Grants for Infrastructure Repairs/Improvements

I was wondering if anyone knew of or had successfully applied for any Federal, State, or Local funds to improve storm water, streets, or other types of infrastructure.

The question that often gets asked is would the grant be considered taxable income?

Please confirm: Is this HOA now legally tax exempt per IRC 501(c)(4)?

I.R.C. § 501(c)(4)
I.R.C. § 501(c)(4)(A) — Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.
I.R.C. § 501(c)(4)(B) — Subparagraph (A) shall not apply to an entity unless no part of the net earnings of such entity inures to the benefit of any private shareholder or individual.

From the IRS site:
Some nonprofit organi­zations that qualify as social welfare organiza­tions include:

An organization operating an airport that serves the general public in an area with no other airport and that is on land owned by a local government, which supervises the airport's operation,

A community association that works to improve public services, housing and resi­dential parking; publishes a free commu­nity newspaper; sponsors a community sports league, holiday programs and meetings; and contracts with a private se­curity service to patrol the community,

A community association devoted to preserving the community's traditions, ar­chitecture and appearance by represent­ing it before the local legislature and administrative agencies in zoning, traffic and parking matters,

An organization that tries to encourage in­dustrial development and relieve unem­ployment in an area by making loans to businesses so they will relocate to the area and

An organization that holds an annual festi­val of regional customs and traditions.

Some cities or even some counties will have residential light rebates or commercial light rebates. Xcel Energy in Minnesota is replacing streetlights for free. Our association received a cost share grant from the county watershed district, so we could remove Buckthorn from our common grounds.

BillH10, do you think the circumstances for these two HOAs were unique compared to HOAs in general? Or do you feel there is nothing particularly unique about them, and so you would seriously consider advising all HOAs to apply for 501(c)(4) status?

ElleN

To an extent, yes.

In both associations, there was a clear benefit to spending over $3,000 for CPA charges and the IRS filing fee, as well as incurring charges from the PM's for their time. The applications took a great deal of time, especially the second one due to bungling by the IRS, the CPA, and the MC; the Covid shutdown delayed processing the application.

The CPA used for the first application was familiar with the process. He questioned me closely regarding association amenities and whether or not they were open to the public, explaining the IRS would immediately reject the application if amenities were not open to the public, without restriction. The first association had no amenities of any kind, the streets and sidewalks were public, there were no parks or pools. The association existed to maintain the common area landscaping along three major public streets, and to provide an architectural control process.

The IRS was aware of the reason for the application, a copy of the city Beautification Grant paperwork was submitted with the application. This may have been a factor in the relatively quick (about 4 months) approval of the application.

The second association is unique in that it has two common area parks, in reality they are two lots which were too small to be used to construct homes when the development was platted. Both front on a golf course and offer a nice setting for sitting on the park benches to relax, watch nature, or for small child outdoor activities. The parks are too small for organized sports. The association uses one of the parks once or twice annually for community and National Night Out type events. They are not restricted in any way by signage, reservations, etc., which I had to prove to the IRS during the second application process. I also had to prove access to the community is not restricted in any way by gates. This was not a problem as the streets and sidewalks are public and are maintained by the city.

Both associations filed their Federal Taxes on an 1120-H, the only non-assessment income was from bank account interest so there were no complications created by event income or other income sources.

Anecdotally, we are acquainted with members of Boards of other sub-associations in our master association. One of the other sub-association boards has sought 501(c)(4) status from the IRS and has been rejected as the common area they call a "park" apparently does not meet IRS standards.

ElleN

I should have clarified the tax filings--I said they "filed" on 1120-H to emphasize how 'uncomplex' the associations were , they now file on 990.