Tax Exempt HOAs

Revenue Procedure 2016-41

IRS Revenue Procedure 2016-41

Requirement to notify the IRS of intentto operate as a section 501(c)(4) organization

Summary

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.

26CFR 1.506. Requirement tonotifythe IRSofintentto operate asasection501(c)(4)organization.

Rev. Proc. 2016-41

SECTION 1.PURPOSE


This revenue proceduresetsforththe procedure for an organization to notify the Internal Revenue Service (IRS), consistent with section 506 ofthe Internal RevenueCode (Code), that it is operating as an organization described in section 501(c)(4) of the Code (a section 501(c)(4) organization).

  1. In general. Section 506, added to the Code on December 18, 2015, by the Protecting Americans from Tax Hikes Act 2015 L. 114-113, Q) (the PATH requires asection 501(c)(4) organization, no later than 60 days after it is established, to notify the Secretary of the Treasury (that it is a section 501(c)(4) organization). The requirement to submit this notification applies to section 501(c)(4) organizations after December 18,2015, and to certain section501(c)(4) organizations existing on that date.
  2. Terms used in this revenue procedure.For purposes this revenue procedure--
  3. “Form 8976”means the Form 8976, Notice of Intent to OperateUnder Section501(c)(4), which is used by and to notify the IRS that it is operating as a section 501(c)(4) organization, as required by section 506 the
  4. “Date Organization” means the date on which the organization was formed as a legal entity.  Generally, for corporations formed in the United States, the date of refers to the date that the charter or articles of incorporation were approved by the appropriate state.  For unincorporated organizations, the date of refers to the date that the constitution or articles of association were created
  5. “State
  6. “Determination Letter” means a written statement issued in response to an application for recognition of exemption from federal income tax under sections 501 or 521 by EO Rulings and Agreements (the office in IRS Exempt Organizations primarily responsible for determinations of exempt status, taxpayer assistance, and assistance to EO or an Appeals Office (any under the direction and control of the Chief,
  7. “Form 1024” means the Form 1024, Application for Recognition of Exemption Under Section 501(a), which is the form submitted by any organization seeking a Determination Letter recognizing exemption under section 501(a) as described in section 501(c)(2), or

SECTION 2.BACKGROUND

  1. 1Section405 ofthePATHActaddedsection506 totheCode,requiring anto notifytheIRSthat it is as asection 501(c)(4) organization. Inaddition, section 405(b) and thePATHAct amendedsections6033(f) (relating toinformation that section501(c)(4) organizations mayberequiredtoinclude on theirannual informationand 6652(c) ofthe Code(relating topenaltiesfor certainfailures bytax-exempt tocomply withfiling or disclosureSee§§ 6033(f)(2), 6652(c)(4).
  2. 2Under section 405(f) of thePATH Act,section 506 andtherelated amendmentstosections6033and 6652 oftheCode applytosection 501(c)(4) organizations exceptforanythat had,onor beforeDecember18,2015--
  3. Applied fora Determination Letter that recognizes theas asection 501(c)(4) organization(using Form 1024);or
  4. Filed at leastone annual information return or noticerequiredunder section6033(a)(1) orForm990, Return ofOrganizationExempt FromIncomeTax, ifeligible, Form990-EZ,Short FormReturn ofOrganizationExempt FromIncomeTax, orForm990-N (e-Postcard)).
    1. 3Section506(a)provides thatthenotificationisdueno laterthan 60 days aftertheis Section 405(f)(2)thePATH Actprovides,for inexistenceDecember 18,2015, thatmust submitthe notification, thatthe notificationisdue nolater thanJune 15,2016,180days after the date enactmentthePATH Act.
      1. 4Section6033(f)(2) requires asection 501(c)(4) organizationsubmitting thenotificationunder section506(a) toincludewithitsfirstannual informationreturnaftersubmitting the notificationanyadditional informationprescribed byregulationthatsupports the treatmentas andescribedin section 501(c)(4).As amended, section 6652(c)(4) imposespenaltiesforfailuretosubmit thenotificationunder section506(a) bythedateandin the manner prescribedin
      2. 5The TreasuryDepartment and the IRSissuedNotice2016-09, 2016-6306,toprovideinterimguidanceregarding section 405 thePATH Specifically, Notice2016-09 extendedthe due date for submittingthe notification undersection 506 until atleast 60days fromthe date that implementing regulationsareissued into provideadequatetransition time fortocomplywiththenewNotice2016-09 further stated thatno penaltiesunder section 6652(c)(4) wouldapplytoasection 501(c)(4) organizationthat submitsthenotification bythe duedate providedinthe
      3. 6OnJuly12,2016, the TreasuryDepartment andthe IRSpublished TD9775(81FR regulations thatprescribethe manner inwhichasection 501(c)(4) organizationmust submitthenotification under sectionThetemporaryregulationsprovidethatthenotification must besubmittedon Form 8976,“NoticeIntent toOperateUnder Section501(c)(4),” or its Inaddition,thetemporaryregulationsclarifythatsubmissionthenotificationdoesnotconstitutearequestbyanforaDeterminationLetterfromtheIRSthatitqualifiesfortax-exempt
    2. 7As notedinsectionthis revenueprocedure,anysection501(c)(4)that hadapplied foraDeterminationLetter thatrecognizes theas describedin section 501(c)(4) orfiledaForm990(or, if eligible, Form990-EZ,orForm990-N) onor beforeDecember 18, 2015, is excepted under section 405 thePATH Actfrom the requirement tosubmitthe notificationunder sectionSincetheenactmentthe PATH Act but prior totheavailabilityofthe newelectronic Form8976for submitting thenotification,additional section501(c)(4) organizationsmayhave filedwiththeIRSin the same manner.To reducetheburden on these section 501(c)(4) and theIRS, the temporaryregulationsrelievethese fromtherequirement to submit theSpecifically, thetemporaryregulationsprovidethatanisnotrequiredtosubmitthenotificationifitapplied foraDetermination Letter that recognizes theas described insection501(c)(4)(using FormorfiledaForm 990 (or, ifeligible, Form990-EZ orForm990-N) afterDecember 18, 2015, but or beforeJuly8, For that donot qualifyfor this relief, thetemporaryregulations also provideatransitionrulethat extends thedue date thenotificationuntil September 6,

SECTION 3.APPLICABILITYANDTIMINGOF REQUIREMENT TO SUBMITNOTIFICATION ON FORM 8976

  1. .1General rule.Except as providedinparagraphthis revenueprocedure,a section 501(c)(4) organizationmust submita completedForm 8976 totheIRSwithin60days after its Date of
  2. 2Special rulesfor were onorbeforeJuly8, 2016.
  1. Asection501(c)(4) organizationis not requiredtosubmittheForm 8976if,onor beforeJuly8, 2016,theeither--
  2. AppliedForm 1024 foraDetermination Letter that recognizes theas a section501(c)(4) organization;or
  3. Filed at least annual informationreturnornotice requiredunder section6033(a)(1) orForm990, if eligible, Form990-EZor Form 990-N).
    1. AnthathasaDateOrganizationonor beforeJuly8, 2016, andis notdescribedinsection this revenue procedure must submitacompletedForm8976 tothe IRSonorbeforeSeptember 6,

SECTION 4.PROCEDUREFOR SUBMITTING FORM 8976

  1. 1MethodSubmission.
  1. Form8976must besubmitted onlineat at www.services.irs.gov/registration/.Paper submissions willnotbe accepted and will betreated as incompleteForms 8976as describedin section 4.05(4) of this revenueOnlyForms 8976 that arecomplete andproperlysubmitted withinthe meaning of this revenue procedurewill beaccepted for processing bytheSee sectionthis revenueprocedure for therequirementsfora completedForm 8976.As describedinsection5.01 this revenueprocedure, anincompleteForm8976will not beaccepted for processing bytheIRSevenif it has beensuccessfullysubmitted through
  2. Theindividual submitting Form 8976 on behalf asection501(c)(4)must establishan accountat tosubmitForm8976 electronically. The IRSmaysend electronicallytothe account theindividual submitting Form8976on behalf thetheconfirmationtransmittal Form 8976described insection 6.02 this revenueprocedure, the noticenon-acceptance forprocessing ofForm 8976described insection 5 this revenue procedure, and/or the acknowledgement receiptForm8976describedin section 6.01 this revenueAccordingly, theshouldensurethattheindividual is authorizednottosubmitthe Form8976 but also to receivethesecommunicationsrelating tothe
    1. 2Userfee. Consistent withsection506(e), aForm8976mustbeaccompanied by payment the correctuserfee Thecorrectuserfeefor 2016is$50.In futureyears, the user feewill besetforthin theinstructions or publications withrespect totheForm 8976.Payment confirmations are providedthroughthe Additional information aboutpayment submissioncanbe foundunder FrequentlyAskedQuestionsat
    2. 3Penaltyforlate submission.Anthat submitsacompletedForm 8976after thedue datespecifiedinsections3.01orthis revenueproceduremaybesubjectto penalties providedinsection6652(c)(4), asdescribedinsection 8this revenue procedure.
    3. 4RequirementsforcompletedForm8976. For purposesthis revenue procedure, a Form 8976submitted byanis completeifit:
    4. Provides accurateresponsesfor eachrequiredlineitem of the form,consistent withthe forminstructions,including--
    5. Name of the
    6. Address the
    7. EmployerIdentification Number (EIN) ofthe organization;
    8. Date ofOrganization;
    9. State
    10. Statementthatthe purpose ofthe organizationis toas either asocial welfare organization/civic league, or association of employees; and
    11. Month the annualaccounting period ends.
  1. Includes anattestation that theinformationprovidedis correct andtheindividual submitting theForm 8976isauthorizedtosubmitthe Form 8976behalf the and
  2. Isaccompaniedbythecorrectuserfee,as describedinsection thisrevenue
    1. 5IncompleteForms 8976. AForm 8976submitted byanwill not be consideredcompleteif--
  3. Anyrequiredlineitem theelectronicform is incomplete orunintelligible;
    1. The nameor EIN donotmatchtherecords intheIRSBusinessMaster File;
      1. The toinclude payment thecorrectuser fee;or
      2. Therequired informationis submittedonan improperform or inanyimproper

SECTION 5.NON-ACCEPTANCEFOR PROCESSING

  1. 1IncompleteForm8976. Asubmitted Form8976 that is notacompletedForm 8976withinthe meaning ofsection 4.04 this revenueprocedurewill not be acceptedfor processing bytheThe benotified thenon-acceptance ofitsform andanyuserfeethat was paidwill bereturned orThemaythen submitacompletedForm8976 withanewuserfee.
  2. 2SubmissionForm8976byexcepted. If an Form 8976is not accepted for processing because theis excepted fromsection506 under section 405(f)thePATH Act (an organizationthat, orbeforeDecember18,2015,had applied foraDetermination Letter thatrecognizes it asdescribedinsection 501(c)(4) of theCode(using Form 1024) orfiledaForm 990 (or, if eligible, aForm990-EZor 990-N)), thewillbe notified thenon-acceptance of itsform andanyuserfeethat was paidwill bereturned or
  3. 3Submission multiple Forms8976.Anshould not submitmore thanForm If anattempts to submitmore thanForm8976,thefirst Form8976will beaccepted forThewill benotified thenon-acceptance of anysubsequentformand anyuser feethatwas paidinconnectionwithasubsequentformwill bereturnedor

SECTION 6.ACKNOWLEDGMENTOFRECEIPT UNDER SECTION 506

  1. 1Ingeneral.Within60days receiving an completed andproperly submitted Form 8976,theIRS will sendtheanacknowledgment itsreceipt asrequiredbysection 506(c) of theThe acknowledgment will besentelectronicallytothe accountthroughwhichthe Form8976wasTheacknowledgment is not a determination oftax-exempt Seesection 7.02 this revenue
  2. 2Confirmation transmittal is notacknowledgment.Theelectronic platformfor submitting the Form 8976will automaticallysupplyaconfirmationwhenansubmitsaForm 8976.However, that confirmationisnottheacknowledgment requiredbysection506(c) of theTheIRS will sendan acknowledgment electronicallyas providedinsection 6.01 this revenueprocedureafterprocessing of the Form 8976is

SECTION 7.EFFECT OF SUBMISSION OFFORM 8976

  1. 1Form 8976is not arequestfora determination.Submission oftheForm8976 doesnotconstitute arequestforaDeterminationLetter that recognizes theas asection 501(c)(4) organization. Seesectionthis revenueAn submittedForm 8976isnottopublic inspectionunder section6104(a)(1) anditis not anapplicationwithinthe meaning ofsection
  2. 2Acknowledgment required bysection 506(c) is not a determination exempt statusbythe IRS. Acknowledgmentreceipt an Form8976is not a determination oftax-exempt statusbythe
  1. 3Declaratoryjudgmentprovisions ofsection 7428donot apply. Because Form 8976is not a requestforaDetermination Letter and theacknowledgment receipt Form8976 is not a determination bytheIRS,the declaratoryjudgment provisions section 7428donot
  2. 4Requirement to file annual information returns.Asection 501(c)(4) organization mustfileapplicable annual information returns or notices, asrequiredbysection6033(a) or separate from andwithout regardtoits submission of Form
  3. 5Separateprocedurebywhichan mayrequest a Determination Letter.This revenueprocedure does not address theseparate procedure bywhichan mayrequest aDeterminationLetter recognizing theasasection 501(c)(4) organization. Anwishing tosubmita requestforaDeterminationLetterfromtheIRSthatitqualifiesfortax-exempt status shoulddoso in the mannerprescribed in 2016-5,2016-1 188,orasuccessor revenue
  4. 6

SECTION 8.PENALTIESFOR FAILURETOTIMELYSUBMIT AFORM 8976

  1. 1Failureto submit atimelyForm8976as required undersection506.An thatfails tosubmitacompletedForm8976 bythe due date describedinsection 3.01orthis revenue procedure, asapplicable, willbesubjecttothepenalties providedinsection 6652(c)(4), unless it is shownthat the failurewas duetoreasonable
  2. (1)Penalty. Anfails tosubmit acompleted Form8976 bythe due date must payapenaltyof$20 for each dayduring whichsuchfailureHowever, thetotal imposed onthe organization forfailuretosubmitForm8976 shallnotexceed $5,000. 3
  3. Penalty. If an to submitacompletedForm 8976bythe duedate,theIRSmaysenda written demand, requesting that thesubmit theForm 8976 byaspecified future datethat theIRSdeterminesisreasonable under theIfthe organizationfails tosubmit theForm8976onorbeforethedate specified inthedemand, the personorpersons responsible forsuch failuremustpayapenalty $20for eachdayafter thedatespecified inthedemandduring whichsuch failureFor thesepurposes, theterm“person”means any director, trustee,employee, member, or whosedutyit is tosubmittheFormIf more thanpersonis responsible forafailure tosubmittheForm8976,all such persons shall bejointlyandseverally liablewithrespect tothepenaltyfor such failure. However, thetotal amountimposedall personsresponsible for such failureshall not exceed $5,000.
    1. .2Requestingrelief froma section6652(c)(4)penalty. Under section 6652(c)(5) andthe regulationsthereunder, relief from apenaltyimposed bysection6652(c)(4) maybeif it is established tothesatisfaction theIRSthat the failureto timelysubmittheForm8976 was dueto reasonable cause.Thecorrespondence fromtheIRSregarding thepenaltywill provideinstructions onhowtosubmitarequestfor penalty 4
    2. 3Example of asituationinwhichreasonablecauserelief fromthe penaltyonthe organization wouldbeappropriate.OrganizationO isformed under thelaws a foreigncountryandfora number of years during whichit conducts noactivitiesinthe United Statesandhasno income from InOctober 2016,Ocommences intheUnitedStatesfromwhichit anticipates incomethat will bereportedonaForm 990(or requirethefiling ofaForm 990-N) and promptlynotifies theIRSitsintent toas asection501(c)(4) organizationbysubmitting Form 8976.Becausethe date submission ofForm 8976 is more than 60days after its Date ofOrganization, O receives a penaltyletterfrom theBasedthese facts, O’sfailureis duetoreasonable cause,andOmayrelief fromthe penaltydescribedinsection 8.01(1) of this revenueprocedurebysubmitting arequestin accordancewith theinstructionsinthecorrespondence fromtheIRSregarding the

SECTION 9.EFFECTIVEDATE

This revenue procedureis effectiveJuly8,2016.

SECTION 10. PAPERWORKREDUCTIONACT

Thecollection ofinformationcontained inthis revenue procedure will bereviewedand,pending receipt andevaluation ofpubliccomments,approved bytheOffice ofManagementandBudget inaccordancewiththePaperwork ReductionAct(44USC3507) under control number1545-2268.

Thecollection ofinformationinsection4 of this revenueprocedureis requiredtosatisfytherequirementimposed bysection 506of the Codeto notifytheSecretaryof anorganization’s intentto operate under section 501(c)(4).This informationwill beusedbytheIRStoprocess theForm8976for completeness insatisfactionof the statutoryrequirementandtodetermine applicabilityof thepenalties imposed by

section 6652(c)(4) oftheCode.The burden forthe collectionof informationcontainedinsection4 ofthis revenue procedurewill bereflectedin the burden estimate for Form8976.

Anagencymaynotconduct or sponsor, andpersonis not requiredtorespondto,acollection ofinformationunless thecollection ofinformation displays avalidOMBnumber.

Booksand recordsrelating tothecollectionofinformation mustberetained as longas their contentsmaybecome material in the administrationof anyinternal revenuelaw.Generally, taxreturnsandtaxreturninformationareconfidential, asrequiredbysection6103.

SECTION 11. REQUESTFOR COMMENTS

The TreasuryDepartment andthe IRSrequest commentsonthis revenueprocedure, whichwill be considered in making anyfutureupdate tothese procedures.

Comments shouldrefer to Rev. Proc. 2016-41,and should besubmittedto:

Internal Revenue ServiceAttn:CC:PA:LPD:PR

(Rev. Proc. 2016-41)Room 5203

P.O. Box7604

BenFranklinStationWashington, DC 20044

Submissionsalso maybe handdeliveredMondaythroughFridaybetweenthe hoursof8am and4 pmtoCC:PA:LPD:PR (Rev. Proc. 2016-41), Courier’sDesk, InternalRevenueService, 1111Constitution Avenue,N.W.Washington,DC Alternatively,commentsmaybesubmittedelectronicallyviathe following email address: This email address is being protected from spambots. You need JavaScript enabled to view it.. Pleaseinclude“Rev. Proc. 2016-41” in the

subject lineof anyelectronic communication.All comments will beavailablefor publicinspectionandcopying.

SECTION 12. DRAFTING INFORMATION

The principal author of this revenue procedureis Chelsea Rubin of the Office of Associate Chief Counsel (Tax Exempt and Government Entities). For additional information, please contact Ms.Rubin at 202-317-5800 (not a toll-free number).