United States: New Federal Tax Deal Brings A Few Early Holiday Gifts For The Tax-Exempt Community

Last Updated: January 11 2016
Article by Jeffrey S. Tenenbaum, Matthew T. Journy and Lindsey M. Avedisian

On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes (PATH) Act of 2015. The PATH Act contains several provisions affecting federal tax-exempt organizations. Specifically, it establishes a mandatory, streamlined application process for 501(c)(4) tax-exemption recognition (which requires action by existing 501(c)(4) entities as well); it permits all existing or would-be tax-exempt entities to seek judicial review in federal court of any revocation or denial of (or failure to act on) exempt status recognition; it requires the IRS to create procedures under which a 501(c) tax-exempt organization facing an adverse determination may request an administrative appeal to the IRS Appeals Office; it exempts contributions to 501(c)(4), (c)(5), and (c)(6) tax-exempt organizations from federal gift tax; it makes permanent a number of federal tax "extenders," including several beneficial to charitable organizations; and it makes permanent the fair-market value exception from unrelated business taxable income for certain payments from controlled subsidiaries to their parent tax-exempt organizations.

Mandatory Application Process for Recognition of 501(c)(4) Tax-Exempt Status

The PATH Act imposes a new mandatory application process for all 501(c)(4) organizations. Until now, organizations intending to operate under 501(c)(4) were not required to file a tax-exempt status application with the IRS. Potential 501(c)(4) organizations could either self-certify their exemption qualification or complete the 19-page IRS Form 1024 (which such organizations frequently opt to do) in order to receive an IRS determination letter recognizing their tax-exempt status. The PATH Act establishes a streamlined process for organizations to obtain IRS recognition of 501(c)(4) status. Potential 501(c)(4) organizations formed after the PATH Act's enactment (December 18, 2015) must file a one-page notice of registration with the IRS within 60 days of formation. In turn, the IRS must provide a letter acknowledging the registration within 60 days of receiving the one-page notice. This letter is proof of IRS recognition of the organization's exempt status. 501(c)(4) organizations already in existence as of December 18, 2015 that have never filed a Form 1024 or a Form 990 must file a one-page notice of registration with the IRS within 180 days of December 18, 2015. This means that all 501(c)(4) organizations must either have previously filed a Form 1024 or Form 990, or file the one-page notice of registration within the appropriate time frame. The IRS is expected to release the one-page notice of registration form early in 2016. The existing Form 1024 process will still be available – using a new version of the Form – to would-be 501(c)(4) organizations that want more certainty regarding their exempt status determination.

Declaratory Judgments Available to All Section 501(c) Organizations

The PATH Act extends the ability of tax-exempt organizations to obtain declaratory judgments from a federal court to all organizations exempt or seeking exemption under Internal Revenue Section 501(c). By providing all 501(c) organizations with the ability to obtain a judicial declaratory judgment, the PATH Act provides greater recourse for organizations whose tax-exempt status the IRS has revoked, denied, or failed to issue a final determination.

IRS Required to Issue Procedures for Administrative Appeals to the IRS Appeals Office

The PATH Act requires the IRS to create procedures under which a tax-exempt organization facing an adverse determination may request an administrative appeal to the IRS Office of Appeals. This includes determinations relating to the initial or continuing classification of an organization as tax-exempt under Section 501(a), an organization under section 170(c)(2), a private foundation under Section 509(a), or a private operating foundation under Section 4942(j)(3). The provision applies to determinations made after May 19, 2014.

Contributions to 501(c)(4), (c)(5), and (c)(6) Organizations Not Subject to Federal Gift Tax

In the PATH Act, Congress finally addresses the issue of whether contributions to 501(c)(4), (c)(5), and (c)(6) organizations are subject to federal gift tax. For years, this issue has been a murky one, and the IRS has declined to directly rule on the matter. Now, the PATH Act explicitly states that any contributions made to 501(c)(4), (c)(5), and (c)(6) organizations are not subject to federal gift tax. This applies to any contributions made after the PATH Act's date of enactment (December 18, 2015). Because of IRS administrative forbearance, contributions made prior to December 18, 2015 are likely not subject to gift tax either.

Tax Extenders Made Permanent

The PATH Act permanently extends a number of federal tax provisions intended to incentivize charitable giving, including:

  • The ability to take tax-free distributions from individual retirement plans (IRAs) when donated to a tax-exempt charity (subject to certain limitations, such as a $100,000 per tax year limit, a minimum 70-1/2 age requirement, and the fact that the recipient charity may not be a supporting organization or a donor-advised fund);
  • Increased charitable deduction limits for contributions by individuals or corporations of real property interests for conservation purposes (the normal 30% of adjusted gross income limit for appreciated property gifts is increased to 50% and the carryforward limit is extended from five years to 15 years);
  • The enhanced charitable deduction for charitable contributions of excess food inventory (of "apparently wholesome food") (the deduction is the lesser of twice the basis or basis plus one-half of the appreciation; the deduction limit is raised to 15%); and
  • The adjustment of basis in S corporation stock when an S corporation makes a charitable contribution of property (when a Subchapter S corporation gives appreciated stock or land to charity, only the basis of the S corporation in the donated asset will be used to reduce the shareholder basis, even though the full fair-market value deduction is claimed by the shareholder).

Certain Payments by Controlled Subsidiaries to Parent Tax-Exempt Organizations

The Act also makes permanent the favorable tax treatment for certain payments made by a controlled taxable or tax-exempt entity to the controlling tax-exempt organization. Under Section 512(b)(13), certain payments by a controlled subsidiary to a tax-exempt parent, such as rent, royalties, annuities, or interest, produce unrelated business taxable income to the parent. Control is defined as the parent having over 50% of the stock or beneficial interests in the controlled entity. The PATH Act makes permanent the arm's-length transaction exception; if such payments meet a fair market value standard, there will not be any unrelated business taxable income to the parent.

Note that the PATH Act slightly modifies previous iterations of some of these federal tax provisions. Thus, anyone intending to take advantage of the PATH Act's permanent tax extenders should be sure to fully review the details of such extenders under the Act, rather than merely rely upon past use of similar tax provisions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions