Homeowners association received more time to make two Section 528 elections

Plain-English summary

A homeowners association failed to file Forms 1120-H for two tax years because its officers relied on a tax professional and did not fully understand the association's federal filing requirements. A new tax professional discovered the missed elections, and the association promptly requested relief. The IRS found that the requirements of Treasury Regulation Section 301.9100-3 were satisfied and gave the association 120 days from the ruling date to file the forms and elect Section 528 treatment for both years. The ruling does not decide whether the association otherwise qualifies under Section 528 or excuse interest, additions to tax, or penalties for late returns.

Ruling snapshot

• Question: May the association file late Forms 1120-H to elect IRC § 528 treatment for two tax years?
• Outcome: Approved, with a 120-day filing deadline
• Key authorities: IRC § 528; Treas. Reg. §§ 1.528-1, 1.528-8, 301.9100-1, 301.9100-2, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 202418013                                            Third Party Communication: None
Release Date: 5/3/2024                                       Date of Communication: Not Applicable
Index Number: 9100.34-00
                                                             Person To Contact:
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----------------------                                       Refer Reply To:
-------------------------                                    CC:PSI:B05
---------------------------------                            PLR-123977-23
                                                             Date:
                                                             January 30, 2024

In Re:
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LEGEND

Taxpayer = ----------------------------------------------------------------------------------------------
           -----------------------
a        = -------
b        = -------

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

     This letter responds to your request for a private letter ruling, dated November
27, 2023, and subsequent correspondence, submitted by your authorized
representative, requesting permission to file late elections under § 301.9100-3 of the
procedure and administration regulations to be treated as a homeowners association
under section 528 of the Internal Revenue Code (Code) by filing Forms 1120-H, U.S.
Income Tax Return for Homeowners Associations.

       The information submitted and the representations made are as follows:
Taxpayer is a homeowners association. Taxpayer relied on the advice of a tax
professional and did not file Forms 1120-H for taxable years a and b because the
officers of Taxpayer were not fully aware of the income tax filing requirements for a
homeowners association. After hiring a new tax professional, Taxpayer became aware
of the failure to file Forms1120-H. Upon becoming aware of this situation, Taxpayer
submitted this request for a letter ruling.

PLR-123977-23                                2

      Section 528 and § 1.528-1 of the Income Tax Regulations generally provide that
homeowners associations meeting the requirements of section 528(c) may be treated
as tax-exempt organizations, but only to the extent of their exempt function income.

     Section 528(c)(1) provides, in part, that the term "homeowners association"
means an organization that elects (at such time and in such manner as the Secretary of
Treasury by regulations prescribes) to have section 528 apply for the taxable year.

      Section 1.528-8(a) provides that a separate election to be treated as a
homeowners association under section 528 must be made for each taxable year. This
election must be made by filing a properly completed Form 1120-H (or such other form
as the Secretary of Treasury may prescribe).

      Section 1.528-8(b) provides that for taxable years ending after December 30,
1976, the election must be made not later than the time, including extensions, for filing
an income tax return for the year in which the election is to apply.

       Section 301.9100-1(c) provides that the Commissioner of Internal Revenue, in an
exercise of discretion, may grant a reasonable extension of time under the rules set
forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory
election (but not more than six months except in the case of a taxpayer who is abroad),
under all subtitles of the Code, except subtitles E, G, H, and I.

      Sections 301.9100-2 and 301.9100-3 provide the standards the Commissioner of
Internal Revenue will use to determine whether to grant an extension of time to make
the election under § 301.9100-1(a). In addition, § 301.9100-2 provides automatic
extensions of time for making certain elections, and § 301.9100-3 provides extensions
of time for making elections that do not meet the requirements of § 301.9100-2.

      Requests for relief under § 301.9100-3 will be granted when the taxpayer
provides the evidence to establish that the taxpayer acted reasonably and in good faith
and that granting relief will not prejudice the interests of the government.

       Based on the facts and representations submitted with Taxpayer’s request, we
have determined that the requirements of § 301.9100-3 have been satisfied with respect
to taxable years a and b. Therefore, an extension of time is granted, until 120 days
from the date of this ruling, for making the elections required on Forms 1120-H for
Taxpayer to be treated as a homeowners association under section 528 with respect to
its taxable years a and b.

      We note, however, that the burden is upon Taxpayer to produce, upon request,
any records necessary to establish to the satisfaction of the Internal Revenue Service
that Taxpayer meets all the requirements of section 528(c)(1).

PLR-123977-23                                  3

        Except as expressly ruled herein, no opinion is expressed or implied concerning
the tax consequences of any aspect of any transaction or item discussed or referenced
in this letter or under any other provisions of the Code. Specifically, we express no
opinion concerning the assessment of interest, additions to tax, additional amounts, or
penalties for failure to file an income tax return with respect to any year. In addition, we
express or imply no opinion on whether Taxpayer qualifies as a homeowners
association under section 528(c).

     A copy of this letter should be attached to Taxpayer's Form 1120-H for each year
covered by this letter.

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

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

       In accordance with the provisions of a Power of Attorney currently on file with this
office, a copy of this letter is being sent to Taxpayer’s authorized representative.

                                                  Sincerely,



                                                  DILLON J. TAYLOR
                                                  Senior Technician Reviewer, Branch 5
                                                  Office of Associate Chief Counsel
                                                  (Passthroughs and Special Industries)

Enclosures:
Copy for section 6110 purposes

CC:
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