PLR 200701009: Homeowners association receives 90 days for missed annual elections

Plain-English summary

A residential real estate management association failed to file returns for its first two years because its developer and officers did not know the filing requirements. After discovering the omission, it sought more time to elect homeowners-association treatment under section 528. The IRS found the late-election relief requirements satisfied and granted 90 days to make the elections for those two years. The association still must produce records establishing that it meets section 528’s requirements. The ruling does not establish qualification or decide interest and penalties for failing to file returns.

Ruling snapshot

• Question: Can the association make its omitted section 528 elections for the two specified years?
• Outcome: Approved: 90 days to make both annual elections, with substantive qualification and penalties unruled.
• Key authorities: IRC § 528; 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: 200701009
Third Party Communication: None
Release Date: 1/5/2007
Date of Communication: Not Applicable

Index Number: 528.00-00, 9100.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PSI:7
PLR-120448-06
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Date:
September 26, 2006

Legend:

Taxpayer: -----------------------------------------------------
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Developer: ----------------------
a: -------
b: -------
c: ----------------
d: -------
e: -------

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

We received your letter requesting an extension of time under § 301.9100-1 of the Procedure and Administration Regulations to make an election to be treated as a homeowners association under § 528 of the Internal Revenue Code for taxable years a and b. This letter responds to your request.

The information submitted and the representations made are as follows:
Taxpayer is a residential real estate management association that was established by Developer in a. Developer handled the management responsibilities of Taxpayer from its inception until the management functions were transferred to Taxpayer in c. Because neither Developer nor the officers of Taxpayer were aware of the income tax filing requirements for a homeowners association, no income tax returns were filed for Taxpayer for the taxable year a and b.

Upon becoming aware of the income tax filing requirements, a Form 1120-H was filed pursuant to the automatic 12 month extension under § 301.9100-2 for taxable year d. In addition, a timely Form 1120H was filed for taxable year e.

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Section 528 and § 1.528-1 of the Income Tax Regulations generally provide that homeowners associations meeting the requirements of § 528(c) may elect to 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.

Section 1.528-8(a) provides that a separate election to be treated as a homeowners association under § 528 must be made for each taxable year. This election is 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(c) provides that the Commissioner, in an exercise of discretion, may grant a reasonable extension of time under rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory election (but not more than 6 months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H and I.

Sections 301.9100-2 and 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make the election under § 301.9100-1(a).

Requests for relief under § 301.9100-3 will be granted when the taxpayer provides the evidence to establish that the taxpayer acted reasonably and in good faith, and that granting 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 § 301.9100-3 have been satisfied with respect to taxable years a and b. Therefore, an extension of time is granted, until 90 days from the date of this ruling, for making an election to be treated as a homeowners association under § 528 for taxable years a and b.

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, we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in

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this letter or under any other provisions of the Code. Moreover, we express or imply 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 whether Taxpayer qualifies as a homeowners association under § 528(c).

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

A copy of this letter should be attached to Taxpayer’s election for each year covered by this ruling letter.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.

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

Sincerely,

/s/
Heather C. Maloy
Associate Chief Counsel
(Passthroughs and Special Industries)

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