IRS denies 501(c)(4) social-welfare status to a neighborhood hall-rental association

Plain-English summary

A neighborhood association (membership is automatic for everyone living in its boundaries) applied to be recognized as a tax-exempt social-welfare organization under IRC Section 501(c)(4). The IRS denied it. Section 501(c)(4) requires an organization to be operated exclusively for the promotion of social welfare, and Treasury regulations say an organization does not qualify if its primary activity is running a social club for members or carrying on a business with the public like a for-profit. Here the association's primary activity (well over half its time, expenses, and revenue, and its sole income source) is renting its building/hall to members and non-members for weddings, showers, birthdays, and other events. The IRS found this is carrying on a business for profit with the general public, not promoting social welfare, and that the association's genuine community activities (member meetings, a barbecue, a potluck, plant and garage sales) use only a small share of its resources. Citing Rev. Rul. 68-46 and Santa Cruz Building Association (and distinguishing Rev. Rul. 67-109, where a rink worked with county government and charged only nominal fees), the IRS concluded the group is not operated primarily for social welfare. Being the least expensive hall in the area does not change that. This is the final adverse determination (Letter 4038); it became final because no protest to the proposed denial (Letter 4034, reproduced below) was filed within 30 days.

Ruling snapshot

• Question: Does a neighborhood association whose primary activity is renting its hall to the public qualify for exemption as a social-welfare organization under IRC Section 501(c)(4)?
• Outcome: Denied
• Key authorities: IRC § 501(a), (c)(4); Treas. Reg. § 1.501(c)(4)-1(a)(1), (a)(2)(i), (a)(2)(ii); Rev. Rul. 67-109; Rev. Rul. 68-46; Santa Cruz Building Association v. United States, 411 F. Supp. 871 (E.D. Mo. 1976)

Full text (IRS public release)

Department of the Treasury                     Date:
Internal Revenue Service                        10/21/2025
IRS Tax Exempt and Government Entities          Employer ID number:

                                                Form you must file:
                                                Tax years:

                                                Person to contact:

Release Number: 202603002
Release Date: 1/16/2026
UIL Code: 501.04-00

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
Letter 4038

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


Department of the Treasury
Internal Revenue Service

Date:
09/03/2025

Employer ID number:

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

Legend:
B = Date
C = State
p dollars = dollar amount
q dollars = dollar amount
r percent = percentage
s percent = percentage
t percent = percentage
u percent = percentage

UIL:
501.04-00

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 the state of C. Your Articles of Incorporation and Bylaws state that your purpose
is to build up a neighborly spirit, promote the interests of your membership as a group, and to discuss matters of
interest to your membership as a social club.

You conduct activities for members and non-members. Your membership automatically includes anyone
residing within your neighborhood's boundaries, which is estimated to be about homes.

Your primary activity, constituting well over half of your time, expenses, and revenue, is renting your
building/hall to members and non-members, which is used frequently for weddings, baby showers, birthdays,
and celebrations of life. You indicated that you are the least expensive option for a hall rental in your area.

Fees for renting your hall are determined based on costs for maintenance and to pay for activities. Per your
website, your members pay a flat rate of p dollars per rental and non-members pay q dollars an hour per rental.
Your sole source of income is from renting your hall. In , member rentals comprised r percent of your
income while most of your income came from non-member rentals comprising s percent of your income.

Per your financials, your biggest expense is the mortgage on your hall. Your other major expenses are all related
to your hall rental activity, including labor (hall manager and custodians), maintenance (cleaning supplies, roof
replacement, lawn care, and furnace replacement), utilities, and insurance.

Your other activities, which together make up a small portion of your money and effort, include:

• Monthly member meetings to connect city leaders with their neighborhood residents. The speakers
include the mayor, city manager, local charities, and military. You provide coffee and snacks and spend
less than u percent of your resources on this activity.

• A community barbecue, once a year, where members and some non-members attend. This event aims to
bring residents together for socializing, crafts, and an opportunity to connect with the fire department,
police department, and city leaders. You provide food and spend around t percent of your resources on
this activity.

• A holiday potluck, once a year, where members and some non-members attend. This event aims to bring
residents together to socialize. You provide meat and decorations and spend u percent of your resources
on this activity.

• A plant sale, once a year, where members and some non-members attend. This event brings residents
together to socialize and to start the gardening season. You provide refreshments and spend less than u
percent of your resources on this activity.

• A garage sale, once a year, where members and some non-members attend. This event brings residents
together to socialize and gives them an opportunity to sell items, after spring cleaning, that they no
longer want or need. You provide refreshments and spend less than u percent of your resources on this
activity.

Law

IRC Section 501(c)(4) provides for the exemption from federal income tax for civic leagues or organizations not
organized for profit but operated exclusively for the promotion of social welfare. Further, exemption shall not
apply to an entity unless no part of the net earnings of such entity inures to the benefit of any private
shareholder or individual.

Treasury Regulation Section 1.501(c)(4)-1(a)(1) states a civic league or organization may be exempt as an
organization described in IRC Section 501(c)(4) 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
primarily for the purpose of bringing about civic betterments and social improvements.

Treas. Reg. Section 1.501(c)(4)-1(a)(2)(ii) provides that an organization is not operated primarily for the
promotion of social welfare if its primary activity is operating a social club for the benefit, pleasure, or
recreation of its members, or is carrying on a business with the general public in a manner similar to
organizations which are operated for profit.

Revenue Ruling 67-109, 1967-1 C.B. 136, held that an organization formed to operate a roller skating rink as a
recreational facility for the benefit and use of all of the residents of a particular county in a county-owned
building that it operates rent-free in cooperation with the county government, and where the rink was open to
the general public upon payment of only such nominal dues and admission charges as were needed to defray
operating expenses (any profit which the rink realized was donated to the county for necessary improvements to
the rink building), may qualify for exemption under IRC Section 501(c)(4).

Rev. Rul. 68-46, 1968-1 C.B. 260, held that an organization that had a building/hall available for rent to the
general public, which constituted the major portion of the organization's gross receipts, did not qualify for IRC
Section 501(c)(4) because the activity exceeded all its other activities. The organization had two ultramodern
kitchens used for serving meals, the facilities were in daily use by non-member groups, and it employed a
manager, assistant manager, and a full time staff to operate its dining room, bar facilities, and the hall.

In Santa Cruz Building Association v. United States, 411 F. Supp. 871 (E.D. Mo. 1976), a building association
created by a subordinate council of the Knights of Columbus, which was used substantially to make rentals to
the public, was held not to qualify for exempt status as a civic organization under IRC Section 501(c)(4). The
building council charged both members and non-members rent for use of its hall. The Council used the hall
30% of the time while the public used the hall 70% of the time. The building association's primary source of
income was from bar sales, building rentals, and parking lot rentals. The building association was held not to be
exempt under this provision because the association was operated primarily for the benefit of its members, not
the community as a whole, and because it carried on a substantial business for profit with the general public and
for the benefit of its individual members, the activities of which had become an end on their own. The district
court stated that organizations primarily engaged in profit making and nonsocial welfare activities cannot take
an exemption under IRC Section 501(c)(4).

Application of law

IRC Section 501(c)(4) and Treas. Reg. Section 1.501(c)(4)-1(a)(1) set forth that civic leagues or organizations
must not be organized for profit and must be operated exclusively for the promotion of social welfare to qualify
for exempt status. Furthermore, 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. Moreover, Treas. Reg. Section 1.501(c)(4)-
1(a)(2)(ii) provides that an organization is not operated primarily for the promotion of social welfare if its
primary activity is operating a social club for the benefit, pleasure, or recreation of its members, or is carrying
on a business with the general public in a manner similar to organizations which are operated for profit.

You are like the organizations described in Rev. Rul. 68-46 and in Santa Cruz Building Association, that were
denied exemption under IRC Section 501(c)(4). Like you, these organizations were primarily carrying on the
trade or business of renting event space to the general public. Your sole income source is from the rental of your
hall (your primary activity) to members and non-members which is used frequently for weddings, baby
showers, birthdays, and celebrations of life. Furthermore, nearly all of your expenses are used to further your
hall rental activity. While you do provide some social gatherings that may further the social welfare of the area,
these activities constitute an insubstantial portion of your resources.

You are not like the organization described in Rev. Rul. 67-109. This organization was granted exemption
under IRC Section 501(c)(4). It worked closely with the county government, only charged nominal dues and
admission charges, and remitted any profit back to the county government for necessary improvements to the
county owned rink building. Unlike you, this organization's special relationship with the local government
allowed it to be more responsive to the social welfare of the area.

Conclusion

Your monthly member meetings to connect city leaders with your neighborhood residents may constitute
promoting social welfare, however, you spend less than u percent of your resources on this activity. Your
primary activity is carrying on a business for profit with the general public. You indicated that you are the least
expensive option for a hall rental in your area, however, this fact does not mean you are promoting social
welfare. Carrying on a business for profit with the general public does not promote social welfare. Therefore,
you do not qualify for IRC 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:

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