By Gary Poliakoff
A Las Vegas HOA is currently fighting with the IRS over the question of whether $2 million held in the HOA’s savings account is subject to a 30% sales tax as corporate surplus.
Associations are generally organized as not-for-profit corporations (some older associations are not incorporated) and therefore must file tax returns like other not-for-profit corporations. Associations are not entitled to tax exempt status like charitable organizations. To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in the Code. To be tax exempt under IRC 501(c)(4), a homeowners’ association must operate for the benefit of the general public, i.e., it must provide a community benefit – not a benefit to the owners or residents. However, homeowners’ associations are still taxed on any income or support received that did not constitute dues or assessments paid by its property owner-members for maintenance and improvement of its property.
Is there a maximum amount that a POA can hold in its savings account that it receives from dues or assessments?
Not that I know of, but if you are seeing a lot of funds building up, you may want to go to a meeting and ask why. Sometimes, it is for a capital reserve fund. For instance, if you have a lot of amenities like community pool, parks, lakes, private streets, etc., those things can have a hefty price tag when needing repair.