President Obama signed into law the Protecting Americans from Tax Hikes (“PATH”) Act late last year. The PATH Act has several provisions that impact exempt organizations, many of which were shaped in part by the IRS controversy a few years back—this article will highlight and summarize those key provisions.

501(c)(4) Notification Requirement. We’ve blogged about this PATH Act provision previously, which requires a 501(c)(4) organization established after December 18, 2015, to provide notice to the IRS that it is operating as a 501(c)(4) organization within 60 days of its creation date. This 60-day period can be extended for reasonable cause. 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. The IRS must send the organization an acknowledgement of the receipt of its notification within 60 days.

The IRS recently released regulations that clarify that the notification requirement will not go into effect into September 6, 2016. Further, organizations are not required to file the notification notification if they’ve filed a Form 1024 for recognition of exempt status or an appropriate form of the Form 990 on or before July 8, 2016. See our previous blog post here.

Declaratory Judgment Expansion. The PATH Act has broadened the field of exempt organizations that can use a statutory process to obtain a declaratory judgment from a court of competent jurisdiction. Previously, only 501(c)(3) organizations had access to this court process under statute. Now, all organizations exempt under Section 501(c) (including 501(c)(4) social welfare organizations) and Section 501(d) (religious and apostolic organizations) can obtain a judicial determination regarding their tax-exempt status, so long as there is an actual controversy with respect to a determination or the IRS’ failure to make a determination regarding the initial or continuing classification of an exempt organization, and the exempt organization has exhausted its administrative remedies. Our previous post on the declaratory judgment process sets out more details, and highlights some complications for organizations that go this route.

As background, during the recent IRS controversy involving scrutiny of conservative organizations, some 501(c)(4) organizations had been waiting for a determination for more than two years—yet didn’t have access to the declaratory judgment option. This provision changes that scenario.

Gift Tax Clarity. The PATH Act makes clear that contributions to 501(c)(4), (c)(5) and (c)(6) organizations are not subject to the gift tax. This was an area of uncertainty previously, because the tax code did not expressly provide that such contributions were (or were not) subject to the tax. The IRS had not attempted to impose gift tax for such contributions for many years, and then in 2010 and 2011 began attempting to do so in the context of 501(c)(4) organizations. This caused a bit of an uproar, and the IRS pulled back and said it would only commence such activity after notice to the public—though the PATH Act now forecloses that possibility.

Permanent Tax Benefit Extensions. The PATH Act makes permanent several tax benefits that previously were being extended year to year, which had created confusion and uncertainty. The tax benefits include:

• Increased percentage limits and extended carryforward period for qualified conservation contributions by certain individual and corporate farms and for ranchers.
• Tax-free distributions from IRAs for charitable purposes, provided that the transferor is at least 70.5 years old and that the exclusion doesn’t exceed $100,000 per taxpayer for any tax year.
• Enhanced deductions for contributions of certain food inventory.
• An exception to the UBIT rules for certain payments from a controlled subsidiary to an exempt organization, if the payments are made pursuant to a binding written contract in effect on August 17, 2006 (or an amendment with substantially similar terms) and are not in excess of fair market value.