Get 1 year of free community web site hosting from Community123.com!
Tuesday, September 29, 2020











HOATalk is a free service of Community123.com:

Easy to use website tools to help your board
Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.
Subject: COULD WE LOSE OUR 501(c)4????
Prev Next
Please login to post a reply (click Member Login on the menu).
Author Messages
JenniferB14
(Colorado)

Posts:108


01/19/2018 9:09 AM  
Hi all.... yet more crazy happenings in our “activist” HOA as they are calling themselves. OurHOA is trying to bring Fiber (high speed internet) to our rural community. Long story short, the option the board is going with is Comcast to come in and install the fiber, own the fiber, and own and collect on the service for a total monopoly. This project is planned to be installed on county property along the road and then on each owner’s individual unit all the way to their house.... so “maintenance on private homes?” You ask why won’t Comcast pay up front and we just pay for the service? We aren’t a dense enough population for their risk and no one will do it.

The HOA would be taking out a $2.2-$2.4M bank loan so each homeowner won’t have to pay nearly $10000 as a one time special assessment. Again, the HOA will not own any part of this, however Comcast is saying they will pay an incentive by way of percentage for the number of phone, internet, and TV devices that are provided... and this appears it will become discretionary funds for the HOA.

So, our articles of incorporation state the association can not pursue any activity that threatens our 501c4. I would assume that bad debt (loan) will make us not qualify for the 90% test the IRS requires for HOA tax exempt status....the 90% expense requirement is for management, construction, improvements, etc of association property. As stated, none of this will Be association property....basically we are paying up front for a service. We don’t qualify for the 90% test, then we would lose our 501c unless there is fraudulent accounting. Not to mention I don’t think the HOA can create an “assessment” to pay for an improvement on other owner’s property.

Please advise
TimB4
(Virginia)

Posts:16963


01/19/2018 10:25 AM  
Going into debt should not affect such a status.
Having a bad debt should not affect such a status.


PestyonE


Posts:0


01/19/2018 11:02 AM  
You are NOT, repeat NOT an IRS 501(c). ie. charity

You are most likely a state corporation not-for-profit.


Read and study until YOU understand the difference.
TimB4
(Virginia)

Posts:16963


01/19/2018 12:04 PM  
John,

You may want to read this history from the IRS: HOMEOWNERS' ASSOCIATIONS UNDER IRC 501(c)(4), 501(c)(7) AND 528 .

Here is the conclusion from that article:

8. Conclusion
In order to qualify for exemption under IRC 501(c)(4), homeowners' associations with the general characteristics described in Rev. Rul. 72-102 must overcome the presumption that they are essentially and primarily formed and operated for the benefit of their members. This can be done by a demonstration that
the organization is primarily formed and operated for the benefit of the community. A homeowners' association may impose some reasonable restrictions on the use and enjoyment of a small portion of its overall common property or facilities and still qualify for exemption under IRC 501(c)(4). As alternatives to exemption under IRC 501(c)(4), a homeowners' association may elect to seek exemption under IRC 528, or it may restrict its primary function to the ownership and maintenance of recreational areas and, if it otherwise qualifies, qualify for exemption as a social club under IRC 501(c)(7).


You may also want to review 26 U.S. Code § 528 from Cornell Law School.
JenniferB14
(Colorado)

Posts:108


01/19/2018 1:07 PM  
Peyston.... I have all the forms and IRS documents printed and I have studied them. Our articles of incorporation state we are a 501(c)4 and if you look online under IRS for HOAs you will see the same. Yes, there are stringent requirements and we have met them as an association over the years. The bad debt itself may not deem that we are suddenly not tax exempt, but the definitions for the requirement to meet the 90% rule pertains to association property.... and we won’t meet any of those definitions as the association will not own any asset, nor will any of the owners... thus the fiber and the project to build it will not be a common expense for common good
JenniferB14
(Colorado)

Posts:108


01/19/2018 1:10 PM  
Yes TimB... I have read all of this and have printed it out and highlighted for reference. I don’t argue that our association has met all of these items in past years, but this will be a game changer... and as I stated, the definition of Association Property in order to meet the 90% of expenses requirement.... it’s not going to happen. Now I just wonder if the CPA plans on writing it as though it is association property in order to meet the requirement.
BenA2
(Texas)

Posts:763


01/19/2018 9:51 PM  
Posted By n/a on 01/19/2018 11:02 AM
You are NOT, repeat NOT an IRS 501(c). ie. charity

You are most likely a state corporation not-for-profit.


Read and study until YOU understand the difference.



Yes, there are HOAs that have a 501(c) status. Read and study until YOU understand.
DouglasM6
(Arizona)

Posts:724


01/22/2018 9:06 AM  
Every time John gets schooled he leaves! LOL. Nice work Tim.

TimB4
(Virginia)

Posts:16963


01/22/2018 2:56 PM  
Posted By DouglasM6 on 01/22/2018 9:06 AM
Every time John gets schooled he leaves! LOL. Nice work Tim.




That's not my intent.

My intent is to provide the basis for my opinions so others may independently verify them and, if necessary, point out where I may have misunderstood.
RogerJ1
(Texas)

Posts:103


02/13/2020 12:22 PM  
Replying to an old thread to ask a related question. My POA is also a 501(c)(4). I wonder how it got accepted as a social welfare association. I just found this article: http://www.501c4taxexempt.com/index.php?option=com_content&view=article&id=3&Itemid=3

Under 501(c)(4) HOAs it states: There are 3-ways for an HOA to qualify for tax exemption under IRC Section 501(c)(4):


1) The association grants public access to all of the association amenities without significant restriction. An example of this type of an association will be one that maintains extensive slopes and fences and monument signs and parks as the common areas in a single family residence association and does not have security that patrols to keep outsiders from using such facilities. A variation of this is that there may be some restrictions such as limited access to pool and tennis court areas. So long as they are not substantial, significant restrictions, the association will still qualify.

2) The association covers the same geographic territory as a governmental unit. An example of this would be an association that has approximately the same geographical boundaries as a City or California Community Services District. In such case, even if the association is gated, it may still qualify for tax exemption under IRC Section 501(c)(4).

3) The association itself qualifies as a community. By definition, this generally must be a very large or very remote association in that it has such a large population that it would in and of itself qualify as a community even if there are restrictions on access. This is very rare and is not usually encountered in urban areas.


1 and 2 would not apply. 3 likely applied decades ago when the 501(c)(4) was granted - mid 1980s. It is not large, ~50 lots, so it was not the first part. That leaves the remote part. At the time that that tax exempt status was granted, and through the early 1990s, there was nothing near the subdivision for around 8 miles. Mostly farm and pasture land around it with a few scattered homes on large acre tracts as the nearest neighbors. So I assume that was the basis.

Now there are similar sized subdivision adjacent to it as well as retail centers and industrial office space within less than a mile of it.

If my assumption is correct, and the 501(c)(4) was granted for #3, if the IRS were to studied it for any reason, finding development right next to it, what would happen? And what could trigger the IRS to look at it?
AugustinD


Posts:3935


02/13/2020 1:25 PM  
Posted By RogerJ1 on 02/13/2020 12:22 PM
If my assumption is correct, and the 501(c)(4) was granted for #3, if the IRS were to studied it for any reason, finding development right next to it, what would happen? And what could trigger the IRS to look at it?
Failure to file the required 990 form for three consecutive years will result in automatic revocation of 501(c)(4) statuts. See https://www.irs.gov/charities-non-profits/automatic-revocation-of-exemption-for-non-filing-overview

Other than the above three year rule and the IRS (somewhat randomly?) choosing a 501(c)(4) organization for an audit, I do not see what might trigger the IRS's querying a HOA. A few more citations that may help a wee bit:

"... IRS audits of section 501(c)(4) groups are extremely rare, the Center for Public Integrity found in a 2015 review." -- http://www.taxmuseum.org/www/website.nsf/Web/EOTR/$file/eotrsample.pdf

For a 2014 example of the IRS revoking 501(c)(4) status, see https://www.irs.gov/pub/irs-wd/201429030.pdf . The latter cites a second HOA 501(c)(4) revocation from 1989, https://law.justia.com/cases/federal/appellate-courts/F2/868/108/17050/ . The 1989 cites still more instances where HOAs lost their tax exempt status in the courts.

IRS auditing guide for 501(c)(4) organizations (including HOAs): https://www.irs.gov/pub/irs-tege/atg_501c4_orgs.pdf
AugustinD


Posts:3935


02/13/2020 1:32 PM  
Here's the 2015 article mentioned above. It seems instructive.

https://publicintegrity.org/politics/irs-rarely-audits-nonprofits-for-politicking/
RogerJ1
(Texas)

Posts:103


02/13/2020 4:16 PM  
Posted By AugustinD on 02/13/2020 1:32 PM
Here's the 2015 article mentioned above. It seems instructive.

https://publicintegrity.org/politics/irs-rarely-audits-nonprofits-for-politicking/




This is the reason that I am concerned that the current treasurer refuses to issue 990s for services provided by non-incorporated individuals that are over $600 in a year and for legal services. The association could hire any honest contractor that wants the 1099 and reports the association when none is given.
RogerJ1
(Texas)

Posts:103


02/13/2020 4:22 PM  
Note: I quoted the wrong message in my reply above this.
AugustinD


Posts:3935


02/13/2020 4:28 PM  
Posted By RogerJ1 on 02/13/2020 4:16 PM
This is the reason that I am concerned that the current treasurer refuses to issue 990s for services provided by non-incorporated individuals that are over $600 in a year and for legal services. The association could hire any honest contractor that wants the 1099 and reports the association when none is given.
Pardon? A form 990 has a whole different purpose compared to a 1099-Misc.
SteveM9
(Massachusetts)

Posts:3599


02/13/2020 6:02 PM  
Pardon? A form 990 has a whole different purpose compared to a 1099-Misc.


In HOA's people fill out wrong tax forms and do taxes wrong on a regular basis. Really isn't a big deal unless your audited. And even then, itsnt a big deal. IRS isnt going out of its way to make sure a HOA that owes $0 in taxes does everything perfectly to then owe $0 in taxes. Simply isnt profitable to go after someone who owes no taxes.

Should it be done correctly? Yes.
AugustinD


Posts:3935


02/13/2020 6:32 PM  
I thought Roger's point was that his HOA has the unusual status of being a 501(c)(4) organization. Most HOAs are not 501(c)(4) organizations. In recent years it appears the IRS has had its radar kind of fixed on 501(c) organizations. I imagine the chances of his HOA being audited are higher than the chances of a non 501(c) HOA.

On the other hand, reports are that the IRS has faced budget cuts since 2010 and is understaffed.

On the third hand, and from my earlier citations, the IRS has successfully won court awards for past taxes from several HOAs in the recent and distant past. All of the HOAs had claimed 501(c)(4) status. Some HOAs had done so for many years. The IRS brought suit in court. The court decisions revoked the 501(c)(4) status. (I did not read the court decisions closely. If someone wants to fine tune or correct what I just generalized, feel free. I am not on top of HOA tax law as well. I know many here are. If someone has more experience and wants to provide their take, then I hope they will.)
RogerJ1
(Texas)

Posts:103


02/14/2020 12:33 PM  
Posted By AugustinD on 02/13/2020 4:28 PM
Posted By RogerJ1 on 02/13/2020 4:16 PM
This is the reason that I am concerned that the current treasurer refuses to issue 990s for services provided by non-incorporated individuals that are over $600 in a year and for legal services. The association could hire any honest contractor that wants the 1099 and reports the association when none is given.
Pardon? A form 990 has a whole different purpose compared to a 1099-Misc.





Sorry for typo and late clarification. He refuses to issues 1099s. 990s are being done.
RogerJ1
(Texas)

Posts:103


02/19/2020 7:53 AM  
I recently saw an article indicating that bylaws of a 501c4 HOA could jeopardize its tax exempt status. It was a warning by a tax expert covering things in bylaws that could trigger such a situation.

Anyone know of any articles hitting on that subject?
Please login to post a reply (click Member Login on the menu).
Forums > Homeowner Association > HOA Discussions > COULD WE LOSE OUR 501(c)4????



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.
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