Industrial park association was denied social-welfare exemption

Plain-English summary

An association of industrial park lot owners applied for exemption as a social-welfare organization under section 501(c)(4). It maintained the park's common areas, paid utilities and other operating costs, collected member assessments, obtained insurance, and provided other services required for the commercial property. Board membership was limited to lot owners or their designated agents. The IRS concluded that these activities primarily benefited the association's members rather than promoting the common good and welfare of the broader community. It denied tax-exempt status, and the determination became final after the association did not file a protest within 30 days.

Ruling snapshot

• Question: Did maintaining an industrial park's common property qualify the owners' association for exemption under section 501(c)(4)?
• Outcome: denied because the activities primarily served members' private interests
• Key authorities: IRC §§ 501(c)(4), 7428(b)(2); Treas. Reg. § 1.501(c)(4)-1(a)(2)(i); Rev. Rul. 73-306; Rev. Rul. 74-99; Rev. Rul. 80-63

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
P.O. Box 2508
Cincinnati, OH 45201
Date: May 11, 2017

Employer ID number:

Number: 201731017 Contact person/ID number:
Release Date: 8/4/2017

Contact telephone number:
Telephone number after May 18, 2017:
Form you must file:

Tax years:
UIL: 501.04-00

Dear

This letter is our final determination that you don’t qualify for tax-exempt status under Section 501(c)(4) of the
Internal Revenue Code (the Code). 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 federal income tax returns for the tax years listed at the top of this letter using the required form
(also listed at the top of this letter) within 30 days of this letter unless you request an extension of time to file.

We’ll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection (as required under Section 6110 of the Code) after deleting certain identifying information.
Please read the enclosed Notice 437, Notice of Intention to Disclose, and review the two attached letters that
show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Notice
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 contact the person listed at the top of this letter. If you have
questions about your federal income tax status and responsibilities, call our customer service number at
1-800-829-1040 (TTY 1-800-829-4933 for deaf or hard of hearing) or customer service for businesses at
1-800-829-4933.

Letter 4040 (Rev. 7-2014)
Catalog Number 476352

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:

Notice 437

Redacted Letter 4034, Proposed Adverse Determination under IRC Section 501(a) Other Than 501(c)(3)
Redacted Letter 4040, Final Adverse Determination under IRC Section 501(a) Other Than 501(c)(3) - No
Protest

Letter 4040 (Rev. 7-2014)
Catalog Number 476352


Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45201
Date: May 15, 2017

Employer ID number:

Contact person/ID number:
Contact telephone number:

Contact fax number:

Legend: UIL:
P = State
Q = Name 501.04-00

R = Date of formation
Dear

We considered your application for recognition of exemption from federal income tax under Section 501(a) of
the Internal Revenue Code (the Code). Based on the information provided, we determined that you don’t qualify
for exemption under Section 501(c)(4) of the Code. This letter explains the basis for our conclusion. Please
keep it for your records.

Issues
Do you qualify for exemption under Section 501(c)(4) of the Code? No, for the reasons stated below.

Facts
You were incorporated in the State of P on R. Your formation document states that you are organized as a trade
association.

You maintain the common areas of the Q industrial park. Each member of your Board is required to be an
owner of a lot located in the Q industrial park and current in the payment of assessments. If the owner of a lot is
a corporation, partnership, or other legal entity, a designated agent of that entity is eligible to serve as a member
of your Board.

You provide for the operation, care, upkeep, maintenance and improvement of the common areas of the Q
industrial park. Specifically, you pay for water, waste removal, electricity, telephone and other necessary utility
services of the common areas. You are also responsible for landscaping, gardening, snow removal, painting,
cleaning, tuck-pointing, maintenance, repair and replacement of the common areas. You prepare, adopt and
distribute the annual budget, levy and collect assessments, employ and dismiss personnel necessary for the
maintenance of the common area, and obtain adequate insurance. You also pay for other materials, supplies,
furniture, labor, services, maintenance, repairs, or structural alterations which your Board is required to secure
or pay for, pursuant to your Bylaws, which are necessary or proper for the maintenance and operation of the
property, as a first class commercial condominium building.

You are funded by association fees of the members.


Law
Section 501(c)(4) of the Code 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.

Treasury Regulation Section 1.501(c)(4)-1(a)(2)(i) provides, in part, 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 betterments and social improvements.

Rev. Rul. 73-306, 1973-2 C.B. 179, provides that an organization formed for the purpose of promoting the
common interest of tenants who reside in a particular apartment complex does not qualify for exemption under
Section 501(c)(4) of the Code. Any person regularly living in the complex was eligible for membership. The
organization represented its member-tenants in negotiations with the management of the complex in order to
secure better maintenance and services, as well as reasonable rents. The ruling holds that the organization was
not described in Section 501(c)(4) because it operated essentially to benefit its members and, thus, was not
primarily engaged in activities that promote the common good and general welfare of the community.

Rev. Rul. 74-99, 1974-1 C.B. 131, provides that in order to qualify for exemption under Section 501(c)(4) of the
Code, a homeowners association (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.

Rev. Rul. 80-63, 1980-1 C.B. 116, clarified Rev. Rul. 74-99 and states that by providing facilities only for the
use of its members, the association was 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.

In Contracting Plumbers Cooperative Restoration Corp. v. United States, 488 F.2d 684 (2d Cir. 1973), cert.
denied, 419 U.S. 827 (1974), plumbers working in New York City were responsible for the cuts they made in
the city streets. Prior to the organization's existence, the city had repaired the cuts and billed the plumbers
individually in what proved to be a highly inefficient system. The organization was formed to restore the city
streets. It only repaired cuts made by its members. The joint effort of the plumbers reduced their liability and
their expenses, and more efficiently repaired the city streets. While the court found that the program provided
substantial benefits to the public, it concluded that the organization primarily served the private economic
interests of its members and, thus, could not be considered exempt under Section 501(c)(4) of the Code.

Application of law
You are not described in Section 501(c)(4) of the Code because you are not operated for the promotion of social
welfare. You are operated for the benefit and convenience of your members.

You do not meet the requirements of Treas. Reg. Section 1.501(c)(4)-1(a)(2)(i) because you are not primarily
engaged in promoting, in some way, the common good and general welfare of the people of the community.
You do not bring about civic betterment and social improvements to the community as a whole.

The primary beneficiary of your activities is your members. Like the organization described in Rev. Rul. 73-
306, you are operating to benefit your members and not primarily engaged in activities that promote the

Letter 4034 (Rev. 7-2014)
Catalog Number 47628K

3

common good and general welfare of the community and, thus, not exempt under Section 501(c)(4) of the
Code.

You are not serving the community as a whole and your facilities are not for the use and enjoyment of the
general public, causing you to fail to qualify for exemption under Section 501(c)(4) of the Code, as described in
Rev. Rul. 74-99 and Rev. Rul. 80-63.

Providing services for your members, who are owners of lots in the Q industrial complex, is not a Section
501(c)(4) activity. The services you provide confer a sufficient amount of private benefit on your members, who
are the owners of the lots in the Q industrial park. Even if you were to substantially benefit the community, you
would fail to qualify for exemption because you primarily benefit private interests. See Contracting Plumbers.

Conclusion

Based on the information submitted, we conclude that you are not an organization described in Section
501(c)(4) of the Code because you are not operated exclusively for the promotion of social welfare and your
activities privately benefit your members.

If you don’t agree
You have a right to file a protest if you don’t agree with our proposed adverse determination. To do so, you
must send a statement to us within 30 days of the date of this letter. The statement must include:

• Your name, address, employer identification number (EIN), and a daytime phone
number

• A copy of this letter highlighting the findings you disagree with
• An explanation of why you disagree, including any supporting documents
• The law or authority, if any, you are relying on

• The signature of an officer, director, trustee, or other official who is authorized to sign for the
organization, or your authorized representative

• One of the following declarations:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I examined this protest statement, including

accompanying documents, and to the best of my knowledge and belief, the statement contains all
relevant facts and such facts are true, correct, and complete.

For authorized representatives:

Under penalties of perjury, I declare that I prepared this protest statement, including
accompanying documents, and to the best of my knowledge and belief, the statement contains all
relevant facts and such facts are true, correct, and complete.

Letter 4034 (Rev. 7-2014)
Catalog Number 47628K


4

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 he or she hasn'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 provided a basis for us to reconsider our determination. If
so, we'll continue to process your case considering the information you provided. If you haven’t provided a
basis for reconsideration, we’ll forward your case to the Office of Appeals and notify you. You can find more
information about the role of the Appeals Office in Publication 892, How to Appeal an IRS Decision on Tax-
Exempt Status.

If you don’t file a protest within 30 days, you can’t seek a declaratory judgment in court at a later date because
the law requires that you use the IRS administrative process first (Section 7428(b)(2) of the Code).

Where to send your protest
Please send your protest statement, Form 2848, if needed, and any supporting documents to the applicable
address:

U.S. mail: Street address for delivery service:
Internal Revenue Service Internal Revenue Service

EO Determinations Quality Assurance EO Determinations Quality Assurance
Room 7-008 550 Main Street, Room 7-008

P.O. Box 2508 Cincinnati, OH 45202

Cincinnati, OH 45201

You can also fax your statement 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 he or she received
it.

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.

Letter 4034 (Rev. 7-2014)
Catalog Number 47628K


5

You can find all forms and publications mentioned in this letter on our website at www.irs.gov/formspubs. If
you have questions, you can contact the person listed at the top of this letter.

Sincerely,

Jeffrey I. Cooper
Director, Exempt Organizations
Rulings and Agreements

Enclosure:
Publication 892

Letter 4034 (Rev. 7-2014)
Catalog Number 47628K