Tuesday, August 23, 2016

Filed your IRS Form 8976 Yet?

If you are or intend to be a 501(c)(4) organization, have not previously sought or gotten an IRS Letter of Determination, and have never filed an information return in the 990 series, this form is a new requirement for you and for what the IRS calls local associations of employees.
No other 501 C-section entity needs to be concerned with this new filing requirement.
However, failure to comply now can cost a qualifying organization and its key officers penalties totaling $5,000, assessed at $20 per day.
More information can be obtained at IRS.gov, at this link.

What is a 501(c)(4)?

The IRS broadly defines C4's as social welfare organizations or associations operating in the interests of the common public good, without intending to or accruing profit to the members, as stated here:

Reg. 1. 501(c)(4)-1(a)(2)(i) provides that:
[A]n 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 community.

The IRS offers further examples here, but note the use of the word "community." This differs from a C3 entity in that it does not support one identifiable group, i.e. low-income children or unwed mothers, while excluding others.

However, "community" does not have to mean a whole city or town. For instance a local homeowners association's "community" might be just the entire group of homeowners it represents.

Thus, a local improvement district might be a 501(c)(4) if it seeks to improve city parks or establish a lending library. A rural  homeowners association that seeks to buy snow removal equipment to be made available to the entire neighborhood could also qualify.

The main attraction for people seeking to form a C4 is that these organizations may engage in some forms of general lobbying or political discourse, where a 501(c)(3) cannot.

Note that the new Form 8976 is NOT equivalent to a Letter of Determination. It is, as it states, simply a notice of intent.  There is a $50 filing fee attached to it.

The IRS apparently believes that there are a lot of organizations operating as C4 entities that have never registered as such but are still engaging in prohibited political activities.

The problem with that is all of the money donated to or collected by unregistered or disqualified entities is taxable as ordinary business income.  There may also be criminal penalties if the money was collected and/or spent under false pretenses.

If you have any other questions or are trying to determine what type of charitable identity your new organization should apply for, contact me and we can discuss it.