IRS denies 501(c)(4) status to a condominium homeowners' association

Plain-English summary

A homeowners' association organized as a nonprofit mutual benefit corporation applied on Form 1024 to be recognized as a tax-exempt social welfare organization under section 501(c)(4). Its only activity was managing, maintaining, and preserving the common areas of a condominium development, which were restricted to the property owners and their guests and paid for through annual member assessments. The IRS determined that the association operates for the private benefit of its members rather than for the common good and general welfare of a community, so it does not qualify under section 501(c)(4). The IRS relied on Revenue Rulings 69-280, 74-17, and 74-99 and on Flat Top Lake Association v. United States, all of which hold that maintaining common areas or private residences for a closed group of owners is not a social welfare activity. This is the final adverse determination: the earlier proposed denial became final because the association did not file a protest within 30 days, and the association must now file federal income tax returns for the years shown.

Ruling snapshot

• Question: Does a homeowners' association that maintains a condominium complex's common areas for its members qualify for exemption under section 501(c)(4)?
• Outcome: denied
• Key authorities: IRC § 501(c)(4); Treas. Reg. § 1.501(c)(4)-1(a); Rev. Ruls. 69-280, 74-17, 74-99; Flat Top Lake Ass'n v. United States, 868 F.2d 108 (4th Cir. 1989)

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities

P.O. Box 2508 Date:
I Cincinnati, OH 45201 April 27, 2022

Employer ID number:

Form you must file:

Release Number: 202229037 Tax years:
Release Date: 7/22/2022
UIL: 501.04-00, 501.04-07 Person to contact:
Name:
ID number:
Telephone:
[_] Check if 501(c)(3) denial
[_] Check if valid POA
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

[_] Hide blank fields.

Department of the Treasury
Internal Revenue Service
IRS PO Box 2508
Cincinnati, OH 45201
Date: February 8, 2022

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend: UIL:
B = State 501.04-00
C = Date 501.04-07

D = Property Development

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 as a nonprofit mutual benefit corporation in B on C. Your Articles state you are a
homeowners’ association that is organized and operated to provide for the acquisition, construction,
management, maintenance, and care of property held by the Association.

Your By-laws state you are organized and operated to provide for the ownership, management, administration,
maintenance, preservation and architectural control of the Units, Common Areas and any Exclusive Use
Common Areas within the certain real property development known or to be known as D.

You stated, in your Form 1024 application, that your purpose since inception has been to maintain the common
areas of the condominium association. These areas are restricted to property owners and their guests.

You are supported by annual member assessments. You listed various expenses under the heading,
“disbursements to or for the benefit of members”, which you further explained as insurance, professional
services, landscaping, and water.

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

Law
IRC Section 501(c)(4) provides for the exemption from federal income tax of organizations not organized for
profit but operated exclusively for the promotion of social welfare. 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)(1) states a civic league or organization may be exempt as an
organization described in IRC Section 501(c)(4) if it is not organized or operated for profit and it is operated
exclusively for the promotion of social welfare.

Treas. Reg. Section 1.501(c)(4)-1(a)(2)(i) provides that 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 that is operated primarily for
the purpose of bringing about civic betterments and social improvements.

Revenue Ruling 69-280, 1969-1 C.B. 152, holds that a nonprofit organization formed to provide maintenance of
exterior walls and roofs of members’ homes in a development is not exempt under IRC Section 501(c)(4).

In Rev. Rul. 74-17, 1974-1 C.B. 130, an organization formed by the unit owners of a condominium housing
project to provide for the management, maintenance, and care of the common areas of the project as defined by
state statute with membership assessments paid by the unit owners does not qualify for exemption under IRC
Section 501(c)(4). Condominium ownership involves ownership in common by all condominium unit owners of
a great many so-called common areas, the maintenance and care of which necessarily constitutes the provision
of private benefits for the unit owners. Since the organization's activities are for the private benefit of its
members, it cannot be said to be operated exclusively for the promotion of social welfare.

In Rev. Rul. 74-99, 1974-1 C.B. 131, a homeowners’ association, to qualify for exemption under IRC Section
501(c)(4), (1) must serve a "community" which bears a reasonable recognizable relationship to an area
ordinarily identified as 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.

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

Application of Law

You are not as described in IRC Section 501(c)(4) and Treas. Reg. Section 1.501(c)(4)-1(a)(1) because your
activities do not primarily promote civic betterment or social welfare. You do not meet the provisions of Treas.
Reg. Section 1.501(c)(4)-1(a)(2)(i) because your sole activity benefits your members (property owners in a
specific condominium complex). Pooling member funds to pay for maintenance and preservation of
condominium common areas (not open to the general public) does not promote the common good and general
welfare of the people of the community.

Like the organizations in Rev. Rul. 69-280 and 74-17, you are providing services to members (who own units in

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

3

the complex) that they would otherwise have to provide for themselves. The maintenance and preservation of
common areas of a condominium complex (not open to the general public) primarily serves your members
rather than the common good and general welfare of the community as a whole.

Unlike Rev. Rul. 74-99, you do not serve a community that resembles an area that could reasonably be
identified as governmental. Instead, you are similar to Flat Top Lake Association because you are providing
preservation and maintenance services for common areas of a condominium complex (not open to the general
public) which privately benefits your members rather than the general public.

Conclusion
Because you operate primarily for the benefit of your members and not for the social welfare or common good
of the community in general, you do not qualify for exemption under IRC Section 501(c)(4).

If you agree

You do not need to take any further action. If we do not hear from you within 30 days, we will issue a final
adverse determination letter. That letter will provide information about filing tax returns and other matters.

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)).

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

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