Cohousing-L Mailing List: Re: 501(c)3 vs Mutual benefit

[RLob4Grell (RLob4Grell]

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 (land holdings and common house structure)  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
summerized at the end by the editors of the Tax Planning reference book (I
dont have the title of the book).

             1)  This case states "a neighborhood, precinct, subdivision or
housing development may consititute a 'community' for purposes of IRC Section
501(c)(4).

              2) So long as an association meets the definition of a
community, it may restrict access solely to members of the community it
serves. There is no requirement that access be made available to the
'world-at-large" to qualify for the 501(c)4 exemption.

Another data point is _Revenue Ruling 74-99_  (1/1/74)

               1)     The qualify for exemption for tax, the association
generally must be a planned unit develooment that covers a geographical area
substantially the same as a recognized existing govenmental entity or that
normally would be recognized as a governmental enity.

                2)       Condominium associations are excluded because they
maintain the exterior of private residences.

                 3)       For association to qualify, they must allow public
access (I believe that means non-gated --r.l.)

As with all law, it is gray and your posibilities are based on the case you
make to the IRS. Of course this will cost money to design the case and you
may be turned down.

If you ultimately apply, you will fill out IRS package 1024, a 28 page
document.

Good Luck

Rich Lobdill
Grell CoHousing Group
San Luis Obispo / Oceano CA