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voluntary homeowners association

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Zigner

Senior Member, Non-Attorney
Can you give an example of something that we might do that makes us "set up to only benefit the members of the association"? All of the examples people listed above do not apply. I am not set on a 501(c)(4) but it appears that there is no alternative (see above).
All money is spent only on items like water quality testing that only benefits the whole community.
 


PayrollHRGuy

Senior Member
Can you give an example of something that we might do that makes us "set up to only benefit the members of the association"? All of the examples people listed above do not apply. I am not set on a 501(c)(4) but it appears that there is no alternative (see above).
Buy a vacant lot and open a public park AND STOP testing the water.
 

zephyrus

Member
It benefits those living in the HOA. It doesn't help the community (town, city) at large.
Our community (HOA members and non-members) is not in a city or town, but rather isolated in a rural setting. We get water from wells and an HOA member's well has bearing on and is influence by a non-member well, so all members of the community benefit from water testing as well as the other activities of the HOA.
 

Taxing Matters

Overtaxed Member
Our community (HOA members and non-members) is not in a city or town, but rather isolated in a rural setting. We get water from wells and an HOA member's well has bearing on and is influence by a non-member well, so all members of the community benefit from water testing as well as the other activities of the HOA.
Do you then test the water of wells of non members too? If you do, do you charge a fee to the nonmember for that? And is that the only thing that your organization does? If not, what other things does the organization do?
 

zephyrus

Member
Do you then test the water of wells of non members too? If you do, do you charge a fee to the nonmember for that? And is that the only thing that your organization does? If not, what other things does the organization do?
We do not test all wells but the ones we pay for are all members of the HOA. Non-members sometimes test their own wells. I believe that a good argument can be made that testing member's wells benefits non-members as well. We also organize wild fire and flood mitigation for both members and non-members. Other activities are mostly social. It's hard for me to imagine that the IRS is going to examine us at this level of detail, but if they do it seems to me that non-members receive benefits. Benefits are never distributed equally to everyone in most organizations.

Turns out that the biggest barrier to being a 501(c)(4) is not the requirements discussed here, but rather the requirement that such organizations be so designated at their inception. For us that was 25 years ago. The penalty can run up to $5000 for non-compliance.
 

FlyingRon

Senior Member
We do not test all wells but the ones we pay for are all members of the HOA.
That is exactly the sort of private benefit that disqualifies you.
Your argument that you're helping someone else by testing a nearby well is illusory.
It also has nothing to do with equality. You can't provide private benefit to the members PERIOD, even if 90% of your stuff is done for others.

Understand, the way this works is they're going to assume you are not a social welfare organization and you have to prove you are.
 

zephyrus

Member
That is exactly the sort of private benefit that disqualifies you.
Your argument that you're helping someone else by testing a nearby well is illusory.
It also has nothing to do with equality. You can't provide private benefit to the members PERIOD, even if 90% of your stuff is done for others.

Understand, the way this works is they're going to assume you are not a social welfare organization and you have to prove you are.
Have there been any court cases that support this view?

As a practical matter, we could offer well testing to a few non-members, which would make this a non-issue. AFAIK, the only information that the IRS has, when deciding whether to grant tax-exempt 501(c)(4) status comes from the 1024a form. Nothing there would allow them to come to the conclusion that we are providing any private benefit to members.
 

FlyingRon

Senior Member
Again, it matters NOT how much stuff you give away to others, it matters how much you keep for yourselves. Private benefit is contrary to a 501 business, unless your Donald Trump.
 

Taxing Matters

Overtaxed Member
Have there been any court cases that support this view?

As a practical matter, we could offer well testing to a few non-members, which would make this a non-issue. AFAIK, the only information that the IRS has, when deciding whether to grant tax-exempt 501(c)(4) status comes from the 1024a form.
The form is a starting point. If the EO examiner reviewing the application is not satisfied that it is complete or has questions about what has been provided he or she will ask for more information. And btw, you don't want to hide any relevant information. If you do and the IRS discovers that later, it may revoke the exempt status previously given all the way back — and impose penalties too.
 

zephyrus

Member
Again, it matters NOT how much stuff you give away to others, it matters how much you keep for yourselves. Private benefit is contrary to a 501 business, unless your Donald Trump.
So you are saying that there can be no benefit to association members? This doesn't seem to be the way it is described in 557. If association members and non-members both receive benefit, which would be the case, I don't see that as being prohibited.
 

zephyrus

Member
The form is a starting point. If the EO examiner reviewing the application is not satisfied that it is complete or has questions about what has been provided he or she will ask for more information. And btw, you don't want to hide any relevant information. If you do and the IRS discovers that later, it may revoke the exempt status previously given all the way back — and impose penalties too.
My point is that no questions on the 1024a are even remotely indicative of the above discussion, so there would be no reason for the overworked examiner to ask for more information.
 

FlyingRon

Senior Member
So you are saying that there can be no benefit to association members? This doesn't seem to be the way it is described in 557. If association members and non-members both receive benefit, which would be the case, I don't see that as being prohibited.
There can't be a private benefit. I'm tired of going round in circles. If you have a private benefit from the organization, it doesn't matter that some of it goes to public benefit. It's all expected to go to public benefit.
 
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