New Developments for Section 501(c)(4) organizations
- What is a section 501(c)(4) organization? – organizations that fall under section 501(c)(4) are nonprofit entities under state law but don’t fall under other categories of exempt organizations. They are commonly referred to as social welfare organizations. Their mission is to improve the welfare of the communities in which they operate and promote the common good. Examples include Kiwanis clubs, Rotary clubs and Lions clubs. In addition, it can include organizations that advocate for a particular position, as long as they aren’t primarily involved in political campaign activities. The National Rifle Association is such an organization.
- Are gifts made to social welfare organizations tax deductible? – donations to 501(c)(4) organizations are not tax deductible. Many social welfare organizations have companion foundations that are tax exempt under section 501(c)(3) and to which contributions are tax deductible.
- Are gifts to social welfare organizations subject to gift tax? The IRS has tried over the past several years to argue that gifts to social welfare organizations should be taxed under the gift tax rules. The PATH act (Protecting Americans Against Tax Hikes) added a section that states that gifts to social welfare organizations are not subject to gift tax. However, gifts are still not tax deductible.
- New notice and filing requirements for social welfare organizations. Social welfare organizations have 2 options when seeking tax exemption. They can self-declare their tax exempt status under section 501(c)(4) and file 990 or 990-ez for future years. They can also file form 1024 to seek a formal IRS declaration of their tax exempt status.
Under the PATH Act there is now a new requirement for organizations that did not file form 1024. For organizations created on or after December 18, 2015, they must provide a notice to the IRS of their intention to operate under section 501(C)(4). The notice must include the name, address, federal employer identification number and the date the organization was formed. There will be a user fee for the form.
Organizations formed before December 18, 2015 that have not filed form 1024 must also give the notice with the same information no later than June 16, 2016.
However, the IRS has not provided a form or regulations yet, so it has delayed the filing requirement until 60 days from the date the regulations are implemented. Until that happens, it would be wise to file form 1024. See IRS Notice 2016-09. However, if you file form 1024, you will still need to file the notice when regulations are implemented. Remember also that there are penalties for failure to file.
We will discuss the regulations when they become available. Call us if you have questions.