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Arthur Rubin
Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1493
Experience:  22 years of tax preparation experience, including individual, trust, and estate returns.
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Our HOA is 40 yrs old. We are a c4 organization. Over the

Customer Question

Our HOA is 40 yrs old. We are a c4 organization. Over the years we have adopted a number of changes in the way we operate. For instance. we were originally an adult only community, then changed to a +55 community. Now we restrict our parking lot to members only with windshield stickers for id, we only allow guests with members the use of facilities, and we extend fines to individual homeowners if they have weeds in the yard. Just a few conditions that appear to violate the c4 qualifications of the RTC. Are we in compliance with the 501(c)(4) qualifications.    Thank you
Charles Ingram
Submitted: 7 years ago.
Category: Tax
Expert:  Arthur Rubin replied 7 years ago.

I tend to agree that you've drifted out of the 501(c)(4) qualifications. The restricting of the parking lot and the facilities seem to be out of line. The change from "adult only" to "55+" and fining individual homeowners do not seem to be in violation of the conditions.


You might qualify as a section 528 nonprofit, which, in effect, allows you to separate your exempt functions from your non-exempt functions.

Customer: replied 7 years ago.
SCCA is a 501 c 4, civic league.
The IRS says that a civic league or 501 c4 can not dictate the exterior maintanence of the residential lots.
SCCA issues fines against those lot owners who do not maintain their lots.
SCCA does not pay tax on those fines they collect.
So... the SCCA pays no tax on the illegal fines they collect?!!!
I wonder how you feel about this??!! To whom is a complaint filed with?
Expert:  Arthur Rubin replied 7 years ago.
The IRS says that a civic league or 501 c4 cannot MAINTAIN the exterior of a residential property, not that they cannot require the homeowner to maintain the property and collect fines if they fail to do so. (Also, it's not entirely clear that a lawn is "exterior of the property" for the purpose of the IRS regulations; other clauses in the same regulation suggest that it's intended to apply to exterior walls, not to exterior landscaping. But I'll concede the point.) Collecting fines for violations of the CC&Rs probably falls under the quasi-government functionality of the association.

It's probably unrelated business income.
Expert:  Arthur Rubin replied 7 years ago.
The phrasing is "... must not ... provide exterior maintainance"; there doesn't seem to be any implication that the association cannot require the owner to maintain his/her own (property) exterior.
Customer: replied 7 years ago.
I don't like to be pushy but who can we complain to if there are gross violations of our classification? In Calif I think we are suppose to file a report of changes to our governing documents every two years and I do not believe our organization has done this. Our BOD has taken action to violate our own governing documents and there is no one to turn to for help.
Expert:  Arthur Rubin replied 7 years ago.
I'm afraid I can't help you with that. That's a corporate governance question, rather than a tax question.
Customer: replied 7 years ago.
Before I click accept, just one more clarification. Is there a sec of state agency that will investigate organizations that fail to comply with the RTC? I realize you are not in the legal business except for tax info and I thank you for your info. This is my first effort to use this service and I appreciate it.
Expert:  Arthur Rubin replied 7 years ago.
You don't specify your state; but, in general, only the IRS and the state income tax agency deal with non-profit corporation violations. It appears that the 501(c)(4) regulations don't require that the corporate charter restrict the activies to allowed activities, as the 501(c)(3) regulations do. This is conjecture on my part, but my speculation is that, as, for the most part, only the organization and its members are effected by the loss of tax-exempt status, it's up to the members to monitor the activies of the association. As noted in the IRS documents you've commented on, contributions to 501(c)(4) organizations are rarely tax-deductible.

If there were a question of the corporation violating its charter, then there are pontentially agencies in the (state) Secretary of State's office that would deal with it, but it's not clear you have that remedy here.

This is PURE speculation on my part, but bringing the matter up at an association board meeting and/or a pontential misfeasance lawsuit against the board (for allowing the organization to lose its tax-exempt status) seem the only possibilities.

If you hear otherwise, please contact me through allowed channels here on Just Answer. I'd like to know if there are other options, in case the association board for MY HOA screws up.
Arthur Rubin and 2 other Tax Specialists are ready to help you
Customer: replied 7 years ago.
Thanks Mr Rubin. We are in Calif and I receive info from websites such a CCHAL. They have a comment and share capability or forum but I never feel like I have benefited from their info. Lack of confidence on my part. Thanks for you inputs.
Charles Ingram
Customer: replied 7 years ago.
I clicked the ACCEPT box and this page continue to open. How do I get out of the web site.
Expert:  Arthur Rubin replied 7 years ago.
I've received payment. Please contact Just Answer staff if you have further problems.

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