New Reporting Requirements for Tax-Exempt Social Welfare Organizations
The Protecting Americans From Tax Hikes Act of 2015 (PATH Act) imposes new reporting requirements for social welfare and community benefit organizations formed under Section 501(c)(4) of the Internal Revenue Code. The new requirements, found in Section 506 of the Internal Revenue Code, also impose penalties for failure to comply.
Organizations formed after December 19, 2015, must notify (the Initial Notification) the IRS of their operation as a 501(c)(4) organization within 60 days of formation. Those formed before December 19, 2015, and which have not submitted a Form 1024 Application for Recognition of Exemption Under Section 501(a) or an annual return such as a Form 990, must notify the IRS of their operation by June 16, 2016 (which may be extended by the IRS regulations). However, the PATH Act also directs the IRS to issue implementing regulations for the notification procedures, and until such regulations are issued, organizations will not need to notify the IRS. According to the IRS, notifications will not be due until at least 60 days from the date that the implementing regulations are issued.
The initial notification must include name, address, taxpayer identification number, date of formation, and a statement purpose. A user fee, the amount of which has yet to be determined, must accompany each notification of operation. After notification, the IRS will acknowledge receipt within 60 days. Additional supporting information, again to be determined, shall be included in the From 990 return. IRC § 6033(f).
Failure to file the Initial Notification results in a penalty of $20 per day, up to $5,000. Organization managers may be penalized personally in the same amount if they fail to provide the Initial Notification after demand by the IRS. IRC § 506(a).
These requirements not only impose additional burdens on 501(c)(4) organizations but also require a much more formal recognition process. Prior to the PATH Act, 501(c)(4) organizations did not need to get formal recognition as an organization by the IRS, other than filing annual Form 990s. The new notification requirements do not change any application requirements, meaning, that an organization will still need to file a Form 1024 seeking exempt status. IRC § 506(f).