Homeowners association denied exemption under Section 501(c)(4)

Plain-English summary

The IRS issued a final adverse determination to a homeowners association that sought exemption under IRC Section 501(c)(4). The association owned and managed recreational vehicle park and common-space property, but access was limited to members, their families, and guests. The IRS concluded that the association did not promote social welfare or provide a community benefit because it did not make its common areas available to the general public. The proposed adverse determination became final after the association did not file a protest within 30 days.

Ruling snapshot

• Question: Did the homeowners association qualify for exemption under IRC Section 501(c)(4)?
• Outcome: Denied
• Key authorities: IRC §§ 501(a), 501(c)(4), 6110, 7428; Treas. Reg. § 1.501(c)(4)-1(a)(2)(i); Rev. Rul. 72-102, Rev. Rul. 74-99, Rev. Rul. 80-63

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 05/27/2026
IRS Tax Exempt and Government Entities Employer ID number:

Form you must file:
Tax years:

Person to contact:

Release Number: 202634020
Release Date: 8/21/26
UIL Code: 501.04-00, 501.04-07, 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)(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
Redacted Letter 4038

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

Department of the Treasury
Internal Revenue Service

Date:
04/09/2026
Employer identification number:

Person to contact:

Name
ID number
Telephone
Fax
Legend: UIL:
B = State 501.04-00
C = Date 501.04-07
D = Location 501.33-00
E = Company
F = City

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 described below.

Facts

You were formed as a corporation on C in B. Your application and articles of incorporation state your purpose is to own, lease, and manage a recreational vehicle park and real estate. You are the manager of E. The activities are conducted by companies and individuals hired by you, and are performed at D in B. Your bylaws state you are funded by monthly dues paid by your members which are used in operating the homeowners' association (i.e., insurance, repairs, maintenance, real estate taxes, accounting, etc.). D has lots of which each member has exclusive use of two lots. Each member is entitled to a single vote per unit. You cover about seven acres of property in F, B. The property was originally an RV rental facility in addition to common space buildings and land but was subsequently converted to ownership. Your lot owners also serve as your members. E owns the land and common space property which are available for use by the members, their families, and guests.

The original custodians under the original agreement of E made contributions to E based on their respective ownership. The amended agreement states that operating expenses would be assessed monthly for each member including any special assessments and must be paid in a timely manner. If the assessments are not paid, a lien is placed against the member's unit which accrues one percent interest for 90 days. E will then have the right to sell the member's unit and the proceeds from the sale first pay the corporation for all the unpaid assessments and interest. If any balance remains, it is paid to the member. The rules and regulations under Appendix C of the Amended Limited Liability Company Agreement of E states that the goal of the company is to have an aesthetically pleasing and friendly environment which all members can enjoy. Only members, friends, and family members may park models or RVs on the park models or vacant RV lots. No external private residence may use the area for their use. Your bylaws state that you will improve, maintain, and manage E. Your members must follow the duties specified in the bylaws and your rules and regulations. Your bylaws confirm the language under the original agreement that each member is subject to monthly, quarterly, or semi-annual assessment or charges in the amount determined by your board of directors for the common expenses. 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, may be exempt from federal income tax, provided the statutory requirements are met and no part of the net earnings inures to the benefit of a private shareholder or individual. Treasury Regulation 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. 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 ruling described 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 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, provides that a homeowners' association, to qualify for exemption under IRC Section 501(c)(4) of the Code, (1) must serve a "community" which bears a reasonable recognizable relationship to an area ordinarily identified as governmental, (2) it must not conduct activities directed to the exterior maintenance of private residences, and (3) the common areas or facilities it owns and maintains must be for the use and enjoyment of the general public. 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; (2) A homeowners' association may not receive an exemption if it represents an area that is not a community and it restricts the use of its recreational facilities to only members of the association; (3) An affiliated recreational organization operated totally separate from the homeowners' association may be exempt so long as there is no benefit flowing back to any member; and (4) 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), 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 to help stimulate the economy in the surrounding area. 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 argued 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 IRC Section 501(c)(4). 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.” Rancho Santa Fe Association v. U.S., 589 F. Supp. 54 (S.D. Cal. 1984), held that a housing development functioning as a public municipality, constituted an independent community under Section 1.501(c)(4)-1 of the Treasury Regulations, and that the homeowners' association representing the property owners within the housing development bestowed benefits on the entire community. Therefore, the association was exempt under IRC Section 501(c)(4) even though the public was restricted from certain recreational facilities. Of note, the Rancho Santa Fe development was significant in size, separated geographically from the central area of a large city (San Diego, California), and had its own post office and zip code. In addition, the organization performed the functions of a governmental entity, and it brought about civic betterments and social improvements on an unrestricted basis that would be sorely missed by the community without the activities of the organization. In sum, out of the 600 acres owned directly by the association, 465 of these acres were available for use by the general public on an unrestricted basis. The remaining 135 acres were available to all the members of the Rancho Santa Fe community and to the general public, but only when the public used the inn located in Rancho Santa Fe. The court summarized, “The critical factor is that the Association benefits the community it serves and represents on an unrestricted basis.” In Flat Top Lake Assn. v. United States, (1989 4th Circuit) 868 F.2d 108, the Court held that a homeowners' association that maintained a private lake accessed by a private road, open only to lot owners in a 375-lot residential subdivision surrounding the lake, did not qualify for exemption under IRC Section 501(c)(4) when 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. Citing Revenue Ruling 74-99, the court stated that “Clearly Congress believed that an organization cannot serve social welfare if it denies its benefits to the general public... Wholly private activity, however meritorious, confers no such benefit which would render [exemption] appropriate.” In Mira Vista Homeowners Association, Inc. v. Commissioner, T.C. Memo. 2025-102 (U.S. Tax Ct., 2025), the court held that a homeowners association was not described as an IRC Section 501(c)(4) social welfare organization because its non-member activities were incidental and otherwise insubstantial to qualify as benefiting the community as a whole. Application of law

You are not described in IRC Section 501(c)(4) nor Treasury Regulation Section 1.501(c)(4)-1 because you are not operated exclusively for the promotion of social welfare, nor do you promote the common good and general welfare of the people of the community. You restrict access to your property and common space to members of your association and maintain private property for the benefit of your members rather than the general public. 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. The bylaws specifically state that you restrict the use and enjoyment of your common areas exclusively to your members, members’ family, and members’ guests. Therefore, your activities do not primarily promote in some way the common good and general welfare of the people of a community as Treasury Regulation Section 1.501(c)(4)-1(a)(2)(i) requires. You do not meet the requirements outlined in Rev. Rul. 74-99 and 80-63 because access to your property and common space is restricted to members of your association. Accordingly, since the general public is prohibited from accessing the common areas that you will maintain, you do not confer a community benefit. You are not similar to the organization described in Rancho Santa Fe Association because you are not a housing development functioning as a public municipality bestowing benefits on the entire community. The area under your management Is zoned for residential use only and is devoid of a post office, schools, or commercial entities as illustrated in Rancho Santa Fe Association. Moreover, access to your community, by the broader public, is restricted and only open to the members, family members, and guests, thus ensuring that your benefits are exclusively available to your members, akin to a private subdivision. You are similar to the organizations discussed in Lake Petersburg Association and Flat Top Lake Assn... which both state that an organization will not qualify for exemption under IRC Section 501(c)(4) if their services are not for the public at large. Your activities are primarily for the convenience of your members, family, and guests. There are no clear or direct benefits to the community, not even an indirect or remote benefit. You also serve the interests of your members in a similar fashion to the organization described in Mira Vista. Thus, whatever rights or privileges that you may afford to people other than members, we find these activities to be incidental and otherwise insubstantial to qualify as benefiting the community as a whole. Conclusion

Based on the information submitted, you are not operated exclusively for exempt purposes within the meaning of IRC Section 501(c)(4). You do not promote social welfare or provide a community benefit because you do not allow public access. Further, you are not operated primarily for the promotion of social welfare, nor primarily engaged in promoting the common good and general welfare of the people of the community. Therefore, you fail to 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:

U.S. mail:
Internal Revenue Service
EO Determinations Quality Assurance
Mail Stop 6403
PO Box 2508
Cincinnati, OH 45201

Street address for delivery service:
Internal Revenue Service
EO Determinations Quality Assurance
550 Main Street, Mail Stop 6403
Cincinnati, OH 45202
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