Golf Course open to the public

Which part?
Opening the course to the public, depositing the funds into the operating account or both?

Typically, the Board has full authority over any common area. Therefore, it's likely that they can open the course to the public. I suspect it's to help pay expenses and keep assessments low.

Typically an association initially places all of the money into the operating funds.

Obviously, the Association will have to pay taxes on any money not raised through assessments as only assessments are usually exempt from taxes.

As a nonprofit, they also need to watch how much non-assessment they raise as it could have other tax implications. Per the 2011 1120-H tax form instructions at least 60% of the gross income must be from assessments or the Association will lose the right to file 1120-H and must use form 1120 which may increase the Associations tax bill.

My thoughts is that will open the Association up to liability if someone gets hurt on the course.

The money earned from selling golf course passes to the public is non-exempt function income and is taxable. Furthermore, if that income exceeds 40% of the association's annual budget the association will no longer qualify to file Form 1120-H and must file Form 1120 instead, and ALL incomes (including association dues) becomes taxable. Depending on the circumstances, this could actually result in a more favorable tax situation. However, the 1120 corporate tax form is far more complicated and may require the assistance of a CPA to file.

I understand your concerns.

Have you expressed these concerns to your Board?
If you have, what was their response?

If the selling of passes started last year, you can simply ask to review the Associations income tax paperwork (which is your right as a member). If the selling didn't start until this year, you will need to wait until the 2012 taxes are filed.

Also our own bylaws and deed restrictions state there can't be any businesses run here.

Thank you Tim, for giving me some information to research and things to look at. Yes, I've seen 990s, but the last one was filed in 2008. My understanding is that they are a non-profit corporation, but does this mean they're filing the wrong returns? They may be filing the 1120, but I'll have to request them, I guess, to know for sure.

We are not under builder control, we were formed back in the 1960s and was turned over. There has always been questions about how things have been going, but we have some new laws now that protect us and we're trying to find out and make sure they get on board with being legal. Would the IRS give this information regarding the tax filings or is this considered confidential and I'd have to request the forms from the board itself?

Thank you again, Tim.

This varies greatly from state to state, but sales tax is normally levied on the sale of goods. The sale of a service -- use of a golf course, in this case -- may or may not be taxed. If they are not required to collect or pay a tax on the golf course admissions then they probably do not need a permit.

Katie, Tim,

You need to be aware that IRS Form 990 is not strictly for 501(c)(3) charitable organizations.

The IRS advises taxpayers not to confuse non-profit organizations with tax-exempt status. An organization can be non-profit, but not be tax-exempt.

There are several organizations that can apply for tax-exempt status by the IRS other than 501(c)(3) charitable organizations. For example:

501(c)(4) - Civic Leagues and Social Welfare Organizations
501(c)(5) - Labor, Agricultural and Horticultural Organizations
501(c)(6) - Business Leagues
501(c)(7) - Social and Recreational Clubs
etc.

are all tax-exempt and will (normally) be required to file Form 990.

An organization must apply to the IRS under the proper 501(x)(x) section by filing either Form 1023 or Form 1024 to be treated as a tax-exempt organization and to be eligible to file Form 990. It should be noted that each type of organization must meet certain requirements with regard to the purpose for which it is organized and the sources of its income and the nature of expenditures. For example, an organization that raises funds for political purposes would not be eligible. The organization will receive a determination letter from the IRS noting approval or denial of the application.

It is possible that your golf club is organized under 501(c)(7). However, to be tax-exempt it must raise funds primarily from its members. According to IRS Publication 557, a 501(c)(7) organization that is open to the public can be denied tax-exempt status. A 501(c)(7) organization can also lose its tax-exempt status if more than 35% of its gross receipts come from sources other than its membership.

A Homeowners Association can apply for tax-exempt status under Section 501(c)(4) or can elect to file with preferential tax treatment as a corporation by filing Form 1120-H under Section 528. Applying for 501(c)(4) tax-exempt status requires an advance determination and continues from year-to-year, whereas the election to file Form 1120-H or Form 1120 can be made each year, does not require advance determination, and the HOA can file whichever form results in the more favorable tax treatment for its particular circumstances that year.

You can learn more details by downloading a copy of Publication 557 from the IRS website.

KATIE

I tested it. Copy the link and paste it in your web browser address. It works.

Hope this works

WOW

I'd love to know how they were able to qualify for that.

I hope for their sake you are mistaken about the 501(c)(3) thing.

As I posted earlier, if they are filing a Form 990 Informational Return, they could be any one of several other 501(x)(x) organizations. My guess would be either 501(c)(4) or 501(c)(7). Either way, there would be restrictions they would have to adhere to in order to maintain their tax-exempt status.

Well, I could've sworn I'd seen somewhere where they are registered as a 501(c)(3) -- I was talking to another homeowner today and asked him, as he knows a lot about what's going on here that isn't right. He said they were registered, indeed, as a 501(c)(3). I'm still trying to find verification, though.

I will let you know what I find!

Thank you Bruce, you're right and I understand. That's why I'm trying to find documentation to back information up. I want proof of what they're doing is either right or wrong and they're not the easiest people to approach. I'm looking for proof before going to them about anything.