Get 2 months of free community web site hosting from Community123.com!
Friday, October 18, 2019
Get 2 months of free community web site hosting from Community123.com!
Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.
Subject: HOA Federal Tax Exempt Status
Prev Next
Please login to post a reply (click Member Login on the menu).
Author Messages
RichardC16
(Texas)

Posts:21


09/26/2019 10:13 AM  
My understanding is that to get Federal tax-exemot staus for an HOA at least 90% of an HOAs expenditures must be used to acquire, construct, manage, maintain, and care for association property. A debate has arisen within my HOA board about whether or not expenditures for holiday lights and decorations fall within this 90% requirement or are outside the obligations of the HOA. i.e. an optional expenditure.

Anybody have any thoughts on this?
BarbaraT1
(Texas)

Posts:239


09/26/2019 10:48 AM  
Posted By RichardC16 on 09/26/2019 10:13 AM
My understanding is that to get Federal tax-exemot staus for an HOA at least 90% of an HOAs expenditures must be used to acquire, construct, manage, maintain, and care for association property. A debate has arisen within my HOA board about whether or not expenditures for holiday lights and decorations fall within this 90% requirement or are outside the obligations of the HOA. i.e. an optional expenditure.

Anybody have any thoughts on this?




Are you referring to 501C4 status? I've always been told that to get tax-exempt status, an HOA would have to provide some civic good to the general public, not just its members. Personally, I'd consult with an accountant specializing in nonprofits.
CathyA3
(Ohio)

Posts:459


09/26/2019 11:16 AM  
I agree with Barbara, although there are some nuances.

Here is what the IRS has to say (note paragraph 3):

A membership organization formed by a real estate developer to own and maintain common green areas, streets, and sidewalks and to enforce covenants to preserve the appearance of the development may be exempt as a social welfare organization if it is operated for the benefit of all the residents of the community.

The term community generally refers to a geographical unit recognizable as a governmental subdivision, unit, or district thereof. There is no precise definition of a community. Rather, whether an area is a community depends on the facts and circumstances of the particular situation. Even if an area represented by an association is not a community, the association can still qualify for exemption if its activities benefit a community.

THE ASSOCIATION SHOULD INCLUDE WITH ITS TAX EXEMPTION APPLICATION EVIDENCE THAT AREAS SUCH AS ROADWAYS AND PARK LAND THAT IT OWNS AND MAINTAINS ARE OPEN TO THE GENERAL PUBLIC AND NOT JUST ITS OWN MEMBERS. IT ALSO MUST SHOW THAT IT DOES NOT ENGAGE IN EXTERIOR MAINTENANCE OF PRIVATE HOMES.

A homeowners’ association that is not exempt under section 501(c)(4) and that is a condominium management association, a residential real estate management association, or a timeshare association generally may elect under the provisions of Code section 528 to receive certain tax benefits that, in effect, permit it to exclude its exempt function income from its gross income.
CathyA3
(Ohio)

Posts:459


09/26/2019 11:19 AM  
Clicked too soon.

Here is the link for the IRS's Homeowner Association page:

https://www.irs.gov/charities-non-profits/other-non-profits/homeowners-associations
MarkW18
(Florida)

Posts:121


09/26/2019 11:21 AM  
Based on your initial post, you would fall on an HOA that should be filing the 1120-H tax form. The other stuff doesn't apply, as people are thinking WAAAAAY too much.

If you had a large reserve account making $40K per year interest, then you would file under 1120-S where you pay 15% on excess income. With the 1120-H, you pay 30% on excess income, IF there is any, which shouldn't be the case, normally.
DouglasK1
(Florida)

Posts:1453


09/26/2019 1:44 PM  
Posted By MarkW18 on 09/26/2019 11:21 AM
Based on your initial post, you would fall on an HOA that should be filing the 1120-H tax form. The other stuff doesn't apply, as people are thinking WAAAAAY too much.

If you had a large reserve account making $40K per year interest, then you would file under 1120-S where you pay 15% on excess income. With the 1120-H, you pay 30% on excess income, IF there is any, which shouldn't be the case, normally.



I agree with this, normally HOAs are not tax exempt. If you file form 1120-H "function income (dues/assessments)" are not taxable if the requirements are met. See form 1120H instructions for more detail. I'm not personally a fan of using HOA funds to support particular religions over others, but as far as I know holiday decorations can be a valid association expense and would not affect the taxability of dues income. A lot of expenditures could be considered "optional" depending on your point of view. For example, some associations have social budgets which some may consider optional, but I've never heard of that having any tax implications. The main thing I would be concerned with is following the CCRs and only spending money as allowed there. That can encompass a lot of things, here is what my HOA CCRs say:

2. PURPOSE OF ASSESSMENTS. The annual and special assessments
levied by the Association shall be used exclusively for the
purpose of promoting the recreation, health, safety and welfare of
the residents, and in particular for the improvement and
maintenance of common area and any easement in favor of the
Association, including, but not limited to, the cost of taxes,
insurance, labor, equipment, materials, management, maintenance
and supervision thereof, as well as for such other purposes as are
permissible activities of, and undertaken by, the Association.

I suppose a valid argument could be made that decorations fall into these categories. When we decorated we asked for donations for the decorations and lights and had them put up by volunteers. The association did pay for electricity.

Escaped former treasurer and director of a self managed association.
MarkW18
(Florida)

Posts:121


09/26/2019 1:51 PM  
The expenditures listed in this post would fall under normal expenses and would not affect their tax status.
TimB4
(Virginia)

Posts:16481


09/26/2019 5:57 PM  
If you are worried about taxes, using form 1120-H basically excludes all assessment income from taxes.
The Association does have to pay taxes on income other then assessments (typically interest, dividends) but are given a $100 write off which for many associations eliminates taxes completely.

RichardC16
(Texas)

Posts:21


09/27/2019 9:27 AM  
No, Section 528
RichardC16
(Texas)

Posts:21


09/27/2019 9:29 AM  
We file an 1120-H.
StevenM8
(Minnesota)

Posts:18


09/27/2019 10:08 AM  
The ugly back story.


Board email:

"Subject :Volunteers Needed!
To Residents,

We are looking for 2-3 volunteers to assist the Board. These volunteers would not be Board members. One volunteer is needed to assist the Treasurer. The volunteer would maintain the books and assist with collecting past dues. The ideal volunteer would have some general accounting knowledge and be interested in joining the board when the Treasurer’s term is up this spring. The hope is that this will ease the minds of those questioning the books.

One to two volunteers are needed to assist with scheduling a special meeting to fill the vacant board positions. The goal is to have a meeting in the next month but the board needs some assistance as the Vice President and Secretary positions are currently vacant.

At this time, we are not moving forward with obtaining a management company. To be transparent, there are currently three board members of which only two have voting rights. xxxx has not paid his 2018 dues. Due to this fact, we are not able to vote on a management company until we have a full board or at least three board members with voting rights.

Also, please disregard the survey that was sent earlier today. Other board members had no knowledge of the survey and thus it was not board approved and has been deleted.

Regards,
xxxxxx xxxxxx, President"

Survey Sent out:

"XXXXXXe Home Owners,

I am sending out this survey to get your input on what I should advise the other board members to do as our next course of action. The debate is between should we fill vacant board positions and let them decide on Professional Management company or hire a management company and let them fill the positions.

For historical sake our Vice President resigned in May and our Secretary in August. We are 2 directors short of a full board. If we do an early Annual meeting for the year 2020 in October of 2019 we will have 3 new openings as one of the current director's term would be up. The term of each board members is 2 years. Directors of a special election would require us to re-election board members at the next annual meeting.

Thank you for your input.

Option A - Hold Annual meeting to fill board
Option B - Have current board hire professional management company"


Here is the response by the member to the unpaid dues.

"Subject: Clarification on XXXX XXXX - HOA Dues
Many of you may not know me, but you do know of my husband xxx as a member of the current HOA Board. Today, he was called out by the HOA President for not paying our HOA dues. I have been part of the silent majority in this neighborhood, but when the integrity of my husband and myself is in question, I feel it is necessary to speak out. On May xth, 2018, I proactively reached out to the current (now past) board specifically asking what we would owe for dues to the HOA for 2018. We were moving from xxxth Circle to xxxx Street and I wanted to make sure that we were in compliance with payment of our dues as we moved from one house to the other. I was told by the board members at that time that "The annual dues for 2018 won’t be assessed for the new property until the structure of the house is complete." and "The lot fee is paid once when the builder closes on the property with Woodland. You do not pay that. The only fee you pay is the HOA dues and any documents request fees." This Spring we were told by members of the current board that we had not paid our dues. They insisted that we owed a full years dues even though I had already paid dues for the property on xxxth Circle in 2018. I brought this information noted above to the new board members and offered to pay the prorated dues from the time we technically occupied 2 houses in the neighborhood (July xx, 2018 - August xx, 2018). I did not get a response from the board members I was interacting with. Now, we were publicly shamed by those same board members that refused to work with me to on a reasonable resolution. My point is, I was part of the silent majority in this neighborhood. Shame on me. I should have been more active. I should have taken more of an interest. I should have been more informed. All of us now have that opportunity and I urge the rest of the silent majority to speak up for this neighborhood through your vote at the upcoming meeting. I look forward to the day when we can all be neighbors and act as neighbors should."

Further, after the email went out the former board President vouched for the claim by the Member.
"I saw the email that the board sent earlier today about XXXX XXXX. I came across this email from May 2018 that I sent to xxx xxx regarding the lot they purchased in late 2018. In the email, I did state the $xxx fee would not be assessed on their new lot until the house was built. I’m not sure when the house was built, but you should be able to find the certificate of occupancy on the county website.

If the house wasn’t built in 2018, I believe the board needs to honor my statement below and the dues would not be due for 2018.

On a side note, I do not believe it’s appropriate to call out a residents financial standing in a communication to all residents. I understand there is a lot going on at the board, but calling out the financial standing of a resident does not seem right. "
StevenM8
(Minnesota)

Posts:18


09/27/2019 10:09 AM  
WRONG THREAD

CAN ADMIN DELETE
Please login to post a reply (click Member Login on the menu).
Forums > Homeowner Association > HOA Discussions > HOA Federal Tax Exempt Status



Get 2 months of free community web site hosting from Community123.com!



News Articles Provided by: Community Associations Network
News, articles and blogs about condos/HOA's

Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.







General Legal Notice:  The content of forum messages are from the posting member and have not been reviewed nor endorsed by HOATalk.com.  Messages posted by HOATalk or other members are for informational purposes only, are not legal or professional advice and do not constitute an attorney-client relationship.  Readers should not act upon this information without seeking professional counsel.  HOATalk is not a licensed attorney, CPA, tax advisor, financial advisor or any other licensed professional.  HOATalk accepts ads from sponsors but does not verify sponsor qualifications nor endorse/guarantee any sponsor's product or service.
HindmanSanchez Legal Notice:  (For messages posted by HindmanSanchez) This message has been prepared by HindmanSanchez for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute an attorney-client relationship. Members of HOATalk.com should not act on this information without seeking professional counsel. Please do not send us confidential information unless you speak with one of our attorneys and get authorization to send that information to us. If you wish to initiate possible representation, please contact an attorney in our firm. Our attorneys are licensed to practice law in the state of Colorado only.

Legal Notice For Messages Posted by Sponsoring Attorneys: This message has been prepared by the sponsoring attorney for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute an attorney-client relationship. Readers of HOATalk.com should not act on this information without seeking professional counsel. Please do not send any sponsoring attorney confidential information unless you speak with the sponsoring attorney or an attorney from the sponsoring attorney’s firm and get authorization to send that information to them. If you wish to initiate possible representation, please contact an attorney in the firm of the sponsoring attorney. Sponsoring attorneys that post messages here are licensed to practice law in a specific state or states as indicated in their message signature or sponsor’s profile page. (NOTE: A ‘sponsoring attorney’ is an attorney that is a HOATalk.com official sponsor and is identified as such in the posted message or on our sponsor page.)

Copyright HOA Talk.com, A Service of Community123 LLC ( Homeowners Association Discussions )   Terms Of Use  Privacy Statement