Homeowners Association Granted Late Filing Relief for Exempt Status

HOA Wins Extension for Missed Tax Exempt Elections

The IRS has granted a Homeowners Association (Taxpayer) an extension of time to elect treatment as a homeowners association under Section 528 of the Internal Revenue Code (IRC), which allows certain homeowners associations to be treated as tax-exempt organizations regarding their exempt function income. The ruling addresses missed filings for tax years 'a' through 'b'. The IRS granted the relief under Reg. § 301.9100-3, which provides the standards for granting extensions for certain regulatory elections.

Inadvertent Failure: The Missed Deadlines

As previously detailed, the IRS granted a Homeowners Association (Taxpayer) an extension of time to elect treatment as a homeowners association under Section 528 of the Internal Revenue Code (IRC), which allows certain homeowners associations to be treated as tax-exempt organizations regarding their exempt function income. The ruling addresses missed filings for tax years 'a' through 'b'. The IRS granted the relief under Reg. § 301.9100-3, which provides the standards for granting extensions for certain regulatory elections. The Taxpayer, an actual homeowners association, inadvertently failed to file its Form 1120-H for those tax years. Form 1120-H, U.S. Income Tax Return for Homeowners Associations, is the form used to make the election under IRC Section 528. The request for an extension stemmed from this unintentional oversight, with the Taxpayer asserting no intent to delay or avoid the filing requirements.

The 'Good Faith' Standard: How Relief Was Granted

As the Taxpayer inadvertently failed to file its Form 1120-H for those tax years, the IRS assessed the situation under Reg. § 301.9100-3, which provides the standards for granting extensions for certain regulatory elections. Internal Revenue Code Section 528 generally allows homeowners associations meeting specific requirements to be treated as tax-exempt organizations, but only regarding their "exempt function income," such as membership dues. To elect this treatment, Section 528(c)(1) requires the association to make an election "at such time and in such manner as the Secretary by regulations prescribes," accomplished by filing Form 1120-H, U.S. Income Tax Return for Homeowners Associations.

Because the deadline for filing Form 1120-H is set by regulation, it is considered a regulatory election, making it eligible for relief under Reg. § 301.9100-3. This regulation states that the IRS will grant an extension when the taxpayer demonstrates they acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. A taxpayer is generally deemed to have acted in good faith if they request relief before the IRS discovers the failure, reasonably relied on a qualified tax professional who failed to make or advise the election, or encountered unforeseen circumstances preventing a timely filing.

120-Day Compliance Window and Verification Warnings

As the IRS determined that the requirements of Treasury Regulations §§ 301.9100-1 and 301.9100-3 were met, the HOA received an extension. Specifically, the IRS granted the Taxpayer 120 days from the date of the ruling to file the necessary elections on Forms 1120-H for the relevant tax years, thus allowing it to be treated as a homeowners association under Section 528, which allows certain homeowners associations to be treated as tax-exempt organizations to the extent of their "exempt function income." Crucially, the IRS explicitly stated it has not verified if the Taxpayer actually meets the substantive requirements of § 528(c)(1). The IRS placed the burden of proof squarely on the Taxpayer to demonstrate compliance with § 528(c)(1) during any future examination. This means that while the procedural failure (late filing) was excused, the underlying eligibility for tax-exempt status under Section 528 is still subject to scrutiny. For other HOAs, this PLR underscores that while late filing can be cured under certain circumstances, substantive compliance with Section 528 is a separate and ongoing requirement, independent of any procedural relief granted.