Are HOA non-profit and do they need to be incorporated?

Our developer just turned over the HOA to the neighborhood and we just elected
officers and board members. The one main task of the HOA is to maintain
retention ponds & drainage system.
One question we have:
Are HOAs non-profit organization? Do they need to be incorporated?
Do they need to pay taxes on the property?

Thanks for any answers or comments.

OGJ

Robert,

Thanks. The developer had organized it as an LLC.
They gave us a copy of the bylaws which read more like a corporation's bylaws [I suspect that they use a corporate boiler plate bylaws and modified it for HOA]. I will do the search.

Also search for these terms:
developer transition
developer transition checklist

Laura,

Does sharing a common facility like the pond with neighborhood qualify for "benefitting general public" to get non-profit status?

Thanks,

Oly

I'm not sure what qualifies as "benefitting the general public." We didn't qualify since we only have private roads. Perhaps others here know more about it.

lot's of questions, let's see if i can help.

It is up to the board to determine if you are a non profit organization or not. You set the budget, you spend the money, you raise the assessments. MOST HOA's run as a not for profit, but you certainly can make money from your owners, should you desire to do so. They might not be so happy, however.

Yes, you pay taxes on common property. The HOA owns it, so property tax, etc. is attached.

Typically, you file IRS taxes once a year, before April 15th. Most HOA's generally don't owe much, but again, if you made a lot more than you spend, and used that for parties, new cars, ski vacations, etc., then you will pay income tax on it. If you simply put it back into the HOA (reserve funds, maintenance, etc.), you typically don't.

and you must be careful with "open to the public benefit"... your OWNERS are not the PUBLIC. they are shareholders in the business. If you open a pond to "public benefit", that means I can use it anytime too. It also means you must abide by the ADA, and many other federal laws, since you serve the public and are open to all.

Generally, you should offer services ONLY to those who pay assessments (your owners).

Thanks Brian and Donna for the good answers.
I am concluding now that we need to incorporate but not as a not-for-profit. We'll not make money
except for interests.

Oly,
I hope you take a little friendly advice and consider you may be in over your head. It is not a simple process you have to do to straighten out this mess. It is a decision that has to be made by the owners, not just an individual (you). You have received some solid information here and it would be hoped for your associations sake that you utilize all the talents of your fellow owners. There is nothing wrong with getting a good lawyer to do this (not the developers) as there can be liability involved here if the process is not done correctly.

Brian and Robet,
All good information, however, when I read the definition of not-for-profit 501(C3) it doesn't seem to fit HOA, even though it's main function is not to make money. See these links:
http://www.clickandinc.com/Massachusetts_nonprofit.asp
http://business-law.freeadvice.com/corporations/non_profit_corporation.htm

It seems to me that HOA should incorporate as S or C corporation and pay little tax by, as suggested,
making sure income vs expenses are nearly 0.
Has anyone tried filing with clickandinc [it claims it is not-for-profit status]?

Robert,

I was talking to a colleague who lives in a small private neighborhood and has an HOA to oversee roads and ponds. I guess their town is small and cannot afford to maintain the neighborhood.

I did find an article from I believe lawyers.com that said HOAs are typically not-for-profit corporations [no one has come out and said definitively]. Mass government website has forms to file for not-for-profit corporation. This thing with HOA was over my head but I am determined to be familiar with the basics so that when I go to hire lawyers, accountantc, etc.,
I have an idea what I want. These professionals tend to specialize in areas and general practice lawyers can cost more money if they have to research and learn the corporate law or some specific law.
At one time, I was looking at starting a small business and got a lot of information from Small Business Administration. They don't discourage people from filing for incorporation themselves, in fact, to save money they do give some advice although there is always a disclaimer. I do believe, if one is determined and has time, one can do it. It seems that one either have time but no money, or have money but no time. To open a bank account, I got a tax ID over the internet, it was real easy.

Additional comment:

If your expenditures are less than $5,000, the IRS doesn't care about you - (even up to $25,000) So you need to list all your liabilities and determine if you should organize yourself as a corporation or keep it as an Association.