Taxes and Non-Exempt Income on HOA's Restuarant

Started by JohnW49 • 7 replies • 333 views

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JohnW49 (Florida)
Posts: 8

Posted:

Hi,

I'm hoping this is an easy 'open' and 'shut case' type question. Our HOA has a clubhouse restaurant for one the residents in one of its sub-divisions. The HOA collect an additional HOA assessment from members of this sub-division to help support the operations of this clubhouse. In essence, these extra assessments are applied to 'subsidize' the operations of the clubhouse restaurant, as it losses money every year.

Some members of our community and board feel that the income generated from the sale of Food & Beverages and Liquor/Beer from within the clubhouse restaurant is consider 'exempt' income for the purposes of 1120/1120-H filings.

I flatly disagree with them as per IRC 528 and Internal Revenue Service, § 1.528–9 seems to clearly that this type of income is considered non-exempt. Finally, assuming this is non-exempt income, would it make sense to produce a separte annual P&L of this clubhouse restaurant operation for this HOA sub-division to ensure if we were to be audited, we could establish a clear explanation that we owe no income taxes (as again, the clubhouse restaurant operates at a significant loss).

Thanks in advance for your helpful opinions and comments.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By JohnW49 on 07/07/2021 11:04 AM
Hi,

I'm hoping this is an easy 'open' and 'shut case' type question. Our HOA has a clubhouse restaurant for one the residents in one of its sub-divisions. The HOA collect an additional HOA assessment from members of this sub-division to help support the operations of this clubhouse. In essence, these extra assessments are applied to 'subsidize' the operations of the clubhouse restaurant, as it losses money every year.

Some members of our community and board feel that the income generated from the sale of Food & Beverages and Liquor/Beer from within the clubhouse restaurant is consider 'exempt' income for the purposes of 1120/1120-H filings.

I flatly disagree with them as per IRC 528 and Internal Revenue Service, § 1.528–9 seems to clearly that this type of income is considered non-exempt. Finally, assuming this is non-exempt income, would it make sense to produce a separte annual P&L of this clubhouse restaurant operation for this HOA sub-division to ensure if we were to be audited, we could establish a clear explanation that we owe no income taxes (as again, the clubhouse restaurant operates at a significant loss).

Thanks in advance for your helpful opinions and comments.

What does the associations CPA say? Oh, you do not have one. Foolish.

JohnW49 (Florida)
Posts: 8

Posted:

Haven't asked CPA yet...we have one, but the size of our HOA is quite large and afraid that they don't even realize this element of our HOA.

AugustinD
Posts: 3,698

Posted:

JohnW49, from reading here a few years; given the subject matter of your question; and knowing that very few folks from HOAs/COAs with a restaurant have ever posted here, I think you would be better off posting your question to a pretty well-used tax forum like https://groups.google.com/g/misc.taxes.moderated .

JohnC46 (South Carolina)
Posts: 14,265

Posted:

JohnW

In several posts you ask/criticize how your association does their taxes? Why is this?

JohnW49 (Florida)
Posts: 8

Posted:

huh? I haven't asked or criticized how the HOA does taxes? I am asking if an HOA who has an restaurant has to report the restaurant income as non-exempt. Not too sure what your point is, but I'm asking an honest question and looking for an honest answer.

JohnW49 (Florida)
Posts: 8

Posted:

thank you for your thoughtful suggestion. I will do that.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

Posted By JohnW49 on 07/07/2021 2:02 PM
huh? I haven't asked or criticized how the HOA does taxes? I am asking if an HOA who has an restaurant has to report the restaurant income as non-exempt. Not too sure what your point is, but I'm asking an honest question and looking for an honest answer.

Every HOA is legally setup differently. And to add another level of complication, every state is also different. There is no way anyone here could know if "your" HOA is doing anything correctly without going over all of your financials and HOA paperwork to correctly asses if your doing things right. Thousands of variables.

Your going to have to pay someone to do that, its not free.

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