Feb
15
2017

Reminder: Filing Requirements for New 501(c)(4) Organizations

With lobbying efforts on the rise, the IRS has issued notice requirements for new 501(c)(4) social welfare organizations. These requirements follow the addition of Section 506 to the Code, where notification requirements for new 501(c)(4) organizations were outlined by the legislature.

A newly formed 501(c)(4) is required to notify the IRS within 60 days from the date it becomes a new legal entity. In providing notice, the organization must include the following information:

(1) the organization’s name, address, and taxpayer identification number;

(2) the date and state law under which the organization was formed; and

(3) a statement of the organization’s social welfare purpose.

The IRS has developed a new form – Form 8976 – that organizations should use to provide this notification. Note that continuing to file a Form 1024 is optional, and does not waive the requirement to provide notice. A Form 8976 can only be completed electronically through the IRS Electronic Notice Registration System. The system allows organizations to complete the notification process, keep account information current, and receive secure, digital communications from the IRS. You can access the Form 8976 here. Once notice is received, the IRS will issue a receipt of confirmation to the 501(c)(4) organization. However, this acknowledgement does not constitute approval of the organization’s qualifications for tax-exempt status under 501(c)(4), which is a separate determination.

Written by in: 501(c)(4)
Sep
23
2014

Proposed Revisions To Section 501(c)(4) Regulations

Background

Currently, Treasury Regulation Section 1.501(c)(4)-1 provides for exemption under Section 501(c)(4) for an organization that is “operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community.”1  The promotion of social welfare does not include “direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.”  Currently, the determination regarding whether a given activity constitutes such participation (as well as the determination of what is primary) is made by a facts and circumstances analysis.  In connection with the 2012 presidential election, there were many calls to revise the rules governing Sections 501(c)(4) and 501(c)(3) organizations with respect to political activity.

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Written by in: 501(c)(4)
Jul
07
2013

Expedited Processing for 501(c)(4)s

There has been a lot of press concerning social welfare organizations lately, including allegations that many such organizations should not be classified as tax-exempt under Section 501(c)(4) based on their political campaign activities.  In response to criticism regarding substantial delay in processing Form 1024 Applications, as well as allegations that conservative organizations were subject to additional IRS scrutiny, the IRS has instituted an optional expedited process for organizations whose Form 1024 Applications have been pending more than 120 days.  

Under the optional expedited process, the IRS will approve the Form 1024 Application, thus recognizing Section 501(c)(4) status, if the organization can represent (1) that it has spent and anticipates that it will spend 60% or more of both its total expenditures and total time (employee and volunteer hours) on activities that promote social welfare and (2) that it has spent and anticipates that it will spend less than 40% of both of its  total expenditures and total time (employee and volunteer hours) on political campaign activities.   A copy of the letter describing the process in its entirety may be obtained by clicking the following link.  http://www.irs.gov/pub/irs-tege/letter5228.pdf

I personally welcome the 60-40 expedited process; in cases where the representations cannot be made, it is reasonable that the IRS would want additional information to ensure campaign activities are not the primary activities.  In cases where the repreesntations can be made, it is reasonable that the IRS should approve the application based on the representations, which are made under penalties of perjury.   I also hope the IRS will consider extending the expedited process to new Form 1024 Applications.    

Finally, it is important to note that the optional expedited process has not changed the law.  A Section 501(c)(4) organization may engage in political campaign activities in furtherance of its purpose so long as such activities do not constitute the organization’s “primary” activities. See Rev. Rul. 81-95, 1981-1 C.B. 332.  Historically, we have advised clients that campaign activities must be less than 50% of the organization’s expenditures and activities.   Some practitioners also advise that campaign activities should not be the organization’s largest activity.  It is always important to consider whether other laws (such as state or federal campaign finance laws) may be triggered and whether different thresholds and definitions are used under these laws.    We will keep our eye out for additional developments in this area.

Written by in: 501(c)(4)
Aug
13
2012

Possible Revisions To Section 501(C)(4)

Background

Section 501(c)(4) of the Internal Revenue Code provides, in relevant part, an exemption for “[c]ivic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.”  With respect to the meaning of “exclusively”, the regulations provide that “An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community.”[1]   In order to be recognized as exempt under Section 501(c)(4), an organization must file a Form 1024 with the IRS. 

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Written by in: 501(c)(4)
Jan
09
2012

Another Election Year – 501(c)s be Cautious

In the weeks before the 2010 election, every other tv commercial seemed to be a political ad sponsored by a concerned citizens group regarding a particular candidate.    Most of these groups are organized as tax-exempt Section 501(c)(4) social welfare organizations or Section 501(c)(6) trade associations.  Although a Section 501(c)(4) or Section 501(c)(6) organization may engage in political campaign activities in furtherance of its exempt purposes (subject to applicable  state and federal campaign finance laws), such activities must not constitute the organization’s primary activities. See e.g., Rev. Rul. 81-95, 1981-1 C.B. 332; Kindell & Reilly, “Election Year Issues,” 2002 IRS EO CPE Text.  

Watchdog groups have been calling on the IRS to investigate many of the high profile organizations behind the ads, questioning whether these organizations should maintain their status as a Section 501(c) organization in light of what they would argue is substantial political activity.  As things heat up for the 2012 election year, I anticipate even more political ads sponsored by Section 501(c) organizaitons.  I also anticipate that there will be even more IRS scrutiny and resources devoted to compliance.  In order to protect tax-exempt status, any Section 501(c)(4) and Section 501(c)(6) organization that engages in political campaign activities should be cautious to maintain sufficient sufficient records to demonstrate that their primary activities are not political campaign activities.  This includes a proper allocation of expenses among the organization’s activities, such as overhead.

Written by in: 501(c)(4)
Jul
10
2011

Gift Tax and 501(c)(4)s

For decades there has been a risk and concern whether the IRS would seek to apply the gift tax to contributions made to a Section 501(c)(4) social welfare organization.  In May the IRS confirmed that it had sent letters to five donors who had not filed gift tax returns in connection with a contribution to a Section 501(c)(4) in order to determine if returns should have been filed and if the gifts were taxable.  Obviously, the impact of taxing contributions to Section 501(c)(4) organizations is substantial and arguably represents a deviation from “industry” practice. 

On July 7, the IRS Deputy Commissioner for Services and Enforcement announced that any current audits should be closed and that his office will be coordinating with the Office of Chief Counsel to determine whether there is a need for further guidance in this area.  Click here to read his full statement.  The IRS website was also updated on July 7 to provide “questions have arisen regarding the applicability of the gift tax to contributions to 501(c)(4) organizations. The IRS has little history to draw from in this area and the limited guidance we previously issued on this matter is almost thirty years old.  While we review the need for additional guidance or legislation, we will not use resources to pursue examinations on this issue.  Any future action we take will be prospective and after notice to the public.  As we consider this issue, it is possible that Congress may choose to clearly articulate through legislation the applicability of the gift tax to contributions to 501(c)(4) organizations.”

This is good news for now – and it will be interesting to see how the IRS and/or Congress handle this important issue.

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