Additional Tax Citations

 

The tax citations listed below are assigned the same relative importance as the Primary Citations listed elsewaher on this site.  However, those individuals interested in gaining a further understanding various rulings the IRS has issued.  These additional tax citations indicate IRS positions and actions taken on other tax exempt organizations.

 

GCM 34219 is General Counsel's Response to Proposed [At That Time] Revenue Ruling 72-102

GCM 35440 is the response to proposed (at that time) Rev. Rul. 74-17. It clarifies and explains that condominium associations cannot qualify as social welfare organizations under IRC Sec. 501(c)(4) or any other provision of IRC Sec. 501 due to the required ownership structure and nonpublic nature of the benefits. Condominiums may, however, be restructured as cooperatives and have little or no taxable income.

 

GCM 35570 is the response to proposed (at that time) Rev. Rul. 74-99. It takes the position that the inherent nature of a homeowners' association prevents It from qualifying as exempt under IRC Sec. 501 (c)(4). However, see the Notes to this GCM.

Private Letter Ruling 8028010clarifies a homeowners' association exemption status under IRC Sec. 501(c)(4).

Restricting the general public's access to limited member facilities does not prevent exemption when considered in relation to the overall activities and services provided to the community.

Income from administration and maintenance activities related to the association's exempt purpose is not considered unrelated business income.

 

Private Letter Ruling 9539005 holds that the operation and maintenance of recreational facilities by a homeowners' association organization exempt under IRC Sec. 501 (c)(4) will not cause the association to lose its exempt status if the amount is nominal and is not the core purpose of the organization. However, it will constitute unrelated business income subject to taxation, after the deduction of related expenses.

 

 

Private Letter Ruling 200047049 discusses and further defines what constitutes unrelated business income for organizations qualifying for tax-exempt status under IRC Sec. 501(c). Although the tax-exempt entity in this PLR was formed "to promote the intellectual, social, physical, moral and religious welfare of the people" and is tax-exempt under IRC Sec. 501 (c)(3), this ruling provides guidance in the determination of whether golf course fees, municipal service, and land sales constitute taxable unrelated business income to an organization qualifying under any subsection of IRC Sec. 501. IRC Sec. 501 applies on a limited basis to some homeowners' associations.

 

Private Letter Ruling 200051046 rules on a social and recreational club exempt from federal income tax pursuant to IRC Sec. 501(c)(7) sells a painting, which was used in the furtherance of its exempt function. The Club is not in the business of buying and selling artwork. It has never done this before and is not expected to do this again. The IRS rules that, so long as the sale's proceeds are spent entirely on property to be used in the Club's exempt function within the period beginning one year before the date of the sale and ending three years after such date, there will be no effect on the Club's tax-exempt status, and the gain on the sale will not be taxable.

 

Private Letter Ruling 200706014 rules on a homeowners association previously exempt under IRC Section 501(c)(4) had its exempt status revoked as a result of an examination. The IRS explained that while the Association was granted exempt status at the time of application based upon documents and a description of activities as presented at that time, the law was later clarified that an exempt organization must be open to the general public. Based upon information obtained during the examination, the Association is not open to the public.

 

Private Letter Ruling 200709035 rules on a homeowners association previously exempt under IRC Section 501(c)(4) had its exempt status revoked as a result of an examination. The IRS explained that while the Association was granted exempt status at the time of application based upon documents and a description of activities as presented at that time, the law was later clarified that an exempt organization must operate for the benefit of the general public. Based upon information obtained during the examination, the Association is operated exclusively for the benefit of its members.

 

Private Letter Ruling 200717064 rules on a homeowners association, previously exempt under IRC Section 501(c) (7) had its exempt status revoked as a result of an examination. The IRS explained that because the Association does not promote nor conduct social activities, it does not meet the requirements of IRC Section 501(c) (7).


Private Letter Ruling 200720026 rules on a homeowners' association previously exempt under IRC Section 501 (c) (4) had its exempt status revoked as a result of an on-site examination. The IRS explained that Organization's activities were operated on a cooperative basis and lacked the necessary requirements of an organization described for a community organization and were more like an operation for a private self-help enterprise. Association's Exempt Status Revoked Due to Lack of Community Organization.

 

Private Letter Ruling 200728048 rules on a homeowners association previously exempt under IRC Section 501(c)(7) had its exempt status revoked as a result of an examination. The IRS explained that because the Association enforces architectural covenants it does not meet the requirements of IRC Section 501(c)(7). In addition, the Association does not meet the requirements of IRC Section 501(c)(4) because the Association’s clubhouse and pool are not open to the public.

 

Private Letter Ruling 200846034 rules on an organization (homeowners association) exempt under IRC Section 501(c)(7). The organization’s exempt status was revoked because it received more than 15% of its income from non member sources, received more than 20% of its income from non traditional sources, and because it enforced architectural covenants.

 

Private Letter Ruling 200910067 rules on a homeowners association exempt under IRC Section 501(c)(4). The organization’s exempt status was revoked because the organization's activities serve the private benefit of its members, it is not operated for the promotion of social welfare.

 

Rev. Rul. 74-99 - According to Rev. Rul. 74-99, a homeowners' association must satisfy the following criteria to qualify for tax exemption under IRC Sec. 501 (c)(4):

-     It must serve a "community" that bears a reasonably recognizable relationship to an area ordinarily identified as a governmental subdivision or a unit or district thereof.

-     It must not conduct activities directed to the exterior maintenance of private residences.

-     The common areas or facilities it owns and maintains must be for the use and enjoyment of the general public.

-     Defines "Community" for Purposes of Qualifying for 501 (c)(4)

Status. Modifies 72-102

 

Revenue Ruling 75-286 - A block association did not qualify for exemption from federal taxation under IRC Sec. 501 (c)(3) because it served a private interest, but it did quality under IRC Sec. 501 (c)(4).

Section 501.-EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC. 26 CFR 1.501(c) (4)-1: Civic organizations and local associations of employees. (Also 1.501(c) (3)-1.) Block Association; public area beautification and preservation.-A nonprofit organization with membership limited to the residents and business operators within a city block and formed to preserve and beautify the public areas in the block, thereby benefiting the community as a whole as well as enhancing the members' property rights, will not quality for exemption under section 501(c)(3) of Code but may qualify under section 501(c)(4); Rev. Rul. 68-14 distinguished.

 

Revenue Ruling 75-386 addresses an organization that is not a homeowners' association but that provides many of the same types of services as one. It is operated exclusively for the promotion of the social welfare of a community in the areas of crime prevention and housing and community development. Since it promotes the common good and general welfare of the community, the organization is exempt from taxation under IRC Sec. 501 (c)(4).

 

Revenue Ruling 75-494 states that a homeowners' association will not qualify for exemption from federal taxation as a recreational club under IRC Sec. 501 (c)(7) if it:

Owns and maintains residential streets that are not a part of its social facilities.

Administers and enforces covenants for preserving the architecture and appearance of the housing development.

Provides the housing development in which its members live with fire and police protection and a trash collection service.

Maintenance of Streets Prevents Association from Qualifying for Exemption under IRC Section 501(c)(7)

 

Technical Advice Memorandum 9747003 states that an exempt veterans organization lost its exempt status because of failure to maintain adequate books and records, and for conducting activities that were outside the scope of its exempt function.