Home Owners Association has not filed Non Profit tax forms in years

I recently found out that my Florida home owners association has not filed any tax forms with the IRS in probably 20 years or more. When I sent a certified letter to the Association asking for back tax records, I was informed that the Association did not have to pay taxes, and therefore was not required to file any tax forms. I did some research and found that this is absolutely not true. I informed the Association board of this fact, and I have simply been ignored. I told them that they risk losing their non-profit status by not filing the forms, but my accountant says that I should tread lightly on this subject. Should the forms, all of a sudden, be filed, the IRS may take a look back and see that they have not been filed in many years and take issue with it. Of course, losing our non-profit status would mean serious accounting costs for the community, which only has 89 homes in it. What can I do?

George,

There are different types of non-profits.
I believe you are referring to charitable non-profits vs. other types.

You are correct that, as a corporation, they are required to file tax returns even if there are no taxes owed.
The good thing is that if there are no taxes owed, there are likely no penalties.

If your Board won't listen, then force the issue by contacting the IRS directly.
They will decide if it's an issue to look into or not.

Tim

I have to wonder George what is it exactly you are trying to accomplish? What purpose does you inquiry serve? How about how does this in any way serve your community's interest?

I would guess you might have an mis understanding as to what requirements are necessary for IRS compliance. In my view that would fall on the board and the MC.

Under no circumstances would I contact the IRS and report your concerns. This might bring on some difficulties for your community in the way of cost and the need for professional representation. It just might hold personal consequences for you.

For Jon:

This inquiry serves the board in a number of different ways. First of all, this is a Corporation, and has specific rules it is supposed to follow. I own a corporation and am bound by the same rules, and follow them. Is is proper and fair that this corporation should not, just because? The fact that the Treasurer of going on three decades now has LIED to me and the community is grounds alone for his dismissal. This guy is not a bad person. I do not dislike him. He is, however, incompetent in his position, and eventually, someone else is going to have to pay the price. Secondly, by allowing things like this to continue, the Association members are deluded into thinking that all is well, and that the person, or persons in charge are doing their duty as Association representatives, which could not be farther from the truth. Finally, this leaves a wide open door for legal issues down the road. Say, for example, I get on the Board next year, and the tax issue is found out by the State, our non-profit status is revoked, and now we have to spend untold amounts of extra money to hire a regular accountant to file standard corporate tax returns instead of the simple 11120-H. And then who gets the blame? Me? I was the one to expose the problem, not create it. Simply not right, and simply not fair.

This explains it a bit more....will cite this reference in a second reply

If you want to be a tax exempt organization in Florida, you apply for the exemption first with the IRS. Once you have received your federal tax exemption, then a simple note or phone call to the Florida Department of Revenue declaring your 501c3 status, and you will be off their tax roles. Pretty amazing, but you will likely go to ‘the big house’ and pay restitution if you commit fraud by claiming a corporate tax exemption that is not real.

George are you a tax accountant? Domyoumhave any expertise in this area.

You mentioned your own accountant advised you to tread lightly. Any idea why they might suggest that?

Perhaps,Mathis is not your place or role to investigate HOA tax filings.

My opinion would be to investigate the situation WITH the board. With FACTS! Not maybes or could bes.

Seems you don't have an exact understanding of the filing requirements.

Does the Treasurer handle this sorts of things himself or ismthere an MC and or accountant being used?

I would ask questions. Collect what you know to be the facts and then attend a board meeting and present your findings formthemboard's consideration.

Your corporate taxes and those of an HOA you might find are different. Not knowing how Florida operates best to move forward after you understand what is is you are talking about. I would never self report the HOA.

No Florida tax returns are required. We do have to renew our corporation filing annually with the department of state (sunbiz.org), that runs around $70, I think.

I certainly hope so, we've never filed one! Just to be sure I did a quick check. According this page:
http://dor.myflorida.com/dor/taxes/corporate.html
HOAs that file 1120-H do not need to file a Florida return. HOAs that file standard 1120 do need to.

Allison - If I write a check for a contribution to a Non Profit 501C3 Corporation in FL I can take a
deduction for this on my personal income tax. It is a charitable contribution.
I cannot do this for a FL Not For Profit Corporation, like my Homeowner's Association.

How is a HOA tax exempt?

My former association last year paid $2500 in federal taxes.

We paid $2500 because we had earned substantial interest on our reserve funds.

Most HOA's don't have the luxury of earning that type of income, thus they don't pay income tax on the minimum amount of interest they might make.

IF HOA take in more than they expense, they could be paying tax on that excess income. This is called poor budget planning.

Yes.

To the OP, what kind of yearly income are we talking about, as separate from dues received?

I hope the OP is able to talk some sence into his board and they follow Art's advice, it really sounds like Art may be our local expert on IRS stuff

According to the instructions for form 1120-H, "The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $135."

If tax due is zero then the penalty for late filing is zero.

My question remains unanswered. Where is the requirement to file a return when no tax is due? What you provided would be applicable if a return is required, which would be the case if tax is owed.

This response sounds good to me. We file a tax return every year. Some years no taxes are owed but we file the return. Our CPA figures the taxes two ways. One is figured using just the interest income we have and the other way is figured using our Association fees minus our maintenance cost. I read somewhere that the President can go to jail if taxes owed are not paid. I can't remember where I read this, but I am not taking any chances.

So, I went to the monthly Board meeting tonight with a written explanation of the need to file the 1120-H form and handed a copy to each of the Board Members present. The President of the Board threw my explanation in the garbage, right in front of me and all the Board members and Association Members at the meeting.

George,

The point of doing this was to make the entire Board aware of the issue.
Now the entire Board is aware that the President is an ass.

Something tells me there is more to this situation than we are being told.

I would wonder what if any history exists between the OP and this board.

I have to wonder why the extreme reaction from the board president. And why the other board members followed along.

You can have the most valid point in the world but if your presentation is wrong no one will be willing to listen.

My guess the president and this OP have interacted before and not in a good way.

Perhaps, the OP has worn out their welcome with this president and this board?

Seems the ball is now in the OP's court.

I would be interested in reading where you got the information a board president alone would be held liable and face jail time should and HOA owe back taxes. My guess this is not the case.

GeorgeS19 Fla : whether or not your view is correct, what occurred isn't too different from what sometimes happens when an owner or stakeholder alerts to a potentially substantial problem. Something like proof of periodic elevator inspections - dangerously overlooked - or ignored estoppelling-type disclosures. How easy it is to ignore or even punish Cassandras.

If your organization has a professional auditor and /or legal counsel, you might wish to provide a similar proven input, because you have no control of the Board Minutes.

Governance may face some complications down the road, & future owners may - may - eventually have to fund some omissions by long departed owners. But those who were present have the power which you do not. You seem to have developed the issue & allowed the Board to make its current decision.

Eventually audits of suppliers may trigger some questions for which you conscientiously did your best to prepare your Board. A professional auditor may now be in order, but you may have gone as far as you would wisely go.

Seems like very sound advice. In life the delivery is just as important as the message.

Do we think the volunteer Tresusrer files tax forms and provides accounting for this property? We would never ask a volunteer to do so.

Just who handles the property's finances? Is there an accountant or bookkeeper? How about an MC? My guess they would support following any requirements as to tax filings.

The president's response tells me they were already familiar with the OP's message. Perhaps they have heard it a dozen or more times. Maybe they have been advised otherwise as to the OP's written explanation.

Not sure if the OP has valid concern or opinion on this matter. But at this point it would seem clear the board has no interest in receiving. Messages or advice from the OP. Again, this relationship did not collapse during this last monthly meeting.

Sodas the OP has been advised either take action to remove the board, file legal complaints or move up their plans to relocate.

Their message for whatever reason is falling on deaf ears.

In 2017 our non profit was audited by the IRS for the past years. The IRS found 13 infractions including not having sent any return to the IRS. The following is taken from an article that the home owners sent around explaining what the requirements are.

Does an HOA pay taxes? It’s a common question a lot of homeowners associations ask. While an HOA does not technically operate to gain profit, it is still bound by tax laws. Do HOAs have to file tax returns?
Under the eyes of federal tax laws, homeowners associations fall under the category of corporations. So, even though your HOA is not-for-profit, it must still follow corporate rules when it comes to taxes

When it comes to HOA taxes, there are two forms you must take into account: Form 1120 and Form 1120-H. So, what is the difference between these two forms?

1. Form 1120
Most homeowners associations file Form 1120 with the IRS, though it involves a great deal of work. It also requires a ton of important information to fill out. There are both pros and cons to using this form.
For instance, HOAs that file this form experience a lower tax rate (15%) for the first $50,000 of net income. On the downside, though, it subjects all of your association’s net income to taxation. That means any unused money at the end of the period gets taxed as well. Additionally, accomplishing this form calls for more advanced accounting knowledge.
2. Form 1120-H
If you dislike Form 1120, under section 528 of the IRC, you can choose to file Form 1120H instead. It is significantly easier to accomplish, though it does come with homeowners association tax filing requirements. Your HOA can only file this form if it fits the following qualifications:
60% of your revenue must have come from the association’s members(regular and special assessments, interest, late fees
90% of your expenses must have gone to operations and maintenance
85% of units in your association must be residential
The annual residual income must not be spent for the benefit of the community members
In comparison to Form 1120, IRS Form 1120 H has one noticeable benefit. When you file this form, your HOA can choose not to include exempt function income from your gross income. That means your HOA must only pay taxes on non-exempt income.
When Should an HOA Pay Taxes?
For non-profit corporations, the deadline for filing federal tax returns is 75 days after the end of their fiscal year. Most HOAs have a fiscal end date of December 31, the last day of the year. In that case, the deadline falls on the 15th of March.

If your HOA never filed a tax return or has missed paying homeowner association taxes for the past few years, don’t worry. It is not too late. The first thing you should do is check how many years have passed since your last filing. Then, get in touch with the IRS to see whether you can file a Form 1120-H for the years you missed.

Do HOAs file tax returns?
To reiterate, homeowners associations are considered corporations, which means they do need to file federal tax returns. Such HOAs can use either Form 1120 or Form 1120-H when filing their taxes.

I hope this clears up some confusion. The IRS more than likely will only do a field audit if they investigate the HOA before coming to the site and already know what they are looking for. Usually someone or something notifies the IRS. With that being said the HOA is better off making sure they do it correctly from now on. Our HOA is paying a hefty fine and interest on what is owed. The IRS up until the pandemic were beginning to come down hard on HOA's.

The above info came from information newsletter/ad was put out by HOAManagement.com

The original post was in 2016 - Greg should start a new conversation with his questions because a lot may have changed since then and you won't need to wade through all the old stuff.

That said, it may be best to speak to a tax expert to find out what your options are