An HOA is considered a normal ("for profit") corporation unless it qualifies as a "non-profit" corporation under Section 501(c)(4) of the Internal Revenue Code. In order to qualify as a non-profit corporation the HOA has to demonstrate that a substantial part of the common areas owned by the HOA are for public use. In almost every case this involves public streets, sidewalks, bike paths and park/recreation areas, though public parking areas would also qualify if the HOA even allows parking for the general public.
Very few HOAs qualify as a non-profit corporation, because of the way master deeds restrict usually restrict the use of common areas to the owners and their visitors.
In this case, the HOA was either poorly advised by their legal and accounting professionals, or they were running a tax-evasion scheme to hide the corporation's income from the IRS.
I'd also speculate that this has been an item of dispute within this particular HOA for some time, and the HOA management may have been reported to the IRS by one or more of its own members.
That does not mean that the areas in question have been subjected to capital improvements as the IRS understands them. If, for example, the area in question is a forest that was thinned for fire protection purposes, non-native plants were removed, and natives reestablished, I promise you, that does not come cheap and constitutes a capital expense and an improvement. Nor are the expenses and management overhead for maintenance insignificant.
In order to qualify as a non-profit corporation the HOA has to demonstrate that a substantial part of the common areas owned by the HOA are for public use.
I just submitted an exception to the "rule."
I'd also speculate that this has been an item of dispute within this particular HOA for some time, and the HOA management may have been reported to the IRS by one or more of its own members.
Neither of us knows that.