There are 27 different types of non-profits in the Internal Revenue Service (IRS) code, but the most numerous categories are IRS 501(c)(3) corporations (charitable organizations) and IRS 501(c)(4) corporations (social welfare organizations).
Code Section 506 aims to remedy this problem by requiring organizations to notify the IRS of their intent to operate as a Section 501(c)(4) organization. The IRS has developed a new form for this purpose – Form 8976 – that organizations should use to provide this notification.
The recently enacted Protecting Americans from Tax Hikes Act (“PATH Act”) imposes a new requirement for Code Section 501(c)(4) social welfare organizations to notify the IRS of their existence within sixty (60) days of their incorporation.
As the IRS Exempt Organizations division indicated in its 2013 work plan, it is conducting a compliance check of self-declared tax-exempt organizations. The IRS recently mailed over 1,300 questionnaires to self-declared Section 501(c)(4), 501(c)(5), and 501(c)(6) organizations. The project is part of the IRS’ plan to gather information about self-declared exempt organizations, determine whether self-declared exempt organizations are complying with applicable tax-exempt law, and increase voluntary compliance.
In its 2012 workplan, the IRS announced it will be paying closer attention to self-declared 501(c)(4), (c)(5) and (c)(6) organizations. These groups include social welfare organizations; labor, agricultural and horticultural groups; as well as business leagues and chambers of commerce. Such organizations consider themselves to be tax-exempt because of the nature of their activities, but they have not filed for nor received a formal determination letter from the IRS. These groups are allowed to operate without an official IRS determination because, unlike the 27 month filing deadline for 501(c)(3) charities, they are not subject to a deadline for filing an application for exemption.
A social welfare organization is an nonprofit organization exempt under Code Section 501(c)(4). It is similar to a 501(c)(3) organization in that its income is generally exempt from tax and is subject to the same limits on private inurement and excessive payments to insiders. It is different, however, in that contributions to it are not deductible as charitable contributions and it is able to conduct unlimited lobbying activities. Section 501(c)(4) exempts:
* nonprofit civic organizations operated exclusively for the promotion of social welfare; and
* local associations of employees whose earnings are devoted to charitable, educational, or recreational purposes.