COULD WE LOSE OUR 501(c)4????

Going into debt should not affect such a status.
Having a bad debt should not affect such a status.

John,

You may want to read this history from the IRS: HOMEOWNERS' ASSOCIATIONS UNDER IRC 501(c)(4), 501(c)(7) AND 528 .

Here is the conclusion from that article:

8. Conclusion
In order to qualify for exemption under IRC 501(c)(4), homeowners' associations with the general characteristics described in Rev. Rul. 72-102 must overcome the presumption that they are essentially and primarily formed and operated for the benefit of their members. This can be done by a demonstration that
the organization is primarily formed and operated for the benefit of the community. A homeowners' association may impose some reasonable restrictions on the use and enjoyment of a small portion of its overall common property or facilities and still qualify for exemption under IRC 501(c)(4). As alternatives to exemption under IRC 501(c)(4), a homeowners' association may elect to seek exemption under IRC 528, or it may restrict its primary function to the ownership and maintenance of recreational areas and, if it otherwise qualifies, qualify for exemption as a social club under IRC 501(c)(7).

You may also want to review 26 U.S. Code § 528 from Cornell Law School.

Yes TimB... I have read all of this and have printed it out and highlighted for reference. I don’t argue that our association has met all of these items in past years, but this will be a game changer... and as I stated, the definition of Association Property in order to meet the 90% of expenses requirement.... it’s not going to happen. Now I just wonder if the CPA plans on writing it as though it is association property in order to meet the requirement.

Every time John gets schooled he leaves! LOL. Nice work Tim.

Replying to an old thread to ask a related question. My POA is also a 501(c)(4). I wonder how it got accepted as a social welfare association. I just found this article: http://www.501c4taxexempt.com/index.php?option=com_content&view=article&id=3&Itemid=3

Under 501(c)(4) HOAs it states: There are 3-ways for an HOA to qualify for tax exemption under IRC Section 501(c)(4):

1) The association grants public access to all of the association amenities without significant restriction. An example of this type of an association will be one that maintains extensive slopes and fences and monument signs and parks as the common areas in a single family residence association and does not have security that patrols to keep outsiders from using such facilities. A variation of this is that there may be some restrictions such as limited access to pool and tennis court areas. So long as they are not substantial, significant restrictions, the association will still qualify.

2) The association covers the same geographic territory as a governmental unit. An example of this would be an association that has approximately the same geographical boundaries as a City or California Community Services District. In such case, even if the association is gated, it may still qualify for tax exemption under IRC Section 501(c)(4).

3) The association itself qualifies as a community. By definition, this generally must be a very large or very remote association in that it has such a large population that it would in and of itself qualify as a community even if there are restrictions on access. This is very rare and is not usually encountered in urban areas.

1 and 2 would not apply. 3 likely applied decades ago when the 501(c)(4) was granted - mid 1980s. It is not large, ~50 lots, so it was not the first part. That leaves the remote part. At the time that that tax exempt status was granted, and through the early 1990s, there was nothing near the subdivision for around 8 miles. Mostly farm and pasture land around it with a few scattered homes on large acre tracts as the nearest neighbors. So I assume that was the basis.

Now there are similar sized subdivision adjacent to it as well as retail centers and industrial office space within less than a mile of it.

If my assumption is correct, and the 501(c)(4) was granted for #3, if the IRS were to studied it for any reason, finding development right next to it, what would happen? And what could trigger the IRS to look at it?

Here's the 2015 article mentioned above. It seems instructive.

https://publicintegrity.org/politics/irs-rarely-audits-nonprofits-for-politicking/

Note: I quoted the wrong message in my reply above this.

In HOA's people fill out wrong tax forms and do taxes wrong on a regular basis. Really isn't a big deal unless your audited. And even then, itsnt a big deal. IRS isnt going out of its way to make sure a HOA that owes $0 in taxes does everything perfectly to then owe $0 in taxes. Simply isnt profitable to go after someone who owes no taxes.

Should it be done correctly? Yes.

Sorry for typo and late clarification. He refuses to issues 1099s. 990s are being done.