Internal Revenue Service
Revenue Ruling
Rev. Rul. 68-17
1968-1 C.B. 247
Sec. 501
IRS Headnote
A nonprofit organization that conducts a model demonstration housing
program for low-income families and disseminates information about the
results of the program may qualify for exemption from Federal income tax
under section 501(c)(3) of the Internal Revenue Code of 1954.
Full Text
Rev. Rul. 68-17
Advice has been requested whether under the circumstances described below a
nonprofit organization qualifies for exemption from Federal income tax
under section 501(c)(3) of the Internal Revenue Code of 1954.
The organization was formed to aid low-income families living in
deteriorating neighborhoods in improving their homes. Its membership
consists of other nonprofit institutions, neighborhood groups, and
individuals. To accomplish its purposes, a model demonstration housing
program is conducted by the organization. It is financed in part by a grant
from the Department of Housing and Urban Development under Section 207 of
the Housing Act of 1961 (42 U.S.C.A. 1436). The objects of the
demonstration program are to test the feasibility, cost, and procedural and
financial aspects of providing housing for low-income families through the
acquisition, rehabilitation, and resale or lease of residential structures
in a deteriorating neighborhood.
The Federal grant is allocated for three purposes: (1) research, analysis,
writing, and printing of a statistical report on costs of the
rehabilitation program, to be nationally distributed; (2) a partial funding
of project costs, with the balance of the cost to be supplied by the
organization; and (3) a revolving fund, to be matched by the organization,
to be used to obtain a number of reasonably priced single-family homes, to
be rehabilitated by the organization.
Local government officials and departments cooperate in the project.
Renewal plans are prepared by the city planning department. Properties
taken over by the city through tax foreclosure proceedings are transferred
to the organization at cost for use in the demonstration project.
Homes rehabilitated by the organization in the model demonstration program
are sold or leased to low-income or displaced families on a nonprofit
basis. The organization does no new construction. Upon completion of the
program, that part of the revolving fund advanced by the Department of
Housing and Urban Development is to be returned to that agency.
To supplement the Federal grant, the organization is financed by
contributions and the sale of interest-bearing obligations.
Section 501(c)(3) of the Code provides for the exemption from Federal
income tax of organizations organized and operated exclusively for
charitable or educational purposes.
Section 1.501(c)(3)-1(d)(2) of the Income Tax Regulations provides that the
term `charitable' includes relief of the poor and distressed or
underprivileged, lessening of the burdens of government, and promotion of
social welfare by conducting programs to combat community deterioration and
juvenile delinquency.
Section 1.501(c)(3)-1(d)(3) of the regulations defines the term
`educational' for the purposes of section 501(c)(3) as including the
instruction of the public on subjects useful to the individual and
beneficial to the community.
The purposes and activities of the organization pertaining to the
demonstration program are educational within the meaning of section
501(c)(3) of the Code. Inasmuch as the purposes and activities of the
organization combat community deterioration as well, they are also
charitable within the meaning of section 501(c)(3). The sale of renovated
property, either at the conclusion of the project or in connection with the
project, will not preclude exemption since the sale is incidental to, and
in furtherance of, the demonstration project.
Accordingly, the organization qualifies for exemption from Federal income
tax under section 501(c)(3) of the Code.
An organization which considers itself within the scope of this Revenue
Ruling must, in order to establish exemption under section 501(c)(3) of the
Code, file an application on Form 1023, Exemption Application, with the
District Director of Internal Revenue for the internal revenue 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.
