04 of the procedure provides information on what must be provided for a complete filing:
.04 Requirements for completed Form 8976. For purposes of this revenue procedure, a Form 8976 submitted by an organization is complete if it:
(1) Provides accurate responses for each required line item of the form, consistent with the form instructions, including --
(a) Name of the organization;
(b) Address of the organization;
(c) Employer Identification Number (EIN) of the organization;
(d) Date of Organization;
(e) State or other jurisdiction of organization;
(f) Statement that the purpose of the organization is to operate as either a (i) social welfare organization/civic league, or (ii) local association of employees; and
(g) Month the organization's annual accounting period ends.
(2) Includes an attestation that the information provided is correct and the individual submitting the Form 8976 is authorized to submit the Form 8976 on behalf of the organization; and
(3) Is accompanied by the correct user fee, as described in section 4.02 of this revenue procedure.
The procedure goes on to describe the criteria by which a filing will be deemed incomplete at Section 4.05 of the ruling:
.05 Incomplete Forms 8976. A Form 8976 submitted by an organization will not be considered complete if --
(1) Any required line item of the electronic form is incomplete or unintelligible;
(2) The organization's name or EIN do not match the records in the IRS Business Master File;
(3) The organization fails to include payment of the correct user fee; or
(4) The required information is submitted on an improper form or in any other improper format.
If a filing is rejected due to being incomplete the organization will be notified of that fact and the user fee refunded. The organization will be able to submit another Form 8976 online to correct the issues.
The IRS will also reject the form if it was not required to be filed. As Section 5.02 provides:
.02 Submission of Form 8976 by excepted organizations. If an organization's Form 8976 is not accepted for processing because the organization is excepted from section 506 under section 405(f) of the PATH Act (an organization that, on or before December 18, 2015, had applied for a Determination Letter that recognizes it as described in section 501(c)(4) of the Code (using Form 1024) or filed a Form 990 (or, if eligible, a Form 990-EZ or 990-N)), the organization will be notified of the non-acceptance of its form and any user fee that was paid will be returned or refunded.
Similarly, if the organization submits multiple Forms 8976s, only the first one will be accepted and the user fees will be refunded for the duplicate filings.
The IRS will issue an acknowledgement of the filing to the organization initially (Section 6.02) but that does mean the filing is accepted. Rather the IRS will separately notify the organization of acceptance within 60 days electronically to the account through which the Form 8976 was submitted. Thus the organization will need to assure that it follows up to insure that it either received the acceptance or acts on the rejection notice.
The IRS acceptance of this form is not a determination that the organization qualifies as a §501(c)(4) organization. As the procedure notes “[a]n organization wishing to submit a request for a Determination Letter from the IRS that it qualifies for tax-exempt status should do so in the manner prescribed in Rev. Proc. 2016-5, 2016-1 I.R.B. 188, or a successor revenue procedure.”
As well, the organization is not relieved from the requirement to file annual information returns required of the organization.
Section 8 of the procedure outlines the penalties for late filing or failing to file the form. First, under Section 8.01(2) the procedure outlines the penalty on the organization:
(1) Penalty on organization. An organization that fails to submit a completed Form 8976 by the due date must pay a penalty of $20 for each day during which such failure continues. However, the total imposed on the organization for failure to submit Form 8976 shall not exceed $5,000.
There is also a penalty imposed on the manager if the IRS issues a notice to the organization. The details of that penalty and who will qualify as a manager subject to that potential penalty is found at Section 8.01(3):
(2) Penalty on managers. If an organization fails to submit a completed Form 8976 by the due date, the IRS may send a written demand, requesting that the organization submit the Form 8976 by a specified future date that the IRS determines is reasonable under the circumstances. If the organization fails to submit the Form 8976 on or before the date specified in the demand, the person or persons responsible for such failure must pay a penalty of $20 for each day after the date specified in the demand during which such failure continues. For these purposes, the term "person" means any officer, director, trustee, employee, member, or other individual whose duty it is to submit the Form 8976. If more than one person is responsible for a failure to submit the Form 8976, all such persons shall be jointly and severally liable with respect to the penalty for such failure. However, the total amount imposed on all persons responsible for such failure shall not exceed $5,000.
The penalties can be waived with a showing of reasonable cause [IRC §6652(c)(5), Section 8.02], The procedure indicates the IRS correspondence proposing the penalty will contain instructions on how to apply for relief.
The IRS gives the following example as a situation that would qualify for relief:
.03 Example of a situation in which reasonable cause relief from the penalty on the organization would be appropriate. Organization O is formed under the laws of a foreign country and operates for a number of years during which it conducts no activities in the United States and has no income from U.S. sources. In October 2016, O commences operations in the United States from which it anticipates income that will be reported on a Form 990 (or require the filing of a Form 990-N) and promptly notifies the IRS of its intent to operate as a section 501(c)(4) organization by submitting Form 8976. Because the date of submission of Form 8976 is more than 60 days after its Date of Organization, O receives a penalty letter from the IRS. Based on these facts, O's failure is due to reasonable cause, and O may obtain relief from the penalty described in section 8.01(1) of this revenue procedure by submitting a request in accordance with the instructions in the correspondence from the IRS regarding the penalty.
The temporary regulations and the Revenue Procedure have an effective date of July 8, 2016.