Members-only pier association denied exemption

Plain-English summary

An unincorporated association collected annual dues from a limited group of non-waterfront property owners to repair and maintain a pier. Only members and their accompanied guests could use the pier for fishing and loading or unloading watercraft. The association argued that maintaining the pier and nearby common areas promoted the common good, but the IRS found that the activity primarily benefited the participating property owners rather than the broader community. Revenue Ruling 74-99 requires homeowners-association facilities to be available for public use, and Flat Top Lake Association likewise denied exemption where common facilities were restricted. The IRS denied section 501(c)(4) status because the association operated for its members' private benefit rather than general social welfare.

Ruling snapshot

• Question: Did maintaining a pier restricted to property-owner members and their guests promote social welfare under section 501(c)(4)?
• Outcome: Denied
• Key authorities: IRC § 501(c)(4); Treas. Reg. § 1.501(c)(4)-1(a)(2)(i); Rev. Rul. 74-99; Rev. Rul. 78-132; Flat Top Lake Ass'n v. United States

Full text (IRS public release)

Department of the Treasury                                      Date: 08/07/2023
Internal Revenue Service
Tax Exempt and Government Entities                              Employer ID number:
PO Box 2508
Cincinnati, OH 45201

Tax years:
All
Person to contact:

Release Number: 202344018
Release Date: 11/3/2023
UIL Code: 501.04-06

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
IRS PO Box 2508

Cincinnati, OH 45201

Date:

June 5, 2023
Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend: UIL:
L = date 501.04-06
M = state
N= area
P= 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 as an unincorporated association on L under the laws of M. Your purpose as stated in your

Bylaws is to maintain a pier and protect rights of the pier Association to be peaceful use and enjoyment of that
certain lot N.

You formed an association and now collect yearly dues to pay for the sole purpose of repairing and maintaining
the pier. Membership consists of the P non-waterfront property owners — only these individuals can be
members. Only members or their accompanied guests are permitted to use the pier for fishing, loading and
unloading watercraft. You have stated this promotes the common good and general welfare of the common
areas leading up to the pier as well as the pier itself.

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, or local associations of
employees, the membership of which is limited to the employees of a designated person or persons in a
particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or
recreational purposes. Section 501(c)(4) of the Code provides, in part, for the exemption from Federal income

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

tax of civic leagues or organizations not organized for profit but operated exclusively for the promotion of
social welfare.

Treasury Regulation Section 1.501(c)(4)-1(a)(2)(i) states 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 which is operated
primarily for the purpose of bringing about civic betterment and social improvements.

Revenue Ruling 74-99, 1974-1 C.B. 131, held that a homeowners association, to qualify for exemption under
section 501(c)(4) of the Code, (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; association of such areas as roadways and parklands, sidewalks and
streetlights, access to, or the enjoyment of which is extended to members of the general public, as distinguished
from controlled use or access restricted to the members of the homeowners association.

Revenue Ruling 78-132, 1978-1 C.B. 157, states a community cooperative organization formed to facilitate the
exchange of personal services among members, including home maintenance, minor repairs, and
transportation, was operating primarily for the private benefit of its members and wasn’t exempt from

tax as a social welfare organization under IRC Section 501(c)(4).

In Flat Top Lake Ass'n v. United States, 868 F.2d 108 (4th Cir. 1989), the Court held that a homeowners
association did not qualify for exemption under section 501(c)(4) of the Code 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 described under IRC Section 501(c)(4) or Treas. Reg. Section 1.501(c)(4)-1(a)(2)(i) because your
only activity is gathering funds for the repair and maintenance of a pier for property owners. As this serves the
interests of only your members and not the community at large this does not further or promote social welfare

purposes.

You are similar to the organization described in Revenue Ruling 78-132 in that you have formed a cooperative
to facilitate the maintenance of your property owner’s pier. This is a service to only your members; by operating
primarily for the private benefit of your members you do not meet the qualifications of a social welfare
organization under IRC Section 501(c)(4).

Rev. Rul. 74-99 describes the criteria that must be met in order for a homeowner’s association to qualify for
exemption under IRC Section 501(c)(4). The Court in Flat Top Lake Ass'n v. United States held that the criteria
set forth in Rev. Rul. 74-99 must be met in order for a homeowner’s association to qualify for exemption under
Section 501(c)(4). One of these criteria is that facilities you own or maintain must be for the use of the public
rather than being restricted in use. You currently have a pier restricted in use to the property owners in your
association. The dues you collect are dedicated to the maintenance and upkeep of this pier. This pier is only
available to members or their guests. You are serving the private interests of your property owners through the
maintenance of this pier. An organization that operates for the exclusive benefit of its members does not serve a

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

"community" as that term relates to the broader concept of social welfare. Because you fail the requirements set
forth in Rev. Rul. 74-99 and Flat Top you do not qualify for exemption under Section 501(c)(4).

Conclusion
Because you operate only 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

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:

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

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