Non-Filing of IRS Form 990: How to Rectify

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stargazer
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Non-Filing of IRS Form 990: How to Rectify

Post by stargazer » Sat Sep 22, 2018 11:11 pm

I recently was elected to the board of the association where our home is located. This association was incorporated as a not-for-profit, voluntary entity. Membership is optional to residents of the community, and provides for certain amenities (beach access) for those who choose to join. Income to the association is almost entirely from dues payments from members, and is used largely for beach upkeep and for maintenance of the association clubhouse.

Board members in the recent past have not been financially astute. As a result, IRS Form 990 has not been filed for many years.

We wish to rectify this situation. If we begin filing Form 990 without any acknowledgment to the IRS of not having done so in the recent past, will the IRS likely let this slide (or perhaps not catch the fact that there are missing years)?

Alternatively, what else might we do to make things right?

stargazer

Big Dog
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Re: Non-Filing of IRS Form 990: How to Rectify

Post by Big Dog » Sat Sep 22, 2018 11:35 pm

yikes, that is a Board that I would never join, at least until after all paperwork was certified complete.

Does your board have Director's errors and omissions insurance?

But in answer to you question, you probably should contact legal counsel who speicalizes in HoA's that are non-profits.

btw: in addition to the IRS, you likely have past due state filings to complete as well.

good luck.

Skiandswim
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Re: Non-Filing of IRS Form 990: How to Rectify

Post by Skiandswim » Sun Sep 23, 2018 6:05 am

+1 to legal advise. You might want to exit the Board, this could get complex quickly. IRS penalty is fairly high for 990 late filing ( $20 per day ...). HOA could have lost its non-profit status in certain states when you don't file.

IRS link: https://www.irs.gov/charities-non-profi ... al-returns

cmb16
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Re: Non-Filing of IRS Form 990: How to Rectify

Post by cmb16 » Sun Sep 23, 2018 8:39 am

If you haven't filed a 990 for 3 years, your tax-exempt status was automatically revoked. You can check to see if your organization is on the auto-exemption list by searching the database here:

https://www.irs.gov/charities-non-profi ... -exemption

If it was revoked, you need to re-apply to by following the procedures found in the FACT SHEET pdf, found about half way down the page on the above link.

The IRS is mostly concerned with voluntary tax compliance. Going to them to correct an issue is usually better than them finding out and asking. Chances are the size of your organization isn't big enough to be on their radar, or worth the time to pusure.

Best case, your circumstances fall under one of the options of fact sheet, you re-apply and they forget about returns you never filed, and you stay compliant going forward.

Worst case, your organization is too big and noncompliant for too long to qualify for some of those options and you have to re-apply and file past due returns as a for-profit organization, hoping you didn't have too much/any taxable income during those period. Unless you have substantial assets or annual income, I wouldn't expect this to be the case.

Bottom line, non-profits forget to file all the time. Most of the time, there are no penalties, the only cost is the accounting prep of the form 1023/1024 to reapply.

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vinnydabody
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Re: Non-Filing of IRS Form 990: How to Rectify

Post by vinnydabody » Sun Sep 23, 2018 9:24 pm

There is a big difference between a non-profit and a tax-exempt organization. Non-profit is merely a corporate status in many states and has nothing to do with the IRS, whereas a tax-exempt organization has affirmatively applied with the IRS for an exemption from income tax under Section 501(c)(3) or a similar provision of the Internal Revenue Code. Are you sure your HOA is a tax exempt organization required to file form 990? The organization would have received a determination letter from the IRS.

Typically most HOAs and Condo Associations elect on a year-by-year basis to be treated as taxable entities or to be treated as a limited tax exempt organization under Section 528, which allows income from assessments to be tax exempt. An HOA makes the tax exempt election by filing form 1120H each year. If the HOA fails to file the 1120H in a timely manner (there is the possibility of getting an automatic extension to make the election), then they lose the ability to make the tax exempt election for that year.

https://www.irs.gov/instructions/i1120h

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