Homeowners association section 528 election requires consent to revoke

Plain-English summary

Chief Counsel Advice addressed whether a homeowners association that elected section 528 treatment by filing Form 1120-H could revoke that election. It concluded that revocation is permissible only with the Commissioner's consent, and that filing Form 1120X without first obtaining consent was insufficient. The advice noted that the regulations do not state the procedure for obtaining consent, but that the association could request a private letter ruling under Rev. Proc. 2011-1, potentially seeking relief under section 9100.

Ruling snapshot

• Question: How may a homeowners association revoke a section 528 election?
• Outcome: advice given
• Key authorities: IRC §§ 528 and 9100; Treas. Reg. §§ 1.528-8 and 1.528-8(f)(1); Rev. Rul. 83-74; Rev. Proc. 2011-1; Rev. Proc. 92-85.

Full text (IRS public release)

ID: CCA_2011112311453161 Number: 201149023
Release Date: 12/9/2011
Office: ------------
UILC: 528.04-00

From: ------------------------
Sent: Wednesday, November 23, 2011 11:45:32 AM
To: ------------
Cc: ----------------------
Subject: 528 question

This is in response to your email request for review sent --------------------------. In that
email you requested our opinion on whether a certain home owners association (HOA)
that elected to be taxed under section 528 of the Internal Revenue Code by filing the
required 1120-H return for the year may now revoke that election. In our view, it is
permissible for the HOA to revoke the election but only with the consent of the
Commissioner and not by filing an 1120X as the taxpayer did in the instant case before
obtaining such consent.

Section 1.528-8 of the Income tax regulations provides that an organization wishing to
be treated as a homeowners association under section 528 for the taxable year must
elect to be so treated and that such election shall be made by filing a properly
completed Form 1120-H. Further, a separate election must be made for each taxable
year.

Section 1.528-8(f)(1) of the regulations provides that an election to be treated as an
organization described in section 528 is binding on the organization for the taxable year
and may not be revoked without consent of the Commissioner.

Rev. Rul. 83-74, 1983-1 C.B. 112, provides that permission will be granted to a
homeowners association to revoke an election made under section 528 of the Code
because of inadequate tax advice provided to it by its professional tax advisor.

In the instant case, the HOA has made a similar claim of inadequate tax advice by its
former tax advisor CPA firm.

We agree with you that examination is incorrect in its conclusion that HOA’s must
request a revocation within 12 months of the date of the original return including
extensions under Rev. Proc. 92-85, 1992-2 C.B. 490, as that superseded and obsoleted
revenue procedure concerned, in part, an automatic 12-month extension for certain
elections whose deadlines are prescribed by regulation including the election to be
treated as a section 528 HOA and not the revocation of a previously made election.
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Accordingly, it is appropriate for the HOA herein to request the consent of the
Commissioner to revoke the election. The regulations do not address the proper
procedure for obtaining that consent, but as you note HOA’s have previously requested
private letter rulings granting them relief under section 9100. Unless there is another
procedure that has been established by the IRS of which we are not aware, then it
would be appropriate for this HOA to submit a request for a private letter ruling under
Rev. Proc. 2011-1.