Re: 501(c)3 vs Mutual benefit
From: RLob4Grell (
Date: Thu, 26 Jan 95 00:17 CST
Gary Shapero writes

>What is the advantage of being a 501(c)3 nonprofit cohousing group as
>opposed to a mutual benefit nonprofit corporation?  Does it depend on what
>kind of money you are trying to get access to?

We have trod this path in San Luis Obispo to some extent.

You will probably never be eligible for 501(c)3 but there is precident to be
classified as 501(c)4. They are both tax exempt. The difference is that the
(c)3 can accept charitable donations, like a church, whereas (c)4 cannot.

Our present legal entity is a CA non-profit mutual benefit as opposed to
'public benefit'. The non-profit seems to help us as far as PR goes but
otherwise it seems to have no specific value (However, I am not a lawyer).

As it got time to get tax advice from our accountants it became apparent that
we should investigate 501(c)4. Ultimately we have chosen to not attempt to
get tax exemption since this entity is for developing property and ultimately
it may, if our scheme works out, buy and sell property. The idea being that
it has assests which can be used to excersize right of first refusal on units
for sale. We may however, end up with two legal entities if it makes
financial sense. One as the property buyer/seller and one which is a tax
exempt Homeowners Association.

If you want to persue the 501(c)4 avenue the key is that your development
must be considered a 'community ' and would be a planned unit development
(PUD) instead of a condo developent with a condo association. 

I would suggest that you enlist a Real Estate Tax planning consultant. They
would ultimately make the argument for your case based on past rulings by the
IRS. These are called 'Revenue Rulings' which I will quote the synopses
written at the end of some of those I now have.

The most important case, the _Roe v. Wade_ of 501(c)4 rulings is the _Rancho
Santa Fe Association v. USA_ 1/31/84. The stuff germaine to tax planners is:

             1)  This case states "a neighborhood, precinct, subdivision or
housing development may consititute a 'community' for purposes of IRC Section


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