Quote:
Posted By SusanW1 on 08/25/2008 5:09 PM
George : We are not ALL condominium management associatons, residential real estate associations, or time share associations that fall under your described criteria.
My error was in not asking what kind of association the orginal poster's association is.
Our subdivision has a 501(c)(4)Determination Letter from the IRS.
We file a Form 990 with the IRS.
I am well aware of the difference in the charitable non-profits and the not for profits status of associations.
Your observation about 501(c)(4) status is an accurate one. Thanks for pointing that out.
Most homeowners associations formed prior to the Tax Reform Act of 1976 (and, perhaps, some thereafter) are 501(c)(4) social welfare (community benefit) organizations. Indeed, many homeowners associations formed prior to that time were not even incorporated, but organized as unincorporated associations.
However, the vast majority of homeowners associations today would not qualify for a 501(c)(4) exemption. (See my paragraphs below.)
In 1976 Congress added section 528 specifically for homeowners associations in response to conflicting Revenue Rulings 72-102, 74-17 and 74-99 which held that condo associations are not tax exempt under section 501(c)(4) and Revenue Ruling 74-199 which made it extremely difficult for homeowners associations to meet the community benefit test of section 501(c)(4) and avoid the private benefit disqualification.
(In 74-99 the IRS said that homeowners associations are
prima facie presumed to be essentially and primarily formed and operated for the benefit, "private inurement," of the individual members and hence not exempt.)
So, in order to qualify for a 501(c)(4) exemption today, a homeowners association must (1) serve the broader community, (2) not conduct (or at least minimize) exterior maintenance of a private residential building (e.g. a condominium building), and (3) must, at best, minimize the ownership and maintenance of common areas not for the use and enjoyment of the general public. (As an aside, gifts to 501(c)(4) organizations are not deductible from individual income taxes.)
The IRS defines a community as one that
"has traditionally been construed as having reference to a geographical unit bearing a reasonably recognizable relationship to an area ordinarily identified as a governmental subdivision or a unit or district thereof." Further,
"a community is not simply an aggregation of homeowners bound together in a structured unit formed as an integral part of a plan for the development of a real estate subdivision and the sale and purchase of homes therein." So what Congress did in 1976 is add section 528 which provides for elective exemption of membership dues (fees, assessments) from income taxes, similar to the tax treatment of exempt social clubs (section 512(a)(3)) and political organizations (section 517). Only "exempt function income," however, escapes taxation.
Although I have not researched homeowners association status nationwide in this regard, I suspect very few are (remain) 501(c)(4) organizations, since most do not dedicate common areas to public use, but, rather restrict them to members of the association. The only benefit I can see to a newly established homeowners association to seek 501(c)(4) status, is if the common areas are owned for public benefit, such as an urban park open to all. It may be that the mega-homeowners association with thousands of units may be one type that successfully maintains a 501(c)(4) exemption. I would have to research that further.
Nevertheless, were I a 501(c)(4) homeowners association, I would be very careful not to raise any notice with the IRS.
It has been a long time since I dredged up my involvement in the tax law changes brought about through the major reforms in 1976. To many people this is ancient history, but for those of us who went through it, it was a challenging, uncertain time. Since 528 was enacted, things have been much quieter on the IRS front in regard to homeowners associations.