n-16-09.pdf

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Section 506 Notification Requirement for New and Certain Existing Section 501(c)(4)
Organizations

Notice 2016-09

SECTION 1. PURPOSE AND OVERVIEW
This Notice provides interim guidance regarding section 405 of the Protecting
Americans from Tax Hikes Act of 2015 (the PATH Act), enacted on December 18, 2015,
as part of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113). Specifically,
this Notice addresses the due date of notifications required to be submitted under new
section 506 of the Internal Revenue Code (Code) by social welfare organizations
described in section 501(c)(4) and the separate process by which an organization may,
at its option, request a determination that it qualifies for section 501(c)(4) tax-exempt
status.
The section 506 notification requirement applies to social welfare organizations
described in section 501(c)(4) that are established after December 18, 2015, and to
certain organizations existing on that date. The Department of the Treasury (Treasury
Department) and the Internal Revenue Service (IRS) intend to issue temporary
regulations under section 506 prescribing the manner in which organizations described
in section 501(c)(4) must notify the IRS of their intent to operate under section

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501(c)(4). Organizations will have at least 60 days from the date such regulations are
issued to submit the information required under section 506, and should wait to submit
the information until the regulations are issued. No penalties under section 6652(c)(4)
will apply to a section 501(c)(4) organization that provides the section 506 notification by
the due date provided in the regulations.
SECTION 2. BACKGROUND
Section 501(a) of the Code generally provides that an organization described in
section 501(c) is exempt from federal income tax. In particular, section 501(c)(4)
describes organizations “operated exclusively for the promotion of social welfare.” A
social welfare organization is described in section 501(c)(4) (and, therefore, exempt
from tax under section 501(a)) if it satisfies the requirements applicable to such status.
Although an organization may apply to the IRS for recognition that the organization
qualifies for section 501(c)(4) tax-exempt status, there is no requirement to do so
(except as provided in section 6033(j)(2) for organizations that fail to file required
information returns or notices). Accordingly, an organization described in section
501(c)(4) that files the required annual information return or notice, as applicable, need
not seek an IRS determination of its qualification for tax-exempt status.
Section 405(a) of the PATH Act added new section 506, requiring an
organization to notify the IRS of its intent to operate as an organization described in
section 501(c)(4), and amended sections 6033(f) and 6652(c), relating to required
annual information returns by tax-exempt organizations and penalties for failures to file

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such returns, respectively.
Section 506 requires an organization described in section 501(c)(4), no later than
60 days after the organization is established, to notify the Secretary (in the manner
prescribed by regulations) that it is operating as a section 501(c)(4) organization. For
certain existing organizations, the notification is due no later than June 15, 2016, 180
days after the date of enactment of the PATH Act. Section 506(b) provides that the
notification must include: (1) the name, address, and taxpayer identification number of
the organization; (2) the date on which, and the State under the laws of which, the
organization was organized; and (3) a statement of the purpose of the organization.
Section 506(c) requires the Secretary to send the organization an acknowledgement of
the receipt of its notification within 60 days. Section 506(d) permits the Secretary to
extend the 60-day notification period for reasonable cause. Section 506(e) provides
that the Secretary shall impose a reasonable user fee for submission of the notification.
Finally, section 506(f) provides that, upon request by an organization to be treated as an
organization described in section 501(c)(4), the Secretary may issue a determination
with respect to treatment as a section 501(c)(4) organization, and that the organization’s
request will be treated as an application for exemption from taxation under section
501(a) subject to public inspection under section 6104.
Section 405(b) of the PATH Act amended section 6033(f) to require a section
501(c)(4) organization submitting the section 506 notification to include with its first
annual information return filed thereafter any additional information prescribed by

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regulation that supports the organization’s treatment as an organization described in
section 501(c)(4).
Section 405(c) of the PATH Act amended section 6652(c) to impose penalties for
failure to file the notification by the date and in the manner prescribed in section 506
(and implementing regulations). In particular, section 6652(c)(4)(A) imposes a penalty
on an organization that fails to submit the notification equal to $20 per day for each day
the failure continues, up to a maximum of $5,000. Additionally, section 6652(c)(4)(B)
imposes a similar penalty on persons who fail to timely submit the notification in
response to a written request by the Secretary.
Section 405(f) of the PATH Act provides that, in general, the section 506
notification requirement and the related amendments to sections 6033 and 6652 apply
to organizations described in section 501(c)(4) that are established after December 18,
2015, the date of enactment of the PATH Act. Section 405(f)(2) of the PATH Act
provides that these provisions also apply to any other section 501(c)(4) organization
that had not, on or before the date of enactment: (1) applied for a written determination
of recognition as an organization described in section 501(c)(4) (using Form 1024,
“Application for Recognition of Exemption Under Section 501(a)”); or (2) filed at least
one annual information return or notice required under section 6033(a)(1) or 6033(i)
(that is, a Form 990, “Return of Organization Exempt From Income Tax,” or, if eligible,
Form 990-EZ, “Short Form Return of Organization Exempt From Income Tax” or Form
990-N (e-Postcard)). Existing organizations described in section 405(f)(2) of the PATH

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Act have until June 15, 2016 (180 days after the date of enactment) to submit the
section 506 notification.
SECTION 3. EXTENSION OF PERIOD TO NOTIFY IRS
The Treasury Department and the IRS intend to issue temporary regulations
implementing the section 506 requirement that organizations described in section
501(c)(4) notify the IRS of their intent to operate under section 501(c)(4). In order to
provide adequate transition time for organizations to comply with the new procedures,
the Treasury Department and the IRS are extending the due date for submitting the
section 506 notification until at least 60 days from the date the regulations are issued.
No penalties under section 6652(c)(4) will apply to a section 501(c)(4) organization that
submits the required notification by the due date provided in the regulations. In
addition, comments from the public regarding the new section 506 notification
requirement and related provisions will be requested during the rulemaking process.
SECTION 4. REQUESTS FOR DETERMINATION
Section 506(c) requires the IRS to acknowledge receipt of a section 506
notification. This acknowledgment is not a determination by the IRS that the
organization qualifies for section 501(c)(4) tax-exempt status. Rather, section 506(f)
provides that an organization seeking IRS recognition of its tax-exempt status may
separately request such a determination. Section 506(f) provides that such a request
will be treated as an application for exemption from taxation under section 501(a) and
therefore will be subject to public inspection under section 6104. Until further guidance

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is issued, organizations requesting IRS recognition of exempt status under section
501(c)(4) should continue to use the Form 1024. The filing of Form 1024 is optional and
will not relieve an organization of the requirement to file the section 506 notification.
SECTION 5. DRAFTING INFORMATION
The principal author of this Notice is Chelsea Rubin of the Office of Associate
Chief Counsel (Tax Exempt and Government Entities). For further information
regarding this Notice, contact Chelsea Rubin at (202) 317-5800 (not a toll-free call).