Real estate trade association denied section 501(c)(4) status

Plain-English summary

A real estate trade association sought reinstatement as a section 501(c)(4) social welfare organization after its self-declared section 501(c)(6) status had been automatically revoked. Its bylaws focused on advancing the real estate profession and its members' interests, and it provided services including a multiple listing service, legal assistance, and continuing education. The IRS found that these activities primarily benefited real estate professionals rather than promoting the common good and general welfare of the community. It distinguished organizations whose benefits accrued to a community as a whole and compared the association to member cooperatives that provided private economic benefits. The IRS denied section 501(c)(4) status, and the determination became final after no protest was filed within 30 days.

Ruling snapshot

• Question: Does a trade association serving real estate professionals qualify as a social welfare organization under IRC § 501(c)(4)?
• Outcome: Denied
• Key authorities: IRC § 501(c)(4); Treas. Reg. § 1.501(c)(4)-1(a)(2)(i); Rev. Rul. 67-6

Full text (IRS public release)

Department of the Treasury                                      Date:
Internal Revenue Service                                        08/28/2023
Tax Exempt and Government Entities                              Employer ID number:
IRS P. O. Box 2508
Cincinnati, OH 45201                                            Form you must file:
                                                                1120
Release Number: 202347017                                       Tax years:
Release Date: 11/24/2023                                        All
UIL Code: 501.04-00                                             Person to contact:

Dear               :

This letter is our final determination that you don't qualify for exemption from federal income tax under Internal
Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(4). 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 the federal income tax forms for the tax years shown above within 30 days from the date of this
letter unless you request an extension of time to file. For further instructions, forms, and information, visit
www.irs.gov.

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

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Letter 437
Redacted Letter 4034
Redacted Letter 4038

Letter 4038 (Rev. 11-2021)
Catalog Number 47632S

Department of the Treasury
Internal Revenue Service
PO Box 2508
Cincinnati, OH 45201

                                                              Date: 05/31/2023

                                                              Employer ID number:

                                                              Person to contact:
                                                              Name:
                                                              ID number:
                                                              Telephone:
                                                              Fax:

Legend:                                                       UIL:
W = State of Formation                                        501.04-00
X = Date of Formation
Z = Association

Dear               :

We considered your application for recognition of exemption from federal income tax under Internal Revenue
Code (IRC) Section 501(a). We determined that you don't qualify for exemption under IRC Section 501(c)(4).
This letter explains the reasons for our conclusion. Please keep it for your records.

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

Your self-declared exemption under IRC Section 501(c)(6) was automatically revoked for failure to file annual
returns or notices for three consecutive years. You are requesting reinstatement under Section 501(c)(4).

You formed as a non-profit corporation in the State of W on X. Your Articles of Incorporation state that you are
formed for recreational and sporting purposes.

Your Bylaws state your objectives are to:

• Unite those engaged in the real estate profession for the purpose of having a beneficial influence upon
  the profession and related interests
• Promote and maintain high standards of conduct in the real estate profession as provided in the Code of
  Ethics of the Z
• Provide a unified medium for real estate owners and real estate professionals whereby their interests
  may be safeguarded and advanced
• Further the interests of home and other real property ownership
• Unite those engaged in the local real estate profession with the state and national associations
• Designate, for public benefit, individuals controlled by the Z that can use the term Realtors

You have          classes of membership:

You are a membership-based trade association established to assist your members in the business of real estate
in your area. You represent your membership in important real estate issues like Multiple Listing Service
(MLS), legal assistance, continuing education, and other unique services.

Law
IRC Section 501(c)(4) 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 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 betterment and social improvements.

Revenue Ruling 67-6, 1967-1 C.B. 135 provides that an association whose activities are devoted primarily to
preserving the traditions, architecture, and scenic appearance of a community by means of individual and group
action before the local legislature and administrative agencies with respect to zoning, traffic, and parking
regulations is exempt under IRC Section 501(c)(4).

In Commissioner v. Lake Forest, Inc., 305 F.2d 814 (4th Cir. 1962), and organization formed to assist veterans
of the World Wars to purchase and finance their own homes through acquisition of properties was held not to be
exempt under IRC Section 501(c)(4). The court stated that the organization's operation is not a work of ‘social
welfare’ but a private economic enterprise albeit in the interest of some of the citizens; and even if its objects
include a contribution of social welfare, that is not its aim ‘exclusively’.

In Monterey Pub. Parking Corp. v. United States, 321 F. Supp. 972 (N.D. Cal. 1970), aff'd, 481 F.2d 175 (9th
Cir. 1973), the court held that where nonprofit California corporation was formed to construct and operate
public off-street parking facility in central business district of city, no profits or advertising advantages accrued
to corporation's organizers that did not also accrue to non-organizers, all future profits were to be given over to
city, upon dissolution remaining assets were to be distributed to nonprofit fund or foundation organized for
charitable purposes and there was no indication of unreasonably accumulated surpluses, corporation qualified
for exemption from income taxes both as charitable corporation and as social welfare organization.

In Contracting Plumbers Co-op. Restoration Corp. v. United States, 488 F.2d 684 (2d Cir. 1973), the court held
that private, nonprofit cooperative, which was organized by New York City plumbers to effect repairs of cuts
made in city streets by members in course of plumbing activities, was not entitled to exemption as a civic
organization or business league since, among other things, each member enjoyed economic benefits precisely to
extent that he used and paid for restoration services.

Application of law
Treas. Reg. Section 1.501(c)(4)-1(a)(2)(i) provides that an organization is operated 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. You are formed to assist your members who are in the real estate profession. Because you
are primarily benefitting a group of private individuals, your members, and not the common good and general
welfare of the people in your community, you do not qualify under IRC Section 501(c)(4).

The organization described in Revenue Ruling 67-6 was granted exemption under IRC Section 501(c)(4)
because they were promoting the common good and general welfare of their community. You are not like this
organization because you are promoting the betterment of the real estate profession.

The court in Commissioner v. Lake Forest, Inc. concluded the organization did not qualify for exemption
because they did not propose to offer a service or program for the direct betterment or improvement of the
community as a whole. You too are not promoting social welfare because you are not offering a service or
program for the betterment of the community as a whole. Instead, you operate for the betterment and promotion
of real estate professional members.

The court in Monterey Pub. Parking Corp. v. U.S. held that the organization did qualify for exemption from
income taxes both as a charitable corporation and as social welfare organization because the organization's
benefits accrued to the community as a whole. You are not like this organization because you benefit your
members, not the community as a whole.

You are similar the organization in Contracting Plumbers Co-op. Restoration Corp. v. United States that did not
qualify for exemption under IRC Section 501(c)(4) because, like that organization, your activities benefit your
members, not the community as a whole.

Conclusion
Based on the information presented in your application and subsequent information provided, we conclude you are
not exempt under IRC Section 501(c)(4).

Your purpose will improve the business conditions of real estate professionals. You formed for the purpose of
benefiting the real estate professionals and not for the general welfare and common good of your community.

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.

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

• Your name, address, employer identification number (EIN), and a daytime phone number
• A statement of the facts, law, and arguments supporting your position
• A statement indicating whether you are requesting an Appeals Office conference
• The signature of an officer, director, trustee, or other official who is authorized to sign for the
  organization or your authorized representative
• The following declaration:

  For an officer, director, trustee, or other official who is authorized to sign for the organization:
  Under penalties of perjury, I declare that I have examined this request, or this modification to the
  request, including accompanying documents, and to the best of my knowledge and belief, the request
  or the modification contains all relevant facts relating to the request, and such facts are true, correct,
  and complete.

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 they haven'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 gave us a basis to reconsider our determination. If so,
we'll continue to process your case considering the information you provided. If you haven't given us a basis
for reconsideration, we'll send your case to the Appeals Office and notify you. You can find more information
in Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

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

Where to send your protest
Send your protest, Form 2848, if applicable, 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
Mail Stop 6403                                  550 Main Street, Mail Stop 6403
PO Box 2508                                     Cincinnati, OH 45202
Cincinnati, OH 45201

You can also fax your protest 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 they received it.

You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-
pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at
the top of this letter.

Contacting the Taxpayer Advocate Service
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your
taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you've tried but haven't
been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS
will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K