TX: HOA Fundraiser Questions

Started by KathleenC3 • 7 replies • 2731 views

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KathleenC3 (Texas)
Posts: 2

Posted:

Our HOA has formed a committee of homeowners to put together a Fall Festival and invite neighborhood Vendors to sell their items buy purchasing a
spot for $25 (they keep the proceeds of their sales). The HOA will have games and food at the event and sell tickets to play the games, purchase food and soft drinks/water. We also want to hold a raffle of donated items from around our community.

Our dues are low and our neighborhood is aging with many of the elderly unable to make the necessary repairs or do the upkeep required by the deed restrictions. So we want to have the proceeds or profits of the raffle or the entire event go towards helping those elderly people along with veterans and disabled people who simply can't get these items fixed on their own.

I've researched the web for any information on HOA's hosting these types of events and I can't find anything. Are there guidelines to putting on this type of fundraiser?

Thank you kindly,

MikeL13 (South Carolina)
Posts: 83

Posted:

I believe you would have to be listed as a federal 501 charity to do this. I'm not sure if a non profit corporation like an HOA would able to do that. Tim will most likely post with the best information.

BillH10 (Texas)
Posts: 1,217

Posted:

I understand the intent of those in your association who wish to find a way to assist residents who are unable to manage upkeep and similar issues on their own.

I am going to suggest those who are “in charge” take about five steps back before proceeding further and consider the following:

1. Do your association governing documents permit the association to engage in such activities?
2. Will the funds be co-mingled with association operating funds or kept separate?
3. Who will administer financial aspect of the “Rainy Day Fund” and under what authority?
4. How will the administrators of the fund evaluate relative need and reach decisions regarding disbursements?
5. What downstream liability will accrue to the association if, for example, a property owner who perceives they are in need is passed over in favor of another resident and brings suit against the association.

My recommendation is that you consult with the association attorney and accountant before proceeding any further. Perhaps there are those in the association, if not the local community, who can assist the residents in need through community work days or similar approaches which may be organized and facilitated by the association but which do not involve the association itself.

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Quote:

Posted By KathleenC3 on 07/22/2014 9:46 AM
Our HOA has formed a committee of homeowners to put together a Fall Festival and invite neighborhood Vendors to sell their items buy purchasing a
spot for $25 (they keep the proceeds of their sales). The HOA will have games and food at the event and sell tickets to play the games, purchase food and soft drinks/water. We also want to hold a raffle of donated items from around our community.

Our dues are low and our neighborhood is aging with many of the elderly unable to make the necessary repairs or do the upkeep required by the deed restrictions. So we want to have the proceeds or profits of the raffle or the entire event go towards helping those elderly people along with veterans and disabled people who simply can't get these items fixed on their own.

I've researched the web for any information on HOA's hosting these types of events and I can't find anything. Are there guidelines to putting on this type of fundraiser?

Thank you kindly,

Chances are, if you are incorporated (I believe most HOAs are) your Articles of Incorporation usually define the business of the Association. I'll bet that type of business is not included.

Also, there are tax issues. HOAs usually enjoy a preferred tax status whereby the income from assessments is tax exempt. To have the preferred tax status, the HOA must file Form 1120-H and meet certain tests with regard to gross income and expenditures.

As a general rule, income from sources other than assessments is taxable and the tax rate is pretty hefty - 30%. You are allowed to deduct from that income expenses related to producing the income, but not other association expenses.

Also, keep in mind you cannot hope to raise the bulk of your income in this manner. To qualify for preferred tax status as an HOA, 60% of your income must come from assessments. No more than 40% (before deductions) can come from other sources.

There have been news articles from time to time about associations that also operate golf clubs that have gotten into trouble with the IRS because their golf course income exceeded the income from assessments.

To become a 501(c) organization requires submitting an application to the IRS and receiving a notice from the IRS either approving or denying the application. Some organizations must also pay a filing fee. The most widely known are 501(c)3 organizations, which are charities. There are several others: A 501(c)4 organization is a Social Welfare Organization, a 501(c)5 is a Labor Organization, and so forth. Each has specific rules that must be adhered to. They must also file annual tax returns. Failure to do so can result in fines of up to $250,000 per year.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Kathleen,

As Bruce pointed out, all of the money received would be taxable unless you are a charitable organization (which most Associations are not).

You should also check with your local permit office to see if you need permits to hold such an event.

Since you are selling food, there may be health requirements that must be met (only let retailers who are licensed for such actions sell the food).

Is the event open to the public or just members of the Association? If open to the public, there may be other requirements.

Have you considered additional security needs?

My suggestion would be to start with the permit office. Explain that you want to host a neighborhood festival, that you are inviting retailers and ask what permits you need. That office should be able to assist you.

BanksS
Posts: 403

Posted:

Wow my head spins with all the regulations now. Sure has gotten complicated.

Would the HOA be able to ask a civic organization or a church (perhaps an organization that an HOA member belongs to)to sponsor the event? And then the proceeds be donated to the needy, elderly, down on their luck neighbors for fix ups? As far as disbursement of the funds, a committee from the organization or church could get together and decide. It's no different than other charitable contributions. Someone will always feel slighted.

My previous employer had an annual paintathon. Employees would volunteer to paint the homes of community members whose homes needed painting but did not have the funds to do it. Local businesses donated the paint, brushes, and ladders. The employees provided the labor. So maybe even an employer of a company could be a sponsor. I would just keep the HOA out of it but present the event as neighbors helping neighbors event.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Search festival permits for (name of county)
Or
block party permits for (name of county)

This should help give you more info on what may be needed.

SheliaH (Indiana)
Posts: 6,964

Posted:

Ultimately, you may have no choice but to increase assessments to take care of the common areas, but if your residents need help with maintaining parts of their homes, have you checked to see if there's a United Way agency or church that might be able to help? Our area agency on aging has had programs to assist elderly homeowners with simple home repairs and there are a few churches who also do this as a type of volunteer day for the congregation.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

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