IRS denies 501(c)(4) status to a manufactured-home community's homeowners group as private-benefit, not social welfare

Plain-English summary

A homeowners group from a manufactured-home community applied to be recognized as a tax-exempt social welfare organization under IRC § 501(c)(4), and the IRS said no. The homeowners own their manufactured homes but lease the land underneath from a community owner, so the group formed mainly to represent members in dealing with the landlord, review proposed rent increases, and arbitrate disputes. The IRS concluded that helping members with their leases benefits the members privately rather than promoting the common good of a real "community." A § 501(c)(4) social welfare group must serve a community bearing a recognizable relationship to a governmental unit and cannot exist chiefly to advance its members' private interests. Citing Rev. Rul. 73-306, 74-99, and 75-199 and the Flat Top Lake Association case, the IRS found the group serves what looks like a private housing development, so it does not qualify. Because the group filed no protest to the earlier proposed denial, this is the final adverse determination, and the group must file federal income tax returns.

Ruling snapshot

• Question: Does a manufactured-home community's homeowners group qualify for exemption under IRC § 501(c)(4)?
• Outcome: Denied (final adverse determination; no protest filed)
• Key authorities: IRC § 501(c)(4); Treas. Reg. § 1.501(c)(4)-1(a)(2)(i); Rev. Rul. 73-306; Rev. Rul. 74-99; Rev. Rul. 75-199; Flat Top Lake Association, Inc. v. United States, 868 F.2d 108 (4th Cir. 1989)

Full text (IRS public release)

Department of the Treasury                          Date: 4/14/2022
Internal Revenue Service
Tax Exempt and Government Entities                  Employer ID number:

Cincinnati, OH 45201

                                                    Person to contact:

Release Number: 202227012
Release Date: 7/8/2022

UIL: 501.04-00, 501.04-06, 501.04-07

Dear

This letter is our final determination that you don't qualify for exemption from federal income tax under Internal
Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(4). Recently, we sent
you a proposed adverse determination in response to your application. The proposed adverse determination
explained the facts, law, and basis for our conclusion, and it gave you 30 days to file a protest. Because we
didn't receive a protest within the required 30 days, the proposed determination is now final.

You must file the federal income tax forms for the tax years shown above within 30 days from the date of this
letter unless you request an extension of time to file. For further instructions, forms, and information, visit
www.irs.gov.

We'll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection after deleting certain identifying information, as required by IRC Section 6110. Read the
enclosed Letter 437, Notice of Intention to Disclose - Rulings, and review the two attached letters that show our
proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 437 on how
to notify us. If you agree with our deletions, you don't need to take any further action.

If you have questions about this letter, you can call the contact person shown above. If you have questions
about your federal income tax status and responsibilities, call our customer service number at 800-829-1040
(TTY 800-829-4933 for deaf or hard of hearing) or customer service for businesses at 800-829-4933.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Letter 437
Redacted Letter 4034
Redacted Letter 4038

Letter 4038 (Rev. 11-2021)
Catalog Number 47632S

------------------------------------------------------------------------

Department of the Treasury
Internal Revenue Service
PO Box 2508
Cincinnati, OH 45201

Date: 02/15/2022

                                                    Employer ID number:

                                                    Person to contact:
                                                    Name:
                                                    ID number:
Legend:                                             Telephone:
B = State                                           Fax:
C = Date
D = Name 1
E = Organization 1
F = Name 2                                          UIL:
G = Name 3                                          501.04-00
L = Organization 2                                  501.04-06
h = Number                                          501.04-07
j = Number
k = Number

Dear

We considered your application for recognition of exemption from federal income tax under Internal Revenue
Code (IRC) Section 501(a). We determined that you don't qualify for exemption under IRC Section 501(c)(4).
This letter explains the reasons for our conclusion. Please keep it for your records.

Issues
Do you qualify for exemption under IRC Section 501(c)(4)? No, for the reasons stated below.

Facts

You were formed in the state of B on C as a Limited Liability Company. Your Certificate of Formation is
silent regarding your purpose. According to your By-Laws, your mission is to promote progress, improvements,
civic activities and environmental achievement with your members, as a fully functioning corporation and in
cooperation with park management, to aid residents in problems regarding community safety and any other
issues that regard the community, as a whole. Your mission also includes educating and informing your
members and public servants and to work for legislative actions.

With the assistance from the President of L, you were formed as a subsidiary of L. Your membership is made
up of homeowners from a manufactured home community, called D. D consists of two sections, F and G. The F
section is a family section for people of all ages and consists of h lots, while the G section is exclusively for
people at least j years old and consists of k lots. The homeowners own the manufactured home they live in, but
lease the plot of land each home sits on from a community owner, E.

You were formed to ensure the B laws are followed by E, with respect to the residents of D. Homeowners lease
the land their homes are set up on. As such, the rights and obligations for homeowners are described in the B laws.
You conduct monthly meetings to help protect the members investment. You inform your members of any
impending changes that will impact the community. You also prepare monthly a newsletter to be shared with
all residents. Your Executive Committee is responsible for evaluation of the documentation submitted by E for the
proposed yearly rent increases. The Executive Committee will file arbitration and pay associated fees in the event
of disagreement between the members and E.

Your organization was not formed to own and maintain common green areas, streets and sidewalks and to
enforce covenants to preserve the appearance of the development. All homes are on leased land, and you were
formed to represent the homeowners when dealing with L.

There are two classes of voting rights within your membership. The first class of voting rights includes all
homeowners in the community in regard to voting on the purchase of the property under the right of first offer
should the community be offered for sale by E. In this class, the owner, or owners of each home in the
community is entitled to one vote on all matters related to the purchase of the property. The second class of
voting rights includes only members that have paid membership fees to you. The payment of membership fees
entitles the member to vote in all elections and to hold office in your organization. The paid members also
receive your assistance when they have disputes with E regarding the rental agreement and/or rules and
regulations. Your By-Laws states if you purchase the property from E in the future, your membership will
become mandatory for all homeowners.

You described the geographic area that you serve as similar to a housing development with the exception the
land is leased by the homeowner and the home is owned by the tenant. The community is not located in any
incorporated area of a town/city.

Law

IRC Section 501(c)(4) provides for the exemption from federal income tax of civic leagues or organizations not
organized for profit but operated exclusively for the promotion of social welfare and the net earnings of which
are devoted exclusively to charitable, educational, or recreational purposes. Further, exemption shall not apply
to an entity unless no part of the net earnings of such entity inures to the benefit of any private shareholder or
individual.

Treasury Regulation Section 1.501(c)(4)-1(a)(2)(i) states an organization is operated exclusively for the promotion
of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of
the people of the community. An organization embraced within this section is one which is operated primarily for
the purpose of bringing about civic betterments and social improvements.

Revenue Ruling 73-306, 1973-2 C.B. 179, provides that an organization formed for the purpose of promoting the
common interest of tenants who reside in a particular apartment complex does not qualify for exemption under
IRC Section 501(c)(4). The organization represented its member-tenants in negotiations with the management of
the complex to secure better maintenance and services, as well as reasonable rents. The ruling holds that the
organization was not described in Section 501(c)(4) because it operated essentially to benefit its
members and, thus, was not primarily engaged in activities that promote the common good and general welfare of
the community.

Rev. Rul. 74-99, 1974-1 C.B. 131, provides that in order to qualify for exemption under IRC Section 501(c)(4),
a homeowner association (1) must serve a "community" which bears a reasonably recognizable relationship to
an area ordinarily identified as a governmental, (2) it must not conduct activities directed to the exterior
maintenance of private residences, and (3) the common areas or facilities it owns and maintains must be for the
use and enjoyment of the general public.

Rev. Rul. 75-199, 1975-1 C.B. 160, held that where the benefit from an organization is limited to the
organization's members (except for some minor and incidental benefit to the community as a whole), the
organization is not operated exclusively for the promotion of social welfare with the meaning of IRC Section
501(c)(4).

In Flat Top Lake Association, Inc. v. United States, 868 F.2d 108 (1989 4th Circuit), the court held that a
homeowners association did not qualify for exemption under IRC Section 501(c)(4) because it did not benefit a
"community" bearing a recognizable relationship to a governmental unit and its common areas or facilities were not
for the use and enjoyment of the general public.

Application of law

You are not a social welfare organization exempt under IRC Section 501(c)(4) because your activities and/or
services are limited to the homeowners who reside in F and G. You are not operated exclusively for the
promotion of social welfare within the meaning of Treas. Reg. Section 1.501(c)(4)-1(a)(2)(i) because you operated
exclusively for the private benefit of your members rather than for the benefit of the community as a whole.
Therefore, you are not organized and operated exclusively for the promotion of social welfare as required by
Section 501(c)(4).

You are similar to the organizations in Rev. Rul. 73-306 and Rev. Rul. 75-199 because you limit your benefits
and services to your members by representing them in rent arbitration and disputes with E. Both organizations in
these Revenue Rulings did not qualify under IRC Section 501(c)(4) because their activities were not
promoting the common good and general welfare of the community.

You do not meet the qualifications for exemption as an IRC Section 501(c)(4) homeowners association described
in Rev. Rul. 74-99 since the geographic area you serve is described more like a housing development. You are
like the organization in Flat Top Lake Association, Inc. Although you do not own and maintain common areas for
the exclusive use of your members or conduct any activities directed to the exterior maintenance of members'
residences, you do not serve a "community" which bears a reasonable recognizable relationship to an area
ordinarily identified as governmental.

Conclusion

Based on the information submitted, we conclude that you are not an organization described in IRC Section
501(c)(4) because you are not operated exclusively for the promotion of social welfare and your activities
privately benefit your members.

If you agree
If you agree with our proposed adverse determination, you don't need to do anything. If we don't hear from
you within 30 days, we'll issue a final adverse determination letter. That letter will provide information on
your income tax filing requirements.

If you don't agree
You have a right to protest if you don't agree with our proposed adverse determination. To do so, send us a
protest within 30 days of the date of this letter. You must include:

* Your name, address, employer identification number (EIN), and a daytime phone number
* A statement of the facts, law, and arguments supporting your position
* A statement indicating whether you are requesting an Appeals Office conference
* The signature of an officer, director, trustee, or other official who is authorized to sign for the
organization or your authorized representative
* The following declaration:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I have examined this request, or this modification to the
request, including accompanying documents, and to the best of my knowledge and belief, the request
or the modification contains all relevant facts relating to the request, and such facts are true, correct,
and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven't
already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

We'll review your protest statement and decide if you gave us a basis to reconsider our determination. If so, we'll
continue to process your case considering the information you provided. If you haven't given us a basis for
reconsideration, we'll send your case to the Appeals Office and notify you. You can find more information in
Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

If you don't file a protest within 30 days, you can't seek a declaratory judgment in court later because the
law requires that you use the IRC administrative process first (IRC Section 7428(b)(2)).

Where to send your protest
Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:

U.S. mail:                              Street address for delivery service:
Internal Revenue Service                Internal Revenue Service
EO Determinations Quality Assurance     EO Determinations Quality Assurance
Mail Stop 6403                          550 Main Street, Mail Stop 6403
PO Box 2508                             Cincinnati, OH 45202
Cincinnati, OH 45201

You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you
fax your statement, please contact the person listed at the top of this letter to confirm that they received it.

You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs
or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at the top
of this letter.

Contacting the Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your
taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you've tried but haven't
been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will
do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K