Can HOA refund homeowners for improvements

HOA wants to refund personal property owners for improvements to make community look nice. If the total goes above IRS threshold of 10% of budget for the taxes I would think they could be in jeopardy of having to pay taxes on all assessments collected. Don't want to discuss why they are doing this, just if this could get messy at tax time.

OK but that's the sort of thing people discuss around here all the time.

Why would they want to issue a refund? If the improvements came in under budget, that's great, but doesn't warrant a refund. If you have a reserve fund, put the extra money in there or hold assessments at the current level for next year. Or put the money towards something like a contingency fund that could pay for certain unexpected spikes in the operating budget.

If you issue refunds, homeowners would probably have to report it to the IRS and pay taxes.

I second the recommendation to talk to a tax professional, which most of us here are not. The treatment of assessment dollars differs depending on whether the association files Form 1120 or 1120-H - most HOAs file 1120-H since assessments used to maintain the property are considered "exempt function income" and not taxable.

Also, depending on the source of the excess funds, the refund may be necessary. Special assessments can only be used for the stated purpose of the assessment. This isn't true for regular assessments, in which case the board has options. In this case it makes little sense to return the money, unless the dollar amount is significant, since it's possible that next year's actual expenses may exceed the budgeted amount.