Taxable Income

Please quote verbatim what the wording in either the covenants or the bylaws is that justifies the HOA funding the social committee.

Because "officially chartered" is not the language used in HOA-land.

btw, this is to distinguish from what many HOA's tend to have, which is a Social Committee that is independent of the HOA. Our committees all operate as an extension of the Board of Directors.

I can only guess at what you mean when you say these committees "operate as an extension of the board."

I think you mean you and the directors are amending the covenants without an owners' vote; making things up that have no basis in the bylaws or declaration; and so on. The board thinks it can do this because... what other function would a board have?

I will withdraw from the thread.

I am baffled that someone who seems so experienced with HOA’s is unfamiliar with committee charters, or the idea that committees operate as an extension of the board. So far as I can tell these are completely common things. Our bylaws allow the board to create committees, and almost every HOA has them. But they have no authority, and can make no decisions without the approval of the board.

It would be best to ask a tax professional about this since it matters which form you use to file. Here's an article about it:

Do HOAs Pay Taxes?

Quote from the article:

"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. Some examples of non-exempt income include rental income and dividends."

(Aside: ElleN asked about whether or not your CC&Rs allow spending on social events because this topic comes up a lot here. Some months back I read a blog post by an Ohio attorney who said that if our CC&Rs did not specifically mention social events as an acceptable use of assessment dollars, then the association could not spend those funds for that purpose. But this is Ohio and the attorney was talking about condos. Your state may be different, and HOAs in general may be different.)

Elle does not think that owners' assessments may be used ANY thing, unless specifically specified -- sometimes, I think I recall she even uses the word "listed" in detail in the CC&Rs. I think she'd "accept" funding a social committee if there's some language in your covenants that might say part of the purpose or duties, or some such, of your association is to entertain, or provide amusement for your owners. Cathy agrees with Elle to some extent.

This means that the annual fee for music piped into our high rise lobbies should be abandoned and many, many other items, too, as we have NO such details in our 88 pages of covenants.

Two notable CA HOA attorney firms totally disagree and have their opinions published in newsletters and newspapers. They do not limit their opinions to CA.

I imagine that in David's Bylaws or DE corporations codes, is verbiage that Boards may appoint and disband committees and the Board is responsible for them.

Among other things, it's your misuse of language and disinterest in good communications to which I object.

To the extent the governing documents permit, boards create or appoint committees and assign them certain functions.

You show me a Declaration or state statute that uses the word "charter" with reference to creating/appointing committees, and I will quit giving you a hard time on the point. Same for "extension of the board."

The phrase "extension of the board" suggested to me that you think the committee has certain powers that the board has. You then clarified that no, the committees do not have board powers yada.

I realize you got stuck with those social committees by the declarant. I realize owners there think a main function of the HOA is to provide social events. The HOA is just a few years old. No one has any idea what a reserve fund is. Give this HOA fifteen years. Then see how people feel when assessments go up

You have participated here a few years. You still do not seem to understand that the board operates solely within the four corners of the governing documents. The board has long operated outside these four corners. Now you have a HOA charging owners for such-and-such on HOA property, and there's no legitimate accounting that can be done. You are in a bad situation: If you change how these social events are paid for, people will be angry. If you do things properly, people will be angry.

This is what I suspect. Our finance committee has expressed uncertainty either way, as has our PMC.

Even if it's reportable, it will probably zero out as you said.

A few data points:

* The Ohio attorney I quoted earlier spoke about condominiums in that state. If a Declaration did not specifically mention social events as one of the association's expenses, then that community may not spend assessment dollars for that purpose.

* Based on our discussions in the past, it seems like HOAs' CC&Rs can refer to "the general welfare" or "recreation", which many interpret as including social events.

* Case law differs on whether or not that is a valid interpretation.

* I took a close look at the Declaration of an HOA I worked at where it referred to "recreation". But the article went on to spell out specific instances of this, and it became clear that "recreation" referred to community amenities such as walking trails, swimming pool, clubhouse, lakes, gardens and wooded areas which the HOA must maintain. It said absolutely nothing about community events.

* In my (condo) community's Declaration, it states that the purpose of the association is to maintain "the condominium property". Period, end of sentence, end of article. We have nothing in our Declaration that could be interpreted as covering social events no matter how much we squint at it.

Personal opinion:

Associations shouldn't spend money on things that benefit only a portion of the membership. Whoa CathyA3, you may say - that already happens if some people don't use the pool or other amenities. The difference is that owners bought their homes knowing that the amenities are part of the deal - if they don't use them, so be it. If social events are not mentioned as an acceptable use of assessment dollars in the CC&Rs, then buyers are not informed of this and can't choose to avoid such a community they way they can avoid pool communities.

I suspect that at least some of the differences in case law will boil down to the exact wording of individual CC&Rs rather than any general principle about HOA expenditures.

I also think that this issue is entirely avoidable by holding participant-funded events. Surely there are more important things to fight over.

Which goes back to my original question. If the Social Committee collects $100 from people attending an event, and that $100 is used to fund the event, will the HOA report $100 of non-exempt income, or would they report $0 because the expenses covered the amount collected?

Elle's criticism of David: "Among other things, it's your misuse of language and disinterest in good communications to which I object." I've also read David's postings over time and think he's good writer, who communicates well.

Elle's INcorrect statement: "To the extent the governing documents permit, boards create or appoint committees and assign them certain functions." In many HOAs, the Bylaws have little to say about committees. Perhaps nothing. But most, perhaps all, states' corporations codes do discuss committees and their basic structure. And most HOAs are corporations.

Elle's dare to David: "You show me a Declaration or state statute that uses the word 'charter' with reference to creating/appointing committees, and I will quit giving you a hard time on the point. Same for 'extension of the board.'"

First, why give David a "hard time" at all especially since Elle's fascinating hostility has nothing to do with his query? But, by now, I'm certain she's researched "Committee charters in HOAs" and has seen the MANY citations that (even) I quickly found. Perhaps she learned something.

This one s an especially useful one for HOA boards that’re considering initiating committees: HOA committee charters. https://www.condocontrol.com, Feb 2, 2022 — "A charter is a document that clearly states a committee's mission statement or purpose, defines its budget, details roles and responsibilities …" I even ran into language stating that committees are “extensions of the board.”

Our HOA has a Board policy document defining “committee charters,” and requiring them and what they must contain. CA Corps Codes permit committees and so do our Bylaws.

I’ve seen David’s fine efforts for long enough to know that he’s moved on from Elle’s pettiness about his writing. Oh, Elle also corrected one poster, an excellent writer, about punctuation. I’m simply seeing too many personal attacks by Elle directed at sincere knowledgable posters to let this most recent attack stand.

I, and I’m sure everyone, greatly appreciates Elle’s exceedingly helpful research into state statutes and deeper digging. This has benefitted many, I’m certain.

Posted By ElleN on 09/11/2023 2:31 PM: "You [David] show me a Declaration or state statute that uses the word 'charter' with reference to creating/appointing committees, and I will quit giving you a hard time on the point. Same for 'extension of the board.'" And then she wrote: "I have not found any Declaration or state statute that does."

So, Elle implies that if "charter" isn't in the above documents, HOAs may not use them, let alone require them. Why else would she give the OP a "hard time?" This is Ellen's tendency, to insist that every action boards take must be in its governing docs' wording or state codes. Why even bring this up given that many articles by management firms and others are online about this topic? Oh, wait, could it be her real target is her intense dislike--expressed many times--about HOA funded social events?

To continue trying to sell us her superiority and vast knowledge about everything, Elle again-- for the nth time-- insists I have "reading comprehension" problems. How she qualifies to judge me may have come from a college class she took? I believe I once wrote I have a learning disability, which is true. But, as determined by an actual professional in the field, not a fake, it's not flawed reading comprehension.

I am wondering if Kerry has been hacked? The attitude is a bit off than the normal Kerry. Something seems off... It seemed strange some of the replies...

Many covenants have language along the lines of:

The assessments levied by the Association shall be used exclusively for the purpose of promoting the recreation, health, safety and welfare of the residents in the properties (including administrative and overhead expense) and in particular for the improvement and maintenance of the Common Areas, services and facilities devoted to this purpose and related to the use and enjoyment of the said Common Area and of the homes situated upon the properties and more particular the Association shall be responsible to carry out the following named functions in and about said Subdivision. . .

OR

The Association is for the purpose of maintaining common areas, easements and right of way designated by the Developer for all residents use and enjoyment.

Arguments can be made that promoting recreation or maintaining an area for residents use and enjoyment include funding/hosting social activities.
Depending who is on the board, those arguments can be seen as solid evidence to hold events or not.