IRS Issues Rules for Registering 501(c)4 Organizations

The Internal Revenue Service has released a new revenue procedure and regulations outlining how organizations can notify the IRS they are operating as tax-exempt social welfare groups under Section 501(c)4 of the Tax Code.

The PATH Act, the tax extenders legislation that Congress passed last December, included a provision requiring organizations to notify the IRS of their intent to operate under Section 501(c)4 within 60 days after they are established. Revenue Procedure 2016-41 describes the procedure for an organization to notify the IRS that it is operating as a 501(c)(4) organization. In addition, TD 9775 provides temporary and final regulations relating to the requirement. The IRS has also opened an online registration system for 501(c)4 certification where a new form, Form 8976, Notice of Intent to Operate Under Section 501(c)(4), can be submitted.

The IRS introduced a streamlined procedure in 2013 under which organizations could self-certify themselves as 501(c)4 social welfare agencies after a scandal erupted over revelations that the IRS gave extra scrutiny to certain political groups applying for tax-exempt status, such as those with the term “Tea Party” in their names (see IRS Outlines Steps to Fix Problems with Tax-Exempt Applications). The fallout from the scandal led to the resignations and early retirements of a number of top officials, including the former director of the IRS’s Exempt Organizations unit, Lois Lerner.

The IRS proposed regulations in 2013 for how to better assess applications for 501(c) status, but those were withdrawn the following after the IRS received an unprecedented avalanche of more than 150,000 comments, most of them criticizing the proposed rules (see IRS Withdraws Proposed Regulations on 501(c)4 Groups). Relatively few groups opposed the idea of self-certification, though, and Congress added the 60-day requirement to the tax extenders legislation last December.

The use of Section 501(c)4 tax-exempt status for political activity has remained controversial, as the groups are allowed to hide the names of donors, but so far such groups have not seemed to have made much of an impact on this year’s electoral cycle.