Tax returns

Started by RitaS • 8 replies • 1698 views

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RitaS (Utah)
Posts: 4

Posted:

I have become concerned that my Homeowners association has not filed the required tax returns each year. I have made a request in writing to review them, but so far have received no communication from the board. They recently passed bylaws indemnifying the trustees, so I am concerned that if the returns have not been done properly, the IRS could come back on me(and all the other Homeowners) for interest and penalties. Is there any other way to find out? Possibly from the IRS?

RogerB (Colorado)
Posts: 5,067

Posted:

Rita, I would continue to go through your Board to get this information. Perhaps they have not responded because they have not filed and are concerned. If that is the case advise them to start filing using Federal form 1120-H. For Colorado form 112 for C Corporation's is used.
These can easily be completed by the Treasurer if you do not have a managing agent. They are so simple we provide this service free to our clients.

For many associations using 1120-H the taxes owed are (interest income less last year's taxes paid less $100 standard deduction) times 0.30. For example, if interest income was $550 and you did not file last year (no taxes paid) the federal tax due would be $450 x 0.3 = $135. We include a yearly income statement with the 1120-H form and check.

The association is responsible and must file even if when they are incorporated as a non profit.

VirginiaM (New York)
Posts: 23

Posted:

I belong to a poa that has not filed taxes in years, nor do they provide any financial statements to members and they too want to add an indemnity clause to the bylaws. Would adding an indemnity clause protect them from being prosecuted if it is discovered that they are guilty of wrongdoing prior to the clause being added to the bylaws? What happens after they add this clause, does that mean that they cannot be held liable for their actions?

JosephW (Michigan)
Posts: 882

Posted:

Indemnity clauses are pretty standard in most documents. However, the fact that the board wants to add one, and with your statements about taxes, I'd probably be a little suspicious. You might want to suggest that it be from this point forward, and only apply to past boards following an independent audit by a CPA and a legal review of board actions by an independent attorney. In other words, no free pass for past actions without some verification. Indemnity clauses should never cover gross negligence, or any other item that would be excluded in a standard Directors & Officers insurance policy (ask the association's insurance agent).

Joe

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RogerB (Colorado)
Posts: 5,067

Posted:

Rita, I recommend all By-laws have an indemnification clause. However, it should include "No indemnification shall be provided for acts constituting gross negligence, or for fraud, or for more reprehensible conduct." Likewise the indemnification in Articles of Incorporation do not protect against wrongdoing.

Board members have a fiduciary responsibility and can be held responsible.

RitaS (Utah)
Posts: 4

Posted:

Thanks everyone for your input. I will check out all your info and suggestions.

MarshaF (Oregon)
Posts: 36

Posted:

I have a question on the 1120H return that I need clarification on. Line C is for Total expenditures described using the 90% expenditure test. Line D says "Associations Total expenditures for the tax year". What is the difference between these two lines ? If I only have expenditures that meet the 90% test, and I put those on Line C, do I also carry the same amount down to Line D or leave it blank ?
Our HOA is small, only income is from our assessments and all our expenditures meet the 90% rule.
Thank you,
Marsha

RogerB (Colorado)
Posts: 5,067

Posted:

Marsha, I would enter the same amount on lines C & D.

MarshaF (Oregon)
Posts: 36

Posted:

Thanks Roger !

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