I have a Homeowners Association who has never filed a tax return. They have 170 homeowners, each paying an annual fee of $500 dollars. Most revenue (95%+) comes from assessments, all expenditures are for the benefit of homeowners. A new board member has asked me for advice on what to do. She is not sure if a return was ever filed. The HOA has been around for 25+ years. How far back would returns have to be filed? Would the IRS tell us anything about how the entity got their EIN? What penalties could be assessed. Would we start my confirming on what entity the EIN was issued to? And then file the past six years? Any thoughts would be appreciated.
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A homeowners association elects to take advantage of the tax benefits provided by section 528 by filing a properly completed Form 1120-H. The election is made separately for each tax year and generally must be made by the due date, including extensions, of the income tax return.
Taxable income.
Taxable income is the excess, if any, of:- Gross income for the tax year, excluding exempt function income, over
- Allowed deductions directly connected with producing any gross income except exempt function income. Allowed deductions include a specific $100 deduction. The following are not allowed.
- Net operating loss deduction (section 172).
- Deductions under Part VIII of subchapter B (special deductions for corporations).
If facilities are used (or personnel are employed) for both exempt and nonexempt purposes, see Regulations section 1.528-10.
Exempt function income.
Exempt function income consists of membership dues, fees, or assessments from
(a) owners of condominium housing units, (b) owners of real property in the case of a residential real estate management association, or (c) owners of timeshare rights to use, or timeshare ownership interests in, real property in the case of a timeshare association. This income must come from the members as owners, not as customers, of the association's services.
Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR
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