The IRS has provided interim guidance on potential penalties for 501(c)(4) organizations that fail to timely file Form 8976, which provides required notice to the IRS of an organization’s intent to operate under Section 501(c)(4).
As background, exempt organizations other than 501(c)(3) organizations generally do not need to apply for recognition of exempt status or make any other initial filing, and instead can “self-declare” as exempt organizations. That situation changed slightly for 501(c)(4) organizations in 2015 with the passage of Section 506 of the Code. While 501(c)(4)s do not need to file an application, they are now required to submit Form 8976 electronically within 60 days of organization.
Under Section 6652 of the Internal Revenue Code, organizations that fail to timely file can face penalties of $20 per day, up to a maximum of $5,000, for each day after the due date that the form isn’t filed. Organization managers can face penalties if the Form 8976 is not filed following a written IRS demand.
The guidance, which is effective as of March 1, 2021, notes the following:
- the penalty is automatically applied when organizations file late, and that the IRS will also issue a CP 215 penalty notice.
- IRS examiners must perform a filing check for Form 8976 during all examinations of 501(c)(4) organizations, and if found that the notice wasn’t filed, the examiner should send a written demand, requesting the organization submit the Form 8976 by a specified date determined reasonable under the circumstances.
- IRS examiners should consider whether late filing is due to reasonable cause, in which case penalties can be abated.
- If the Form 8976 is not filed in response to written demand by the IRS, examiners should consider applying the penalty on organization managers.
The Internal Revenue Manual will be updated with the notice information.