Regulations on the Requirement To Notify the IRS of Intent To Operate as a Section 501(c)(4) Organization, 35301-35307 [2019-15614]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 84, Number 141 (Tuesday, July 23, 2019)]
[Rules and Regulations]
[Pages 35301-35307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15614]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9873]
RIN 1545-BN25


Regulations on the Requirement To Notify the IRS of Intent To 
Operate as a Section 501(c)(4) Organization

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains final regulations relating to the 
section 506 requirement, added by the Protecting Americans from Tax 
Hikes Act of 2015 (the PATH Act), enacted on December 18, 2015, that 
organizations described in section 501(c)(4) of the Internal Revenue 
Code (Code) must notify the IRS, no later than 60 days after their 
establishment, of their intent to operate under section 501(c)(4).

DATES: Effective Date: These regulations are effective on July 19, 
2019.
    Applicability Date: For date of applicability, see Sec.  1.506-
1(f).

FOR FURTHER INFORMATION CONTACT: Melinda Williams at (202) 317-6172 or 
Peter A. Holiat at (202) 317-5800 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains final regulations amending 26 CFR parts 1 
and 602, to specify the notification requirement of section 501(c)(4) 
organizations under section 506 of the Code. Section 506, which was 
added by the PATH Act (Pub. L. 114-113, div. Q), requires an 
organization to notify the IRS of its intent to operate as a section 
501(c)(4) organization.

1. Section 501(c)(4) Organizations

    Section 501(a) of the Code generally provides that an organization 
described in section 501(c) is exempt from federal income tax. Section 
501(c)(4) describes certain civic leagues or organizations operated 
exclusively for the promotion of social welfare and certain local 
associations of employees. An organization is described in section 
501(c)(4) and exempt from tax under section 501(a) if it satisfies the 
requirements applicable to such status. Subject to certain exceptions, 
section 6033, in part, requires organizations exempt from taxation 
under section 501(a) to file annual information returns or notices, as 
applicable.
    Although an organization may apply to the IRS for recognition that 
the organization qualifies for tax-exempt status under section 
501(c)(4), there is no requirement to do so (except as provided in 
section 6033(j)(2), which requires organizations that lose tax-exempt 
status for failure to file required annual information returns or 
notices and want to regain tax-exempt status to apply to obtain 
reinstatement of such status). Accordingly, a section 501(c)(4) 
organization that files annual information returns or notices (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)), as required under section 
6033, need not seek an IRS determination of its qualification for tax-
exempt status in order to be described in and operate as a section 
501(c)(4) organization.

2. The PATH Act

    Section 405(a) of the PATH Act added section 506 to the Code, 
requiring an organization to notify the IRS of its intent to operate as 
a section 501(c)(4) organization. In addition, section 405(b) and (c) 
of the PATH Act amended sections 6033(f) and 6652(c), relating to 
information that section 501(c)(4) organizations may be required to 
include on their annual information returns and penalties for certain 
failures by tax-exempt organizations to comply with filing or 
disclosure requirements, respectively.
    Section 506(a) requires a section 501(c)(4) organization, no later 
than 60 days after the organization is established, to notify the 
Secretary of the Department of the Treasury (Secretary) that it is 
operating as a section 501(c)(4) organization (the notification). 
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 acknowledgment of the receipt of its notification 
within 60 days. Section 506(d) permits the Secretary to extend the 60-
day notification period in section 506(a) for reasonable cause. Section 
506(e) provides that the Secretary shall impose a reasonable user fee 
for submission of the notification. Section 506(f) provides that, upon 
request by an organization, the Secretary may issue a determination 
with respect to the organization's 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.\1\
---------------------------------------------------------------------------

    \1\ The separate procedure by which an organization may request 
a determination of tax-exempt status is currently prescribed in Rev. 
Proc. 2019-5, 2019-1 IRB 230 and will be set forth in successor 
annual updates of that Revenue Procedure.
---------------------------------------------------------------------------

    In addition, the PATH Act amended section 6033(f) to require a 
section 501(c)(4) organization submitting the notification to include 
with its first annual information return after submitting the 
notification any additional information prescribed by regulation that 
supports the organization's treatment as a section 501(c)(4) 
organization.
    The PATH Act also amended section 6652(c) to impose penalties for 
failure to submit the notification by the date and in the manner 
prescribed in 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 such 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.

[[Page 35302]]

    Section 405(f)(1) of the PATH Act provides that, in general, the 
requirement to submit the notification and the related amendments to 
sections 6033 and 6652 apply to section 501(c)(4) organizations 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) organizations that 
had not, on or before the date of enactment of the PATH Act: (1) 
Applied for a written determination of recognition as a section 
501(c)(4) organization; or (2) filed at least one annual information 
return or notice required under section 6033(a)(1) or (i). 
Organizations described in section 405(f)(2) of the PATH Act must 
submit the notification within 180 days after the date of enactment of 
the PATH Act.

3. Notice 2016-09

    The Treasury Department and the IRS issued Notice 2016-09, 2016-6 
IRB 306, to provide interim guidance regarding section 405 of the PATH 
Act. Specifically, Notice 2016-09 extended the due date for submitting 
the notification until at least 60 days from the date that implementing 
regulations are issued in order to provide adequate transition time for 
organizations to comply with the new requirement to submit the 
notification. With respect to the separate procedure by which an 
organization may request a determination from the IRS that it qualifies 
for tax-exempt status under section 501(c)(4), Notice 2016-09 stated 
that organizations seeking IRS recognition of section 501(c)(4) status 
should continue using IRS Form 1024, Application for Recognition of 
Exemption Under Section 501(a) \2\ until further guidance was issued. 
Notice 2016-09 also clarified that the filing of Form 1024 does not 
relieve an organization of the requirement to submit the notification.
---------------------------------------------------------------------------

    \2\ As of 2018, the successor to Form 1024 for section 501(c)(4) 
organizations is new IRS Form 1024-A, Application for Recognition of 
Exemption Under Section 501(c)(4) of the Internal Revenue Code.
---------------------------------------------------------------------------

4. Temporary Regulations, Notice of Proposed Rulemaking, and Rev. Proc. 
2016-41

    On July 12, 2016, the Department of Treasury and the IRS published 
in the Federal Register (81 FR 45008) temporary regulations under 
section 506 (TD 9775) that prescribe the manner in which a section 
501(c)(4) organization must submit notification under section 506 of 
its intent to operate under section 501(c)(4). The temporary 
regulations were effective and applicable on July 8, 2016. Also on July 
12, 2016, the Department of Treasury and the IRS published in the 
Federal Register (81 FR 45088) a notice of proposed rulemaking (REG-
101689-16) cross-referencing the temporary regulations and soliciting 
public comments and requests for a hearing. In conjunction with the 
issuance of the temporary regulations and the notice of proposed 
rulemaking, the Department of Treasury and the IRS issued Rev. Proc. 
2016-41, 2016-30 IRB 165, which sets forth the procedure for an 
organization to notify the IRS that it is operating as a section 
501(c)(4) organization. Specifically, the preamble to the temporary 
regulations noted that the revenue procedure provides that the 
notification must be submitted on Form 8976, ``Notice of Intent to 
Operate Under Section 501(c)(4)'' (or its successor). Revenue Procedure 
2016-41 provides additional information on the procedure for submitting 
the form and information on requesting relief from a failure to file 
penalty under section 6652(c)(4), including an example of a situation 
in which reasonable cause relief would be appropriate.
    The temporary regulations, in accordance with section 506(a), 
generally required a section 501(c)(4) organization to submit the 
notification to the IRS on Form 8976 no later than 60 days after the 
date the organization is organized. Because the Form 8976 was not 
previously available, the temporary regulations provided transitional 
relief from the notification requirement for organizations that, on or 
before July 8, 2016, either (1) applied for a written determination of 
recognition as a section 501(c)(4) organization (using a Form 1024 
application); or (2) filed at least one annual return or notice 
required under section 6033(a)(1) (that is, a Form 990, or if eligible, 
Form 990-EZ or Form 990-N) (``Form 990 series return or notice''). For 
organizations that did not qualify for this relief, the temporary 
regulations also provided a transition rule that extended the due date 
of the notification to September 6, 2016.
    Consistent with section 506(b), the temporary regulations specified 
that the notification must include: (1) The name, address, and taxpayer 
identification number of the organization; (2) the date on which, and 
the state or other jurisdiction under the laws of which, the 
organization was organized; and (3) a statement of the purpose of the 
organization. In addition, the temporary regulations provided that the 
notification must include such additional information as may be 
specified in published guidance in the Internal Revenue Bulletin or in 
other guidance, such as forms or instructions, issued with respect to 
the notification. To ensure that the statutorily required items of 
information in the notification are correlated accurately within 
existing IRS systems, Form 8976 requires organizations to provide their 
annual accounting period.
    The temporary regulations also provided that the notification must 
be accompanied by payment of the user fee authorized by section 506(e), 
which will be set forth by published guidance in the Internal Revenue 
Bulletin or in other guidance, such as forms or instructions, issued 
with respect to the notification. Consistent with section 506(d), the 
temporary regulations stated that the 60-day period for submitting the 
notification may be extended for reasonable cause.
    Further, the temporary regulations provided that, within 60 days 
after receipt of the notification, the IRS will send the organization 
an acknowledgment of such receipt. The temporary regulations specified 
that this acknowledgment is not a determination with respect to tax-
exempt status. Thus, it is not a determination on which an organization 
may rely or a determination or a failure to make a determination with 
respect to which the organization may seek declaratory judgment under 
section 7428. Furthermore, the temporary regulations specified that the 
process by which an organization may request an IRS determination that 
it qualifies for section 501(c)(4) exempt status is separate from the 
procedure for submitting the notification. Section 506(f) provides that 
an organization subject to the section 506 notification requirement may 
request a determination to be treated as an organization described in 
section 501(c)(4). This indicates that the procedure by which an 
organization may request a determination that it is described in 
section 501(c)(4) is separate from the procedure for submitting the 
notification required by section 506. Accordingly, the temporary 
regulations provided that submission of the notification does not 
constitute a request for an IRS determination that the organization 
qualifies for tax-exempt status under section 501(c)(4). Rather, an 
organization that seeks IRS recognition of tax-exempt status under 
section 501(c)(4) must separately request a determination in the manner 
prescribed in Rev. Proc. 2019-5, (2019-1 IRB 230), or its successor.
    The temporary regulations also referred to section 6652(c)(4) 
through (6)

[[Page 35303]]

for information on the applicable penalties for failure to submit the 
section 506 notification. The temporary regulations specifically 
referred to section 6652(c)(5), which provides a reasonable cause 
exception, and section 6652(c)(6), which provides other special rules 
that generally apply for purposes of section 6652(c) penalties.
    The IRS received three comments in response to the notice of 
proposed rulemaking, two that addressed several issues, which are 
discussed in detail below, and one that was withdrawn from 
regulations.gov. The two comments that were not withdrawn are available 
at www.regulations.gov or upon request. No public hearing was requested 
or held.
    The IRS has considered all the issues addressed in the comments. 
The proposed regulations that cross-referenced the text of the 
temporary regulations are adopted without substantive change by this 
Treasury decision, except that this Treasury decision removes the 
temporary regulations.

Summary of Comments and Explanation of Provisions

    This section discusses comments received in response to the notice 
of proposed rulemaking.

1. Exception for Organizations That Filed a Form 990 Series Return or 
Notice on or Before July 8, 2016

    One commenter recommended that final regulations clarify whether an 
organization that is included as a subordinate organization on a group 
return on Form 990 filed on or before July 8, 2016, is exempt from the 
requirement to submit Form 8976. The commenter also suggested that 
final regulations clarify whether an organization that merely filed an 
application for extension of time to file Form 990 (Form 8868) on or 
before July 8, 2016, and not the Form 990 itself, is exempt from the 
requirement to submit Form 8976.
    The PATH Act provides that the requirement to submit the 
notification does not apply to certain organizations that notified the 
IRS of their existence on or before December 18, 2015. The Treasury 
Department and the IRS recognized that additional organizations may 
have notified the IRS of their existence, after the enactment of the 
PATH Act but before the availability of the new electronic Form 8976 
for submitting the notification, by applying for a written 
determination of tax-exempt status or filing a required information 
return or notice. Accordingly, Sec.  1.506-1T(b) provided two special 
rules for organizations that were organized on or before July 8, 2016. 
First, the temporary regulations noted that the requirement to submit 
the notification does not apply to a section 501(c)(4) organization 
that, on or before December 18, 2015, either (i) applied for a written 
determination of recognition as a section 501(c)(4) organization; or 
(ii) filed at least one annual information return or notice required 
under section 6033(a)(1) or (i). Second, the temporary regulations 
provided that a section 501(c)(4) organization is not required to 
submit the notification if, on or before July 8, 2016, the organization 
either (i) applied for a written determination of recognition as a 
501(c)(4) organization; or (ii) filed at least one annual information 
return or annual electronic notification required under section 
6033(a)(1) or (i).
    Under Sec.  1.6033-2(d)(4), a group return is considered the return 
of each subsidiary organization included on the return. Consequently, 
an organization that is included as a subordinate organization on a 
group return on Form 990 filed on or before July 8, 2016, qualified for 
the special rules in Sec.  1.506-1T(b), and an additional provision in 
the regulations is not required. However, filing an extension of time 
to file Form 990 does not provide the IRS with the information required 
under section 506, including the date of organization. Accordingly, the 
special rules apply only to a Form 990 series return or notice, not to 
a request for an extension of time to file. For these reasons, the 
commenter's suggestions are not incorporated into the final 
regulations.

2. Treatment of Disregarded Entities

    One commenter suggested that the final regulations confirm that a 
single-member limited liability company (LLC), the sole member of which 
is a section 501(c)(4) organization and that is disregarded as an 
entity separate from its owner, is not required to submit Form 8976.
    Unless the entity elects otherwise, a domestic eligible entity that 
has a single owner is disregarded as an entity separate from its owner. 
See Sec.  301.7701-2(c)(2)(i). For this reason, the instructions to 
Form 990 provide that an LLC treated as a disregarded entity by its 
tax-exempt member should not file a separate Form 990; instead the sole 
member includes activities conducted by the disregarded entity LLC on 
its Form 990. Similarly, a single-member LLC organization, the sole 
member of which is a section 501(c)(4) organization, should not submit 
a separate Form 8976 if it intends to be disregarded as an entity 
separate from its owner and only the sole member section 501(c)(4) 
organization should submit a Form 8976. Therefore, any further 
clarification in the final regulations is not necessary.

3. Exception for Organizations Terminated or Dissolved Before September 
6, 2016

    One commenter requested that the final regulations include an 
exception from the requirement to submit Form 8976 for organizations 
terminated or dissolved before September 6, 2016 (the extended due date 
for organizations as provided in Sec.  1.506-1T(b)(3)). Although there 
is no statutory basis for exempting organizations that terminated by a 
certain date from the requirement to submit Form 8976, the commenter 
suggested that it would serve little purpose for the organization to 
notify the IRS that it intended to operate as an organization described 
in section 501(c)(4) if the organization had already terminated by the 
time it was required to submit Form 8976. However, such organizations 
may still be included in the IRS's Exempt Organizations Business Master 
File, and a filed Form 8976 would serve the purpose of notifying the 
IRS that it operated as an organization described in section 501(c)(4). 
Thus, these final regulations do not provide the requested exception.

4. Option To File Application for Exemption in Lieu of Form 8976

    One commenter requested that the final regulations provide that an 
organization should be treated as satisfying the requirement under 
section 506 if it files Form 1024-A, rather than Form 8976, within the 
60-day notice period.
    The notification requirement under section 506(a) is separate and 
distinct from the application process. See section 506(f). In addition, 
it is not administrable for the IRS to treat Form 1024-A as the 
notification required under section 506. First, there is no systemic 
process for the IRS to use the Form 1024-A both as a required 
notification under section 506 and as an optional application for 
exempt status. Second, the Service is required under section 506(c) to 
acknowledge receipt of the notification within 60 days, but review of 
an application for exempt status may require more time than 60 days (as 
reflected in the 270-day period under the declaratory judgment 
procedures in section 7428). Thus, the timeline for processing an 
application for exempt status does not align with the timeline for 
processing Form 8976 and it would be impractical for the

[[Page 35304]]

Service to maintain two separate processes for responding to Form 1024-
A. Therefore, these final regulations do not adopt the suggestion.

5. Group Ruling Organizations

    Both commenters inquired whether a subordinate organization 
included in a group exemption letter is excepted from the requirement 
to submit Form 8976, or in the alternative, whether the requirement to 
notify the IRS that a subordinate organization intends to operate under 
section 501(c)(4) is satisfied if the central organization informs the 
IRS that it is adding the subordinate organization to the group 
exemption letter within 60 days from when the subordinate is organized.
    A group exemption letter is a ruling or determination letter that 
is issued to a central organization recognizing, on a group basis, the 
exemption from federal income tax under section 501(a) of subordinate 
organizations on whose behalf the central organization has applied for 
recognition of exemption (see Rev. Proc. 80-27, 1980-1 C.B. 677). Under 
the group ruling procedures of Rev. Proc. 80-27, the central 
organization is required to submit annually to the IRS at least 90 days 
before the close of its annual accounting period any changes to the 
subordinates in the group ruling, including any subordinates that are 
no longer included in the group exemption letter and any subordinates 
that are to be added to the group exemption letter.
    As discussed in the Background section, the PATH Act provided that 
the requirement to submit the notification does not apply to 
organizations that either filed Form 1024 or filed at least one Form 
990 series return or notice on or before December 18, 2015. To reduce 
the burden on organizations and the IRS, the temporary regulations 
similarly relieved from the notification requirement any organization 
that filed Form 1024 or filed a Form 990 series return or notice on or 
before July 8, 2016, the date that Form 8976 became available. Unlike 
the transition relief provided in the temporary regulations, there is 
no similar statutory basis for relieving subordinates included in a 
group exemption letter from the requirement to submit Form 8976 if they 
do not meet one of these special rules. For the administrative 
convenience of taxpayers and the IRS, Rev. Proc. 80-27 relieves each of 
the subordinates covered by a group exemption letter from filing its 
own application for recognition of exemption. However, this 
administrative relief from the application requirements does not apply 
with respect to section 506 because the process for recognition of 
exemption is separate from the section 506 notification process. See 
section 506(f).
    Similar to annual Form 990 series returns or notices, an annual 
group exemption update as required by Rev. Proc. 80-27, may replicate 
the information provided on Form 8976. However, the annual group 
exemption update also requires different information than the 
organization initially provides on the Form 8976, such as detailed 
information on the organization's activities, and the annual group 
exemption update may be filed significantly later than the 60 days 
required by section 506 and the Form 8976 depending on when the 
subordinate joins the group exemption and the due date of the annual 
group exemption update.
    Furthermore, Rev. Proc. 80-27 provides that a central organization 
must submit information on subordinate organizations to be added to the 
group exemption letter in an annual update that is due at least 90 days 
before the end of the central organization's annual accounting period. 
There is not a procedure for updating the group exemption letter within 
60 days of a subordinate organization's date of organization. Allowing 
such updates to serve in place of the statutory notification required 
under section 506 would lead to additional administrative burdens on 
central organizations and the IRS to process changes to group exemption 
letters multiple times per year rather than once annually.
    Accordingly, these final regulations do not adopt the suggestions.

6. Date of Organization

    One commenter recommended that final regulations define the ``date 
of organization'' of an organization that was not initially formed as a 
section 501(c)(4) organization as the date the change in status to 
section 501(c)(4) is accomplished (such as the date that the 
organization's governing document is amended) or in the case of a 
foreign organization, the date that the foreign organization first 
commences activities or receives income that would cause it to have a 
filing requirement under section 6033.
    The section 506(a) notification requirement applies no later than 
60 days after the organization is established. Section 506(b)(2) 
further provides that the 506(a) notification shall include the date on 
which, and the state under the laws of which, the organization was 
organized. Section 506 did not indicate that any difference was 
intended between the use of ``established'' in section 506(a) and the 
reference to ``organized'' in section 506(b). Accordingly, the 
temporary regulations provided that, except as provided in paragraph 
(b) of the section, an organization (whether domestic or foreign) 
described in section 501(c)(4) must, no later than 60 days after the 
date the organization is organized, notify the Commissioner that it is 
operating as an organization described in section 501(c)(4) by 
submitting a completed Form 8976. See Sec.  1.506-1T(a)(1). Following 
the longstanding approach on forms used to apply for exemption and for 
entering data into the IRS system, the temporary regulations in Sec.  
1.506-1T(a)(2)(ii) clarify that the date an organization is 
``organized'' for section 506 purposes is the date on which it is 
formed as a legal entity.
    It would be administratively difficult if the date of organization 
reported on Form 8976 were different from the date of legal formation 
reflected on organizational documents and used for other reporting 
purposes. For this reason, these final regulations do not adopt the 
suggestion. However, see section 7 of this Summary of Comments and 
Explanation of Provisions for discussion of availability of reasonable 
cause relief.

7. Reasonable Cause Relief

    One commenter suggested that the IRS extend automatic reasonable 
cause relief to: (1) Organizations formed before December 18, 2015, 
that timely submit a first Form 990 after July 8, 2016; (2) foreign 
organizations that file Forms 8976 within 60 days after first 
commencing activities or receiving income that would cause them to have 
a section 6033 filing requirement; (3) small organizations; and (4) 
organizations formed as organizations described in another paragraph of 
section 501(c) that file Form 8976 within 60 days after amending their 
organizing document to qualify under section 501(c)(4). With regard to 
small organizations, the commenter recommended that the IRS provide 
small organizations with automatic reasonable cause relief similar to 
the relief provided under Rev. Proc. 2014-11 regarding reinstatement of 
exempt status after automatic revocation under section 6033(j). 
Alternatively, the commenter recommended that the IRS expand the 
example of reasonable cause relief provided in Rev. Proc. 2016-41 to 
include a non-exhaustive list of factors that will weigh in favor of 
finding ``reasonable cause'' for a failure to timely submit Form 8976.
    Section 6652(c)(5) provides that no penalty shall be imposed under 
this subsection with respect to any failure if

[[Page 35305]]

it is shown that such failure is due to reasonable cause. Reasonable 
cause is determined based on all the facts and circumstances. This 
reasonable cause provision does not include a provision for automatic 
reasonable cause.
    Furthermore, Rev. Proc. 2014-11 does not provide a helpful model 
for a procedure to establish automatic reasonable cause relief from 
section 6652(c) penalties for small organizations because the IRS does 
not have similar information for Form 8976 as it does for organizations 
under Rev. Proc. 2014-11 relief. Under section 4.01 of Rev. Proc. 2014-
11, the IRS determined that it may retroactively reinstate an 
organization's exempt status without requiring the organization to show 
reasonable cause for the failure to file a Form 990 series return or 
notice for three consecutive years. In this situation, the IRS already 
has information in its systems and obtains additional information as 
part of the application for retroactive reinstatement of exempt status 
that shows that the size of the organization made it eligible to file 
Form 990-EZ or 990-N for each of the three years. By contrast, the IRS 
does not have similar information at the time Form 8976 is filed that 
would enable the IRS to identify the organization as a ``small 
organization'' eligible for the relief requested by the commenter. 
Thus, the streamlined procedure described in section 4 of Rev. Proc. 
2014-11 is not adaptable to the section 506 notification requirement.
    Although the final regulations do not provide for a procedure for 
automatic reasonable cause relief, organizations (including 
organizations formed before December 18, 2015, foreign organizations, 
small organizations, and organizations that originally operated under 
sections other than section 501(c)(4)) may seek reasonable cause relief 
by following the instructions in the penalty letter, as provided in 
Rev. Proc. 2016-41. Rev. Proc. 2016-41 includes an example of a 
situation in which reasonable cause relief would be appropriate 
regarding foreign organizations. The reasonable cause example included 
in Rev. Proc. 2016-41 is just one example of reasonable cause for 
purposes of section 506 only. Similar to the foreign organization 
discussed in the example provided in Rev. Proc. 2016-41, an 
organization (other than a section 501(c)(3) organization) that did not 
originally intend to operate under section 501(c)(4) is subject to the 
requirement to submit Form 8976 once it begins to operate as a section 
501(c)(4) organization. Such an organization that files a Form 8976 
within 60 days of amending its organizing document to be described in 
section 501(c)(4) would have reasonable cause for not filing a Form 
8976 within 60 days of formation. The organization may obtain relief 
from the penalty described under section 6652(c)(4) by submitting a 
request in response to the correspondence from the IRS regarding the 
penalty. Because reasonable cause is determined on a case by case 
basis, it was not intended that Rev. Proc. 2016-41 would provide all 
situations where reasonable cause relief may be appropriate.
    Accordingly, the final regulations do not adopt these suggestions.

8. Individual Authorized To Submit Form 8976

    One commenter requested the final regulations clarify that Form 
8976 may be submitted by any individual authorized by the organization 
to submit the form on its behalf and that the authorized individual may 
receive certain communications regarding Form 8976, including the 
acknowledgment required by section 506(c). The commenter further 
requested that guidance clarify that the Form 8976 does not need to be 
submitted by an officer or a person holding a power of attorney on file 
with the IRS. Lastly, the commenter recommended that a central 
organization may submit Form 8976 on behalf of its subordinate 
organization.
    The temporary regulations did not address authorization to submit 
Form 8976 on behalf of an organization. However, Rev. Proc. 2016-41, 
section 4.01(2) provides that the individual submitting Form 8976 on 
behalf of a section 501(c)(4) organization must establish an account at 
www.irs.gov to submit Form 8976 electronically. The IRS may then send 
electronically to the account of the individual submitting the Form 
8976 on behalf of the organization (1) the confirmation of transmittal 
of Form 8976 described in section 6.02 of Rev. Proc. 2016-41, (2) the 
notice of non-acceptance for processing of Form 8976 described in 
section 5 of Rev. Proc. 2016-41, and/or (3) the acknowledgement of 
receipt of Form 8976 described in section 6.01 of Rev. Proc. 2016-41. 
Accordingly, just like any communications regarding a taxpayer's filing 
obligations, an organization should ensure that the individual 
submitting the Form 8976 is not only authorized by the organization to 
submit the Form 8976 on its behalf, but also to receive communications 
from the IRS relating to the organization's submission. This would also 
apply to a subordinate organization included in a group exemption 
letter, as the organization should ensure that any individual 
(including an individual who represents the central organization) is 
authorized by the subordinate organization to submit Form 8976 on 
behalf of the subordinate organization and to receive communications 
from the IRS. No additional clarification within the final regulations 
is needed; thus, the final regulations do not adopt these suggestions.

9. Correction to Form 8976

    Lastly, one commenter requested clarification in the final 
regulations that there is no obligation to update Form 8976 if any of 
the information on the Form 8976 was originally correct, but later 
changes. The temporary regulations did not address corrections to Form 
8976 as this issue is more appropriately addressed, if necessary, in 
non-regulatory guidance or the instructions to the form.
    The Treasury Department and the IRS note, however, that Rev. Proc. 
2016-41, section 4.04 provides that a Form 8976 submitted by an 
organization is complete if it provides accurate responses for each 
required line item of the form, consistent with the form instructions, 
and section 5.03 provides that if an organization attempts to submit 
more than one Form 8976, only the first Form 8976 will be accepted for 
processing. Thus, Rev. Proc. 2016-41 indicates that there is no 
obligation to submit a new Form 8976 if the organization's information 
changes, or if the Form 8976 was accepted for processing. Rather, any 
updated information should be reported on the organization's annual 
information return or notice, as provided in the instructions to that 
form. Therefore, the final regulations do not adopt this suggestion.

Effective/Applicability Dates

    The temporary regulations have applied since July 8, 2016, and this 
Treasury decision adopts the proposed regulations that cross-referenced 
the text of those temporary regulations without substantive change. 
Thus, for clarity and continuity in application, the final regulations 
apply on and after July 8, 2016.

Special Analyses

    This regulation is not subject to review under section 6(b) of 
Executive Order 12866 pursuant to the Memorandum of Agreement (April 
11, 2018) between the Department of the Treasury and the Office of 
Management and Budget regarding review of tax regulations.

[[Page 35306]]

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
under control number 1545-2268 in accordance with the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3507(d)). The collection of 
information is in Sec.  1.506-1(a)(2). The likely respondents are 
organizations described in section 501(c)(4) of the Code (section 
501(c)(4) organizations). The collection of information in Sec.  1.506-
1(a)(2) flows from section 506(b) of the Code, which requires a section 
501(c)(4) organization to submit a notification including the following 
items of information: (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. The final 
regulations provide that the notification must be submitted on Form 
8976, ``Notice of Intent to Operate Under Section 501(c)(4),'' or its 
successor. In addition to the specific information required by statute, 
the final regulations require that an organization provide any 
additional information that may be specified in published guidance in 
the Internal Revenue Bulletin or in other guidance, such as forms or 
instructions, issued with respect to the notification. Form 8976 
requires an organization to provide its annual accounting period to 
ensure that the statutorily-required items of information in the 
notification are correlated accurately within existing IRS systems.
    For purposes of the Paperwork Reduction Act, the reporting burden 
associated with the collection of information with respect to section 
506(b), will be reflected in the IRS Form 8976 Paperwork Reduction Act 
Submission (OMB control number 1545-2161, published in the Federal 
Register on 10/21/2016). The IRS Form 8976 Paperwork Reduction Act 
Submission estimated for 2016 the total number of filers at 2,500, with 
an estimated average time per filer of 45 minutes to complete Form 
8976, and with an estimated total annual burden of 1,875 hours. A 
valuation of the burden hours leads to a Paperwork Reduction Act 
estimate of the reporting costs to taxpayers of $85,031. This is a one-
time paperwork burden, as the Treasury Department and the IRS 
anticipate that substantially all paperwork burdens related to these 
final regulations will only be incurred by the taxpayer in the year of 
formation. All organizations operating under section 501(c)(4), 
regardless of their size, are required to notify the Commissioner 
utilizing Form 8976.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget. Books 
or records relating to a collection of information must be retained as 
long as their contents may become material in the administration of any 
internal revenue law. Generally, tax returns and return information are 
confidential, as required by 26 U.S.C. 6103.

Regulatory Flexibility Act

    It is hereby certified that this rule will not have a significant 
economic impact on a substantial number of small entities. Therefore, a 
Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 
U.S.C. chapter 6) is not required. This certification is based on the 
fact that the registration and filing fee for Form 8976 is $50.00 and 
the IRS Form 8976 Paperwork Reduction Act Submission (OMB control 
number 1545-2161) estimates the time to complete Form 8976 at 45 
minutes, which should not constitute an economic burden upon small 
organizations. Pursuant to section 7805(f), the temporary and proposed 
regulations preceding these final regulations were submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on their impact on small business and no comments were 
received.

Drafting Information

    The principal authors of these regulations are Peter A. Holiat and 
Melinda Williams of the Office of Associate Chief Counsel (Tax Exempt 
and Government Entities). However, other personnel from the IRS and the 
Treasury Department participated in their development.

Statement of Availability of IRS Documents

    IRS Revenue Procedures, Revenue Rulings, notices and other guidance 
cited in this preamble are published in the Internal Revenue Bulletin 
(or Cumulative Bulletin) and are available from the Superintendent of 
Documents, U.S. Government Publishing Office, Washington, DC 20402, or 
by visiting the IRS website at https://www.irs.gov.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par 2. Section 1.506-1 is added to read as follows:


Sec.  1.506-1  Organizations required to notify Commissioner of intent 
to operate under section 501(c)(4).

    (a) Notification requirement--(1) In general. Except as provided in 
paragraph (b) of this section, an organization (whether domestic or 
foreign) described in section 501(c)(4) must, no later than 60 days 
after the date the organization is organized, notify the Commissioner 
that it is operating as an organization described in section 501(c)(4) 
by submitting a completed Form 8976, ``Notice of Intent to Operate 
Under Section 501(c)(4),'' or its successor (the notification). The 
notification must be submitted in accordance with the form and its 
instructions. The notification must include the information specified 
in paragraph (a)(2) of this section and be accompanied by payment of 
the user fee described in paragraph (a)(3) of this section. Additional 
guidance on the procedure for submitting the notification may be 
provided in published guidance in the Internal Revenue Bulletin (see 
Sec.  601.601(d)(2) of this chapter) or in other guidance, such as 
forms or instructions, issued with respect to the notification.
    (2) Contents of the notification. The notification must include the 
following information:
    (i) The name, address, and taxpayer identification number of the 
organization.
    (ii) The date on which, and the state or other jurisdiction under 
the laws of which, the organization was organized (that is, formed as a 
legal entity). For an organization formed outside the United States, 
the jurisdiction is the foreign country under the laws of which it is 
organized.
    (iii) A statement of the purpose of the organization.
    (iv) Such additional information as may be specified in published 
guidance in the Internal Revenue Bulletin (see

[[Page 35307]]

Sec.  601.601(d)(2) of this chapter) or in other guidance, such as 
forms or instructions, issued with respect to the notification.
    (3) User fee. The notification must be accompanied by payment of 
the user fee set forth by published guidance in the Internal Revenue 
Bulletin (see Sec.  601.601(d)(2) of this chapter) or in other 
guidance, such as forms or instructions, issued with respect to the 
notification.
    (4) Extension for reasonable cause. The Commissioner may, for 
reasonable cause, extend the 60-day period for submitting the 
notification.
    (b) Special rules for organizations that were organized on or 
before July 8, 2016--(1) Notification requirement does not apply to 
organizations that filed with the IRS on or before December 18, 2015. 
The requirement to submit the notification does not apply to any 
organization described in section 501(c)(4) that, on or before December 
18, 2015, either--
    (i) Applied for a written determination of recognition as an 
organization described in section 501(c)(4) in accordance with Sec.  
1.501(a)-1 and all applicable guidance published in the Internal 
Revenue Bulletin (see Sec.  601.601(d)(2) of this chapter), forms, and 
instructions; or
    (ii) Filed at least one annual information return or annual 
electronic notification required under section 6033(a)(1) or (i).
    (2) Transition relief available for organizations that filed with 
the IRS on or before July 8, 2016. An organization described in section 
501(c)(4) is not required to submit the notification if, on or before 
July 8, 2016, the organization either--
    (i) Applied for a written determination of recognition as an 
organization described in section 501(c)(4) in accordance with Sec.  
1.501(a)-1 and all applicable guidance published in the Internal 
Revenue Bulletin (see Sec.  601.601(d)(2) of this chapter), forms, and 
instructions; or
    (ii) Filed at least one annual information return or annual 
electronic notification required under section 6033(a)(1) or (i).
    (3) Extended due date. An organization that was organized on or 
before July 8, 2016, and is not described in paragraph (b)(1) or (2) of 
this section, satisfies the requirement to submit the notification if 
the notification was submitted on or before September 6, 2016.
    (c) Failure to submit the notification. For information on the 
penalties for failure to submit the notification, the applicable 
reasonable cause exception, and applicable special rules, see section 
6652(c)(4) through (6).
    (d) Acknowledgment of receipt. Within 60 days after receipt of the 
notification, the Commissioner will send the organization an 
acknowledgment of such receipt. This acknowledgment is not a 
determination by the Commissioner that the organization qualifies for 
exemption under section 501(a) as an organization described in section 
501(c)(4). See paragraph (e) of this section.
    (e) Separate procedure by which an organization may request an IRS 
determination that it qualifies for section 501(c)(4) tax-exempt 
status. Submission of the notification does not constitute a request by 
an organization for a determination by the Commissioner that the 
organization qualifies for exemption under section 501(a) as an 
organization described in section 501(c)(4). An organization seeking 
IRS recognition of its tax-exempt status must separately request such a 
determination in accordance with Sec.  1.501(a)-1 and all applicable 
guidance published in the Internal Revenue Bulletin (see Sec.  
601.601(d)(2) of this chapter), forms, and instructions.
    (f) Applicability date. This section applies on and after July 8, 
2016.


Sec.  1.506-1T   [Removed]

0
Par. 3. Section 1.506-1T is removed.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 4. The authority for part 602 continues to read as follows:

    Authority: 26 U.S.C. 7805.


0
Par. 5. In Sec.  602.101, paragraph (b) is amended by adding an entry 
in numerical order for Sec.  1.506-1 and removing the entry for Sec.  
1.506-1T to read as follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
 CFR part or section where identified
            and described                   Current OMB control No.
------------------------------------------------------------------------
 
                                * * * * *
1.506-1                                              1545-2268
 
                                * * * * *
------------------------------------------------------------------------


Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
    Approved: July 9, 2019.
David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2019-15614 Filed 7-19-19; 4:15 pm]
 BILLING CODE 4830-01-P