LACC to Repeat IRS Application

The 501(c)(4) Fiasco: Archbold Wants to Do It Again

A few years ago, LACC management thought that our community could escape federal taxes by claining to be a Social Welfare Organization. So it applied for a 501(c)(4) exemption.

LACC management was aware of the law that required unrestricted access to its roads and recreational amenities to qualify for the tax exemption, but submitted the application anyway. The rule was established in a 1989 4th Circuit case called "Flat Top Lake" (868 F.2d 108), where the court ruled that the organization must be "an active part of society rather than a private refuge for those who would live apart." Even though Flat Top Lake represented a large geographical area, it didn't qualify for exemption. A later case in the 10th Circuit came to the same conclusion: IHC Health Plans v Commissioner, 325 F.3d 1188 (10th Cir 2003).

So LACC lied on the application, stating under penalty of perjury that LACC is:

a "charitable association;"

"engaged in promoting the common good and general welfare of residents of the Lake Almanor Country Club and surrounding areas"; having a "beautification project for the benefit of the public, meaning the world-at-large;"

maintaining "common areas or facilities such as roadways and parklands, recreational facilities and street lights, access to, or the use and enjoyment of, which is extended to members of the general public;" and

"there is minimal effective restriction to access by the general public."

One of the applications to the IRS stated that the Lake Almanor Country Club has its own post office and zip code!
No wonder LACC management tried to hide the applications from the members.

Relying on those misrepresentations, the IRS granted the tax exemption, but a few years later caught on to the deception and revoked the exemption, hitting LACC with back taxes, interest and penalties. Of course, LACC management attempted to conceal the revocation from the members.

This fraudulent effort by LACC management cost the LACC corporation tens of thousands of dollars, not only on interest and penalties, but on attorney fees, CPA fees and application fees.

The letter of revocation from the IRS stated that the revocation of the tax exemption was not appealable. But desperate to keep up appearances, LACC management hired a lawyer in Texas to appeal the revocation, giving him a $5,000 retainer fee. When the Texas lawyer, whom I contacted, realized that he had been deceived by LACC management, he reportedly stopped returning phone calls and refused to return the retainer fee.

It seems that LACC management and some of the directors deceived everyone: the IRS, the LACC membership and their own tax attorney. There is even a tape recording of a board meeting where it was tacitly agreed that they would have to lie to the IRS to get this tax exemption.

Now, the new general manager, Rick Archbold, announced that LACC should try again for this Social Welfare tax exemption, even suggesting that they resubmit the same applications. His reasoning is based on his claimed knowledge that the IRS agent who revoked the tax exemption has recently retired. With such bizarre thought processes, does Mr. Archbold really expect to be taken seriously?