Homeowners association gets late-filing relief to elect Section 528 treatment for several years

Plain-English summary

A residential real estate management association can elect, year by year, to
be taxed under Section 528, which lets a qualifying homeowners association be
taxed only on its non-exempt-function income rather than on member
assessments. The election is made by filing Form 1120-H for the year, but
this association inadvertently failed to file its Forms 1120-H for several
years. It asked the IRS for relief under Treasury Regulation § 301.9100-3.
Finding that the association acted reasonably and in good faith and that
relief would not prejudice the government, the IRS granted a 120-day
extension to make the Section 528 elections for the years in question. The
IRS stressed that the association still bears the burden of proving it
actually meets the Section 528(c) requirements and expressed no opinion on
that or on any late-filing penalties. Homeowners associations care because
missing the annual Form 1120-H election can otherwise leave them taxed as a
regular corporation on income they assumed was exempt.

Ruling snapshot

• Question: May a homeowners association get more time to file the Forms 1120-H electing § 528 treatment for past years?
• Outcome: Approved (120-day extension under § 301.9100-3; qualification and penalties not decided)
• Key authorities: IRC § 528(c); Treas. Reg. §§ 1.528-8, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201918006 Third Party Communication: None
Release Date: 5/3/2019 Date of Communication: Not Applicable
Index Number: 528.00-00, 9100.00-00
Person To Contact:
---------- ----------, ID No. ----------
---------- ----------
---------- Telephone Number:
---------- ----------
---------- Refer Reply To:
CC:PSI:B05
PLR-119624-18
Date:
December 14, 2018

Legend
Taxpayer = ----------
----------
a = ----------
b = ----------

Dear ----------:

This responds to your letter and subsequent correspondence requesting an extension of
time under § 301.9100-3 of the Procedure and Administration Regulations for Taxpayer
to make an election to be treated as a homeowners association under § 528 of the
Internal Revenue Code for taxable years a through b.

The information submitted and the representations made are as follows: Taxpayer is a
residential real estate management association. Taxpayer inadvertently failed to file its
Forms 1120-H for taxable years a through b.

Section 528 generally provides that homeowners associations meeting the
requirements of § 528(c) may be treated as tax-exempt organizations, but only to the
extent of their exempt function income.

Section 528(c)(1) provides, in part, that the term “homeowners association” means an
organization that elects (at such time and in such manner as the Secretary by
regulations prescribes) to have § 528 apply for the taxable year.
PLR-119624-18 2

Section 1.528-8(a) of the Income Tax Regulations provides that a separate election to
be treated as a homeowners association under § 528 must be made for each taxable
year. This election must be made by filing a properly completed Form 1120-H (or such
other form as the Secretary may prescribe).

Section 1.528-8(b) provides that for taxable years ending after December 30, 1976, the
election must be made not later than the time, including extensions, for filing an income
tax return for the year in which the election is to apply.

Section 301.9100-1(a) provides that this section and §§ 301.9100-2 and 301.9100-3
establish the standards the Commissioner will use to determine whether to grant an
extension of time to make a regulatory election. An extension of time is available for
elections that a taxpayer is otherwise eligible to make. However, the granting of an
extension of time is not a determination that the taxpayer is otherwise eligible to make
the election.

Section 301.9100-1(b) provides that the term “election” includes an application for relief
in respect of tax and that the term "regulatory election" includes an election whose due
date is prescribed by a regulation published in the Federal Register.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable
extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a
regulatory election, or a statutory election (but no more than six months except in the
case of taxpayer who is abroad), under all subtitles of the Code, except subtitles E, G,
H, and I.

Section 301.9100-2 provides automatic extensions of time for making certain elections.
Section 301.9100-3 provides extensions of time for making elections that do not meet
the requirements of § 301.9100-2.

Section 301.9100-3 provides that requests for relief subject to this section will be
granted when the taxpayer provides the evidence (including affidavits described in
§ 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer
acted reasonably and in good faith, and that the grant of relief will not prejudice the
interests of the Government.

Based on the facts and representations submitted with your request, we have
determined that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied
with respect to taxable years a through b. Therefore, an extension of time is granted,
until 120 days from the date of this ruling, to make the elections required on Forms
1120-H for Taxpayer to be treated as a homeowners association under § 528 with
respect to taxable years a through b.
PLR-119624-18 3

We note, however, that the burden is upon Taxpayer to produce, upon request, any
records necessary to establish to the satisfaction of the Service that Taxpayer meets all
of the requirements of § 528(c)(1).

Except as expressly ruled herein, no opinion is expressed or implied concerning the tax
consequences of any aspect of any transaction or item discussed or referenced in this
letter, or under any other provisions of the Code. Moreover, we express no opinion
concerning the assessment of interest, additions to tax, additional amounts, or penalties
for failure to file an income tax return with respect to any year. Specifically, we express
or imply no opinion on whether Taxpayer qualifies as a homeowners association under
§ 528(c).

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

The ruling contained in this letter is based on the information submitted and
representations made by Taxpayer and accompanied by a penalty of perjury statement
executed by an appropriate party. While this office has not verified any of the material
submitted in support of the request for ruling, it is subject to verification on examination.

                                       Sincerely,



                                       Associate Chief Counsel
                                       (Passthroughs and Special Industries)


                                   By:
                                   Nicole R. Cimino
                                   Chief, Branch 5
                                   Office of Associate Chief Counsel
                                   (Passthroughs & Special Industries)

Enclosures (2)
Copy of this letter
Copy for section 6110 purposes