A substantial number of organizations exempt from federal income tax under Internal Revenue Code (Code) § 501(c)(4), and their individual officers and directors, may be subject to financial penalties if they do not file a Form 8976, Notice of Intent to Operate Under Section 501(c)(4), with the Internal Revenue Service (Service or IRS) on or before September 6, 2016.
On July 8, 2016 the IRS released a Revenue Procedure for implementing new statutory requirements for certain nonprofit organizations that operate under section 501(c)(4) of the Code. This requirement comes on the heels of the December 2015 enactment of the Protecting Americans from Tax Hikes (PATH) Act of 2015.
The recently released Revenue Procedure 2016-41 contains temporary regulations implementing the 501(c)(4) provisions of the PATH Act and describes the new Form 8976 and the related rules for filing it.
Organizations Required to File
Generally, any organization that meets the criteria described in section 501(c)(4) of the Code must file Form 8976. The form and the notification process described here apply only to 501(c)(4) tax-exempt nonprofits, not other types of 501(c) organizations. Furthermore, certain 501(c)(4) organizations that were formed and have made specific filings before the July release of Form 8976 also are exempt from filing the new form:
- Organizations that filed a Form 1024, the application for recognition of tax-exempt status under Code section 501(c)(4), on or before July 8, 2016 are not required to file Form 8976.
- Organizations that filed at least one Form 990, Form 990-EZ, or Form 990-N on or before July 8, 2016 also are not required to file Form 8976.
Form 8976 will be due within 60 days after an entity's date of organization. For nonprofit corporations, the date of organization is the date that the charter or articles of incorporation were approved by the appropriate state official. For unincorporated organizations, the date of organization is the date that the constitution or articles of association were adopted.
But there are some 501(c)(4) organizations that have been formally organized but have not filed Form 1024 or have not yet filed one of the Form 990 series annual information returns. For those organizations with a date of organization on or before July 8, 2016 but that are not exempt from the filing requirements (as described above), Form 8976 must be filed on or before September 6, 2016.
Accessing and Filing Form 8976
Form 8976 must be accessed and filed electronically through the IRS's Form 8976 Electronic Notice Registration System. Organizations will need to create an account using the organization's name and a contact email address. Once logged on, a user will be directed to a main menu, which provides the option to start an application. Under this heading, organizations should select "501(c)(4)" as the organization type and then "Form 8976" as the application type to get the process started.
In completing Form 8976, the organization will be guided through a series of pages requiring basic information:
- The first page requires the full name of the organization and its Employer Identification Number (EIN).
- The second page requires the organization's full mailing address.
- The third page requires
- The date upon which the organization was formed;
- The state in which the organization was formed;
- The country in which the organization was formed;
- The month in which the annual accounting period ends; and
- An organizational statement of purpose. For this question, organizations are asked to choose from a drop-down menu. Organizations must select either "Social welfare/civic league" or "Local association of employees." The online system does not provide a section for additional information or a narrative statement.
501(c)(4) organizations filing Form 8976 will be prompted to submit a user fee of $50, which can be paid by credit card or direct debit as part of the electronic filing process.
Penalties for Failure to Provide Timely Notification
If an organization fails to file its Form 8976 within the required 60-day time period, the IRS may assess penalties on the organization and on individuals within the organization who are responsible for such filings. Under Code section 6652(c)(4) the IRS may assess late fees of $20 per day up to a maximum of $5,000 on organizations that fail to file the required notice within 60 days of creation. Additionally, when an organization fails to file its notification in a timely manner, the IRS may issue a written demand specifying a future date by which the notice must be filed, after which the IRS may assess a penalty on the organization's individual officers and directors of $20 per day up to a maximum of $5,000. Therefore, organizations created before July 8, 2016 that did not file Form 1024 or Form 990 with the IRS before that date must file Form 8976 on or before September 6, 2016. Failure to do so may result in penalties being assessed against both the organization and its officers and directors.
What Happens After Filing
Once the form is submitted, an organization will receive an acknowledgment notice from the IRS within 60 days. Before sending this notice, the IRS will validate the organization's information and eligibility and confirm receipt of the $50 filing fee. The acknowledgment notice will be sent electronically to the online account that the organization set up when filing Form 8976.
It is important to keep in mind that the IRS acknowledgment notice does not mean that the IRS is formally recognizing the organization as exempt from federal income tax under Code section 501(c)(4). This new process is only a notification that the organization exists and intends to operate as a 501(c)(4) organization; the acknowledgment from the IRS is not a determination letter.
If an organization wishes to receive a formal IRS determination that it qualifies as tax-exempt under Code section 501(c)(4), the organization also must submit Form 1024.
Don't Forget: Form 990 Is Still Required
The Form 8976 is a one-time filing requirement. However, 501(c)(4) organizations also must file annual information returns (Form 990, Form 990-EZ, or Form 990-N) with the IRS as usual. Failure to file any version of the Form 990 for three consecutive tax years will result in automatic revocation of the organization's federal tax-exempt status.