IRS Exempt Organizations group has sent out more than 1,300 questionnaires to self-declared Section 501(c)(4) social welfare organizations; 501(c)(5) labor, agricultural or horticultural organizations; or 501(c)(6) business leagues. The questionnaires are part of IRS efforts to increase voluntary compliance, learn more about self-declared exempt organizations, and determine whether self-declared exempt organizations are complying with applicable tax-exempt law. The questionnaires are directed to organizations that are not recognized by the IRS as tax-exempt, but claim exemption under Section 501(c)(4), (5) or (6) and filed a Form 990 for tax years beginning in 2010 or 2011. Unlike most Section 501(c)(3) organizations, these types of exempt organizations are not required to apply to the IRS for recognition of exemption.
The questionnaire contains questions about the organization generally, its activities and related organizations, revenue and expenses, and compensation of directors, officers, trustees and key employees. While the range of questions is broad, there is a particular focus on political activity, like political campaign intervention. While 501(c)(4) organizations are allowed to engage in some political activity, it must not be their primary purpose. In recent years, the IRS, members of Congress, and advocacy groups have been concerned that 501(c)(4) organizations are engaging in political activity beyond what is permitted by law. In fact, this initiative was anticipated in the IRS Exempt Organizations FY 2013 work plan. The questionnaire also has a number of questions about whether the organization received professional advice in determining its tax status and whether activities constituted an unrelated trade or business.
Only the organization that receives the letter may complete the questionnaire. Although the questionnaire is a voluntary compliance instrument, the IRS may refer the organization for examination if the organization does not complete the questionnaire. The IRS has not indicated when results from the survey will be analyzed and made available to the public, but this usually takes a year or two.
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.