Following the passage of the Protecting Americans From Tax Increases (PATH) Act of 2015, the Internal Revenue Service issued proposed and temporary regulations in July 2016, which set forth notification requirements for new 501(c)(4) tax-exempt organizations. This category of tax-exempt entities includes civic leagues and other not-for-profit organizations that promote “social welfare.” Unlike 501(c)(3) organizations, whose focus must be on a more narrow set of charitable, educational, religious or certain other purposes, 501(c)(4) social welfare organizations are afforded a greater degree of latitude in terms of political participation. Contributions to 501(c)(4) organizations are not deductible.
Previously, organizations claiming exemption from federal income taxes under Section 501(c)(4) of the Internal Revenue Code enjoyed a self-executing process that did not require an application or notification to the IRS.
The PATH Act requires that 501(c)(4) organizations notify the IRS within 60 days of formation of their intent to operate as such. The new rules require that the notification (on newly created Form 8976) include: (1) the name, address, and taxpayer identification number of the organization; (2) the date on which the organization was formed and the state of incorporation; and (3) a statement of the purpose of the organization.
Failure to notify the IRS subjects an organization to a daily fine of $20, with a maximum aggregate penalty not to exceed $5,000.