Entertainment Committee fees

There is a HOA line item budget for entertainment events in the amount of +$36,000 per year. The Entertainment Committee decided to charge each resident $10 to $15 for each event. Is this legal? There is nothing in our documents that allows for such a charge. Thanks

It would be legal.
It would also be considered taxable income to the Association.

It's possible that the board is unaware of the tax implications.
You might want to bring that issue up - something along the lines of:

I see that the Committee is starting to charge for events. Since this is taxable income (per the IRS) what are the tax implications to the Association?
Will we still be able to file 1120-H or must we file 1120? How will this affect State taxes? See what answers you get.

I not objecting to your tax knowledge, but when have you ever heard of an HOA being audited by the IRS?

2023 Instructions for Form 1120-H from the IRS

We've had a number of discussions in the past about social events and who pays for them. Arguments in favor of participant-funded events include:

* Spending association funds on things that benefit only some owners may not be smart and can lead to arguments (especially if the association is neglecting some higher priority needs in order to pay for it).

* Spending association money on items that are not listed in the CC&Rs as a proper use for assessment dollars may not be legal (this is the case for condos in my state).

* Given how many associations don't budget properly and are actually underfunded, I'm always skeptical of the ones who appear to have money to throw around.

I'll note that HOAs in Florida and some other states are having serious problems with spiking insurance premiums. If a board chooses to skimp on insurance in order to pay for entertainment, I'd say they need a wake-up call - otherwise the community may have itself a wake-up call in the form of an uninsured loss the next time a hurricane rolls through.

This made me curious, so I Googled "IRA HOA audit". This came up: Preparing For IRS Audits of an HOA

It's a little old, though.

I agree that the IRS probably isn't going to randomly audit community associations - too few bucks for the effort. But it may be a different matter if an association comes to their attention for some other reason. And community associations in general are more on the government's radar thanks to the Corporate Transparency Act which is now in effect.

As a board member, I don't want to rely on getting away with shenanigans just because somebody's back is turned. I consider that a breach of my fiduciary duty. In addition, many governing documents require audits of the books, often annual ones. So wrongdoing is likely to be found. This can have other negative consequences beyond the IRS getting shirty.

It looks to me like the $36k is an operating budget line item. For the moment, my only question is what size is your HOA, Frank?? Do you know the reason for the Committee charging the fee?

I can only think maybe the Committee members are trying to keep attendance down because some residents are inviting a lot of guests??