Code Section 501(c)(4) Organizations Must Notify IRS of Their Existence

January 21, 2016Articles Nonprofit Roundup Blog

Section 506 of the Protecting Americans from Tax Hikes Act (PATH) requires Code Section 501(c)(4) social welfare groups to notify the IRS of their existence within sixty (60) days of their incorporation. Certain organizations already in existence will have one hundred eighty (180) days from the date that PATH was enacted (or until June 15, 2016) to notify the IRS of their existence.

The content of the Section 506 notice is yet to be determined, but commentators are speculating that it may be similar to the information required on a Form 990-N (e-postcard).

While the IRS must acknowledge the receipt of an organization’s Section 506 notice, the Section 506 notice acknowledgement is not akin to the IRS’ determination that the organization is exempt from federal income tax under Code Section 501(a) and described as a social welfare group under Code Section 501(c)(4). Instead, if an organization wishes to receive confirmation from the IRS that it is exempt under Code Section 501(a) and described in Code Section 501(c)(4), it must still submit a Form 1024 Application.

So why is the Section 506 notice necessary? Prior to the Section 506 notice requirement, social welfare groups could “self-declare” that they were exempt under Code Section 501(a) and described in Code Section 501(c)(4) without even notifying the IRS of their existence. While the IRS would ultimately be notified of the organization’s existence when the organization submitted its initial Form 990 Return, such filing could have been made almost two years after the organization was formed.

In an election year, a social welfare group could theoretically self-declare, influence the election and then dissolve, all before the IRS even knew it existed. Thus, commentators believe the Section 506 notice is being used to keep a closer eye on social welfare groups as the 2016 presidential election heats up.