HOA Never Filed Taxes

It appears that your CPA is correct. From the 1120-H instructions:

Late filing of return:

In addition to losing the right to elect to file Form 1120-H, a homeowners association that doesn’t file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $510. The penalty will not be imposed if the association can show that the failure to file on time was due to reasonable cause Late payment of tax. An association that doesn’t pay the tax when due may generally be penalized 1/2 of 1% of the unpaid tax for each month or part of a month the tax isn’t paid, up to a maximum of 25% of the unpaid tax. The penalty will not be imposed if the association can show that the failure to pay on time was due to reasonable cause.

Reasonable-cause determinations. If the association receives a notice about a penalty after it files its return, send the IRS an explanation and we will determine if the association meets the reasonable-cause criteria. Do not attach an explanation when the association's return is filed.
Other penalties. Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. See sections 6662, 6662A, and 6663.

Two options:

1) File for this year and hope the IRS doesn't ask about earlier years (but be ready with prepared docs if they do).

2) File this year and get the past years ready, file and see what happens.

Beth, respectfully have you actually looked at Form 1120? The chances of the expenses zeroing out (or nearly zeroing out) the income are not bad at all. Meaning your HOA may very well have no taxable income or nearly so.

Does your HOA have a reserve fund (for paying for big ticket items, if any)?

Again respectfully, is it possible you are making a mountain out of a molehill?

I see TimB4 already responded. Here's a bit more to flesh out the answer:Short answer: Your CPA is essentially correct.

Long answer:
The phrase "doesn't accept" is not the phrase I would use. What I would have said is that IRS regulations (the CFRs, which have the force of law) prohibit an 1120-H from being filed after its due date and any extensions.

A HOA Board could ask the CPA to file an 1120-H anyway. If the CPA agrees, the CPA does so knowing that the IRS could challenge the return. I expect the cost of responding to an IRS challenge will quickly exceed the potential savings of filing an 1120-H.

I think some HOATalk members might remark: "You think the IRS is going to catch this HOA, today when the IRS budget and staffing has been so slashed? I doubt it." This might be true. But if I were on this HOA's Board, I would feel I had a fiduciary duty to just file the Form 1120.

References:
https://www.irs.gov/instructions/i1120h, Interest and Penalties section

https://www.taxprotalk.com/forums/viewtopic.php?t=1238, posts by Ckenefick

https://www.irs.gov/pub/irs-wd/1223011.pdf

https://www.govinfo.gov/content/pkg/CFR-2024-title26-vol9/pdf/CFR-2024-title26-vol9-sec1-528-8.pdf

In addition you should ask the CPA about having the owners vote on an "Excess Income Resolution" and doing so annually in the future. See https://www.davis-stirling.com/HOME/E/Excess-Income-Resolution . I suspect a well-qualified CPA would say that the HOA should just jump through the IRS hoops and have this owners' vote.

Unfortunately, I think both.

Okay; this seems consistent.

To see the exact //corporate// status of your HOA, go to https://bsd.sos.mo.gov/BusinessEntity/BESearch.aspx?SearchType=0; put in your HOA's name; and see what the web site spews back at you. Report back here what it says.

The Missouri Secretary of State likely "administratively dissolved" the corporation. Be advised that this absolutely does not mean the HOA has no legal responsibilities. The covenants do not go away. Nor do the HOA's tax obligations go away.

To get back to proper legal status:
A CPA has to file the state tax forms (if any) and federal tax forms.

The Missouri Secretary of State has procedures (pursuant to Missouri law) for re-instating the HOA corporation. See https://www.sos.mo.gov/business/faqs, the "Dissolution" section. I see the latter site says the HOA must submit a "tax clearance letter" from the Missouri Dept of Revenue.

FWIW this sounds to me like a well done response to the situation.

I am glad the HOA has an attorney helping it.

To me the biggest concern would be the HOA's insurer. Insurers these days are looking for any good reason to say no to claims and insurance renewal.

I would not be overly concerned. Your CPA will do his job and any interest penalties and fines will likely be rather minimal.