26 U.S.C. § 505 — Additional requirements for organizations

Page 1686 TITLE 26—INTERNAL REVENUE CODE § 504 86–667 are applicable only to loans made, renewed, or continued after Dec. 31, 1959, see section 6 of Pub. L. 86–667, set out as a note under section 501 of this title. EFFECTIVE DATE OF 1958 AMENDMENT Pub. L. 85–866, title I, § 30(c), Sept. 2, 1958, 72 Stat. 1631, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the amendment made by subsection (a) [amending this section] shall apply with respect to taxable years end- ing after March 15, 1956. The amendment made by sub- section (b) [amending this section] shall apply with re- spect to taxable years ending after the date of the en- actment of this Act [Sept. 2, 1958], but only with re- spect to periods after such date. ‘‘(2) EXCEPTIONS.—Nothing in subsection (a) [amend- ing this section] shall be construed to make any trans- action a prohibited transaction which, under announce- ments of the Internal Revenue Service made with re- spect to section 503(c)(1) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] before the date of the en- actment of this Act [Sept. 2, 1958], would not constitute a prohibited transaction. In the case of any bond, de- benture, note, or certificate or other evidence of in- debtedness acquired before the date of the enactment of this Act [Sept. 2, 1958], by a trust described in section 401(a) of such Code which is held on such date, para- graphs (2) and (3) of section 503(h) of such Code shall be treated as satisfied if such requirements would have been satisfied if such obligation had been acquired on such date of enactment [Sept. 2, 1958].’’ SAVINGS PROVISION For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liabil- ity for tax for periods ending after Nov. 5, 1990, see sec- tion 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title. § 504. Status after organization ceases to qualify for exemption under section 501(c)(3) be- cause of substantial lobbying or because of political activities (a) General rule An organization which— (1) was exempt (or was determined by the Secretary to be exempt) from taxation under section 501(a) by reason of being an organiza- tion described in section 501(c)(3), and (2) is not an organization described in sec- tion 501(c)(3)— (A) by reason of carrying on propaganda, or otherwise attempting, to influence legis- lation, or (B) by reason of participating in, or inter- vening in, any political campaign on behalf of (or in opposition to) any candidate for public office, shall not at any time thereafter be treated as an organization described in section 501(c)(4). (b) Regulations to prevent avoidance The Secretary shall prescribe such regulations as may be necessary or appropriate to prevent the avoidance of subsection (a), including regu- lations relating to a direct or indirect transfer of all or part of the assets of an organization to an organization controlled (directly or indi- rectly) by the same person or persons who con- trol the transferor organization. (c) Churches, etc. Subsection (a) shall not apply to any organiza- tion which is a disqualified organization within the meaning of section 501(h)(5) (relating to churches, etc.) for the taxable year immediately preceding the first taxable year for which such organization is described in paragraph (2) of sub- section (a). (Added Pub. L. 94–455, title XIII, § 1307(a)(2), Oct. 4, 1976, 90 Stat. 1721; amended Pub. L. 100–203, title X, § 10711(b)(1), (2)(A), Dec. 22, 1987, 101 Stat. 1330–464.) Editorial Notes PRIOR PROVISIONS A prior section 504, acts Aug. 16, 1954, ch. 736, 68A Stat. 168; Oct. 22, 1968, Pub. L. 90–630, § 6(a), 82 Stat. 1330, related to denial of exemption, prior to repeal by Pub. L. 91–172, title I, § 101(j)(15), Dec. 30, 1969, 83 Stat. 527. For effective date of repeal, see section 101(k)(2)(B) of Pub. L. 91–172, set out as an Effective Date note under section 4940 of this title. AMENDMENTS 1987—Pub. L. 100–203, § 10711(b)(2)(A), substituted ‘‘substantial lobbying or because of political activi- ties’’ for ‘‘substantial lobbying’’ in section catchline. Subsec. (a)(2). Pub. L. 100–203, § 10711(b)(1), amended par. (2) generally. Prior to amendment, par. (2) read as follows: ‘‘is not an organization described in section 501(c)(3) by reason of carrying on propaganda, or other- wise attempting, to influence legislation,’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1987 AMENDMENT Amendment by Pub. L. 100–203 applicable with re- spect to activities after Dec. 22, 1987, see section 10711(c) of Pub. L. 100–203, set out as a note under sec- tion 170 of this title. CONSTRUCTION OF AMENDMENT Pub. L. 94–455, title XIII, § 1307(a)(3), Oct. 4, 1976, 90 Stat. 1722, provided that: ‘‘It is the intent of Congress that enactment of this section [amending section 501 and enacting section 504 of this title] is not to be re- garded in any way as an approval or disapproval of the decision of the Court of Appeals for the Tenth Circuit in Christian Echoes National Ministry, Inc. versus United States, 470 F.2d 849 (1972), or of the reasoning in any of the opinions leading to that decision.’’ § 505. Additional requirements for organizations described in paragraph (9) or (17) of section 501(c) (a) Certain requirements must be met in the case of organizations described in section 501(c)(9) (1) Voluntary employees’ beneficiary associa- tions, etc. An organization described in section 501(c)(9) which is part of a plan shall not be exempt from tax under section 501(a) unless such plan meets the requirements of subsection (b) of this section. (2) Exception for collective bargaining agree- ments Paragraph (1) shall not apply to any organi- zation which is part of a plan maintained pur- suant to an agreement between employee rep- resentatives and 1 or more employers if the Page 1687 TITLE 26—INTERNAL REVENUE CODE § 505 Secretary finds that such agreement is a col- lective bargaining agreement and that such plan was the subject of good faith bargaining between such employee representatives and such employer or employers. (b) Nondiscrimination requirements (1) In general Except as otherwise provided in this sub- section, a plan meets the requirements of this subsection only if— (A) each class of benefits under the plan is provided under a classification of employees which is set forth in the plan and which is found by the Secretary not to be discrimina- tory in favor of employees who are highly compensated individuals, and (B) in the case of each class of benefits, such benefits do not discriminate in favor of employees who are highly compensated indi- viduals. A life insurance, disability, severance pay, or supplemental unemployment compensation benefit shall not be considered to fail to meet the requirements of subparagraph (B) merely because the benefits available bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of em- ployees covered by the plan. (2) Exclusion of certain employees For purposes of paragraph (1), there may be excluded from consideration— (A) employees who have not completed 3 years of service, (B) employees who have not attained age 21, (C) seasonal employees or less than half- time employees, (D) employees not included in the plan who are included in a unit of employees cov- ered by an agreement between employee rep- resentatives and 1 or more employers which the Secretary finds to be a collective bar- gaining agreement if the class of benefits in- volved was the subject of good faith bar- gaining between such employee representa- tives and such employer or employers, and (E) employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)). (3) Application of subsection where other non- discrimination rules provided In the case of any benefit for which a provi- sion of this chapter other than this subsection provides nondiscrimination rules, paragraph (1) shall not apply but the requirements of this subsection shall be met only if the non- discrimination rules so provided are satisfied with respect to such benefit. (4) Aggregation rules At the election of the employer, 2 or more plans of such employer may be treated as 1 plan for purposes of this subsection. (5) Highly compensated individual For purposes of this subsection, the deter- mination as to whether an individual is a highly compensated individual shall be made under rules similar to the rules for deter- mining whether an individual is a highly com- pensated employee (within the meaning of sec- tion 414(q)). (6) Compensation For purposes of this subsection, the term ‘‘compensation’’ has the meaning given such term by section 414(s). (7) Compensation limit A plan shall not be treated as meeting the requirements of this subsection unless under the plan the annual compensation of each em- ployee taken into account for any year does not exceed $200,000. The Secretary shall adjust the $200,000 amount at the same time, and by the same amount, as any adjustment under section 401(a)(17)(B). This paragraph shall not apply in determining whether the require- ments of section 79(d) are met. (c) Requirement that organization notify Sec- retary that it is applying for tax-exempt sta- tus (1) In general An organization shall not be treated as an organization described in paragraph (9) or (17) of section 501(c)— (A) unless it has given notice to the Sec- retary, in such manner as the Secretary may by regulations prescribe, that it is applying for recognition of such status, or (B) for any period before the giving of such notice, if such notice is given after the time prescribed by the Secretary by regulations for giving notice under this subsection. (2) Special rule for existing organizations In the case of any organization in existence on July 18, 1984, the time for giving notice under paragraph (1) shall not expire before the date 1 year after such date of the enactment. (Added Pub. L. 98–369, div. A, title V, § 513(a), July 18, 1984, 98 Stat. 863; amended Pub. L. 99–514, title XI, §§ 1114(b)(16), 1151(e)(2)(B), (g)(6), (j)(3), title XVIII, §§ 1851(c), 1899A(16), Oct. 22, 1986, 100 Stat. 2452, 2506–2508, 2863, 2959; Pub. L. 100–647, title I, § 1011B(a)(27)(C), (31)(B), (32), Nov. 10, 1988, 102 Stat. 3487, 3488; Pub. L. 101–140, title II, §§ 203(a)(1), (2), 204(c), Nov. 8, 1989, 103 Stat. 830, 833; Pub. L. 103–66, title XIII, § 13212(c), Aug. 10, 1993, 107 Stat. 472; Pub. L. 107–16, title VI, § 611(c)(1), June 7, 2001, 115 Stat. 97; Pub. L. 115–141, div. U, title IV, § 401(b)(21)(D), Mar. 23, 2018, 132 Stat. 1203.) Editorial Notes AMENDMENTS 2018—Pub. L. 115–141, § 401(b)(21)(D)(i), substituted ‘‘paragraph (9) or (17)’’ for ‘‘paragraph (9), (17), or (20)’’ in section catchline. Subsec. (a). Pub. L. 115–141, § 401(b)(21)(D)(ii), sub- stituted ‘‘section 501(c)(9)’’ for ‘‘paragraph (9) or (20) of section 501(c)’’ in heading. Subsec. (a)(1). Pub. L. 115–141, § 401(b)(21)(D)(iii), sub- stituted ‘‘section 501(c)(9)’’ for ‘‘paragraph (9) or (20) of subsection (c) of section 501’’. Subsec. (c)(1). Pub. L. 115–141, § 401(b)(21)(D)(iv), sub- stituted ‘‘paragraph (9) or (17)’’ for ‘‘paragraph (9), (17), or (20)’’ in introductory provisions. Page 1688 TITLE 26—INTERNAL REVENUE CODE § 505 2001—Subsec. (b)(7). Pub. L. 107–16 substituted ‘‘$200,000’’ for ‘‘$150,000’’ in two places. 1993—Subsec. (b)(7). Pub. L. 103–66 substituted ‘‘Com- pensation limit’’ for ‘‘$200,000 compensation limit’’ in heading and ‘‘exceed $150,000. The Secretary shall ad- just the $150,000 amount at the same time, and by the same amount, as any adjustment under section 401(a)(17)(B).’’ for ‘‘exceed $200,000. The Secretary shall adjust the $200,000 amount at the same time and in the same manner as under section 415(d).’’ in text. 1989—Subsec. (a)(1). Pub. L. 101–140, § 203(a)(2), amend- ed par. (1) to read as if amendments by Pub. L. 100–647, § 1011B(a)(27)(C), had not been enacted, see 1988 Amend- ment note below. Subsec. (b)(2). Pub. L. 101–140, § 203(a)(2), amended par. (2) to read as if amendments by Pub. L. 100–647, § 1011B(a)(31)(B), had not been enacted, see 1988 Amend- ment note below. Pub. L. 101–140, § 203(a)(1), amended par. (2) to read as if amendments by Pub. L. 99–514, § 1151(g)(6), had not been enacted, see 1986 Amendment note below. Subsec. (b)(7). Pub. L. 101–140, § 204(c), inserted at end ‘‘This paragraph shall not apply in determining wheth- er the requirements of section 79(d) are met.’’ 1988—Subsec. (a)(1). Pub. L. 100–647, § 1011B(a)(27)(C), inserted at end ‘‘This paragraph shall not apply to any organization by reason of a failure to meet the require- ments of subsection (b) with respect to a benefit to which section 89 applies.’’ Subsec. (b)(2). Pub. L. 100–647, § 1011B(a)(31)(B), sub- stituted ‘‘there shall be’’ for ‘‘there may be’’ and ‘‘who are’’ for ‘‘who may be’’. Subsec. (b)(7). Pub. L. 100–647, § 1011B(a)(32), added par. (7). 1986—Subsec. (a)(1). Pub. L. 99–514, § 1851(c)(1), struck out ‘‘of an employer’’ before ‘‘shall’’. Subsec. (a)(2). Pub. L. 99–514, § 1851(c)(4), amended par. (2) generally. Prior to amendment, par. (2) read as fol- lows: ‘‘Paragraph (1) shall not apply to any organiza- tion which is part of a plan maintained pursuant to 1 or more collective bargaining agreements between 1 or more employee organizations and 1 or more employ- ers.’’ Subsec. (b)(1). Pub. L. 99–514, § 1851(c)(2), (3), sub- stituted ‘‘as otherwise provided in this subsection’’ for ‘‘as provided in paragraph (2)’’ in introductory provi- sion, and in subpar. (B) substituted ‘‘highly com- pensated individuals’’ for ‘‘highly compensated employ- ees’’. Subsec. (b)(2). Pub. L. 99–514, § 1151(g)(6), amended par. (2) generally. Prior to amendment, par. (2) read as fol- lows: ‘‘For purposes of paragraph (1), there may be ex- cluded from consideration— ‘‘(A) employees who have not completed 3 years of service, ‘‘(B) employees who have not attained age 21, ‘‘(C) seasonal employees or less than half-time em- ployees, ‘‘(D) employees not included in the plan who are in- cluded in a unit of employees covered by an agree- ment between employee representatives and 1 or more employers which the Secretary finds to be a col- lective bargaining agreement if the class of benefits involved was the subject of good faith bargaining be- tween such employee representatives and such em- ployer or employers, and ‘‘(E) employees who are nonresident aliens and who receive no earned income (within the meaning of sec- tion 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).’’ Subsec. (b)(4). Pub. L. 99–514, § 1151(e)(2)(B), amended par. (4) generally. Prior to amendment, par. (4) read as follows: ‘‘For purposes of this subsection— ‘‘(A) AGGREGATION OF PLANS.—At the election of the employer, 2 or more plans of such employer may be treated as 1 plan. ‘‘(B) TREATMENT OF RELATED EMPLOYERS.—Rules similar to the rules of subsections (b), (c), (m), and (n) of section 414 shall apply. For purposes of the pre- ceding sentence, section 414(n) shall be applied with- out regard to paragraph (5).’’ Subsec. (b)(5). Pub. L. 99–514, § 1114(b)(16), amended par. (5) generally. Prior to amendment, par. (5) read as follows: ‘‘For purposes of this subsection, the term ‘highly compensated individual’ has the meaning given such term by section 105(h)(5). For purposes of the pre- ceding sentence, section 105(h)(5) shall be applied by substituting ‘10 percent’ for ‘25 percent’.’’ Subsec. (b)(6). Pub. L. 99–514, § 1151(j)(3), added par. (6). Subsec. (c)(2). Pub. L. 99–514, § 1899A(16), substituted ‘‘July 18, 1984’’ for ‘‘the date of the enactment of the Tax Reform Act of 1984’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2001 AMENDMENT Amendment by Pub. L. 107–16 applicable to years be- ginning after Dec. 31, 2001, see section 611(i)(1) of Pub. L. 107–16, set out as a note under section 415 of this title. EFFECTIVE DATE OF 1993 AMENDMENT Amendment by Pub. L. 103–66 applicable, except as otherwise provided, to benefits accruing in plan years beginning after Dec. 31, 1993, see section 13212(d) of Pub. L. 103–66, set out as a note under section 401 of this title. EFFECTIVE DATE OF 1989 AMENDMENT Amendment by section 203(a)(1), (2) of Pub. L. 101–140 effective as if included in section 1151 of Pub. L. 99–514, see section 203(c) of Pub. L. 101–140, set out as a note under section 79 of this title. Pub. L. 101–140, title II, § 204(d)(4), Nov. 8, 1989, 103 Stat. 833, provided that: ‘‘The amendment made by sub- section (c) [amending this section] shall take effect as if included in the amendment made by section 1011B(a)(32) of the Technical and Miscellaneous Rev- enue Act of 1988 [Pub. L. 100–647].’’ EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 1114(b)(16) of Pub. L. 99–514 ap- plicable to years beginning after Dec. 31, 1987, see sec- tion 1114(c)(2) of Pub. L. 99–514, set out as a note under section 414 of this title. Amendment by section 1151(e)(2)(B), (g)(6), (j)(3) of Pub. L. 99–514 applicable, with certain qualifications and exceptions, to years beginning after Dec. 31, 1988, see section 1151(k) of Pub. L. 99–514, as amended, set out as a note under section 79 of this title. Amendment by section 1851(c) of Pub. L. 99–514 effec- tive, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title. EFFECTIVE DATE Pub. L. 98–369, div. A, title V, § 513(c), July 18, 1984, 98 Stat. 865, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(1) IN GENERAL.—The amendments made by this sec- tion [enacting this section] shall apply to years begin- ning after December 31, 1984. ‘‘(2) TREATMENT OF CERTAIN BENEFITS IN PAY STATUS AS OF JANUARY 1, 1985.—For purposes of determining whether a plan meets the requirements of section 505(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by subsection (a)), there may (at the Page 1689 TITLE 26—INTERNAL REVENUE CODE § 507 election of the employer) be excluded from consider- ation all disability or severance payments payable to individuals who are in pay status as of January 1, 1985. The preceding sentence shall not apply to any payment to the extent such payment is increased by any plan amendment adopted after June 22, 1984.’’ REGULATIONS Secretary of the Treasury or his delegate to issue be- fore Feb. 1, 1988, final regulations to carry out amend- ments made by section 1114 of Pub. L. 99–514, see sec- tion 1141 of Pub. L. 99–514, set out as a note under sec- tion 401 of this title. NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99–514 FOR FISCAL YEAR 1990 No monies appropriated by Pub. L. 101–136 to be used to implement or enforce section 1151 of Pub. L. 99–514 or the amendments made by such section, see section 528 of Pub. L. 101–136, set out as a note under section 89 of this title. SAVINGS PROVISION For provisions that nothing in amendment by Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining li- ability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title. PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989 For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title. § 506. Organizations required to notify Secretary of intent to operate under 501(c)(4) (a) In general An organization described in section 501(c)(4) shall, not later than 60 days after the organiza- tion is established, notify the Secretary (in such manner as the Secretary shall by regulation pre- scribe) that it is operating as such. (b) Contents of notice The notice required under subsection (a) shall include the following information: (1) The name, address, and taxpayer identi- fication number of the organization. (2) The date on which, and the State under the laws of which, the organization was orga- nized. (3) A statement of the purpose of the organi- zation. (c) Acknowledgment of receipt Not later than 60 days after receipt of such a notice, the Secretary shall send to the organiza- tion an acknowledgment of such receipt. (d) Extension for reasonable cause The Secretary may, for reasonable cause, ex- tend the 60-day period described in subsection (a). (e) User fee The Secretary shall impose a reasonable user fee for submission of the notice under subsection (a). (f) Request for determination Upon request by an organization to be treated as an organization described in section 501(c)(4), the Secretary may issue a determination with respect to such treatment. Such request shall be treated for purposes of section 6104 as an appli- cation for exemption from taxation under sec- tion 501(a). (Added Pub. L. 114–113, div. Q, title IV, § 405(a), Dec. 18, 2015, 129 Stat. 3118.) Statutory Notes and Related Subsidiaries EFFECTIVE DATE Pub. L. 114–113, div. Q, title IV, § 405(f), Dec. 18, 2015, 129 Stat. 3120, provided that: ‘‘(1) IN GENERAL.—The amendments made by this sec- tion [enacting this section and amending sections 6033 and 6652 of this title] shall apply to organizations which are described in section 501(c)(4) of the Internal Revenue Code of 1986 and organized after the date of the enactment of this Act [Dec. 18, 2015]. ‘‘(2) CERTAIN EXISTING ORGANIZATIONS.—In the case of any other organization described in section 501(c)(4) of such Code, the amendments made by this section shall apply to such organization only if, on or before the date of the enactment of this Act— ‘‘(A) such organization has not applied for a written determination of recognition as an organization de- scribed in section 501(c)(4) of such Code, and ‘‘(B) such organization has not filed at least one an- nual return or notice required under subsection (a)(1) or (i) (as the case may be) of section 6033 of such Code. In the case of any organization to which the amend- ments made by this section apply by reason of the pre- ceding sentence, such organization shall submit the no- tice required by section 506(a) of such Code, as added by this Act, not later than 180 days after the date of the enactment of this Act.’’ LIMITATION ON EXPENDITURE OF USER FEES Pub. L. 114–113, div. Q, title IV, § 405(e), Dec. 18, 2015, 129 Stat. 3119, provided that: ‘‘Notwithstanding any other provision of law, any fees collected pursuant to section 506(e) of the Internal Revenue Code of 1986, as added by subsection (a), shall not be expended by the Secretary of the Treasury or the Secretary’s delegate unless provided by an appropriations Act.’’ PART II—PRIVATE FOUNDATIONS Sec. 507. Termination of private foundation status. 508. Special rules with respect to section 501(c)(3) organizations. 509. Private foundation defined. Editorial Notes AMENDMENTS 1969—Pub. L. 91–172, title I, § 101(a), Dec. 30, 1969, 83 Stat. 492, added part heading and analysis for part II. § 507. Termination of private foundation status (a) General rule Except as provided in subsection (b), the sta- tus of any organization as a private foundation shall be terminated only if— (1) such organization notifies the Secretary (at such time and in such manner as the Sec- retary may by regulations prescribe) of its in- tent to accomplish such termination, or (2)(A) with respect to such organization, there have been either willful repeated acts (or