Final adverse ruling denying 501(c)(4) exemption to a gated homeowners association whose common areas are closed to the public

Plain-English summary

A social welfare organization can be tax-exempt under section 501(c)(4) only
if it operates for the good of a whole community, not just its own members.
Here, a real estate management association (which the IRS found operates like a
homeowners association) applied for 501(c)(4) status. It runs a gated,
walled-off development: it collects dues, maintains private streets, gates,
landscaping, and other common areas, all restricted from public access. The
IRS determined the group is not operated exclusively to promote social
welfare, because it serves the private interests of its member-homeowners
rather than the general public. Relying on revenue rulings (74-99, 78-86) and
cases (Flat Top Lake Association, Lake Petersburg Association), the IRS
concluded that when common areas are closed to the public and there is no
community bearing a recognizable relationship to a governmental unit, the
organization does not qualify. The organization's argument that it had
mistakenly checked "no" on the homeowners-association question did not change
the result. Because it did not protest the proposed denial within 30 days, the
denial became final.

Ruling snapshot

• Question: Does a gated homeowners/real estate management association
  whose common areas are restricted from the public qualify for exemption
  under IRC § 501(c)(4)?
• Outcome: Denied (final adverse determination).
• Key authorities: IRC § 501(c)(4); Treas. Reg. § 1.501(c)(4)-1(a);
  Rev. Rul. 72-102; Rev. Rul. 74-99; Rev. Rul. 78-86; Lake Petersburg
  Association v. Commissioner, T.C. Memo. 1974-55; Flat Top Lake Association,
  Inc. v. United States, 868 F.2d 108 (4th Cir. 1989).

Full text (IRS public release)

Department of the Treasury                       Date:
Internal Revenue Service                         12/22/2025
Tax Exempt and Government Entities               Employer ID number:
                                                 Form you must file:
IRS                                              Tax years:
Release Number: 202612009                        Person to contact:
Release Date: 3/20/26
UIL Code: 501.04-00, 501.04-07

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

IRS

Date:
11/03/2025
Employer ID number:
Person to contact:
Name:
ID number:
Telephone:
Fax:

Legend:                          UIL:
C = State                        501.04-00
D = Date                         501.04-07
E = Area
F = Company

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

Your Form 1024-A states you are a real estate management association which provides management,
maintenance, and care of real and personal property located in your development that resembles a residential
neighborhood. Although you checked "no" on your Form 1024-A when asked if you are a homeowners'
association, you are funded and operate very similar to what would be considered a homeowners' association.

Your Articles of Incorporation (AOI) state you were formed as a mutual benefit corporation. Further, your AOI
state your specific purpose is to provide for the management, administration, maintenance, preservation, and
architectural control of your common interest development consisting of a planned development project
located in the E.

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

2

Your main activity is to manage and provide the common area maintenance for your development. Some of
your management support and maintenance for your development include, but are not limited to:

Collecting dues from homeowners
Sweeping streets
Maintaining gates, fences, lighting, walkways, sidewalks, and private streets
Maintaining irrigation facilities, drainage facilities including drainage pipes, brow ditches, water
features, and retention basins
Pest control
Parking lot and roof repairs
Landscaping throughout the front of your development
Maintaining perimeter walls
Providing entrance utilities and telephone service for the entry system

You are only funded by membership dues. All your time and resources are spent on improving and maintaining
the common areas of your development. Your common areas are restricted from public access and use. Your
development is surrounded by perimeter walls and you have an entry way security gate for vehicular access to
your private streets.

Every owner of a property in your development will automatically become a member and shall remain a
member until ownership ceases for any reason, at which time membership will automatically cease. You have
two classes of membership, Class A and Class B. Both classes have voting rights. Each Class A member is an
owner of property in your development and has one vote per property owned. The only Class B member is F. It
will have votes for each property owned. On the anniversary of the original issuance of the public
report of the project, the Class B member will be converted into a Class A member. Currently, you do not have
any Class B members.

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(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 IRC Section 501(c)(4) is one that is
operated primarily for the purpose of bringing about civic betterments and social improvements.

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

3

Revenue Ruling 72-102, 1972-1 C.B. 149, described a non-profit organization formed to preserve the
appearance of a housing development and to maintain streets, sidewalks, and common areas for use of the
residents was found to be exempt under IRC Section 501(c)(4). The ruling described what may constitute a
community, which may be exemplified in a neighborhood, precinct, subdivision, or housing development. It
stated by administering and enforcing covenants, and owning and maintaining certain non-residential, non-
commercial properties of the type normally owned and maintained by municipal governments, this organization
served 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 held that a homeowners association, in order
to qualify for exemption under IRC Section 501(c)(4) of the Code, must, in addition to otherwise qualifying for
exemption under 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. 78-86, 1978-1 C.B. 152, held that an arrangement whereby merchants joined together to provide
parking for their customers served the merchants' private interests and was not operated primarily for social
welfare purposes under IRC Section 501(c)(4).

In Lake Petersburg Association v. Commissioner, T.C. Memo 1974-55; 33 T.C.M. (CCH) 259 (T.C. 1974), an
organization constructed a man-made lake with funds received by it from its members. In return for a
membership fee, each member became entitled to lease lots near the lake, for which each member was required
to pay a lot assessment plus an annual lot rental fee. The Tax Court concluded that the organization was
operated primarily to serve the interests of its members rather than serve the interest of the community, and thus
was not exempt from taxation. This conclusion was based on the finding that the organization "directly
benefited only those people who were members and who therefore could enjoy the facilities and environment
that the lake provided."

In 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) 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 seek recognition of tax-exempt status under IRC Section 501(c)(4), which requires an organization to be
operated exclusively to promote social welfare. An organization seeking tax-exempt status under Section
501(c)(4) must be operated exclusively to promote social welfare within the meaning of Section 501(c)(4) based
on the facts. 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.

Although you checked "no" on your Form 1024-A when asked if you are a homeowners' association, you are
funded and operate very similar to what would be considered a homeowners' association. Rather than
promoting in some way the common good and general welfare of the people of the community, you serve a

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

4

small group of homeowners, your members. You are operated exclusively to serve the private interests of your
members rather than the interests of the community, and you are not operated exclusively for the promotion of
social welfare. See Rev. Rul. 78-86 and Lake Petersburg Association.

You are like the organizations described in Rev. Rul. 74-99 and Flat Top Lake Association, Inc. that were
denied exemption under IRC Section 501(c)(4) because both organizations' common areas were restricted to the
public. All your time and resources are spent on improving and maintaining the common areas of your
development which are restricted from public access and use.

Your position

You stated that you erroneously checked "No" when asked on Form 1024 whether the homeowners' association
restricted public access to its common areas. You also provided copies of previous responses to support your
statement.

Our response to your position

Your position has been carefully considered; however, it does not alter our determination. The information
provided does not establish that the general public would have access to common areas. Your community is a
gated development, enclosed by perimeter walls and controlled by an entry gate that limits vehicular access to
its private streets. These structural features are consistent with common boundary indicators used to restrict
entry and delineate private property. The existence of such barriers indicates that access is limited to residents
and their invited guests, thereby excluding the general public. Accordingly, it remains unclear where private
property ends and public property begins, or how members of the general public could reasonably obtain access
to the common areas. The facts support a finding that the organization's activities are directed primarily
towards the benefit of its members rather than the community at large.

Conclusion

Based on the information submitted, you are not operated exclusively for exempt purposes within the meaning
of IRC Section 501(c)(4). Rather, by restricting access to your common areas from the public, you are operated
primarily for the private interests of your members and you do not promote the social welfare of the
community. 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:

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

5

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.

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

6

We sent a copy of this letter to your representative as indicated in your power of attorney.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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