IRS denies 501(c)(3) status to a homeowners'-association-style membership group

Plain-English summary

An organization that operates like a homeowners' association applied for 501(c)(3) charitable tax-exempt status using the streamlined Form 1023-EZ, and the IRS denied it. The group is a membership association of property owners within a defined development; membership is automatic for anyone who buys a lot, and it funds itself through monthly fees and assessments used to maintain common properties (a swimming pool, playground, pavilion, picnic areas, meeting hall, and parks with fishing lakes) reserved for members and their guests. The IRS concluded the organization failed both the organizational test (its articles do not limit its purposes to exempt ones) and the operational test (it primarily serves the private interests of its members rather than the public). Maintaining property that members would otherwise maintain themselves, and restricting facilities to members, is a substantial non-exempt purpose that defeats exemption. The IRS relied on a line of authority (Rev. Rul. 69-175, Rev. Rul. 75-286, the Ginsberg and Columbia Park cases, and Better Business Bureau) holding that homeowner-style groups lack the "sufficient public element" that charity requires. Because the organization did not protest the proposed denial within 30 days, the denial became final, and donors cannot deduct contributions to it under Section 170.

Ruling snapshot

• Question: Does a homeowners'-association-style membership organization qualify for exemption under IRC Section 501(c)(3)?
• Outcome: denied (final adverse determination; failed both the organizational and operational tests and serves private member interests)
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 69-175; Rev. Rul. 75-286; Columbia Park and Recreation Association, Inc. v. Commissioner; Better Business Bureau of Washington, D.C., Inc. v. United States

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities

Date: 01/09/2026
Employer ID number:
Form you must file:
Person to contact:

Release Number: 202614031
Release Date: 4/3/26
UIL Code: 501.03-00, 501.30-00, 501.33-00

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)(3). 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.

Because you don't qualify as a tax-exempt organization under IRC Section 501(c)(3). donors generally can't
deduct contributions to you under IRC Section 170.

We may notify the appropriate state officials of our determination. as required by IRC Section 6104(c). by
sending them a copy of this final letter along with the proposed determination letter.

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.

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

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:
11/18/2025
Employer ID number:

Person to contact:

Name
ID number:
Telephone:
Fax:
Legend: UIL:
B = State           501.03-00
C = Date            501.30-00
D = Entity          501.33-00

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)(3).
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)(3)? No, for the reasons below:

Facts
You submitted Form 1023-EZ, Streamline Application for Recognition of Exemption under Section 501(c)(3)
of the Internal Revenue Code.

You attest that you were incorporated in the B on C. You attest that you have the necessary organizing
document, that your organizing document limits your purposes to one or more exempt purposes within the
meaning of IRC Section 501(c)(3), that your organizing document does not expressly empower you to engage
in activities, other than an insubstantial part, that are not in furtherance of one or more exempt purposes, and
that your organizing document contains the dissolution provision required under Section 501(c)(3).

You attest that you have not conducted and will not conduct prohibited activities under IRC Section 501(c)(3).
Specifically, you attest you will:

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

2

• Refrain from supporting or opposing candidates in political campaigns in any way
• Ensure that your net earnings do not inure in whole or in part to the benefit of private shareholders or
individuals

• Not further non-exempt purposes (such as purposes that benefit private interests) more than
insubstantially

• Not be organized or operated for the primary purpose of conducting a trade or business that is not related
to your exempt purpose(s)

• Not devote more than an insubstantial part of your activities attempting to influence legislation or, if you
made a Section 501(h) election, not normally make expenditures more than expenditure limitations
outlined in Section 501(h)

• Not provide commercial-type insurance as a substantial part of your activities

Your Form 1023-EZ describes your mission or most significant activities as providing civic and social services
and assistance for the benefit, betterment, social improvement, and social welfare of the residents and property
owners of D.

During review of your Form 1023-EZ, detailed information was subsequently requested supplemental to the
above attestations.

Your Articles of Incorporation indicate your specific and primary purpose is to provide civic and social services
and assistance for the benefit, betterment, social improvement, and social welfare of the residents and property
owners of D. Your Articles also indicate one of your general purposes is to purchase, lease, acquire, own, and
sell personal properties to promote your primary purpose.

You operate as a membership association of homeowners within the boundaries of the D. Your membership
includes any individual or entity who becomes an owner of any lot of property within the D. You assess and
collect monthly fees from your members. The fees are collected for maintenance of the common properties. The
monthly fees are based on the number of lots owned by members. You also have yearly assessments or charges
payable annually.

Members in good standing are those who abide by the rules in your bylaws, follow any portion of zoning
ordinances in effect, and make timely payments in full for all your assessments. Late fees are charged for
missing, insufficient, or late payments, and you will take legal action against delinquent assessments, including
placing a lien on a member's lot(s) to secure payment of the assessment, which you will have the authority to
foreclose the lien. If a suit is filed, the property owner will be obligated to pay all legal fees and related
expenses.

You indicated that your facilities and common areas are for residents only. You operate a swimming pool with a
playground area, a covered pavilion, picnic tables, and a meeting hall, in addition to several parks with small
lakes for fishing. All facilities and common areas are for the sole use and benefit of your members and their
guests. The D lakes shall not be obstructed in any manner, including by boats or floating devices. You
administer and enforce covenants and restrictions to preserve association property.

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

Law

IRC Section 501(c)(3) provides for the recognition of exemption from federal income tax for organizations
organized and operated exclusively for religious, charitable, educational, or other purposes as specified in the
statute, provided no part of the net earnings inures to the benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) provides that to be exempt as an organization described in IRC
Section 501(c)(3), an organization must be both organized and operated exclusively for one or more purposes
specified in such section. If an organization fails to meet either the organizational test or the operational test, it
is not exempt.

Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i) provides that an organization is organized exclusively for one or more
exempt purposes only if its articles of organization:

(a) Limit the purposes of such organization to one or more exempt purposes; and
(b) Do not expressly empower the organization to engage, other than as an insubstantial part of its
activities, in activities that in themselves are not in furtherance of one or more exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as operating exclusively
for exempt purposes if it engages primarily in activities that accomplish exempt purposes specified in IRC
Section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is
not in furtherance of an exempt purpose.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized or operated
exclusively for one or more exempt purposes unless it serves the public rather than a private interest. Thus, the
organization must establish that it is not organized or operated for the benefit of private interests, such as
designated individuals, the creator or his family, shareholders of the organization, or persons controlled, directly
or indirectly, by such private interests.

Treas. Reg. Section 1.501(c)(3)-1(d)(2) defines the term "charitable" as including the relief of the poor and
distressed or of the underprivileged, and the promotion of social welfare by organizations designed to lessen
neighborhood tensions, to eliminate prejudice and discrimination, or to combat community deterioration. The
term "charitable" also includes the advancement of religion or science.

Revenue Ruling 69-175, 1969-1 C.B. 149, describes an organization which was formed by parents of pupils
attending a private school. The organization provided bus transportation to and from the school for those
children whose parents belong to the organization. The organization did not qualify for exemption under IRC
Section 501(c)(3) because it served a private rather than the public interest.

Rev. Rul. 75-286, 1975-2 C.B. 210, held that a nonprofit organization with membership limited to the residents
and business operators within a city block and formed to preserve and beautify the public areas in the block,
thereby benefitting that particular city block of the community and enhancing members' property rights, did not
qualify for exemption under IRC Section 501(c)(3).

In Better Business Bureau of Washington, D.C., Inc., v. United States, 326 U.S. 279 (1945), the Court held that
the existence of a single non-exempt purpose, if substantial in nature, will destroy a claim for exemption,
regardless of the number or importance of truly exempt purposes.

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

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In Benedict Ginsberg and Adele W. Ginsberg v. Commissioner, 46 T.C. 47 (1966), exemption was retroactively
revoked from a corporation organized to conduct the dredging of certain waterways. It was held that the
corporation was organized and operated primarily for the benefit of those persons owning property adjacent to
the waterways dredged rather than for public or charitable purposes.

In Columbia Park and Recreation Association, Inc. v. Commissioner, 88 T.C. 1 (1987), an organization
incorporated to establish, advance, and perpetuate any and all utilities, systems, services, and facilities within a
private development to promote the general welfare of its people with regard to health, safety, education,
culture, recreation, comfort or convenience, was not exempt under IRC Section 501(c)(3). The Court held the
organization lacked a "sufficient public element" because it was essentially an aggregation of homeowners and
tenants bound together as part of a real estate plan and not the "community at large" within a charitable context.
The organization relied on liens and assessments on property owned by members, and people financing the
operation had rights to receive benefits offered based on property ownership, thus serving private interests
rather than the public interest and precluding exemption under Section 501(c)(3).

Application of law

IRC Section 501(c)(3) and Treas. Reg. Section 1.501(c)(3)-1(a)(1) set forth two main tests for an organization
to be recognized as exempt. An organization must be both organized and operated exclusively for purposes
described in Section 501(c)(3). Based on the information you provided in your application and supporting
documentation, we conclude that you have failed to demonstrate how you meet the organizational and
operational tests.

You do not satisfy the organizational test because your Articles fail to appropriately limit your purposes to those
exempt purposes specified in IRC Section 501(c)(3) as required by Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i).
Your purposes as stated in your Articles do not exclusively further exempt purposes under Section 501(c)(3).

You do not meet the operational test under IRC Section 501(c)(3) because you have not shown you are
operating exclusively for exempt purposes as required under Treas. Reg. Section 1.501(c)(3)-1(c)(1). You serve
the private interests of your members because you operate like a homeowners' association. You maintain
common properties and provide lot ownership privileges for members for a fee, which does not serve any
exempt purposes and is substantial in nature. A single, substantial non-exempt purpose will preclude exemption
as described in Better Business Bureau of Washington, D.C., Inc. Because more than an insubstantial portion of
your activities accomplish non-exempt purposes, you are precluded from exemption under Section 501(c)(3).

You do not further any charitable purposes as described in Treas. Reg. Section 1.501(c)(3)-1(d). Your activities
do not include the advancement of religious or science and are not limited to the relief of the poor and distressed
or the underprivileged but rather to homeowners and their guests within the boundaries of the D. You also do
not promote social welfare by lessening neighborhood tensions, eliminating prejudice and discrimination, or
combatting community deterioration. Your association does not exclusively conduct activities to combat
community deterioration, such as improving dilapidated housing conditions or rejuvenating decaying
community infrastructure. Therefore, you are precluded from exemption under Section 501(c)(3).

You are like the organization in Rev. Rul. 69-175 in that you were formed to serve the private interests of the
members of your association. Your facilities are not open for use by the public. Your activities include
providing maintenance for lot owners of your association. Maintaining property that would otherwise have to be
maintained by your individual members serves private interests. Therefore, your activities primarily serve the

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

5

private interests of your members, which precludes you from exemption as described in Treas. Reg. Section
1.501(c)(3)-1(d)(1)(ii).

You are like the organizations described in Rev. Rul. 75-286 and Benedict Ginsberg and Adele W. Ginsberg in
that your activities, i.e., providing lot ownership for the common use land for your members and having
facilities inside to be used only by owners, serve private interests rather than the public interest. Your activity is
not beneficial to the general public because you operate like a homeowners' association and serve the private
interests of your members. Any benefits resulting from your activities are incidental to the general public,
precluding exemption under IRC Section 501(c)(3).

You are also like the organization described in Columbia Park and Recreation Association, Inc. as you assess
fees upon your restricted membership to facilitate payment for the maintenance and upkeep of all the properties
associated within the bounds of D. Similar to this organization, you lack a sufficient public element as you are
also an aggregation of homeowners brought together by your association to serve their private interests, not to
serve the community at large or the public interest. Again, this is contrary to the provisions of Treas. Reg.
Section 1.501(c)(3)-1(d)(1)(ii), precluding exemption under IRC Section 501(c)(3).

Conclusion

Based on the facts presented, you are not organized or operated exclusively for exempt purposes as set forth in
IRC Section 501(c)(3). You are formed for the private benefit of your members for a substantial non-exempt
purpose. Therefore, you do not qualify for exemption under Section 501(c)(3), and contributions to you are not
deductible by your donors.

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.

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

6

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