“Waive association dues” is a tax fraud?

Started by SteveX • 11 replies • 1079 views

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SteveX (California)
Posts: 3

Posted:

4/7/2019 I was selected as the president of this HOA.
9/28/2019 HOA meeting has approved that the treasurer lady can waive her association due $149/month for the whole year of 2019. In this way, HOA need to issue W-9 form to her to report her annual income of $1788 in 1099 form when filing 2019 HOA tax return.
This treasurer lady refused to fill the W-9 form. How can the HOA do in the next step as usual?
Thank you for your help and looking forward to your reply.

SteveX (California)
Posts: 3

Posted:

We are in Los Angeles, California.

BillH10 (Texas)
Posts: 1,217

Posted:

Rescind the decision to allow her to waive her HOA fees if she will not execute the W-9.

Frankly, waiving the fees should not be done in any case. What do your documents say about compensation to officers and/or directors for serving? Many do not allow officers and directors to be compensated. If it is not otherwise forbidden in your documents, pay her as you would any contractor.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By SteveX on 10/18/2019 2:19 PM
This treasurer lady refused to fill the W-9 form.

Have someone else file the W-9. Tell her that she is not authorized to make any decisions involving her own house.

Sikubali jukumu. Read all posts at your own risk.

AugustinD
Posts: 5,144

Posted:

First, if the HOA compensates the Treasurer in the fashion described, the HOA would have to issue a 1099-Misc to this woman at the end of every tax year.

Second, when a 1099-Misc is issued, Form W-9, signed by the treasurer, is required in advance. Doing otherwise is a violation of the tax law and so the board's fiduciary duty.

Third, explain the above to the woman.

Fourth, does your Board really want as treasurer someone who does not understand these relatively simple financial topics? Or perhaps prefers to (unlawfully) not pay taxes on income? Is no one else willing to take the job, even for a couple thousand dollars of compensation?

Fifth, if she changes her mind and agrees to submit the W-9, and given the original verbal deal was to 'waive the assessment,' I recommend the Board pay her more than the assessment, to help pay for the roughly 16% FICA/self-employment tax the IRS will demand from the woman upon seeing a 1099-Misc (with some exceptions).

Sixth, like BillH indicated, do make sure your Bylaws or Declaration allow compensation to the treasurer.

JeffT2 (Iowa)
Posts: 880

Posted:

Your documents will state that everyone has to pay assessments (dues). You can't just have a meeting and approve a waiver of what is required in your governing documents. In other words the decision to waive the assessment for the Treasurer is not valid or binding. At any time, the current or future board or a new treasurer can demand that all of the assessments, including all past months and years going back to the statute of limitation, be paid in full by the treasurer, just like any other delinquent assessments, in which case the treasurer will have to pay them.

IMO the only proper way to compensate the treasurer is straightforward real payment, not waiver of assessments.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

NEVER EVER waive dues. They could pay the dues but then be paid that dues amount back in form of income. However, it needs to show up as dues being paid.

Here is the reason. Let's say that you waive dues for 6 months for this lady. 5 years later she gets mad at the HOA and refuses to pay dues. The HOA decides to lien. Well they can't include those 6 months of waived dues. That is 6 months of dues "Poof" gone. A HOA is ONLY funded by it's members for it's members. How much does it effect your HOA budget when someone doesn't pay?

Former HOA President

TimB4 (Tennessee)
Posts: 21,059

Posted:

Steve,

The Board is likely in violation of the terms of the covenants by waiving the assessment.

If you want to pay an Officer (which is what you are doing) for their work, you should write a check and give it to them.

If the individual doesn't want to provide you with the information required to file a 1099, then fire the individual.

NOTE: Paying the individual causes some issues for them as well. They will be considered a professional and not a volunteer. Therefore, they will not be covered by the protections of the Federal VOLUNTEER PROTECTION ACT OF 1997.

Additionally, the Association may have inadvertently hired an employee (vs. an independent contractor) and be subject to your share of payroll taxes (which I get the impression you are already aware of). To help determine if an individual is an employee or contractor, see the following IRS web site:

Understanding Employee vs. Contractor Designation.

OH, make sure you are filing the correct 1099.
Waiving the dues means you file 1099-C (forgiveness of debt).
Paying for services (writing a check) would be 1099-MISC

If the Association wants to maintain compliance with IRS rules regarding the 1099, the Association can still issue a 1099 without a SSN or EIN. However, it must be done correctly:

1) Make a formal demand for the SSN/EIN (written request, copies kept) prior to the end of the year (i.e. do it now).
Include IRS form W-9

2) If you do not get the SSN, file the 1099 but leave the SSN/EIN blank.

3) When the IRS contacts you (and they will) about the missing SSN/EIN, follow those instructions. Note: The instructions will instruct the Association to withhold taxes and send them to the IRS. Additionally, the individual will be subject to a $50 penalty for failure to provide the SSN to you. see: What if a Company Refuses to Provide a W9?

Perhaps, making this individual aware of this issue will have them comply.

Hope this helps,

Tim

SteveX (California)
Posts: 3

Posted:

Thank everybody for your comments and guide, especially thanks to Tim.
All the HOA board members and the president and the secretary are volunteers.We are a small HOA of 20 townhouses. 12 owners including the treasurer lady are like a gang since they are immigrants from south China and speak each other in Cantonese and they don’t know clearly the US society and tax law code and practice, perform on the HOA meeting like gang, as the result to kidnap the HOA in decision makings. The key point is that the treasurer lady controls the bank accounts and she delays in write checks and sends payments in some urgent situations to damage the HOA.
I plan to ask the treasurer lady to write a check to herself for January to October 2019 with the amount of $1490 by the end of this month to push her to make the first step in the right direction.

SueW6 (Michigan)
Posts: 814

Posted:

If the difference between the dues and the stipend you are paying for bookkeeping services is less than $600, dont worry about it.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By SueW6 on 10/20/2019 5:56 AM
If the difference between the dues and the stipend you are paying for bookkeeping services is less than $600, dont worry about it.

In my opinion - very bad.

An audit or financial review would indicate this is improper.
Collect the assessment and pay for services with a check.

KerryL1 (California)
Posts: 14,550

Posted:

I agree with Tim.

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