A homeowners' association that keeps its common areas members-only does not qualify as a 501(c)(4) social welfare organization

Plain-English summary

A civic or social welfare organization can be exempt under Section 501(c)(4) only if it
is operated primarily to promote the common good and general welfare of a community, not
just its own members. A homeowners' association can qualify, but under long-standing IRS
rulings it must (among other things) serve an area that resembles a governmental
subdivision, avoid maintaining private residences, and open its common areas and
facilities to the general public rather than restricting them to members. Here, a
developer-formed homeowners' association owns and maintains an access road, common green
areas, a common leach field, and members-only parking for a development of a set number
of homes, funded by member assessments. It restricts all of its common areas to members,
their families, and guests, with no public access. The IRS denied 501(c)(4) exemption:
because the public is excluded from the common areas, the association does not confer a
community benefit and instead operates primarily for the convenience of its members, so
any benefit to the wider community is indirect and remote. This is the standard reason a
gated, members-only HOA fails the 501(c)(4) community-benefit test.

Ruling snapshot

• Question: Does a homeowners' association that restricts its common areas to members qualify for exemption as a 501(c)(4) social welfare organization?
• Outcome: Denied (not operated for the common good of a community; serves members)
• Key authorities: IRC § 501(c)(4); Treas. Reg. § 1.501(c)(4)-1(a); Rev. Rul. 72-102; Rev. Rul. 74-99; Rev. Rul. 80-63; Lake Petersburg Association v. Commissioner, T.C. Memo 1974-55; Flat Top Lake Association v. United States, 868 F.2d 108 (4th Cir. 1989); § 7428(b)(2)

Full text (IRS public release)

           Department of the Treasury
           Internal Revenue Service



                                                                             Date:
                                                                              06/09/2025
                                                                             Employer ID number:


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




Legend:                                                                     UIL:
B = Date                                                                     501.00-00
C = State                                                                    501.04-00
E = Number                                                                   501.04-07
F = Number
G = Number Range


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.

Facts
You were incorporated on B in C as a mutual benefit non-profit corporation. You are a homeowners’
association formed by a real estate developer to own and maintain common green areas, access road, and
facilities, and to enforce covenants to preserve the appearance of your development.

Your bylaws state that you exist to promote the health, safety, and welfare of your residents; to acquire, own,
build, manage, operate, maintain and care for the portions of your development dedicated for the common and
recreational use of your members; to enforce and administer applicable covenants, easements, restrictions, and
agreements; and to fix, levy, and collect charges or assessments imposed by your declarations or bylaws.

Your development consists of E homes on approximately F acres, G of which are common areas or common
facilities. Membership in your homeowners’ association is limited to the owners of a lot of land located in your
development. Each lot of land is entitled to a vote. Your board of directors is elected annually by your members.
You are supported by an annual membership fee imposed on each of your members.



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Your common areas consist of an access road, common area and a common leach field. You restrict your
common areas from public use and access in their entirety. Your bylaws and rules and regulations stipulate that
only members, family members residing with them, invitees, guests, and occupants are permitted to use and
enjoy the common areas.

Your rules and regulations also regulate parking in your development. Each member is allocated a set of
designated parking spaces for their exclusive use. You make no provisions for parking access or facilities for
the use of the general public.

You stated that you do not conduct activities directed to the exterior maintenance of private residences.

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)(1) states that an organization may be exempt if it is not organized
or operated for profit and it is operated exclusively for the promotion of social welfare.

Treas. Reg. 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
for the purpose of bringing about civic betterments and social improvements.

Revenue Ruling 72-102, 1972-1 C.B. 149, provides that a nonprofit organization formed by a real estate
developer to administer and enforce covenants to preserve the appearance of a housing development and to
maintain streets, sidewalks, and common areas for use of the residents is exempt under IRC Section 501(c)(4).
The Rev. Rul. describes what may constitute a community, which may be exemplified in a neighborhood,
precinct, subdivision, or housing development. By administering and enforcing covenants, and owning and
maintaining certain non-residential, non-commercial properties of the type normally owned and maintained by a
municipal government, the organization contemplated by the Rev. Rul. is serving the common good and the
general welfare of the people of the entire development.

Rev. Rul. 74-99, 1974-1 C.B. 131, modified Rev. Rul. 72-102 and provides that a homeowners' association
must, in addition to otherwise qualifying for exemption under IRC Section 501(c)(4), satisfy the following
requirements: (1) It must engage 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.

Rev. Rul. 80-63, 1980-1 C.B. 116, clarified Rev. Rul. 74-99 by providing answers to specific questions as to
whether the conduct of certain activities will affect the exempt status under IRC Section 501(c)(4) of otherwise
qualifying homeowners' associations. The ruling stated that: (1) The term “community” does not embrace a
minimum area or a certain number of homeowners as it is not possible to formulate a precise definition of the
term. Whether a particular homeowners' association meets the requirements of conferring benefit on a



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community must be determined according to the facts and circumstances of the individual case; (2) A
homeowners' association, which represents an area that is not a community, may not qualify for exemption if it
restricts the use of its common areas and recreational facilities to only members of the association; and (3) A
homeowners' association cannot own and maintain parking for the sole use of its members if it is not a
community.

In Lake Petersburg Association v. Commissioner, T.C. Memo 1974-55; 33 T.C.M. (CCH) 259 (T.C. 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 Section 501(c)(4) of the Code. 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.

Flat Top Lake Association, Inc. v. United States, 868 F.2d 108 (4th Cir. 1989), the Court held that a
homeowners’ association did not qualify for exemption under IRC Section 501(c)(4) where it did not benefit a
“community” bearing a recognizable relationship to a governmental unit and when its common areas or
facilities were not for the use and enjoyment of the general public.

Application of law
You are not described in IRC Section 501(c)(4) and Treas. Reg. Section 1.501(c)(4)-l because you are not
organized or operated exclusively for the promotion of social welfare, nor do you promote the common good
and general welfare of the people of a community.

You are not similar to the organization contemplated by Rev. Rul. 72-102, as modified by Rev. Rul. 74-99,
because you do not extend the use and enjoyment of your common areas to members of the general public. You
restrict the use and enjoyment of your common areas exclusively to your members. Therefore, your activities
do not primarily promote in some way the common good and general welfare of the people of a community as
Treas. Reg. Sec. 1.501(c)(4)-1 requires.

You do not meet the requirements of Rev. Ruls. 74-99 and 80-63 because use and access to your common
elements are not extended to members of the general public. Because members of the general public are
prohibited from the use and enjoyment of your common elements, you do not bestow a community benefit.

You are similar to Lake Petersburg Association and Flat Top Lake Association which both state that an
organization won’t qualify for exemption under IRC Section 501(c)(4) if their services aren’t for the public at
large or of a public character. Your activities are primarily for the convenience of your members, and any
benefits to the entire community are indirect and remote.




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Conclusion
Based on the information submitted, you are not operated exclusively for social welfare purposes within the
meaning of IRC Section 501(c)(4). You operate primarily for the benefit of your members and not exclusively
for the promotion of social welfare or common good of the community in general. Accordingly, you do not
qualify for exemption under Section 501(c)(4).

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:




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       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