Fed Income Tax on non-profit Homeowners Association

The community in which I live is governed by a Homeowners Assn, which is registered as a Florida non-profit organization. Issue has arisen regarding taxes which might be due on "Reserve Funds." Since the Assn owns the paved roads, plus retention ponds, there is a need for building up considerable reserves in order to fund periodic maintenance, and occasional major resurfacing (roads) or re-engineering/rebuilding of ponds. Past Board policy has avoided building reserves -- because of the belief that they would have to pay taxes on them. Does anyone know what FIT law is in this area? Since we're talking upwards of $500,000 potential obligation for the two projects, the annual tax "cost" would be significant -- probably larger than the total budget for normal yearly expenses, so this has deterred Board from building reserves. Since the ByLaws also _require_ the Board to maintain these facilities, there is clearly a Catch-22, if FIT is due on the reserve funds or interest earned as they accrue in preparation for meeting the obligation to rebuild and maintain. Does anyone have an answer to this? A cite would also be appreciated. Bill

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Bill
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"Bill" wrote

The homeowner dues are not income to the Association, and therefore the accumulation of funds are not a taxable event. Now, the interest earned on that money, if it is so invested in like CD's, would be taxable income to the Association. Take a look at the 1120-H. That's maybe the best way to go, or you can elect to use the straight corporate form.

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The question does come to mind though, what have you been doing all these years?

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net

Reply to
Paul Thomas, CPA

To answer your question: The "old" board wasn't accruing any significant reserves. A new president was recently elected and in seeking to revise this stupid policy, sought my aid in convincing "old" carryover members of their error. Problem has been resolved, as several carryover members resigned, and previous posters provided info similar to yours -- so now the remaining problem is the need for "special assessments" to cover for past errors. Bill

Reply to
Bill

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