No filing with IRS in past years

Started by MaryM12 • 14 replies • 4810 views

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MaryM12 (Virginia)
Posts: 7

Posted:

I became the Treasurer for our 180 home HOA last year and recently discovered that no returns have been filed with the IRS ever--our HOA was formed around 1972. I have been trying to get the Board interested in dealing with this issue ever since and we are finally meeting tomorrow. We can easily file a 1120H for 2007 which will result in no taxes owed, but what do I do about all the past years? Obviously some professional help is in order but I just wondered if anyone else has encountered this situation--how many years do we go back, what will the IRS do to us, etc.

MicheleD (Kentucky)
Posts: 4,491

Posted:

We did, in fact, have a very similar problem to this.

We discovered in 2006 that the treasurer we had for 3 years did not file taxes (ours didn't go back as far as 1972!!!)

We hired a CPA to sort us out and the way it ended up working out is that for 2003 and 2004 we had to file taxes (and we had to pay because and we lost our non-profit status for those 2 years). We were able to get a 12-month extension for the 2005 tax year, so we filed, but we were able to keep our non-profit status so we didn't have to pay anything, with the exception of a mandatory minimum tax for all corporations that was enacted at our state level for that year. In 2006, we filed on-time and did not have to pay, and since the mandatory minimum tax thing for the state level was repealed, we didn't have to pay that, either.

Of course, we are back on track and will file 2007's taxes, but will not have to pay and keep our non-profit status for that filing year.

Good luck to you. Hope it works out. Keep us posted.

BrianB (California)
Posts: 2,820

Posted:

talk to a tax professional, but I would start by preparing filings for the past six years. No matter what, you are likely to have to file about that far back.

Another option, with higher risk, is to simply file this year, and hold your breath. File taxes for the next six to seven years faithfully, and your problem is solved. If you don't get audited, you are in the clear.

MaryM12 (Virginia)
Posts: 7

Posted:

It is possible we qualify to file under IRC Section 501(c)(4) Tax Exempt. We are a community of single family homes and our common area is open to the public. We are researching this option as we had no requirement to file before this year.

MicheleD (Kentucky)
Posts: 4,491

Posted:

Mary, please keep in mind, Tax Exempt DOES NOT mean exempt from FILING. It only means that certain portions of your "revenues" are exempt from taxation. But that is a CONDITIONAL exemption. If you fail to FILE, you forfeit your tax exempt status for those years you do not file.

Our HOA classified under the Tax Exempt status, however, we were still required to file a tax form.

Our CPA informed us that, with the exemption of an automatic 12-month extension for the previous year's filing, you FORFEIT your Tax Exempt status for every year you do not FILE.

So that is why we ended up filing AND paying taxes in those tax years from 2003-2004.

So it is imperative that you get with a CPA and/or other tax professional to help you straighten the situation out.

MattH (Georgia)
Posts: 5

Posted:

I had the same surprise waiting for me when I became president of our BoD last spring. An additional problem for us was that the former treasurer had not been using the QuickBooks program for monthly record keeping. It took over a month to track down all of the paper records.

I would add that it is *very* important to get quotes from at least three different CPA's. There was a $2,000.00 difference between the highest and lowest bids for service. We were not able to find a CPA with any prior experience with HOA's however we were quite satisfied with the results.

Finally, we were also able to save some money by hiring a bookkeeper to rebuild our files in QuickBooks then send the file to the CPA instead of the CPA doing all the records.

Hope this helps. Good luck.

MicheleD (Kentucky)
Posts: 4,491

Posted:

Quote:

Posted By MicheleD on 02/11/2008 4:24 PM

Our CPA informed us that, with the exemption of an automatic 12-month extension for the previous year's filing, you FORFEIT your Tax Exempt status for every year you do not FILE.

Opps. that should read: *. . . with the EXCEPTION of an automatic 12-month extension. . .*

In other words, in July of 2006, we discovered that our treasurer had not filed since the 2002 tax year. We got an automatic 12-month extension to file 2005's taxes, so we were able to keep our Tax Exempt status for that year and for 2006. But the tax exempt status for 2003 and 2004 tax years was forfeit because we did not file for those years.

So we did have to file AND pay taxes. Fortunately (in one sense) we were upside-down in 2003 (our expenses exceeded our revenue), but for 2004, we had to pay taxes on a marginal *profit.*

Again, very important --> TAX EXEMPT does not mean you don't FILE. You still FILE, but it's more or less just a reporting technicality. However, if you fail to file, you loose your tax exempt status for that year.

BruceC2 (Virginia)
Posts: 54

Posted:

OOOH GREAT this is something else I now find out has not been done by our 30 yr. old POA !!!

MaryM12 (Virginia)
Posts: 7

Posted:

I think you misunderstood what I meant by tax exempt under 501(c)(4). For organizations with less than $25,000 in revenue there was no filing required prior to 2007 for this kind of organization. This option is only available to single family home neighborhoods that do not restrict access to any common areas. Apparently some HOA's do file this way.

I am aware that it is necessary to timely file an 1120H in order to have exempt function income excluded from taxation. If we file this way we will have to file a regular corporate return (1120) for past years other than perhaps 2006. Since we had high expenses that year, it will not matter which way we file.

The board of directors met last night and agreed to hire some professional help. I'm going through the past treasurers records to reconstruct our finances for at least back to 2004 so that that help won't be any more expensive than necessary.

MaryM12 (Virginia)
Posts: 7

Posted:

For anyone who has had to hire an accountant to file past years' taxes, what kind of bills did you pay? Our HOA is fairly small and before this year our revenue was around $12,000/yr. Our main expenses are grass cutting, a neighborhood cleanup day, and insurance--we probably write 12-15 checks a year so the finances are fairly uncomplicated.

BruceC2 (Virginia)
Posts: 54

Posted:

My association collects $ 4,125.00 in POA dues, SUBJECT TO: What we actually collect due to the number of delinquncies When I called my SEC/TREAS to ask if anytime in the last 30 yrs if we had filed with the IRS over our non-profit association we had not. She then contacted her BOOKKEEPER and was told we would have to to go to the FEDERAL BUILDING and apply as for a NON TAX EXEMPT busness licence and pay for dues collected along with fines and penalities for 3-5 yrs.

MaryM12 (Virginia)
Posts: 7

Posted:

It turns out that our HOA did not have a profit any of the years 2004-2006, haven't looked at earlier years. Unfortunately, the past treasurer apparently threw away the bank statements. We do have copies of all checks sent to us for assessment payments and I believe there are bills for the expenses. Things may not be as bad as I thought. We will probably file the 1120-H this year and 1120 for previous years. I have conflicting info on filings previous to 2004.

BruceC2 (Virginia)
Posts: 54

Posted:

MaryM
When I took over last Sept. I had to go back 6 years to get copies of bank statements at a cost of $5.00 a statement, so you still can get those statements if you feel the need to. All we did is walked in and asked for the dates months, year , we got them in about a month.

MaryM12 (Virginia)
Posts: 7

Posted:

We can get statements for $7 each and probably do not need all of them since some months we had no activity other than Dividends (it's a CAP account). The irony is that the Treasurer kept some statements from 15 years ago but not newer ones because they are 4 pages each and take up a lot of space.

Last night I called the IRS to get an idea of how many years we needed to worry about re-creating and the jerk I got said we needed to go back to 1971 when our HOA started and said he could not understand why these HOA's did not figure out they needed to file when they were getting revenue. He said it was the same as an individual not filing. Once he got going on his high horse, I politely said goodbye and hung up.

MaryM12 (Virginia)
Posts: 7

Posted:

If anyone is following this thread, we went to a CPA today who will be handling our situation. His firm has handled a number of these situations where an association hasn't filed. In all cases, it has been resolved without any major penalties or even many filings required. He is going to file for this year and then possibly file a couple more years. With the expenses we had, he should be able to work it out so there was little or no tax due. He said that, if past history holds true, that should be all that will be required. He did not anticipate any major problems over this. In addition, we should be able to learn ways to keep our future taxes to a minimum. I usually do my own taxes, but there are times when you need a professional.

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