Yup, I’m back. This use to be my go to for odd questions way out of my area. Lets see if it still is.
Joined our Board this year. To say things are a mess is an understatement. We really are on a medium speed train to bankruptcy or something. Assoc, is one of the first in the country or at least Michigan being established about 1975 - 600 homes. Covenants never has been updated But both those isssue are a different topic.
All numbers approx
Income $220,000 almost all from homeowner dues. (as in over $200,000 of it)
Expenses - about $200,000 – $50k alone for lifeguards - we have a pool.
And in short thats the question / issue. For IRC 528 HOA’s 90% or more of expenditures need to be on Management, maintenance and care of property… I don’t see lifeguards fitting in that does it?
But IRC 401c-7 social clubs does seem to fit, We do not have any architectural restrictions that are enforced. (there are some about size of new construction for builder on empty lots)
Apperently the CPA who has been doing are taxes has for a few years always been late and we have had to pay late fees. I dont understand but again new to the board. We are talking about just doing them ourselves as nothing has changed and we have pretty simple income and expenses. Yes once we get the books straight we are looking into an auditor or cpa,
Can’t answer your question, but hopefully the board has Director & Officer insurance. We strongly advise it to any of our people who want to sit on an HOA or other non-profit board.
Yes we do at least have the board covered. LOL Its a sinking ship but the crew is protected.
So more research, Life guards, fall under same as security guards, so count toward 90%.
Was pointed out we have a not really enforced but its there architectural requirements. (they don’t give any specifics other than similiar to whats around or something stupid like that) But its probably enough to make a 401c-7 not plausible.
From one HOA Board Member (since 2020) to another, I applaud and thank you for your time and dedication to the community. I’m in California so we have some strict rules on classifications and CC&R’s, so there isn’t any wiggle room for different tax classifications.
Cash flow is most important, so my greatest advice is to ensure that the property managers have some sort of financial insight. If they don’t, they just push paper without truly knowing the financial impacts. The magic also comes down to the annual budget and making sure you are accruing for SMALL & LARGE expenditures. The small ones are “death by a thousand cuts” and can easily aggregate to a large lump sum, so there needs to be some accurate forecasting for the next Fiscal Year’s budget. Hoping you and the rest of the board can help drive the cash (reserve and operating) balances back up!
In Texas, we have Texas Property Code which includes laws for HOAs. Within that document, HOAs are tax exempt.
We moved into a new neighborhood 2 years ago after living in our other house/HOA for 27 years.
That HOA was fine.
Our new HOA sucks. At the first meeting we went to, we were told we need to understand the CCRs but they are so difficult, just trust what we are told.
Um. I read specifications and building codes for a living.
I quickly caught on to what they meant. We want to apply our own rules because we like them.
I did not make friends with my neighbors. Except the new neighbors because they understood I was holding older neighbors accountable
David. I am a retired CPA and serve on a couple non-profit boards. I will address a couple of issues separately.
Do not attempt to “rewrite” the covenants. Impossible. Covenants are typically written when the development is created and the developer has control. Once the HOA is turned over to the home owners, it is virtually impossible to start from scratch and replace them. You cannot get 600 families to agree on what to serve at a community gathering .. so what makes you think they will agree on new covenants (it is simply a contract).
You can update them. Read your covenants. Typically they have a section for amending them. Individual amendments are passable.
[quote]For IRC 528 HOA’s 90% or more of expenditures need to be on Management, maintenance and care of property… I don’t see lifeguards fitting in that does it?
[/quote]
As you have subsequently posted, they are. Here is a simpler way to think about it. What does not qualify. Basically, UBTI (Unrelated Business Taxable Income). Think interest, dividends, any side business that competes with taxable businesses.
As to the filings. The HOA files an 1120-H. It is not complex. If you have EOY financials, then most of the needed info has already been captured. It is due the 15th of the 4th month following the year end. I say that only because a 1120 (corporate tax return) is due the 15th of the 3rd month.
Here is what I find. Nobody, NOBODY reads the covenants .. which is a contract. They just sign it .. then assume what it says and complain about why does it say this or that. I get that on a monthly basis. Why can’t I do X .. because you signed a contract stating that you wouldn’t. Or .. why did the HOA allow someone to do something they do not like .. and I say “show me where the contract says they cannot do X”.
HOA Covenants are simply a contract. Everyone should read it. If it is confusing .. outline it. But know what you agreed to and what you did not .. BEFORE you sign the contract. Geez.
Before I was on our HOA board, they sent my next door neighbor a notice and threat of a fine for parking too many cars on the street. We live on a lake and at times any of us might have lots of guests .. and cars. The neighbor mentioned it to me. I pointed out that the street is public and the covenants are silent as to the street. He wrote to the HOA and they were surprised the covenants did not allow them to control the streets. Now that I am on the board, I realize that only one other board member had ever actually read the covenants. They just assume what it says.
Just last month, at the HOA board meeting, one of the home owners raised the issue of a tree (being planted at a new house) that the neighbor thought was too close to the street and wanted the HOA to make them move it. That the limbs would hang over the street in a few years. Karens!!!
I pointed out that the covenants did not restrict anything related to the street, that the street was county property .. and that she should address the matter with them. She claimed that she thought the covenants covered everything. Why wasn’t the streets in them.
Like I said, very few read and/or understand covenants. I do. It is not that damn hard.
I was on the HOA board when we had a parking issue. There is no automatic rule that HOAs cannot enforce their own covenants (on HOA members) on parking — it depends on local law and also whether the HOA existed before the road was built.