HOAleader.com - Tip of the Week - February 5, 2016
Published: Fri, 02/05/16
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HOAs May Be Nonprofits But Not Tax-Exempt. Here’s The Difference
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Your HOA is tax-exempt, right? Or is it a nonprofit? They’re the same, aren’t
they?
In this week’s tip, we explain the difference in the context of a recent
Internal Revenue Service ruling denying tax-exempt status to an under-24
unit condo association.
It was November 2015 when the IRS made public a letter stating its final
determination on whether an unidentified condo qualified for 501(c)(4)
status, which would mean its income would be tax exempt.
The IRS denied the request because the condo association didn’t meet the
requirements of serving the public good over a sufficiently wide area.
Instead, it operates for the private benefit of its members.
“This is a common determination,” says Sara Lassila, a CPA in Minneapolis
who operates her own firm and advises community associations. “Tax-exempt
status for HOAs is rarely attainable unless they’re going to open up their
facilities to the general public. It’s very rare that an association,
particularly a condo, can meet the requirement that they’re operating for
the social welfare of the general community.”
But aren’t community associations nonprofit entities? Isn’t that the
same?
“It’s maybe a misunderstanding that’s prevalent,” says Lassila. “I work in
Colorado, Iowa, Minnesota, Texas, and Wisconsin. In all those states, when
an HOA is formed, it’s considered a nonprofit corporation. That doesn’t
make it a nonprofit tax-exempt organization for IRS purposes. The only way
to achieve that status is to file a Form 1023 application, which this condo
association did. But it got denied because it can’t support the requirement
of operating for the social welfare.”
To be tax-exempt under 501(c)(4), a homeowners’ association must operate
for the benefit of the general public, explains Lisa Magill, of counsel at
Kaye, Bender & Rembaum in Pompano Beach, Fla., who advises community
associations. “It must provide a community benefit, not a benefit to the
owners or residents,” she adds. “This issue was addressed in IRS letter
rulings close to 40 years ago, and frankly I thought the issue was settled for
the most part. In those cases, both a homeowners’ association and a
condominium association sought tax-exempt status, which was denied since
the organizations’ activities were for the private benefit of its members,
not the public at large.”
The IRS has set forth three requirements for any association to meet. Find
out the test, and get insights on why you should probably never apply for that
status in our new article: http://www.hoaleader.com/members/1321.cfm
Best regards,
Matt Humphrey
President
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Recent articles posted at HOAleader.com:
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True Story: IRS Denies Condo Tax-Exempt Status
An under-24 unit condo association has been denied tax-exempt status by the
Internal Revenue Service.
What? You're not tax-exempt? How could that be?
Here we explain the ruling and discuss whether it's an outlier or offers
lessons for other community associations.
Click here to read full article:
http://www.hoaleader.com/members/True-Story-IRS-Denies-Condo-Tax-Exempt-Status.cfm
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How to Treat an HOA Owner Who Wants, But May Not Need an Accommodation
In this week's tip, we tackle a tough question: Must you accommodate a
disabled owner if the accommodation isn't absolutely, positively
necessary but is just something helpful to the owner?
Here's the back story. An HOAleader.com reader says one of the HOA's owners
uses an electronic wheelchair to leave the home. That owner would like
permission to attend the annual HOA meeting remotely, even though the
building and meeting room are both accessible. And the HOA's bylaws
apparently don't provide for remote access.
Click here to read full article:
http://www.hoaleader.com/public/How-Treat-HOA-Owner-Who-Wants-But-May-Not-Need-Accommodation.cfm
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What's a Reasonable Accommodation in This HOA's Situation?
An HOAleader.com reader asks: "Our HOA is in Pennsylvania. We've already
sent out our notice of annual meeting. Proxies may be executed by homeowners
who wish to vote but are unable to attend. A young homeowner, who uses an
electric wheelchair when she leaves her home, has requested 'remote
access' to the annual meeting.
Click here to read full article:
http://www.hoaleader.com/members/Whats-Reasonable-Accommodation-in-This-HOAs-Situation.cfm
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What to Know About Hosting HOA Activities to Make Owners' Lives Easier
Whether it's farmer's markets, ride-share parking spots or sign-up
sheets, or seminars for owners from local experts, you might want to
consider hosting new activities at your HOA to build a sense of community.
But there are risks. Here we offer tips for improving services while keeping
your HOA's legal liability in check.
Click here to read full article:
http://www.hoaleader.com/members/What-Know-About-Hosting-HOA-Activities-Make-Owners-Lives-Easier.cfm
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Resist Temptation! Don't Insert Yourself in HOA Owners' Rentals
In this week's tip, we give you a heads up on a debate started with comments in a
recent HOAleader.com webinar on what boards must know to strengthen HOA
rules and fine procedures.
One of the panelists, Matthew A. Drewes, a partner at Thomsen & Nybeck PA in
Bloomington, Minn., who heads the law firm's community association
representation group, said he advises his HOA board clients to stay out of
the owners' processes for choosing renters.
Click here to read full article:
http://www.hoaleader.com/public/Resist-Temptation-Dont-Insert-Yourself-in-HOA-Owners-Rentals.cfm
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