Internal Revenue Service
Rev. Rul. 70-585
1970-2 C.B. 115
Nonprofit housing organizations created to aid low and moderate income
families by lessening neighborhood tensions, eliminating prejudice and
discrimination, and combating community deterioration may qualify for
exemption under section 501(c)(3) of the Code.
Rev. Rul. 70-585
Advice has been requested whether nonprofit organizations created to
provide housing for low or moderate income families under Federal and State
programs qualify for exemption from Federal income tax as charitable
organizations described in section 501(c)(3) of the Internal Revenue Code
Section 501(c)(3) of the Code provides for the exemption from Federal
income tax of organizations organized and operated exclusively for
Section 1.501(c)(3)-1(d)(2) of the Income Tax Regulations defines the term
"charitable" as including the relief of the poor and distressed or of the
underprivileged, and the promotion of social welfare by organizations
designed to lessen neighborhood tensions, to eliminate prejudice and
discrimination, or to combat community deterioration.
It is held generally that where an organization is formed for charitable
purposes and accomplishes its charitable purposes through a program of
providing housing for low and, in certain circumstances, moderate income
families, it is entitled to exemption under section 501(c)(3) of the Code.
The fact that an organization receives public funds under State or Federal
programs for housing is not determinative; qualification is based on
whether or not the organization is charitable within the meaning of section
The following situations are illustrative of the foregoing principle.
Situation 1.--An Organization Formed to Aid Low Income Families
An organization was formed to develop a program for new home construction
and the renovation of existing homes for sale to low income families on
long-term, low-payment plans. It purchases homes for renovation and lots
for building new homes throughout the city in which it is located. It
builds new homes for sale to low income families who qualify for loans
under a Federal housing program and who cannot obtain financing through
conventional channels. It also aids financially those families eligible for
the loans who do not have the necessary down payment. Rehabilitated homes
are made available to families who cannot qualify for any type of mortgage
loan. The cost of these homes is recovered, if possible, through very small
periodic payments. The organization derives its operating funds through
Federal loans and contributions from the general public. Where possible,
renovations are made with volunteer help.
By providing homes for low income families who otherwise could not afford
them, the organization is relieving the poor and distressed. Thus, it is
held that this organization is organized and operated exclusively for
charitable purposes, and it is exempt from Federal income tax under section
501(c)(3) of the Code. The determination of what constitutes low income is
a factual question based on all of the surrounding circumstances.
Situation 2.--An Organization Formed To Eliminate Prejudice and
An organization was formed to ameliorate the housing needs of minority
groups by building housing units for sale to persons of low and moderate
income on an open occupancy basis. It constructs new housing that is
available to members of minority groups with low and moderate income who
are unable to obtain adequate housing because of local discrimination.
These housing units are so located as to help reduce racial and ethnic
imbalances in the community. They are sold at or below cost to low or
moderate income families or rented, with options to purchase, to families
who cannot presently afford to purchase. Preference is to be given to
families previously located in ghetto areas. The organization also informs
the public regarding integrated housing as a means of minimizing potential
misunderstanding and stabilizing integrated neighborhoods. It is financed
by contributions from the general public and by funds obtained under
Federal and State housing programs.
As the organization's activities are designed to eliminate prejudice and
discrimination and to lessen neighborhood tensions, it is engaged in
charitable activities within the meaning of section 501(c)(3) of the Code.
See Rev. Rul. 68-655, C.B. 1968-2, 213. Accordingly, it is held that this
organization is exempt from Federal income tax under section 501(c)(3) of
Situation 3.--An Organization Formed to Combat Community Deterioration
An organization was formed to formulate plans for the renewal and
rehabilitation of a particular area in a city as a residential community.
Studies of the area showed that the median income level in the area is
lower than in other sections of the city and the housing located in the
area is generally old and badly deteriorated.
The organization's membership is composed of the residents, businesses, and
community organizations in the area. The organization cooperates with the
local redevelopment authority in providing residents of the area with
decent, safe, and sanitary housing without relocating them outside the
area. The organization has developed an overall plan for the rehabilitation
of the area; it sponsors a renewal project in which the residents
themselves take the initiative; and it arranges monthly meetings to involve
residents in the planning for the renewal of the area. As part of the
renewal project, it purchased an apartment house that it plans to
rehabilitate and rent at cost to low and moderate income families with
preference given to residents of the area. The organization is supported by
Federal funds, membership fees, and contributions.
Since the organization's purposes and activities combat community
deterioration by assisting in the rehabilitation of an old and run-down
residential area, they are charitable within the meaning of section
501(c)(3) of the Code. Thus, it is held that the organization is exempt
from Federal income tax under section 501(c)(3) of the Code.
Situation 4.--An Organization Formed to Provide Moderate Income Families
With Housing in a Particular Community
An organization was formed to build new housing facilities for the purpose
of helping families to secure decent, safe, and sanitary housing at prices
they can afford. Its membership is composed of community organizations that
are concerned with the growing housing shortage in the community. A study
of the area shows that because of the high cost of land, increased interest
rates, and the growing population, there is a shortage of housing for
moderate income families in the community. The organization plans to erect
housing that is to be rented at cost to moderate income families. The
organization is financed by mortgage money obtained under Federal and State
programs and by contributions from the general public.
Since the organization's program is not designed to provide relief to the
poor or to carry out any other charitable purpose within the meaning of the
regulations applicable to section 501(c)(3) of the Code, it is held that it
is not entitled to exemption from Federal income tax under section
501(c)(3) of the Code.
Even though an organization considers itself within the scope of this
Revenue Ruling (other than Situation 4), it must file an application on
Form 1023, Exemption Application, in order to be recognized by the Service
as exempt under section 501(c)(3) of the Code. The application should be
filed with the District Director of Internal Revenue for the district in
which is located the principal place of business or principal office of the
organization. See section 1.501(a)-1 of the regulations.