The answer is based on IRS publications and regulations as well as on Massachusetts state tax laws
If you may goggle the same information on other sites - most likely the information on these sites is based on same sources and as such shoudl be correct..
I will address all your questions - please feel free if you need any clarification.
What I would like to know is, since we are such a small condo association with no income other than our dues and have never filed, do we have to file?
There are NO difference between small or large condo associations - all are regulated as homeowners associations (HOA) and are required to file the tax return as mentioned above.
If so, do we have to or should we file for past years?
Yes - your condo association is required to file the tax return for each year it existed.
What will happen when we do, are there penalties on the Fed and State level?
If you do not timely file your tax return - you will not be able to make a choice either to file form 1120H or 1120 - and will be required to use 1120.
There will be penalties for late filing and if you owe any taxes - there might be late payment penalties. Penalties might be abated if you file late because of reasonable cause. What can happen if we never file on the fed or state level, since we are so small and haven't filed to date
If your condo association will be audited by either IRS or MA DOR - there will be penalties assessed. I may not say if you will or will not be audited - but that is possible. Also - if no tax return was filed - the statute of limitation on assessment would not be applie.