One of the most common arguments I hear with regards to homeowners associations and taxes is "our homeowners association is set up with the state as a not-for-profit therefore we are a tax exempt organization." While this is conceptually could be true, in my experience it has never been the case. How your organization is set up with the state rarely has an effect on how it is treated at the federal level. The not-for-profit designation with the state filing means nothing at the federal level. If your association was actually tax exempt you would be well aware of that fact, because the process of obtaining the tax exempt status with the IRS is time consuming and can be costly. Usually obtaining tax exempt status for your association is not needed.. https://www.irs.gov/charities-non-profits/other-non-profits/homeowners-associations
Homeowners associations that only collect dues from their members, will likely just need to file form 1120H. The form 1120H exempts certain types of association income, including regular member assessments, but it doesn't exempt all forms of income and it doesn't exempt an association from the requirement of filing a tax return each year. All associations that collect assessments from members or non-members regardless of size need to file a federal tax return, whether or not they made a profit.
If your association hasn't filed a tax return in the past, the issue becomes much more complicated. The question becomes how do you get your association compliant again. My advice to current board members is do what you can from today forward, because you can't always easily correct for past decisions made by prior boards. Depending on the association's situation, I usually recommend filing the most current tax return first and then correct past issues after that. Contact a CPA that specializes in homeowners associations if you aren't sure how to proceed.
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