Reserves for IL Not-for-Profit Tax exempt

Started by RB4 • 8 replies • 1591 views

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RB4 (Illinois)
Posts: 15

Posted:

Our treasurer has not published the amount of "reserves" the association maintains. According to our by-laws it is a required entry on the budget and expense annual report to homeowners. The treasurer states the info in not shown as a line item but is included in the overall budget. He is a CPA and says the IRS allows the reserve amount to be spread across the entire budget. Obviously not in compliance with our by-laws, but otherwise does this explanation make sense? I requested a written reply but was told a verbal explanation at the next board meeting will suffice. I ask this because our dues were raised to cover unanticipated repairs, with the possibility of a special assessment.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Are you disagreeing with a CPA's advice or are you pi$$ed there was a dues increase, or both?

Where is the "smoking gun" here?

DavidW5 (North Carolina)
Posts: 565

Posted:

Don't know about Illinois specifically but the statement that the IRS allows the reserves to be spread across the whole budget is, to coin a phrase, balony. If there is not a explicit budget line item called "reserves" or "replacement reserves contributions" or something similar then I seriously doubt that you have any reserves. The balance sheet should also list the Reserves under the section for Owners Equity. Just because someone is a CPA doesn't mean they won't bulls**t you.

TimB4 (Tennessee)
Posts: 21,059

Posted:

I agree with David.

The IRS wants to know how much was collected in assessments, what the ratio of qualifying expenses were and if you properly filed and paid your taxes. If you have your Reserves in a checking account, savings account or under the mattress - they don't care providing you report it.

However, the membership should care and should receive answers.
Here are questions I believe your membership should be asking:

a) how much money is set aside in Reserves for repair and replacement of capital components?
b) Where is this money physically located (checking, savings, etc.)?
c) When was the last Reserve Study done?
d) When was the last Reserve Study updated?
e) Is the Reserve fund fully funded to the amount recommended in the Reserve Study?
f) If not fully funded, why not?

Tim

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Tim

I agree with you but it seems to me the OP (in this and other posts) is more a complainer about how things are being done (no matter how done), then really asking how should things be properly done as you have described.

I have begun to question some motives/reasons on this chat rather then answering as I believe more are asking how to "beat" things rather then how to "help" things.

Guess I am becoming skeptical...different then cynical....LOL

TimB4 (Tennessee)
Posts: 21,059

Posted:

John,

I understand being skeptical. Lets face it, most people turn to the internet and do research on HOAs only after they have an issue between them and the HOA. Some are open minded and willing to learn the process. Others believe that they were wronged and are looking for someone to agree with them.

Fortunately, this site is available as other sites on the web will suggest taking legal action and to fight the system. The mainstay posters on this site will ask questions, explain how the system works, provide links to references that back up their opinions and identify who we believe is at fault then suggest options to address the fault. Typically with recommendations to work it out vs. going through the legal process.

Skeptical is good. It's similar to the "trust but verify" process I think everyone should use.

Tim

RB4 (Illinois)
Posts: 15

Posted:

Dear John (C46). In reply to your statements, the answer is neither. I am not pi$$ed there was a dues increase, as I feel the repairs are necessary. I am not disagreeing with a CPA, only seeking clarification to verify his actions. Your term "smoking gun" is just drama. I requested why the reserves are no longer shown on the budget presented to the members. Past treasurers, >5 yrs ago, provided the amount of reserves.

Thanks to everyone who contributed to answering my question.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

Posted By RB4 on 02/29/2012 6:58 AM
I requested why the reserves are no longer shown on the budget presented to the members.

That is something only your treasurer can answer. I've never heard of an HOA not reporting reserves. They are either incompetent or hiding something.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By RB4 on 02/29/2012 6:58 AM
Dear John (C46). In reply to your statements, the answer is neither. I am not pi$$ed there was a dues increase, as I feel the repairs are necessary. I am not disagreeing with a CPA, only seeking clarification to verify his actions. Your term "smoking gun" is just drama. I requested why the reserves are no longer shown on the budget presented to the members. Past treasurers, >5 yrs ago, provided the amount of reserves.

Thanks to everyone who contributed to answering my question.

RB

I was a bit hasty with the criticism. I apologize.

I do agree that there should be specific, clearly defined Capital Reserves funds and if not then the smoking gun is they may not have any reserves.

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