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Subject: Setting up a 501c(3) charity branch of HOA
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JackJ9


Posts:0


06/13/2021 9:47 AM  
I am wondering if it is possible to create a 501c3 charity "arm" of the HOA? We currently are not a charity, and the main HOA wouldn't qualify as a charity anyway. However, it would be nice to create a 501c3 charity that could accept donations from AmazonSmile, Kroger, and other entities that give small contributions to charities. Has anyone explored this and what avenues are available?
CathyA3
(Ohio)

Posts:2588


06/13/2021 9:59 AM  
Why do you want to do this? What do you hope to accomplish?

I suggest a very thorough reading of your governing documents to see if there is any justification at all for doing this. Then talk to the association's attorney.

My take on it: HOAs aren't classified as charities for a reason. They also have a very specific function, which is to operate for the benefit of the corporation and its members. In addition, most board members already have plenty to do and not enough time to do it. The ones I've known (and I include myself in this) would not welcome even more work.

Finally, there are already established charities out there that know how to do their jobs and will do them better than a bunch of amateurs. There is nothing to stop any of you from donating your time and money to these organizations, and it would be a more effective use of both.
JackJ9


Posts:0


06/13/2021 10:08 AM  
I'm sorry if I was unclear in my original post. I am looking to see if we could form a separate organization as a charity that could accept donations and use those donations to improve our parks and community spaces. I would like to receive donations from corporations such as AmazonSmile and Kroger and others that offer donations to charities based on customer selection, and use those donations to improve our parks a bit more.

I am not proposing that we re-incoporate our entire HOA into a charity. We are not a charity and that wouldn't make sense.
MelissaP1
(Alabama)

Posts:10584


06/13/2021 10:16 AM  
Nope. Your just a non-profit corporation. Not a charitable one. Bad idea.

Former HOA President
CathyA3
(Ohio)

Posts:2588


06/13/2021 10:31 AM  
You should probably confirm with the person who does your taxes (and read up on the IRS's web site), but there are limits on the kinds of income an HOA can receive and how this income is taxed.

One of the 55+ communities in my area has things like benches, trees, and whatnot that have been donated to the association in memory of residents who have died. But what the legal and tax ramifications of that are, I don't know.

The bottom line, though, is that HOAs are meant to be funded by assessments from members, and members don't get a tax deduction for this. Trying to set up a charity can look like an attempt to do an end-run around this, and you don't want the IRS to get curious.

So talk to the professionals. This still strikes me as a good way to make potentially costly mistakes.
AugustinD


Posts:1904


06/13/2021 10:59 AM  
Posted By JackJ9 on 06/13/2021 10:08 AM
I am looking to see if we could form a separate organization as a charity that could accept donations and use those donations to improve our parks and community spaces. I would like to receive donations from corporations such as AmazonSmile and Kroger and others that offer donations to charities based on customer selection, and use those donations to improve our parks a bit more. I am not proposing that we re-incoporate our entire HOA into a charity. We are not a charity and that wouldn't make sense.
You want to ask for donations but not call yourself a charity? I do not understand.

So far what I understand is that you would like the HOA and the rest of the world to ignore the covenants that require the membership to pay for the upkeep of parks and community spaces. Said covenants by the way are public record at your county clerk's. They "run with the land."

A 501(c)(3) charity is set up under IRS code. Here's the long form of the application: https://www.irs.gov/pub/irs-pdf/f1023.pdf . Notice the sections that ask the applicant to describe the organization's activities. What would you write in these sections? Maybe:

"The organization seeks to fund maintenance of parks and community spaces that are privately owned."

The IRS is one busy agency. Maybe the IRS staff ends up approving the application and, voila, now your new charity can go solicit donations from Kroger, the Melinda Gates foundation, and the like.

Meanwhile there's that pesky public record of the covenants, stating that the park and community spaces are supposed to be paid for by the HOA members, period. You have told neither Kroger nor Melinda about this. Though I am betting Melinda's people figure this out sooner rather than later.

Don't you think there is some flavor of fraud going on here?
CathyA3
(Ohio)

Posts:2588


06/13/2021 11:19 AM  
I forgot the obvious part. In order to qualify as a charity, the organization has to benefit the public (or a well-defined section of it such as the homeless). HOAs don't qualify because the benefits are targeted toward private individuals (homeowners).

Creating a charitable branch to essentially perform the same function as the HOA (maintaining or upgrading the property owned by the HOA) is probably a non-starter since it's an end-run around IRS regulations. You're trying to avoid raising assessments to pay for these things.

As I'd said earlier, the only exception I'm aware of was the 55+ community that accepted donations of things in memory of residents, and the items in question had a plaque next to them that listed the resident's name. But I don't know what the association did on its end. For all I know they may simply have announced that if you want to give us something in memory of your loved one, we'll find a place for it and put up the plaque.

The other thing that bothers me is that if you accept donations from outsiders (such as area businesses), they'll expect some kind of quid pro quo such as signage identifying them as the donor. This can create expectations that an HOA can't legally meet, and can create conflicts of interest for the board.

Here be dragons.
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