Board taking conpensation

Taking compensation as a board of any non-profit organization is illegal. There just isn't any other way to put it. Your board my feel justified because of the hard work that they do on behalf of the Association, but there is no wiggle room here. Law is law.

Some documents allow or are silent on the matter of compensation for board members and/or officers, and so, would be allowed. However, these documents clearly prohibit comensation, and reduced assessments are a form of compensation, even if they are not salaries and is probably illegal. You'd have to look at the specific language of the insurance policy and what it excludes in coverage to answer that question. Policy coverages differ. Request that the board get a written opinion from counsel, regarding their policy.

Joe

Jeannierae,

That may be the law in CA, but other states have their own laws. Here's the law in AZ for nonprofit corps: "Compensation of directors. Unless teh articles of inc or bylaws provide otherwise, teh board of directors may fix the compensatin of directors."

My personal opinion is that directors and officers should NOT recieve compensation. It would be like paying themselves, wouldn't it? Can you imagine the fury in the assn if the board announced an increase in assessments to cover the expense of the board members' salaries? Some people argue that offering compensation means you would get more dedicated board members. I simply do NOT agree. Not all employees are dedicated to their jobs. Far too many are only concerned about collecting their pay check. Why would anyone think it would be any different with board members of an HOA?

Our ByLaws allow the S/T to be compensated with Board approval. In my case as S/T, I keep track of my time on matters outside my duties, such as presently handling an insurance claim that a PM or outside vendor, such as an attorney, would otherwise handle. We are self-managed. Instead of money, I accept dues credits, though have never collected any. Membership is advised whenever the Board OKs my efforts. $50/hr, we figure, beats $250/hr an attorney would cost. I also get mileage credits for going to the bank, Post Office Box, etc.

George,

We just took over this year so no, we haven't filed a 1099. Though I'll make a note of that when tax time rolls around next year. Thanks for the heads-up. Let me ask, though - would that apply if I (or another Board member) "earned" credits but didn't "collect" them?

I don't know if in-kind compensation for serving on the board could be termed "salary.'

Do you give discounts for dues paid before the due date? We give a 10% discount if paid before. That figure is written off on the balance sheet.

The "value" of the compensation could be, too.

I am not saying that giving in-kind compensation is right or wrong, but I don't think it requires a 1099.

I apologize for my blanket statement. I've worked in the non-profit sector for over 25 years and had a knee-jerk reaction to the concept. Any board I've ever sat on or any non-profit I've ever managed has always had to have an all-volunteer board. But again, that may be California Law. Directors are allowed to be reimbursed for expenses, (accomodations for a conference they had to attend on the non-profit's behalf for example) but compensation for their time is illegal here.

Our documents would not allow such a thing to happen.

First, our documents make very clear that the board is not to receive "compensation" or payment for their service to the board. They are only allowed to recompense out-of-pocket expenses that can are tied directly to expenses.

We can be reimbursed for toner, paper, and envelopes. We can NOT be "compensated" for the amount of time spent on writing, editing, compiling and distributing communications or correspondence (including invoices) with the exception of postage in the distribution portion.

Second, our documents do NOT allow for different assessment rates for different classes of residents, and that includes directors of the board. ALL assessment rates are tied directly to the lot ownership and not the status of the owner, since developer handover (the docs did allow the developer to be exempt from assessments as long as he held the designated class associated with his ownership during his control. That "class" disappeared on change-over and all owners are of the same class).

Any reduction in assessment rate for board members would not only be unethical, but illegal, in our HOA.

Jeannierae,

You said: "You have to report any income over $600 whether you receive a 1099 or not. Also, the HOA is required to report the compensation to the Federal government on form 1096."

This is not quite true. The employer is required to prepare a 1099 for earnings in excess of $600. However, the taxpayer is really required to report ALL income. The IRS does not give them a bye on anything earned under $600! That's why I recommend contacting the employer to find out if they are preparing a 1099 or not. Even if you don't recieve a 1099, the income may be reported to the IRS! I know this for a fact. I worked at the polls last year and was paid $220, but never received a 1099. When I called the elections dept I was told the income was reported to the IRS but they do not issue a 1099. I, of course, reported the income on my tax return.

Mary has the best advise regarding a 1099 Misc. Income Tax form and the IRS:
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"The employer is required to prepare a 1099 for earnings in excess of $600. However, the taxpayer is really required to report ALL income. The IRS does not give them a bye on anything earned under $600! That's why I recommend contacting the employer to find out if they are preparing a 1099 or not. Even if you don't recieve a 1099, the income may be reported to the IRS!"
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In the end, it is the responsibility of the taxpayer to report ALL income.
Also, know when you classify someone as an employee and know when to classify them as contract labor.
Sorry if I had contradicted her response!

Well, I'm not a CPA and I certainly don't hold myself up as an "expert" -- I haven't worked in the field for many years. But, this is how I would handle the transaction. I would make an adjusting entry to credit assessment income and debit contract labor. If that is NOT done then the assessment income would be hard to reconcile each month or at year-end. Doing it this way also enables the treasurer to easily track 1099 info for year-end preparation as that info is contained in the Contract Labor account.

IMO, the compensation should NOT be written off as "discounts" because it really is compensation, whether the board member received cash or not. I'm sure the gov. docs. do not provide for assessment "discounts" to board members.

I certainly agree, the practice of allowing board members reduced assessments would have to be outlined in the gov. docs.

Tamara,

I think it's great that your fellow board members and the members of your community think that you shuold be compensated for all you do. It speaks well of your service to the community. However, that would definitely be a violation of your bylaws. Waiving your assessments is really a form of compensation, even though you are not receiving a check each month. So, do whatever your conscience tells you to do. I'm sure no one is going to complain if the members are behind this. However, members come and go. At some point in time someone may question this practice and the board wouldn't have a leg to stand on. At least that is my opinion.

I wish there was an edit on this thing - take away illegal or wrong and replace with violation.

Shelly,

Call it what you like -- discounts, donation in kind, whatever. Plain and simple it's really being paid for services rendered. Whether you recieve the money in cash or by check or in the form of a reduced assessment, it's money in your pocket. If your docs explicitly said directors/officers can be compensated the board wouldn't be taking a reduction in assessments, they'd be taking a check each month. "Compensated" means being paid for work performed; "reimbursed" means being paid back for out-of-pocket expenses. IMO, they're trying to get around the fact that they are not supposed to be paid for being a board member by "allowing" themselves a reduction in assessments. They should be told that they cannot write the rules! If they feel they deserve to be compensated for their board position, they should propose an amendment to the bylaws. If enough members of the assn are against thier actions in this regard, they should set about to have them recalled.

Let me state my opinion. Payments for services rendered should
be above the table. They should not be in the form of discounts
or reduced assessments. The reduced assessment approach does
not pass the smell test with me. It has the potential for abuse,
and it breeds a sense of self-dealing, underhandedness and unfairness.
Compensation to officers and directors needs to be a line item in
the budget, and be documented with properly signed and endorsed
checks and recognized with a 1099 each year.

I agree, George. And that's why I said it appears the board is just trying to get around the fact that the bylaws do not allow officers/directors to be compensated.

Unless the members of the assn rebel against this -- recall these board members if they have to -- this practice will continue.