President Obama signed into law the Protecting Americans from Tax Hikes (PATH) Act on December 18, 2015. The Act contains several provisions affecting tax-exempt organizations, and in particular those exempt (or claiming exemption) under Section 501(c)(4). Previously, a newly-formed social welfare organization could simply file an initial Form 990 at the end of its first tax year and check a box to indicate that the organization was exempt under Section 501(c)(4). Unlike 501(c)(3) organizations, there was no requirement to apply for recognition of tax-exempt
status, although organizations have always had the option of securing an Internal Revenue Service (IRS) determination letter by filing Form 1024.
Now, all organizations formed after December 18, 2015, must provide written notice to the IRS within 60 days following formation of their intent to operate as a 501(c)(4). The registration notice must include:
- The organization’s name, address, and employer identification number
- The organization’s date and state of formation
- A statement of the organization’s purpose
The notice requirement also applies to organizations formed prior to December 18, 2015, that had not yet filed a Form 1024 or a Form 990 by that date, although those organizations have until June 15, 2016, to file the registration notice. The penalty for failing to timely file the notice is $20 per day, up to a total penalty of $5,000.
(Note: the IRS is expected to create a new form to be used for this purpose, but as of the date of publication this form was not yet available.)
In addition, 501(c)(4) organizations will be required to provide additional information in the first Form 990 they file, apparently even if they’ve separately Filed Form 1024. The specific information that will be required will be set forth by Treasury Regulations, which may take years to be released, so it’s unclear how this requirement will apply in 2016 since the IRS has already released the 2015 Form 990.
The Act retains the option for organizations to file Form 1024 and obtain an IRS determination letter; however, the history of the Act suggests that Congress intends for the IRS to develop a new exemption application just for use by 501(c)(4) organizations. In the interim, it is expected that the IRS will continue to accept the current version of Form 1024.
In better news, the Act explicitly states that any contributions made to 501(c)(4) organizations (as well as those exempt under 501(c)(5) and 501(c)(6)) are not subject to federal gift tax. This applies to any contributions made after December 18, 2015; however, because of IRS administrative forbearance, it’s likely that contributions made prior to that date are not subject to the gift tax either.
