Nonprofits that plan to operate as a 501(c)(4) social welfare organization must file a new form with the Internal Revenue Service (IRS) while fees for a new streamlined application for tax-exemption have been cut by a third.
The user fee for Form 1023-EZ, the application for recognition of exemption under 501(c)(3) of the Internal Revenue Code, dropped from $400 to $275, as of July 1. The Form 1023-EZ was revised last year and is now is just three pages long compared with the full Form 1023, which is 26 pages.
The changes were made to try to eliminate a backlog of some 170,000 applications for tax-exemption in 2014, although not without some consternation from observers like the National Council of Nonprofits and National Association of State Charity Officials.
Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible to file the 1023-EZ. Federal agencies are required to review user fees every two years to determine whether they are recovering the full cost of certain services and if a user fee should be charged. The IRS recently completed its 2015 biennial review, which determined the cost of providing some services increased while others decreased.
Organizations seeking to be 501(c)(4) social welfare organizations will be required to file new Form 8976, “Notice of Intent to Operate Under Section 501(c)(4),” as of July 8, 2016.
Section 506 was added to the Internal Revenue Code (IRC) after passage in December of the Protecting Americans from Tax Hikes (PATH) Act of 2015. The new rule applies to 501(c)(4) organizations formed after Dec. 18, 2015. Organizations are not required to submit the notification if they applied for a determination letter or filed a Form 990 after Dec. 18, 2015, but on or before July 8, 2016. For organizations that don’t qualify for this relief, temporary regulations also provide for a transition rule that extends the due date of notification until Sept. 6, 2016.
Form 8976 can only be completed and submitted electronically. Organizations must notify the IRS within 60 days of formation and a $50 fee must be submitted via Pay.gov to complete the process. Organizations that filed a Form 990 or Form 1024 seeking a determination letter on or before July 8, 2016, are not required to file the notification.
Organizations that do not submit the notification within 60 days may be subject to a penalty of $20 per day for each day it’s not submitted, up to a maximum of $5,000.