A private road-maintenance homeowners association does not qualify for 501(c)(4) social-welfare exemption

Plain-English summary

A homeowners association applied to be recognized as a tax-exempt social-welfare organization under Section 501(c)(4). Its only activity was maintaining a private access road serving the lots of its member homeowners, funded by dues and assessments those owners pay. The IRS proposed to deny exemption. A 501(c)(4) organization must promote the common good and general welfare of the community; a homeowners association also must serve a community that resembles a governmental unit and maintain common areas open to the general public, not just its members. Here the road is privately owned by the members, dead-ends at the last lot, and mainly serves the residents and their guests, so the group primarily benefits its own members rather than the public. The organization argued the road is used by the postal service, delivery drivers, township personnel, and emergency services, but the IRS found that incidental and not enough to make road upkeep a public benefit. This is a proposed adverse determination; the organization had 30 days to protest before a final letter would issue.

Ruling snapshot

• Question: Does an association whose sole activity is maintaining a private, dead-end access road for its member homeowners qualify for exemption as a social-welfare organization under IRC § 501(c)(4)?
• Outcome: Denied (proposed adverse determination)
• Key authorities: IRC § 501(c)(4); Treas. Reg. § 1.501(c)(4)-1; Rev. Ruls. 74-99, 80-63, 72-102; Flat Top Lake Association v. United States, 868 F.2d 108 (4th Cir. 1989); IRC § 7428(b)(2)

Full text (IRS public release)

           Department of the Treasury
           Internal Revenue Service



                                                                               Date:
                                                                               06/11/2025
                                                                               Employer ID number:


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




Legend:                                                                      UIL:
B = State                                                                    501.04-07
C = Date
D = Road
E = Number

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 formed in B on C as a non-profit corporation. Your Articles of Incorporation state that your purpose
is “maintenance of shared access road”.

You consist of E homeowners that live on D and are considered your members. You state these E owners of
each lot are given one vote in all proceedings. You are funded from the dues and bi-annual assessments
collected from the homeowners of D that are required as a result of owning property there. In addition to the bi-
annual assessment, you may levy any special assessment necessary to meet costs of any item of construction,
repair, or maintenance. The maintenance includes any storm, water management facilities, upkeep, repair and
replacement of the road, mowing and trimming along the area adjacent to the road, and any other necessary
purpose. You consider D to be a private road.

You provided the following additional information regarding your activities:

-   You are formed by the property owners on D to only oversee any maintenance and costs associated with D.
    You do not provide any exterior maintenance to the homes of the property owners on D.
-   Your overall activities and operation will be governed by your Bylaws, Draft of Declaration of Easement
    and Draft of Declaration of Covenants.
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-   Lot owners own to the center of D, some own to one side, or to the other side, depending how each
    person’s deed was constructed years ago.
-   You do not own D or any additional property such as common areas or facilities.
-   D is mostly restricted to the E residents and their guests. It is a private road that ends at the last property
    owner, it is not a through street and the public does not use it for access.

Law
IRC Section 501(c)(4) provides that 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 and no part of the net earnings
of such entity inures to the benefit of any private shareholder or individual may be exempt from federal income
tax.

Treasury Regulation Section 1.501(c)(4)-1 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 betterments and social improvements.

Revenue Ruling 74-99, 1974-1 C.B. 131, states that a homeowners association, in order to qualify for
exemption under IRC Section 50l(c)(4), must, in addition to otherwise qualifying for exemption under Section
50l(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.

Revenue Ruling 80-63, 1980 CB 116 provides additional clarification for Rev. Rul. 74-99, above. It explains
the term “community” does not embrace a minimum area or a certain number of homeowners. Instead, whether
a particular homeowners' association meets the requirements of conferring benefit on a community must be
determined according to the facts and circumstances of the individual case. 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.

In Flat Top Lake Association v. United States, (1989 4th Circuit) 868 F.2d 108, the Court held that a
homeowners association did not qualify for exemption under IRC Section 501(c)(4) because it did not benefit a
"community" bearing a recognizable relationship to a governmental unit and 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. 1.501(c)(4)-1 because you are not operated
primarily for the promotion of social welfare. Since your only activity consists of the maintenance of the private
road that leads to the residences of D, and you are solely funded by your members who are the property owners
of D to conduct this activity, you are operated to serve the private interests of your members and their guests.



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You are not operated in a manner described in Revenue Rulings 74-99 and 80-63. You do not promote the
common good and general welfare of the people in the community, but rather promote the interests and the
convenience of the E lot owners on D, a road with no access. Your activities are aimed at the maintenance of
areas that serve a limited, rather than broad, class of people. You are operated for the private interests of your
members, E lot owners on D, and not for the common good and general welfare of the people of the
community. Therefore, you do not qualify for exemption under IRC Section 501(c)(4).

Like in Flat Top Lake Association, you do not serve a "community" which bears a reasonable recognizable
relationship to an area ordinarily identified as governmental in order to qualify for exemption as a homeowners'
association under IRC Section 501(c)(4). You maintain a road that is privately owned by your members and
provides no through access. As a result, the road is primarily used by E lot owners on D and their invited guests.
rather than the general public. Accordingly, you do not qualify for exemption as a homeowners' association
under Section 501(c)(4).

Your position
You have continued to stipulate that the road that you are responsible for maintaining is open and used by the
general public. You state each of the lot owners can access the road to go to their properties, as well as their
guests, United States Postal Service, trash company, delivery drivers, and the public can use the road to go to
any of the lot owners. The road is also used by township personnel, fire protection, and EMS services. It has
access to a heavily forested area. In the event of a forest fire, the access road needs to be maintained properly
for the Fire Department to access.

You have referenced Revenue Ruling 72-102, 1972-1 C.B. 149. You infer that you are similar to the
organization described in this ruling in that the benefits described to homeowners and private individuals in this
ruling are incidental and that the overall balance of benefits tilt in the favor of the general public.

Our response to your position
Organizations that are exempt under IRC Section 501(c)(4) must be operated exclusively for the promotion of
social welfare. In addition, Treas. Reg. Section 1.501(c)(4)-1(a)(2)(i) states 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. You have not provided evidence that you are
exclusively formed for the promotion of social welfare. Your only activity is the maintenance and upkeep of the
road that leads to the residences of those who have organized you. While the road may provide access to lot
owners, guests, delivery drivers, etc., in order to travel to the residences of the lot owners, maintenance of a
road that is primarily restricted and used by the lot owners on said road, does not promote social welfare and
primarily benefits only the residents who live along the road.

Also, Rev. Rul. 72-102 is modified by both Rev. Ruls. 74-99 and 80-63, two rulings that were previously
highlighted above. Specifically, Rev. Rul. 80-63 states that if an organization distinguishes common areas
enjoyed by the general public from common areas enjoyed by members of the association, then it may satisfy
the requirement of serving a community and thus receive exemption. However, you are not operating in a
similar fashion as your activities are primarily benefitting the E low owners of D, and do not maintain areas
distinguished by the general public to satisfy that you are conducting activities for the benefit of the entire
community. Finally, you have not provided sufficient evidence that indicates that because you maintain this
road with limited access, it provides a substantial benefit to the general public.



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Conclusion
Based on the information submitted, you are not organized and operated exclusively for exempt purposes within
the meaning of IRC Section 501(c)(4). Rather, you are organized and operated primarily for the private interests
of your members by maintaining a private access road, and do not promote the social welfare of the community
as a whole. 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:




                                                                                         Letter 4034 (Rev. 01-2021)
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                                                         5

       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