IRS revokes a gated homeowners association's section 501(c)(4) exemption

View official IRS release (PDF)

Plain-English summary

The IRS revoked a homeowners association's section 501(c)(4) exemption effective on the stated date. The association maintained private roads and common areas for a gated residential development, with remote-control gates, a staffed main gate, security patrols, and signs restricting public access. The IRS concluded that these operations primarily served the privacy and safety of residents and did not provide a significant benefit to the general public. The determination also notes that section 528 may provide a separate homeowners-association tax regime if its requirements are met.

Ruling snapshot

• Question: Did the homeowners association continue to qualify as a section 501(c)(4) social welfare organization?
• Outcome: Revocation. The IRS found restricted public access and primarily private member benefits.
• Key authorities: IRC §§ 501, 528, 172, 277, and 6110; Treas. Reg. § 1.501(c)(4)-1

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

TE/GE EO EXAMINATIONS

TAX EXEMPT AND 1 100 COMMERCE STREET, MC 4920 DAL
GOVERNMENT ENTITIES DALLAS, TX 75242 501.04-00
DIVISION

Release Number: 201313031
Release Date: 3/29/2013

Date: September 8, 2011 Taxpayer Identification Number:

LEGEND Form:

ORG - Organization name Tax Year(s) Ended:

XX - Date Address - address Person to Contact/ID Number:
Contact Number:

ORG Telephone:

ADDRESS Fax:

CERTIFIED MAIL — RETURN RECEIPT REQUESTED
Dear

In a determination letter dated January 14, 19XX, you were held to be exempt from Federal
income tax under section 501(c)(4) of the Internal Revenue Code (the Code).

Based on recent information received, we have determined you have not operated in
accordance with the provisions of section 501(c)(4) of the Code. Accordingly, your exemption
from Federal income tax is revoked effective December 1, 20XX. This is a final adverse
determination letter with regard to your status under section 501(c)(4) of the Code.

We previously provided to you a report of examination explaining why we believe revocation of
your exempt status is necessary. At that time, we informed you of your right to contact
Taxpayer Advocate, as well as your appeal rights. On February 17, 20XX, you signed Form
6018-A, Consent to Proposed Action, agreeing to the revocation of your exempt status under
section 501(c)(4) of the Code.

You are required to file Federal income tax returns for the tax periods beginning December 1,
20XX. File returns with the appropriate service center indicated on the instructions for those
returns.

You have the right to contact the Office of the Taxpayer Advocate. Taxpayer Advocate
assistance is not a substitute for established IRS procedures, such as the formal Appeals
process. The Taxpayer Advocate cannot reverse a legally correct tax determination, or extend
the time fixed by law that you have to file a petition in a United States court. The Taxpayer
Advocate can, however, see that a tax matter that may not have been resolved through normal
channels gets prompt and proper handling. You may call toll-free, 1-877-777-4778, and ask for
Taxpayer Advocate Assistance. If you prefer, you may contact your local Taxpayer Advocate
at:

If you have any questions, please contact the person whose name and telephone number are
shown at the beginning of this letter.

Sincerely,

Nanette M. Downing
Director, EO Examinations

Schedule number or exhibit

Form 8B6-A (Rev. EXPLANATIONS OF ITEMS
january 1994)

Tax Identification Number Year/Period ended
Siame of taxpayer November 30, 20xx
LEGEND and November 30,
. . . | 20: .
ORG - Organization name XX - Date Address - address City oe city
State - state President - president Treasurer - treasurer DIR-1 & DIR-2
= 18 & 2"? DIR Co-1 = 15 COMPANY

Issues:

1. Should ORG (ORG) continue to be exempt from tax under Internal Revenue Code (IRC)
   §501(c)(4) as a social welfare organization?

2. Is the ORG exempt from income tax under IRC §501(a)?
   Facts:

The ORG was incorporated in the State of State on April 9, 19XX. The ORG’s Articles of
Incorporation (AOI), Article IV, states the following purpose for which the corporation was formed:

Section |. The specific purposes for which the corporation is formed are to provide for maintenance,
preservation, policing and architectural control for the ORG plat described as: ORG, Volume 90 of
Plats, Pages 92 to 106 inclusive, records of City, and to promote the health, safety and welfare of
the residents within the above described property and any additional thereto as may hereafter be
brought within the jurisdiction of this Association by annexation, as provided in Article VIII herein,
and for this purpose.

The ORG states the purpose of their assessments in Declaration of Restrictions, Article V —
Maintenance Assessments:

Section 2. Purpose of Assessment. The assessments shall be used exclusively for the purpose of
promoting the recreation, health, safety, and welfare of the residents of the properties, and among
other uses may include, subject to the Board’s discretion, the construction, establishment,
improvements, repair and maintenance of the common properties and services and facilities related
to the use and enjoyment of the common properties, the payment of taxes and insurance on the
common properties, and the installation and maintenance of planting areas on the streets located
within the subdivision the policing and fire protection of all properties within “the Plat” and the gate
entries to “the Plat”, and the reimbursement of Trustee’s expenses to the Trustees.

According to IRS records, the organization was granted tax-exempt status as a 501(c)(4)
organization in January 19XX. The ORG did not have security gates at the time they applied
for, and were granted, tax-exempt status. The officers stated during the interview that the
security gates were added to prevent drivers from cutting through the organization’s property in
order to avoid the congestion on the main streets.

The organization has filed Forms 990 for the years ended November 30, 20XX and November 30,
20XX.

Physical description:

The ORG owns and maintains the portion of the property not owned by ORG (the CO-1‘) or the
residents, which includes the roads and common areas. The entire property is enclosed with
fencing. The property contains 426 houses and condominiums, which surround a golf course. The
golf course is owned and maintained by the CO-1.

Schedule number or exhibit

Form 886-A (Rev.
January 1994) Y EXPLANATIONS OF ITEMS

Tax Identification Number Year/Period ended
November 30, 20xx
and November 30,

( gvame of taxpayer

0
The road consists of a two-mile loop around the inside of the property. ft does not have any
sidewalks or bicycle lanes. The examining agent printed and copied a map from Google Maps
(www.google.com) into this report.

MAP DELETED

The orange highlighted roads are those owned by the ORG. The letter “A” in the red balloon marks
the office for the ORG, which is located inside the ORG’s building.
The property has three electronic gates to access to the property:

° (N): a north gate on Address, no guard, requires remote control to enter;
° (S): a south gate on Address; no guard, requires remote control to enter; and
° (M): a west gate or “main gate” on Address, adjacent to a manned guard shack staffed 24

hours a day, 7 days a week.

At the north and south gates, there is a pedestrian or “walk-through” gate. The gate is closed but
unlocked during the day and locked at night. Signs on the pedestrian gates state: |

“NO TRESPASSING, RESIDENTS ONLY, NO SOLICITING, PRIVATE PROPERTY, PRIVATE
ROADS.”

A sign on the north (vehicle) gate states:

“GUESTS CHECK IN AT THE Address.”

At the main gate, there is an open entrance for pedestrians, adjacent to the exit gate.

There is no parking for vehicles in the common area around the gates or on the nearby streets.

The ORG does not sponsor or host any running clubs, walking clubs, or “fun runs” not otherwise
associated with another organization.

The examining agent conducted an on-site interview on March 29, 20XX. The officers present were
Treasurer, Treasurer and President, President. The organization’s office manager, RA-1, and RA-
2, ex-oficio President, were also present. The agent asked questions regarding the organization
and operation of the ORG. After the interview, the agent wrote up the questions and answers and
provided them to the treasurer, requesting that the treasurer review, make changes as necessary,
and sign the document. The treasurer did not have any changes to the document and signed it.
The summary is provided here.

1. Did you receive Publication 1, have you read it, and do you have any questions concerning your
   rights?

a. They received it and do not have questions at this time.

2. To get a full understanding of your organization, please describe the history of your organization
   and all of its activities.

° Area was started in 19XX by a group of local people to build a nice housing development
with golf course. Started selling memberships. Opened in 19XX. The ORG ran the whole deal

Schedule number or exhibit

Form 886-A (Rev. EXPLANATIONS OF ITEMS
anuary 1994)

Qgiame of taxpayer

hrough 19XX, and then split off into O
Agents were on site to sell homes.

November 30, 20xx
G and the ORG. The Board of Directa Pers FEE HA OXK.

—-

4 Tax Identification Number Year/Period ended

° There are 426 condo and home sites under the ORG. The ORG takes care of the roads
(roads are private) including entire asphalt overlay, street signs, storm drains/manholes, fence, and
reports street lights out/damaged. There is a fence around the entire property. There are gates at
the North, South and West (also called Main) entrances. These are all maintained by the ORG.
The ORG also maintains common areas such as the property directly around the gates.

° They contract with a third party for security. They provide guard services at the main gate
24/7. Security patrols from 10pm — 2am on weeknights and 8pm to 4am Friday and Saturday. They
check for unusual activity and will check on people’s homes who are on vacation. They report to the
Security Director, board member, and the ORG will issue a citation if security finds an issue. They
do not have other private emergency services; they rely on the City of City for fire and paramedics.
If there is a break in, the unarmed security service will contact the local authorities.

° The main gate has one exit gate, an open entrance for pedestrians, and two entrance gates,
one for Visitors and one for Residents. The exit and entrance gates are separated by a guard
shack. The entrance and exit gates are separated by a raised island; the entrance gates are
recessed from the exit gate. The Visitor gate is kept open during the day. A guest wishing to pass
through must stop and check in with the guard. The Resident gate is closed but is opened with a
remote control by the resident. The guard does not issue day passes to be placed in windows for
guests; however, if you are a non-resident ORG member, you will be given a decal to put in your
window. This type of member would go through to the Visitor gate and be waved in by the guard.

° They do allow pedestrians to come in (walk/bike/jog) via an unlocked door in the middle of
the North and South gates, from 6am to 10pm. This also allows the children residents to enter and
exit for school. Children are picked up and dropped off by school buses at the gate entrances.
Children from other communities cannot be picked up in these areas because the gate entrances
are on main roads which do not have cross walks to other communities or tracts of houses.
Children living outside of this development must wait on their side of the road (opposite of the ORG)
and wait for the bus to turn around and pick them up. There are no parks or areas of recreation
other than the golf course. The ORG was developed prior to the time when sidewalks were
required; therefore, the “path” that pedestrians and bicyclists use is the street, shared with the cars.
Some corners have reflective markers on the street to provide drivers with heightened awareness
that walkers may be present. No current data on how many non-residents come through the gates.
Lots of regulars come through the pedestrian gate to walk. If a person desiring to walk, jog or bike
on the premises were to drive in, the guard would ask, “Who are you here to see?” If the driver did
not have a name, they would likely be turned away. The driver would need to go somewhere, park
their car and walk or bike in. Note there is no parking on the streets near the entrances.

° There is a sign for no soliciting, however, they do allow organized solicitors like boys club
when they call ahead of time. If they come in unannounced they will be asked for their city of City’s
solicitors permit.

° ORG will have events and the ORG will allow people to come in and park on the roads. This
occurs about 2 — 3 times per month. Examples are golf tournaments, elementary school fun run,
rotary club meetings, local high school athletic department awards banquets, and large city
functions. ORG has a large facility for such events which is unique to this local area. ORG will let
the front gate know of the events and the people have to say that they are there for the event and
are allowed in. Half the people that golf here do not live here.

Schedule number or exhibit

Form 886°A (Rev. EXPLANATIONS OF ITEMS
january 1994)

( 8 ame of taxpayer November 30, 20xx
‘ ORG allows civic events to be held at the CO-1 without being charged rere, NERAPApIes 2
City fire marshals, Rotary Club, and local Chambers of Commerce. They do pay for food.

—

e

ba Identification Number Year/Period ended

° The BoD consists of 6 elected members and 1 appointed official from ORG. All 7 are voting
positions. BoD positions are three year terms. The organization has several committees. The
architectural committee enforces the covenants and restrictions. Many of the rules follow the
county/city with regards to things such as fireworks and noise ordinance.

° Dues are currently $ per year, billed once per year. It is the same for empty lots, or built on
with a condo or house. ORG is also a member. ORG pays $ per month and in exchange they get
security services — the officer will get out and check doors, etc. ORG provides an office space and
meeting room for the annual meeting (2nd Tues of Dec) and other MA meetings. For the year under
exam the dues were $.

° Sales: Members are given 2 remotes but can purchase more for $ each.

° On the P&L there is a line for “Fees.” These include items such as: late payment fees and
landscaping services for the out of state owner’s empty lot.

3. Is this organization affiliated with any other exempt organization through membership? Are any
   members of the Board of Directors of your organization members of the board of any other exempt
   organization?

° Yes, ORG is a member of the ORG. The ORG provides security guard services and use of
the roads in exchange for dues fees and office space in their building.

° The ex-officio president who has been active on the board for many years is involved in
local city planning. He is on the land use and development commission for the city of City. The
ORG has had several projects over the years involving land or road improvements, working
with city of City, the Army Corp of Engineers, and the Department of Fish and Gaming. His
function is to work with the commission and review staff proposals for presentation to the
council. The current project that the city of City and the ORG are working on is to dredge and
re-direct the North end of the ORG owned creek so that it does not continue to flood resident's
basements. Past projects include building bridges over the North and South portions of the
creek (the majority of the creek on the property is owned by ORG) and eliminating the culvert
piping so that the salmon can swim through.

Exhibit 1 is an Information Document Request dated April 5, 20XX, provided to the organization in a
question and answer format, to provide the examining agent with clarification on some issues. In it,
the ORG provided additional information regarding guests entering on a motor vehicles and the
neighboring areas’ use of the bus stops:

° Guests who drive up and request to walk or jog are asked to abide by the rules of the park.

° The bus stop at the main gate is not used due to lack of need; the other two stops at the
north and south gate are used by neighboring homes.

Exhibit 1 confirms the organization’s desire to keep through traffic out by installing the gates.

Access to the property
Resident members: The ORG has a policy statement regarding remote controls, which are

Schedule number or exhibit

Form 886-A (Rev. EXPLANATIONS OF ITEMS
anuary 1994)

Tax Identification Number Year/Period ended
November 30, 20xx

tequired for entrance to the north, south, and main resident gates. The policy stares marorty ORG
residents may purchase one remote control for gate access per vehicle. The residents do
not need to check in with the guard at the main gate, unless they do not have their remote control.

All gates are always closed; therefore, the remote controls are used 24 hours a day, 7 days a week.

( gvame of taxpayer

The ORG requires that the resident fill out a form to request a remote control. The form requires a
signature of the resident acknowledging the following statement.

“| understand that driving above the posted speed limit of 25 miles per hour, not obeying stop
signs, or allowing access to non-residents by allowing the use of my remote(s) may result in the
de-activation of my remote(s).”

ORG member: The CO-1 member has a sticker on their vehicle. The member cannot enter at the
north or south gates. They must go through the visitor gate at the main entrance, but will not be
stopped. The guard will see the sticker and wave the member through.

Guests of Resident members: Guests of residents must stop at the main gate and tell the guard
who they are and who they are there to see. The ORG has a form that the resident must fill out
with their guest names and relationship to the resident. The form explicitly states the following:

. If the resident has called in ahead of time and put the guest on an approved list, the guard
will allow the guest to enter.

° If the guest is not on the list, the guard will call the resident to verify that the guest is
permitted to enter. If the resident does not answer the phone call or an answering machine
answers, the “guest(s) will be turned away at the gate.”

Guests of a CO-1 event: The CO-1 will call the guard prior to the scheduled event and notify them
that guests will be attending. The guests must go to the main gate, pull up to the guard shack and
tell them that they are there for the specific event. The guard will then allow them to pass through
the visitor gate.

Non-guests: Non-guests include contractors, solicitors, and visitors. Non-guests must go to the
main gate and speak with the guard. The guard will ask who they are and who they are there to
see. The ORG has a list of contractors approved to enter. Others who are not on a list, who are not
there to attend an event, or do not have a contact within the community will be turned away.

The ORG provides the following services:

Security service at the main gate (24/7):

The officer will allow motor vehicles through if the driver (a) is on a list of permitted guests, (2) is
allowed by the CO-1, (3) is on a list of contractors (e.g. the landscapers), (4) is attending a CO-1
function that day (e.g., Rotary Club). If the driver is not on a list but knows someone in the
community, the officer will call the homeowner. If the homeowner is not home to acknowledge the
guest, the guest will be turned away. A driver who is not on a list, not attending an event, and not a
guest will be turned away.

Public access:

The public is permitted to come in via the pedestrian doors adjacent to the gates. The north and
south entrance doors are locked between 10pm and 6am. Rules pertaining to pets are posted next
to the doors. Access next to the main gate is an opening without a door. The north door has signs

eee

Schedule number or exhibit

Form 886-A (Rev. EXPLANATIONS OF ITEMS
anuary 1994)

Qgiame of taxpayer

posted on it reading, “NO TRESPASSI
PROPERTY, PRIVATE ROADS.”

November 30, 20xx -
G, RESIDENTS ONLY, NO SOLICITIN me PRAVR TE:

| Tax Identification Number Year/Period ended

School bus stop:

The open areas around the gates are used by school buses as bus stops for the children of the
ORG community. The north and south gate pick up points are also used by children in neighboring
communities.

Services for the CO-1:

The ORG provides security, which patrols the entire property, including the CO-1. They check the
CO-1’s property and doors of the buildings to ensure they are locked. The CO-1 receives guard
services at the gate for their visitors.

Patrolling security service:

Security will patrol the property 10pm — 2am Monday through Friday, and 8pm — 4am Saturday and
Sunday. The security officer will check on homes where the homeowners are away on vacation, if
requested to do so. Unusual activity is reported to the ORG. The ORG reports the activity during
the board meetings and in the newsletter to the homeowners

Common area maintenance:

The gates, roads, perimeter fence, traffic signs, water stream on their property, the common area
surrounding the gates, islands in the middle of the road, and the storm drain system are owned and
maintained by the ORG.

Architectural Committee:

Per Article VI of the Declaration of Restrictions (DOR), the architectural committee will approve
plans submitted by residents which would “alter, construct, or maintain any improvement” of the
home. Alterations include exterior paint, landscaping and roofing. The committee also enforces
rules which pertain to the permitted or prohibited activities such as pets, clotheslines, errant trash,
parking, lack of maintenance, advertising, signs and so on. Article VIII of the DOR includes
remedies for violations: reimbursement for the cost of work done by the ORG and/or monetary
fines.

Collection of assessments:

The ORG collects assessments from the homeowners and the CO-1 in order to provide security
services, guard services, gate and road maintenance, and administration and enforcement of the
organization’s covenants.

Use of the property:

Declaration of Restrictions Article |V — Property Rights In and Limitations on the Use of the
Common Properties Section 1. Members’ Easements of Enjoyment.

(a) The right of the Association to limit the number of guests of members. Section 4. Limits.

(c) By granting the right to Members and others to use such common property the Developer
and the Association do not intend to dedicate such common property to the public but rather intend
to preserve the private character of such common property.

Declaration of Restrictions
Article VIl — Remedies for Violations

January 1994)

Form 886-A (Rev. EXPLANATIONS OF ITEMS

Schedule number or exhibit

( qvame of taxpayer

Tax Identification Number Year/Period ended

November 30, 20xx
and November 30,
20xx

Section 1. Violation of rules or regulations concerning use of common properties:
(b) In the event that any person, invitee, guest or non-member shall violate any rule or regulation
established pursuant to Article IV, Section (a), such person may be barred from further use of the

common property.

The ORG provided their Profit and Loss statements for 20XX and 20XX. During the examination,
the agent determined that the statements tie closely to the Forms 990 filed for each year. The Profit
and Loss statements provide income and expense detail. The examining agent entered the data
into a spreadsheet and compared the income and expense to totals, shown as percentages, and
copied the spreadsheet into this report as follows:

20XX Percent 20XX Percent

20XX
REVENUES
Other Income
Uncategorized Income
Membership dues/assessments:
ORG assessments
Fees
Interest on saving/investments:
Dividends/Interest on securities:
TOTAL REVENUE

20XX

EXPENSES
Accounting fees:
Legal fees:
Other legal:
Supplies:
Postage and shipping:
Printing and publications:
Conferences, conventions, etc:
Professional Services
Common area utilities
Security services
Roads, gates and fences
Lands and maintenance
Insurance
Office expenses
Computer purchase
Bank Fees
NSF Fees
Architectural Committee
General membership meetings
Bad Debts
Room rental
Fees and dues
Contract Labor
Sales tax
SUBTOTAL EXPENSES*

Percent 20XX Percent
to Total REVENUES _ to Total

Percent 20XX Percent
to Total EXPENSES _ to Total

Schedule number or exhibit

Form 886-A (Rev. EXPLANATIONS OF ITEMS
anuary 1994)

Tax Identification Number Year/Period ended
November 30, 20xx
and November 30,
20xx

( gvame of taxpayer

Loss on disposal of assets
Depreciation, depletion, etc:
TOTAL EXPENSES

NET INCOME/LOSS

*Note: non-cash expenses have been excluded from the expenses subtotal

In 19XX, this case was considered for revocation for the tax years 19XX and 19XX. The
examination casework contains limited amounts of research, information and analysis. The case
was reviewed by the IRS appeals function. The examining agent does not have any information as
to why the appeals group sustained-the organization’s exempt status.

The following pictures were taken by the examining agent during the on site examination with the
attending officers’ permission:

PICTURE DELETED

Main gate entrance. The guard shack in manned 24/7. Left side gate is for visitors, right side is for
residents.

PICTURE DELETED

Main gate exit and pedestrian (opening) to the right.

PICTURE DELETED

Interior street view; maintained road, speed bump, perimeter fencing to the right.
PICTURE DELETED

North gate: the pedestrian gate in the middle has signs stating:

NO TRESPASSING, RESIDENTS ONLY, NO SOLICITING, PRIVATE PROPERTY, PRIVATE
ROADS.

PICTURE DELETED

Sign on North Gate entrance; guests must enter at the main gate.

PICTURE DELETED

North entrance gate sign states: PRIVATE ENTRANCE, RESIDENT VEHICLES ONLY.
PICTURE DELETED

Towing sign and security camera at the interior north exit gate.

ec

Schedule number or exhibit

Form 886-A (Rev.
January 1994) EXPLANATIONS OF ITEMS

Tax Identification Number Year/Period ended
(ygiame of taxpayer November 30, 20xx
A closing conference was conducted on April 5, 20XX. ag November 30,

Law:

Internal Revenue Code

IRC §501(c)(4)(A)

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.

IRC §501(c)(4)(B)
Subparagraph (A) 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.

IRC §528

Alternatively, if an organization fails to meet the requirements of 501(c)(4) under Revenue Ruling
74-99, they may be able to take advantage of the provisions under IRC §528 if they meet the
qualifications of a homeowners association as defined in that section.

Generally, if the organization meets the appropriate requirements, their membership dues, fees and
assessments is considered exempt function income and not subject to tax and only non-member,
income is subject to tax. The organization would elect this treatment and file the Form 1120-H, U.S.
Corporation Income Tax Return for Homeowners Associations.

IRC §501(a)
Exemption From Taxation. —An organization described in subsection (c) or (d) or §401(a) shall be
exempt from taxation under this subtitle unless such exemption is denied under §502 or §503.

IRC §277(a)

General Rule. —In the case of a social club or other membership organization which is operated
primarily to furnish services or goods to members and which is not exempt from taxation,
deductions for the taxable year attributable to furnishing services, insurance, goods, or other items
of value to members shall be allowed only to the extent of income derived during such year from
members or transactions with members (including income derived during such year from institutes
and trade shows which are primarily for the education of members). If for any taxable year such
deductions exceed such income, the excess shall be treated as a deduction attributable to
furnishing services, insurance, goods, or other items of value to members paid or incurred in the
succeeding taxable year.

IRC §172

172(a) Deduction Allowed. —There shall be allowed as a deduction for the taxable year an amount
equal to the aggregate of (1) the net operating loss carryovers to such year, plus (2) the net
operating loss carrybacks to such year. For purposes of this subtitle, the term “net operating loss
deduction” means the deduction allowed by this subsection.

172(b) Net Operating Loss Carrybacks and Carryovers. —
172(b)(1) Years to which loss may be carried. —

Schedule number or exhibit

Form B86-A (Rev. EXPLANATIONS OF ITEMS
anuary 1994)

Tax Identification Number Year/Period ended
ame of taxpayer
8 pay November 30, 20xx

472(b)(1)(A) General rule. —Except as ptherwise provided in this paragraph, and November 30,
a net operating loss for any taxable year —

172(b)(1)(A)(i) shall be a net operating loss carryback to each of the 2
taxable years preceding the taxable year of such loss, and
172(b)(1)(A)(ii) shall be a net operating loss carryover to each of the 20
taxable years following the taxable year of the loss.

Federal Tax Regulations

§1.501(c)(4) Civic organizations and local associations of employees .
Reg. §1.501(c)(4)-1 does not reflect P.L. 99-514, P.L. 100-203, P.L. 100-647, P.L. 10173 or P.L.
104-168.

(a) Civic organizations

(1) In general. —A civic league or organization may be exempt as an organization described in
section 501(c)(4) if:

(i) It is not organized or operated for profit; and

(ii) It is operated exclusively for the promotion of social welfare.

(2) Promotion of social welfare

(i) In general. —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 betterments and social improvements. A “social welfare”
organization will qualify for exemption as a charitable organization if it falls within the definition of
“charitable” set forth in paragraph (d)(2) of §1.501(c)(3)-1 and is not an “action” organization as set
forth in paragraph (c)(3) of §1.501(c)(3)-1.

(ii) Political or social activities. —The promotion of social welfare does not include direct or indirect
participation or intervention in political campaigns on behalf of or in opposition to any candidate for
public office. Nor is an organization operated primarily for the promotion of social welfare if its
primary activity is operating a social club for the benefit, pleasure, or recreation of its members, or is
carrying on a business with the general public in a manner similar to organizations which are
operated for profit. See, however, section 501(c)(6) and §1.501(c)(6)-1, relating to business leagues
and similar organizations. A social welfare organization that is not, at any time after October 4,
1976, exempt from taxation as an organization described in section 501(c)(3) may qualify under
section 501(c)(4) even though it is an “action” organization described in §1 .501(c)(3)-1(e)(3)(ii) or
(iv), if it otherwise qualifies under this section. For rules relating to an organization that is, after
October 4, 1976, exempt from taxation as an organization described in section 501(c)(3), see
section 504 and §1.504-1.

Court Cases

Commissioner v. Lake Forest, Inc., 305 F. 2d 814 (1962) The case involved a nonprofit
membership housing cooperative that provided low cost housing to its members. In denying
exemption, the court stated that the organization was not organized exclusively for the
promotion of social welfare. The court found that although its activities were available to all
citizens eligible for membership, "its contribution is neither to the public at large nor of a public
character." The court looked to the benefits provided and not to the number of persons who

7 we

Schedule number or exhibit

Form 886-A (Rev.
January 1994) ev EXPLANATIONS OF ITEMS

()Qiame of taxpayer November 30, 20xx

received benefits through membership. |Compare the decision in Lake Forest wifftttaeT?Garden
Homes Co. v. Commissioner, 64 F. 2d 593 (7th Cir. 1933), which held that a housing project formed
and controlled by the local government qualified for exemption.

Tax Identification Number Year/Period ended

Flat Top Lake Association, Inc. v. U.S.A., 868 F.2d 108, 63 A.F.T.R.2d 89-721, 89-1 USTC P
9180 (1989) Association consisting of owners of property surrounding artificial lake that sought to
restrict development to members only brought civil action seeking judicial determination that it
currently was and had been exempt from federal taxation as a social welfare organization. The
Court of Appeals, K.K. Hall, Circuit Judge, held that: (1) organization that operated for exclusive
benefit of members did not serve as “community,” as that term related to broader concept of social
welfare, for purposes of tax exemption, and (2) association that had done everything within its
power to create wholly private environment for its members was not “community,” within meaning of
federal tax exemption, and could not claim tax exemption for benefiting itself.

Indian Lake Property Owners Association v. Director of Revenue, 813 S.W.2d 305

(1991) The Supreme Court of Missouri, Holstein, J., held that: (1) homeowners’ association that
enforced subdivision covenants, maintained subdivision roads, and provided security and trash
collection services to residences within subdivision was not "civic organization" entitled to sales and
use tax exemption, and (2) to qualify as "civic organization," organization's purposes and functions
must be concerned with and relate to citizenry at large. Further, the judge discusses Flat Top Lake
within the text, stating, “Clearly Congress believed that an organization cannot serve social welfare
if it denies its benefits to the general public. implicitly Congress recognized that a true "community"
functions within a broader national fabric. Service to such a community thereby furthers the national
interest by expanding potential, by opening opportunities to all citizens who may find themselves
within the bounds of that particular community.” Exemption denied (affirmed).

Lake Petersburg Association v. C.I.R., 33 T.C.M. (CCH) 259, T.C.M. (P-H) P 74,055, 1974
PH TC Memo 74,055 (1974) The Association was an idea presented by the Petersburg
Chamber of Commerce to help stimulate the economy in the surrounding area. A group of
businessmen contributed capital and acquired capital from other sources such as the City, the
Chamber and two banks, to obtain funding to purchase property and develop it. They formed
an association, which required prospective owners to become dues-paying members. The dues
helped finance the development of the lake and recreational facilities on said property. Use of
the assets was limited to members and their guests. The Association’s basis for their argument
is that the organization was created to stimulate the economy and make it a better place to live,
thereby fulfilling the requirement of a social welfare organization under §501(c)(4). The respondent
argued that it was operated primarily for the benefit of its members and therefore did not qualify.
The Court found that regardless of the original intent, the actual benefit went to the members and
any economic benefits to the Petersburg citizens were “indirect and remote.” Exemption was
‘denied.

Rancho Santa Fe Association v. U.S.A., 54 A.F.T.R. 2d 84-5518 (1984). The Association’s
request for affirmation of their exempt status as a §501(c)(4) organization was granted by the Court.
The facts are that the Association consists of 6,100 acres of property, 600 acres of which is owned
by the Association and the rest by members who are property owners. Of the 600 acres owned by
the Association, 465 acres are dedicated to parkland and open space, playgrounds, athletic fields, a
public parking lot, a community clubhouse, and hiking and bridle trails, which are all open to the
public. The remaining 135 acres comprise an 18-hole golf course and eight tennis courts which are
only available to members. The Association oversees the governance of the property, furnishes
private security protection, and functions as a liaison between the community and the Board of

Schedule number or exhibit

Form 886° (Rev. EXPLANATIONS OF ITEMS
january 1994)

Tax Identification Number Year/Period ended
jame of taxpayer
8! pay November 30, 20xx

(

Supervisors on issues which require the participation of larger governmental enffle event Bs
maintenance of the rights-of-way and the sanitation system. Finally, the Assoc ation serves the
community in loaning out its facilities free of charge to various public service organizations as well
as to the schools. The court decided that “It performs the functions of a governmental entity and
brings about civic betterments and social improvements that would be sorely missed by the Rancho
Santa Fe community should they be lost or curtailed.” Exemption was granted.

Revenue Rulings

Revenue Ruling 69-280, 1969-1 CB 152

The organization was incorporated as a nonprofit membership corporation for the purpose of
providing specified services for the homeowners in a housing development. The services consist of
maintenance of the exterior walls and roofs of the individual home units. This includes, for example,
painting of exterior walls and repair of roofs. The organization here described is performing
services that its members would otherwise have to provide for themselves. It is a private
cooperative enterprise for the economic benefit or convenience of the members. The court held the
operation to be a private self-help enterprise with only an incidental benefit to the community as a
whole. Accordingly, this organization is not exempt from Federal income tax as a social welfare
organization under section 501(c)(4) of the Code.

Revenue Ruling 72-102, 1972-1 CB 149

The organization is a membership organization that was formed by a developer and is operated
to administer and enforce covenants for preserving the architecture and appearance of a
housing development, and to own and maintain common green areas, streets, and sidewalks
for the use of all development residents. Its activities are for the common benefit of the whole
development rather than for individual residents or the developer.

Revenue Ruling 74-99, 1974-1 C.B. 131, modified Rev. Rul. 72-102, to make clear that a
homeowners’ association of the kind described in Rev. Rul. 72-102 must, in addition to otherwise
qualifying for exemption under section 501(c)(4) of the Code, satisfy the following requirements: (1)
It must enyage in activities that confer benefit on a community comprising a geographical unit which
bears a reasonably recognizable relationship to an area ordinarily identified as a governmental
subdivision or a unit or district thereof; (2) It must not conduct activities directed to the exterior
maintenance of private residences; and (3) It owns and maintains only common areas or facilities
such as roadways and parklands, sidewalks and street lights, access to, or the use and enjoyment
of which is extended to members of the general public and is not restricted to members of the
homeowners’ association.

Revenue Ruling 80-63, 1980-1 CB 116
To clarify Revenue Ruling 74-99, specific questions that have been raised and their answers are as
follows:

Question 1.
Does Rev. Rul. 74-99 contemplate that the term “community” for purposes of section 501(c)(4) of
the Code embraces a minimum area or a certain number of homeowners?
Answer:
No. Rev. Rul. 74-99 states that it was not possible to formulate a precise definition of the
term “community”. The ruling merely indicates what the term is generally understood to mean.
Whether a particular homeowners’ association meets the requirements of conferring benefit on a

Schedule number or exhibit

Form BB6-A\ (Rev. EXPLANATIONS OF ITEMS
anuary 1994)

Tax Identification Number Year/Period ended
jame of taxpayer
Uy pay November 30, 20xx

community must be determined according to the facts and circumstances of th iaieierctal ese}
Thus, although the area represented by an association may not be a community within the meaning
of that term as contemplated by Rev. Rul. 74-99, if the association's activities benefit a community,
it may still qualify for exemption. For instance, if the association owns and maintains common
areas and facilities for the use and enjoyment of the general public as distinguished from areas and
facilities whose use and enjoyment is controlled and restricted to members of the association then it

may satisfy the requirement of serving a community.

Question 2.

May a homeowners’ association, which represents an area that is not a community, qualify
for exemption under section 501(c)(4) of the Code if it restricts the use of its recreational facilities,
such as swimming pools, tennis courts, and picnic areas, to members of the association?

Answer: :
No. Rev. Rul. 74-99 points out that the use and enjoyment of the common areas owned and
maintained by a homeowners’ association must be extended to members of the general public, as
distinguished from controlled use or access restricted to the members of the association. For
purposes of Rev. Rul. 74-99, recreational facilities are included in the definition of “common areas’.

Question 3.
Can a homeowners’ association establish a separate organization to own and maintain
recreational facilities and restrict their use to members of the association?

Answer:

Yes. An affiliated recreational organization that is operated totally separate from the
homeowners’ association may be exempt. See Rev. Rul. 69-281, 19691 C.B. 155, which holds that
a social club providing exclusive and automatic membership to homeowners in a housing
development, with no part of its earnings inuring to the benefit of any member, may qualify for
exemption under section 501(c)(7) of the Code.

Question 4.
Can an exempt homeowners’ association own and maintain parking facilities only for its
members if it represents an area that is nota community?

Answer:

No. By providing these facilities only for the use of its members the association is operating
for the private benefit of its members, and not for the promotion of social welfare within the meaning
of section 501(c)(4) of the Code.

Revenue Ruling 77-273, 1977-2 CB 194, (Jan. 01, 1977) - Security services. An organization
provided security services for residents and property owners of a particular community. Security
services provided include emergency rescue service, guard service for homes, apartments,
businesses, and construction projects, and motorcycle escorts for funeral processions. These
services are regularly provided by the organization's members who are paid in accordance with an
established wage scale. A nonprofit organization that provides security services for residents and
property owners of a particular community, who agree to voluntarily donate money at a specified
hourly rate to defray the cost of the services, is carrying on a business with the general public in a
manner similar to organizations operated for profit and does not qualify for exemption under section
501(c)(4) of the Code.

er TTF

Schedule number or exhibit

Form 886-A (Rev.
January 1994) Y EXPLANATIONS OF ITEMS

Qgiame of taxpayer November 30, 20xx

Government’s Position Issue #1: and November 30,
Should ORG continue to be exempt fro

social welfare organization?

L" Identification Number Year/Period ended

tax under Internal Revenue Code (IRC) 8501 (c)(4) asa

The government contends that the ORG does not operate as a 501(c)(4) organization for the
following reasons:.

1. The organization does not promote social welfare. Although the organization claims to be open
   to the general public, the records show that they place significant barriers with the goal of restricting
   the general public from accessing the grounds. (IRC §501(c)(4), Revenue Ruling 74-99, Revenue
   Ruling 80-63)

2. The general public does not significantly benefit from this organization. (Commissioner v. Lake
   Forest, supra, Flat Top Lake Association, supra, Indian Lake Property Owners Association, supra,
   Lake Petersburg Association v. C.I.R, supra; Rancho Santa Fe Association v. U.S.A, supra).

The organization operates to restrict the general public from access to its facilities, thereby failing to
confer a benefit onto the community. Where there is failure to serve the community, there is a
failure to promote social welfare, which is a requirement for a 501(c)(4) organization.

A 501(c)(4) organization must operate “exclusively for the promotion of social welfare” which is
further explained by the Regulations thus: being primarily engaged in promoting in some way the
common good and general welfare of the people of the community. Revenue Ruling 74-99 confirms
that the benefit must be conferred to “the community”. Revenue Ruling 80-63 clarifies Revenue
Ruling 74-99 stating that while a “community” cannot be strictly defined, that if the association owns
and maintains common areas and facilities for the use and enjoyment of the general public as
distinguished from areas and facilities whose use and enjoyment is controlled and restricted to
members of the association then it may satisfy the requirement of serving a community.

The addition of the security gates are a significant change to the organization’s operations because
they serve to exclude the general public from entering the property. Excluding the public does not
conform to the definition of a §501(c)(4) organization. The organization is not operating according
to the exempt purpose for which they received exempt status.

The organization spends an extraordinary amount of time and resources on security, which
supports the examining agent's position that the ORG is trying and, very successfully, keeping
people out. The security costs incurred in 20XX were $ or % of their expenses, and $ or % in
20XX. They provide and maintain security systems, guards, and gates. According to the
December 20XX newsletter, about $ was spent on an upgrade to the security system, specifically
the guard’s computer, card readers and remote controls. This upgrade includes an alarm to the
guard shack when a non-resident enters through the gates on a resident's tail. This is a huge
expense to gather such information. They are very serious about keeping people out.

The examining agent accessed the 20XX — 20XX newsletters and board meeting minute notes from
the organization’s website. They reveal that, on average, % of the material discusses security
issues. Notably, there is no discussion about outreach to the community. Most of the discussions
center on incidents, such as break-ins, speeding reminders, and gate or security vehicle repairs.
There are also specifically cited instances where the public was turned away or escorted off the
premises. In April 20XX, two young women were at the clubhouse (CO-1 property), offering
information about their spa to this exclusive community. They were told to leave. In May 20XX,
representatives for a glass company were attempting to make sales at the homes and were
“escorted through the south gate.” In February 20XX, some young people were trying to make their

Se t#.... waa

Schedule number or exhibit

Form 886-A (Rev. EXPLANATIONS OF ITEMS
anuary 1994)

Tax Identification Number Year/Period ended
q Glame of taxpayer November 30, 20xx
commissions in this upscale neighborhdod by offering discounted or “bundled” (ABR Yetevision
services to each home, successfully making some sales. However, it was quickly reported and the

representatives were told to leave. The organization is quick to respond to the presence of the
public inside their gates and is determined to keep them out.

Security consumes a significant amount of time for discussion, write-ups in the newsletter, and
financial resources. They devote much time to keeping people out, which is contradictory to what a
§501(c)(4) organization should do: provide social welfare to the general public. They are not in
accordance with their tax-exempt purpose.

The ORG makes it clear in writing that their property will not be available to the public. Article IV of
the Declaration of Restrictions (v. 02/01/19XX) states that the association does “not intend to
dedicate such common property to the public but rather intend to preserve the private character of
such common property.” The written intent is for the organization to directly benefit the members
and not the general public. This does not have the character of a social welfare organization, which
should provide the use, and enjoyment of its facilities to the general public.

During the tour of the grounds, the Treasurer and ex-oficio President stated that the residents
enjoy the privacy of their community, afforded by the gate and security service (also stated in
Exhibit 1). They stated that the gates were erected with the purpose of keeping traffic from
“cutting through” the property when the surrounding public main streets were heavily
congested. The ORG has acted in a way to prevent the public from entering, which is not in
accordance with a 501(c)(4) organization.

The ORG also maintains the right to “limit the number of guests of members” as stated in Article VI
of the Deciaration of Restrictions. If needed, the association maintains the right to bar guests from
the property, as. stated in Section 1(a) of Article VII. This is another example of the manner in which
the ORG enjoys the right to restrict and enforce limited access to the general public.

The ORG does not hold its property out to being public-friendly. There are no other facilities other
than the road available for the public to use such as sidewalks, trails, parks or swimming pools.
The pedestrian gates are the bare minimum of public access offered by the organization. Even
then, the signs on the north and south gates further exclude the public by demanding that there
should be “NO TRESPASSING,” and a surveillance camera looms on top of the gate. The open
pedestrian gate at the main entrance is scrutinized by a live security guard. The entrances are
intimidating. The doors are locked at night. The public is not welcome. The evidence is clear that
the ORG intends to keep people out. The ORG does not operate for the good of the public. This is
not in accordance with a 501(c)(4) organization.

The intention of the gates is to keep the public out for security reasons and from utilizing their
privately maintained roads. The intention is made clear by (1) remote control access gates, (2)a
24-hour guard at the visitor gate, (3) a practice of turning away visitors not pre-approved to enter,
and (4) unfriendly signs posted on the gates stating, “NO TRESPASSING, RESIDENTS ONLY.” By
restricting access from the general public, the ORG is not promoting the social welfare standards
set forth in the Code, Regulations and Revenue Rulings, and therefore does not operate according
to the exempt purpose of a 501(c)(4) organization.

The ORG does not operate in a way that significantly benefits the surrounding community, as
required by Code §501(c)(4) and explained in Revenue Ruling 80-63. This was also an issue in the
Commissioner v. Lake Forest, supra, case where the court ruled against exemption for the

Schedule number or exhibit

Form 886-A (Rev. EXPLANATIONS OF ITEMS
anuary 1994)

Tax Identification Number Year/Period ended
November 30, 20xx

organization. The amount of benefit, ngt the number of people receiving the be SANS WAS St issue.
The public benefit was insignificant and warranted a loss in exempt status. Similarly, the ORG’s
benefits to the general public are insignificant. They provide a roadway to walk on. The roadway
does not have a sidewalk or trail nearby. The organization does not provide parks, recreation
equipment, or the like. The two mile loop of roadway and common area around the gate for the
school buses are not significant contributions to the general public.

Qgiame of taxpayer

Court documents for Indian Lake Property Owners Association, supra, state that a §501(c)(4)
organization “cannot serve social welfare if it denies its benefits to the general public.” Clearly,
the ORG is denying benefits to the public by putting up the fences, gates, and signs stating, “NO
TRESPASSING, PRIVATE PROPERTY, PRIVATE ROADS,” etc. Similar to the Indian Lake case,
they are not serving the public. The organization no longer qualifies for tax exemption under
§501(c)(4).

The amount of road usage by the public is incidental when compared to the members or the
members’ bona fide guests. In fact, the latter includes guests of the CO-1, which is a member of the
organization, and is permitted to have guests enter the property as long as they notify the security
guard at the gate or issue decals to the individuals. The public, then, is a very small number of
people which are not homeowners, guests of homeowners, the CO-1, or guests of the CO-1. The
organization admitted during the interview that they do not keep a count of the number of visitors
entering through the vehicle gate or the pedestrian gate. They stated during the interview that they
have “lots of regulars” but this does not provide any factual information regarding quantity or
differentiation between homeowners or the general public. They have no idea who and how many
are coming through. They cannot justify that they operate for the good of the public when they do
not know how much of the public is entering their property. Their argument is not substantiated.
The examining agent further contends that the number of pedestrians must be minimal because
there is no parking within a reasonable distance of the gates. The usage of the property by the
small amount of public able and permitted to enter is minimal and incidental. This is not in
accordance with a §501(c)(4) organization.

The benefits to the general public are insignificant and incidental when compared to the benefits to
the resident homeowners/members. Occasional and restricted road usage by visitors is incidental
to the daily security patrol, guards, and privacy provided to the 426 residents. The members are the
ones benefitting from the maintained road and security services. The small amount of the public
who enter only benefit in a trivial amount when compared to the members. In addition, some ORG
benefits are of no benefit to the public at all: monitoring of exterior changes to homes, garage doors
left open, trash in yards, leaves in the gutters, and cars parked on streets. The law says that the
organization must provide social welfare for the good of the public. The public is not being served.
The residents are primarily served by the organization. This does not satisfy the requirements of a
501(c)(4) organization.

The officers originally stated during the interview that the area surrounding the north and south
gates is used by school buses to pick up residents’ children. Children from neighboring
communities were not permitted to cross the street to gain access to the organization’s bus
stops. They later recanted, as seen in Exhibit 1, that the school buses also pick up some
children from neighboring communities at one of the bus stops. Providing a bus stop for a few
children at one gate is a small benefit to the community at large. Should the ORG discontinue
allowing the bus to pick up children at the gates, the district would make alternate
arrangements for them. The benefit is diminished when a satisfactory alternative exists. The
ORG’s property around the gates does not provide a significant benefit to the community.

Schedule number or exhibit

Form BB6-A (Rev. EXPLANATIONS OF ITEMS
anuary 1994)

( glame of taxpayer Tax Identification Number Nareher 30. 20x
and November 30,
The ORG's lack of public benefit is closely aligned with those as seen in Flat Top Lake v U.S.A,
supra, and Lake Petersburg Association v. C.I.R., supra. Similar to Lake Petersburg, the ORG limits
the facilities to members and their guests. The ORG’s road is available on a restricted basis to the
occasional pedestrian, which is indirect and remote when compared to the members’ benefits. In
addition, as stated in Flat Top, the ORG “operates for the exclusive benefit of its members and does
not serve a ‘community’ as that term relates to the broader concept of social welfare.” The courts
denied exemption to these aforementioned organizations. Following similar fact patterns, the ORG
should also be denied their tax-exempt status.

In contrast, the association in the court case Rancho Santa Fe Association v. U.S.A, supra, was
found to operate according to the exempt purpose of a 501(c)(4) organization. Rancho Santa Fe
provided vast amounts of parkland, open space, facilities and equipment to the public. In contrast,
the ORG only provides the usage of its two-mile road and on a restricted basis. It does not reach
out to the public and loan out its property. Public events such as Rotary Club meetings are hosted
and funded by the separate organization, ORG, an organization which is not part of this
examination. The role of the ORG with the CO-1 is limited to allowing participants in and allowing
them to park. The ORG does not provide a significant benefit to the public, which is in contrast to
Rancho Santa Fe, who was permitted to retain their exempt status. The ORG should not be allowed
to continue as a §501(c)(4) organization.

Taxpayer’s Position Issue #1:
The taxpayer is being presented with this report at this time. The examining agent is awaiting their

response as to this position.

Government’s Position Issue #2:
Is the ORG exempt from income tax under IRC §501(a)?

The ORG is no longer qualified for exemption from federal income tax under Code §501(c)(4).
Therefore, the ORG is no longer qualified for exemption from federal income tax under Code
§501(a).

The government contends in its position that the organization’s exemption from federal income tax
should be revoked back to the tax period beginning the first day of the organization’s fiscal year,
December 1, 20XX.

Taxpayer’s Position Issue #2:
The taxpayer is being presented with this report at this time. The examining agent is awaiting their
response as to this

Conclusion:

The organization restricts the public from accessing its property, which does not further the exempt
purpose of a §501(c)(4) organization. The property is fenced and gated with 24-hour security at the
main gate. Only members or guests of the CO-1, a separate organization not subject to this
examination, are permitted to enter. Pedestrian gates allow limited entrance during daylight hours.
Pedestrians do not appear to be welcome; signs on the doors read, “NO TRESPASSING,
RESIDENTS ONLY, PRIVATE PROPERTY, PRIVATE ROADS.” The organization spends a
significant amount of time and resources discussing and implementing security measures to keep
the public out.

Form 886-A (Rev.
January 1994)

EXPLANATIONS OF ITEMS

Schedule number or exhibit

(

Qiame of taxpayer

Tax Identification Number

Year/Period ended
November 30, 20xx
and November 30,

The ORG does not provide a significant benefit to the general public, similar to the case Lake
Petersburg Association v. C.I.R, supra. The ORG functions to maintain the property for the privacy
and safety of the members and not for the benefit of the public. This is not the exempt purpose of a
§501(c)(4) organization, and should not be permitted to continue as such.

The ORG is no longer qualified for exemption from federal income tax under Code §501(c)(4).
Therefore, the ORG is no longer qualified for exemption from federal income tax under Code

§501(a). The organization’s exempt status should be revoked back to the tax period beginning the

first day of the organization’s fiscal year, December 1, 20XX.