Menu
Tax Notes logo

IRS Denies Tax-Exempt Status to Cooperative Housing Corporation

MAY 16, 2018

LTR 201832016

DATED MAY 16, 2018
DOCUMENT ATTRIBUTES
  • Institutional Authors
    Internal Revenue Service
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2018-32870
  • Tax Analysts Electronic Citation
    2018 TNT 156-34
    2018 EOR 9-50
  • Magazine Citation
    The Exempt Organization Tax Review, Sept. 2018, p. 211
    82 Exempt Org. Tax Rev. 211 (2018)
Citations: LTR 201832016

Contact person/ID number: * * *
Contact telephone number: * * *

UIL: 501.04-00, 501.04-07
Release Date: 8/10/2018

Date: May 16, 2018

Employer ID number: * * *

Form you must file: * * *

Tax years: * * *

Dear * * *:

This letter is our final determination that you don't qualify for tax-exempt status under Section 501(c)(4) of the Internal Revenue Code (the Code). 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 federal income tax returns for the tax years listed at the top of this letter using the required form (also listed at the top of this letter) within 30 days of this letter unless you request an extension of time to file.

We'll make this final adverse determination letter and the proposed adverse determination letter available for public inspection (as required under Section 6110 of the Code) after deleting certain identifying information. Please read the enclosed Notice 437, Notice of Intention to Disclose, and review the two attached letters that show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Notice 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 contact the person listed at the top of this letter. If you have questions about your federal income tax status and responsibilities, call our customer service number at 1-800-829-1040 (TTY 1-800-829-4933 for deaf or hard of hearing) or customer service for businesses at 1-800-829-4933.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Notice 437
Redacted Letter 4034, Proposed Adverse Determination under IRC Section 501(a) Other Than 501(c)(3)
Redacted Letter 4040, Final Adverse Determination under IRC Section 501(a) Other Than 501(c)(3) — No Protest


Contact person/ID number: * * *
Contact telephone number: * * *
Contact fax number: * * *

UIL Code: 501.04-00, 501.04-07

Date: March 7, 2018

Employer ID number: * * *

LEGEND:

B = Date of formation
C = May
X = State
Y = Condominium name

Dear * * *:

We considered your application for recognition of exemption from federal income tax under Section 501(a) of the Internal Revenue Code (the Code). Based on the information provided, we determined that you don't qualify for exemption under Section 501(c)(4) of the Code. This letter explains the basis for our conclusion. Please keep it for your records.

Issues

Do you qualify for exemption under section 501(c)(4) of the Code? No, for the reasons stated below.

Facts

You were formed as an X Nonprofit Corporation on B under the X Nonprofit Corporation Act and the X Uniform Condominium Act.

Your articles indicate that you are organized for the purpose of administering, maintaining, operating and managing Y, a condominium complex.

Your bylaws are applicable to the condominium complex and to the use and occupancy of the units. All present and future owners, holders of security interest, eligible security interest holders, lessees and occupants of units and their employees, guests, or invitees, and any other persons who may use the condominium are subject to your bylaws and rules and regulations.

Qualification for membership in your association shall be ownership of one of the * * * condominium units in Y. No membership may be separated from the unit to which said membership is appurtenant.

Assessments for common expenses shall be established as provided for in a declaration and the bylaws. Each owner shall pay a share of the common expenses as indicated in the budget. Each assessment against a unit shall be the personal obligation of the owner at the time the assessment is due.

You will establish and maintain a reserve fund for the periodic maintenance, repair and replacement of improvements to the common elements or common areas. The fund shall be maintained out of assessments. If needed, supplemental assessments will be made to each owner to cover common expenses.

The Form 1024 states, in part, that:

Y Condominium Owner's Association is an organization formed to be the guiding body to perform the necessary repairs and maintenance to the exterior of the condominium complex as well as to maintain the grounds and common areas such as the pool and tennis courts. In order to fund those needed repairs the association collects monthly assessment(s) from each of its owners. The funds collected not only pay for the maintenance and grounds upkeep, but also maintains insurance on the studs outward of the structures, pays for the termite bond, pays for pest control and pays the water and sewer bill.

We are responsible for maintaining common areas, maintaining structures from studs out, paying for the insurance for studs out, paying the water and sewer bills and maintaining the utilities up to the owners point of usage.

Upon dissolution of your organization, any remaining assets would belong to each of the * * * condominium owners.

Law

Section 501(c)(4) of the Internal Revenue Code (the Code) provides for the exemption from Federal income tax of civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.

Treasury Regulation Section 1.501(c)(3)-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.

Rev. Rul. 65-201, 1965-2 C.B. 170, holds that a cooperative organization operating and maintaining a housing development and providing housing facilities does not qualify for exemption from Federal income tax under section 501(c)(12), or any other provision of the Code.

Rev. Rul. 69-280, 1969-1 C.B. 152, holds that a nonprofit organization formed to provide maintenance of exterior walls and roofs of members' homes in a development is not exempt from Federal income tax under section 501(c)(4) of the Code.

In Commissioner v. Lake Forest, Inc., 305 F. 2d 814 (4th Cir. 1962), the court held that a cooperative housing corporation was not exempt as a social welfare organization under section 501(c)(4) of the Code since its activities were of the nature of an economic and private cooperative undertaking.

Application of law

By virtue of the essential nature and structure of a condominium system of ownership, the rights, duties, privileges, and immunities of the members of an association of unit owners in a condominium property derive from, and are established by, statutory and contractual provisions and are inextricably and compulsorily tied to the owner's acquisition and enjoyment of his property in the condominium. In addition, condominium ownership necessarily involves ownership in common by all condominium unit owners of a great many so-called common areas, the maintenance and care of which necessarily constitutes the provision of private benefits for the unit owners. Therefore, you are not primarily engaged in promoting in some way the common good and general welfare of the people of the community and are not operated exclusively for the promotion of social welfare.

Like the organization described in Rev. Rul. 65-201, you operate and maintain a housing facility in a cooperative manner that promotes the private interests of your unit owners.

Like the organization described in Rev. Rul. 69-280, you provide for the maintenance of exterior walls and roofs of members units.

You are a cooperative housing corporation similar to the organization described in Commissioner v. Lake Forest, Inc, and are not operating primarily as a social welfare organization.

Conclusion

Since the organization's activities are for the private benefit of its members, it cannot be said to be operated exclusively for the promotion of social welfare. Accordingly, it does not qualify for exemption from Federal income tax under section 501(c)(4) of the Code.

If you don't agree

You have a right to file a protest if you don't agree with our proposed adverse determination. To do so, you must send a statement to us within 30 days of the date of this letter. The statement must include:

  • Your name, address, employer identification number (EIN), and a daytime phone number

  • A copy of this letter highlighting the findings you disagree with

  • An explanation of why you disagree, including any supporting documents

  • The law or authority, if any, you are relying on

  • The signature of an officer, director, trustee, or other official who is authorized to sign for the organization, or your authorized representative

  • One of the following declarations:

    For an officer, director, trustee, or other official who is authorized to sign for the organization:

    Under penalties of perjury, I declare that I examined this protest statement, including accompanying documents, and to the best of my knowledge and belief, the statement contains all relevant facts and such facts are true, correct, and complete.

    For authorized representatives:

    Under penalties of perjury, I declare that I prepared this protest statement, including accompanying documents, and to the best of my knowledge and belief, the statement contains all relevant facts 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 he or she hasn'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 provided a basis for us to reconsider our determination. If so, we'll continue to process your case considering the information you provided. If you haven't provided a basis for reconsideration, we'll forward your case to the Office of Appeals and notify you. You can find more information about the role of the Appeals Office in Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status.

If you don't file a protest within 30 days, you can't seek a declaratory judgment in court at a later date because the law requires that you use the IRS administrative process first (Section 7428(b)(2) of the Code).

Where to send your protest

Please send your protest statement. Form 2848, if needed, and any supporting documents to the applicable address:

U.S. mail:

Internal Revenue Service
EO Determinations Quality Assurance
Room 7-008 
Cincinnati, OH 45201

Street address for delivery service:

Internal Revenue Service
EO Determinations Quality Assurance
550 Main Street, Room 7-008
P.O. Box 2508 Cincinnati, OH 45202

You can also fax your statement 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 he or she received it.

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.

You can find all forms and publications mentioned in this letter on our website at www.irs.gov/formspubs. If you have questions, you can contact the person listed at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosure:
Publication 892

DOCUMENT ATTRIBUTES
  • Institutional Authors
    Internal Revenue Service
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2018-32870
  • Tax Analysts Electronic Citation
    2018 TNT 156-34
    2018 EOR 9-50
  • Magazine Citation
    The Exempt Organization Tax Review, Sept. 2018, p. 211
    82 Exempt Org. Tax Rev. 211 (2018)
Copy RID