Can a Committee Decide How to Spend Funds Raised?

Several things come to mind. The first being that generally a committee member serves at the pleasure of the BOD and can be fired (if the committee is an official portion of the HOA).

The second thing is that if you don't like the way the funds are spent don't help them raise said funds.

The third is the whole idea of a committee raising funds raises an eyebrow. Now if a group took up a collection to make something available at the next national night out or something I can see that. But they should tell owners where the money is going to be spent and ask from internally. But other then donations from owners, I would have a hard time with a carwash or something as if they are some charity. It astounds me the number of people who think of their case as a charity.

If this is an official committee established by your board then there are more ramifications to this than I believe your committee or board realizes.

If this is an offical board-established committee, then any funds it raises and any money spent must be accounted for on the books of your association, or you could possibly be charged with committing tax fraud. Income raised through fundraising activities is "non-exempt function income" in the eyes of the IRS (26cfr1.528)and must be reported as such on your Form 1120-H when you file your income taxes. Any money spent that does not directly deal with managing association property must also be separately identified on Form 1120-H. Since your treasurer is ultimately the one held responsible for tax filings, then yes, your BOD must be involved.

You must also recognize that you are not a charitable organization as defined in Section 501(c)(3) of the tax code. That means you cannot raise money in many of the ways charitable organizations can, and you must account for it differently.

If you have a "committee" established by a group of residents that is NOT an official committee of the association established by the BOD, then it is a group of neighbors who have banded together to raise money and plan and hold activities. They are responsible for their own actions.

Great responses. Thanks everyone. This committee wants to raise "its own funds" to purchase recreation equipment, picnic tables, and I have no idea what other kind of playground equipment. The money raised does go into the Association account (earmarked for recreation) where it has to be accounted for. But, I don't think anyone on the Board ever thought out the tax implications. Fund raising is occuring in a few different ways: extra money is charged for event participation; 50-50 chances are sold; a dozen plastic pink flamingoes are showing up randomly on homeowner's property without their permission, and in order to get them removed, the homeowner has to fork over a "donation" (the group calls this getting "flocked". I feel the Board was much too hasty in voting approval of this which is why I am interested in finding out how to convey to them that they need to rethink this ASAP.

Your board members need to get a copy of the IRS tax code, 26cfr1.528 that applies to HOAs. You should be able to download it from the IRS website. You can also download a copy of IRS Form 1120-H with instructions that applies to HOAs.

There are rules about how much non-exempt function income you can have. Exempt function income is income received from your assessments or association dues. Pretty much anything else will be non-exempt function income. The tax code explains it all. Also, no more than 10% of your association's expenses can be used for things that are not directly related to maintaining your association property. Lawn care qualifies as maintaining your property, recreational activities do not. Picnic tables and recreation equipment? I don't know. It could be borderline. You'd have to consult a tax advisor on that one.

Does your state have gambling or gaming laws? Many do. If so, a 50-50 raffle may be illegal unless you are a charitable organization under 501(c)(3), which you are not. Even there, some states regulate how they must be held. The problem comes about when you do these things officially as an HOA. Being a chartered "business" your board is supposed to know better and not violate the law. It's not as easy to get away with things as a group of private citizens might. Also, if your board members are charged vith violating any law your D&O insurance won't come to their aid either since most policies contain a clause saying that you're not protected if you violate the law.

Over the years I've belonged to and have served on the committees or boards of many organizations: recreational committees, scouting organizations, PTOs, charities, fraternal organizations, service clubs, and HOAs. At one time or another I have been involved in a variety of activities and fundraisers - legally, and I've learned they may be more complex than they appear on the surface. They're not difficult to do legally, as long as you're eligible and follow the rules.

Sounds like your board needs to get educated.

Any form of wagering, which includes 50-50 raffles, lotteries, etc., is probably regulated. Many states conduct their own lotteries and are very jealous of competition. I would check before embarking on any of these kinds of fundraisers.

Oh, and one other thing. As long as you involve only yourselves (members of the HOA) in your fundraising activities, you may be able to do most anything. However, as soon as you involve the general public (non-homeowners) it becomes a different ball game. Now all of a sudden you may find yourself needing licenses or permits for this or for that, depending on what you do. Even charitable organizations that have fundraisers have to jump through certain legal hoops. They've just done it so many times they know what is required and do it automatically. Been there; done that.

Thanks to all who responded. I am happy to report that at our BOD meeting the President corrected the committee representative and made it clear who does and does not have authority to spend the funds raised. As for the Pink Flamingoes, it does look awful, and I would not return them if they show up on my lawn either. Thanks again!!

There is a local landscaping company that has a large flock of the things. They are known for placing the flock in interesting formations. Combined with messages on their marquee, it's become quite an advertising gimmick for them. Of course, then there was the rival landscaping company who had a plastic flamingo on a spit in the BBQ...

If I got flocked, I would probably take a page from that company and start coming up with my own formations. It probably wouldn't be long before the flock disappeared the same way that the arrived.