Posted on 12/28/2009 9:57:01 AM PST by Alberta's Child
I'm looking for help with what I thought was a very simple question, and after a fruitless search online I'm hoping an astute Freeper with some knowledge of tax law could help me.
My question is a simple one: If a condominium association or homeowners association (HOA) is organized under applicable state law as a Non-Profit Corporation, what type of organization would it typically be considered under Federal tax law? The IRS website uses a "real estate board" as one example of a 501(c)(6) organization (along with chambers of commerce, trade organizations, etc.), but I'd like to verify that this is, in fact, the case for a condominium association or HOA.
I'm dealing with one of these right now, and I need to ensure that the organization is meeting whatever Federal filing requirements are in order (Form 990, example).
IRC 501(c)(6) Organizations.Otherwise, an advanced Google search under "501(c)(6) at www.irs.gov gets a good number of hits.
It sounds like you are a homeowners association.
Ordinarily you file a form 1120 or 1120 H, See instructions for 1120h and definitions:
http://www.irs.gov/pub/irs-prior/i1120h—2008.pdf
The one wrinkle in my situation is that I'm dealing with a commercial condominium, and it looks as is that form is specifically for residential associations.
This is more in depth
http://www.501c4taxexempt.com/index.php?option=com_content&view=article&id=3&Itemid=3
A common misconception is that a nonprofit organized under a state statute for nonprofits makes it a non profit for federal tax purposes. In order for federal recognition to apply, it is necessary to apply to the government for recognition. Unless an application was approved, you are not automatically a NP and would need to apply. Retroactive is possible but may not be necessary because the taxable income for your organization may be minor.
To complicate things, the IRS requires certain restrictions be included in the original charter in order for the NP status to be given an unless this was done at the outset, the original incorporation needs to be changed to comply with IRS rules.
If you file as a taxable corporation, you may have little or no income to be taxed and the penalties would be minor and likely waived.
I'm not too concerned about tax liabilities in the past, but my primary concern now is that the association's leadership is doing a couple of things that may present problems now and in the near future. They include: (1) the failure to clearly document moneys allocated to a capital reserve as opposed to regular operating/maintenance expenses; and (2) the financing of major capital projects out of direct association dues instead of depreciating these as per IRS rules.
Seems like you need to see what remedies are in the bylaws or state laws. Even if the IRS requires something to determine tax liability, this would not override the actions taken by the directors. The control over the directors is the articles and bylaws they operate under and the state law.
Bylaws often require audits or other financial reports prepared in accordance with generally accepted accounting principles. This is probably your starting point. Request the financial’s.
The directors will do what they do. I'm not questioning any of this . . . I just need to be prepared to deal with a possible tax liability on the part of the owners if it turns out the directors haven't done it right. And I'm quite sure they haven't done it right, based on conflicting information I've received from the directors over the last 12 months.
Bump for any additional help.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.