Hello again, I just had a "eureka moment." Your membership could create a revocable trust, name a particular member or members as trustee(s), and each member as a beneficiary, open a bank account and deposit the money necessary to fund the transaction. This trust would be self-settled and invalid, but you really don't care about that, because the trust will only be used to hold the money until the contract for labor and materials is negotiated by the trustee(s). The contract will state that immediately after signing, each member will sign to approve the contract as an individual, and the trustee(s) will be relieved of liability for the contract. The trust will then be revoked, the proceeds of the account will be authorized by the members to be transferred to the vendor on behalf of each individual member, and thus, the contract will actually be between each member and the vendor, which means that the members will be paying for the benefits of the contract directly, and so they will also be eligible for the tax credit to the extent of their individual payment.
The trustee(s) would terminate the trust, close the account, file a single Form 1041 with nothing but zeros on the return, inform the IRS that the trust is revoked and the EIN should be closed out...and that's the end of the deal.Hope this helps.
Your "eureka" reply (thanks) and my reply to your original post may have crossed paths. Here's my reply again, can you please address it?
Actually, my question is not whether our unit owners can take the solar tax credit or not -- we have answered that to our satisfaction in the affirmative. For example, the bottom of the first column of page 3 for IRS Form 5695, Residential Energy Tax Credits, says "Association or cooperative costs -- If you are a member of a condominium management association for a condominium you own or a tenant-stockholder in a cooperative housing corporation, you are treated as having paid your proportionate share of any costs of such association or corporation.", and the instructions for MA DOR Form EC, Solar and Wind Tax Credit, says "Joint owners, who occupy residential property as their principal residence, share any credit available to the property in the same proportion as their ownership interests. A condominium or cooperative housing corporation dwelling unit may qualify." We have also received a similar affirmative answer from our condo attorney. We also have established that we can assess ourselves for the tax credits received (or for any other condo expense for that matter), as long as we allocate the assessment according to the percentage interest.
My question is "We are considering establishing a one-time fund, completely separate from and managed separately from the condo association, into which some (underassessed) individual residents can voluntarily and personally contribute and from which other (overassessed) individual residents can draw. As far as I'm aware, this would not trigger any consequences from the IRS (or the state of Massachusetts)." This is what I would like to verify.
Note from the language of the regulation, which mirrors IRC § 25D(e)(6), provides that to qualify for the credit, the expenditure must be made by the "corporation or association." Or, the expenditure can be made by the individual taxpayer.
Thus, my previous "eureka" moment, is the only way that your members can pool their assets to obtain the benefits of a large contract and also receive the benefits of their direct payments for the tax credit. This assumes that the goal is to improve the individual members' separate properties. If the goal is to improve association common elements/areas, then the association would have to pay -- not the members. Otherwise, the members would be making a gift to the association, because the expenditure would be made by the association, and there would be no corresponding assessment of the membership -- and no tax credit would be available.
Hope this helps.
Let me aim one more time to focus on the area I want to address with my original question. Let's stipulate that the condo association has spent money to buy solar panels, that the association has passed through those costs to its unit owners, that the unit owners have obtained their tax credits for these costs, that the association makes an assessment for (part of) these costs, apportioned accordingly to the owners' percentage interests, and that the owners have paid this assessment. All of that has happened, and is not the subject of my question.
We now go forward from that situation. Someone not connected with the homeowner association board or management (maybe even someone who does not live in or work for the condo) offers to accept voluntary and personal contributions. These contributions can come from anyone, whether they live in the condo or not. That person then uses the money contributed to them to pay various unit owners whose tax credits are zero or otherwise less than their assessment amount. The contributions and the payments are between individuals with no involvement by the condo association, its board, or its employees. The contributors do not intend to deduct these contributions from their taxes.
My question is: to me this would not raise any red flags with the IRS. Do you agree or not?
Regards XXXXX XXXXX
Thanks. Except for one detail relating to the actual scale of our intended transactions, this answers my question.
What I want to mention is that the maximum amount likely paid by any particular M to X would be around $1300, the maximum amount likely paid by X to any particular M would be around $1600, and the aggregate amount of money changing hands would be a bit over $10000. Would these levels of activity likely trigger the IRS radar you mentioned?
It really boils down to the coincidence of the deposits and withdrawls. If they all happen during the same month, the bank security system will probably register it and the security officer will probably report it to the Treasury. If it happens over, maybe 90 days, the amount would be too small, in my opinion to show anything. Again, it's still tax evasion at its core, and as an officer of the court, I must strongly suggest that you do not engage in this activity. Bad Karma -- and Murphy's Law.Hope this helps.