B.D. from outside of Connecticut writes:
Dear Mister Condo,
Our Executive Board of 5 members has about 80% of their monthly HOA fees deferred as compensation for their time spent working on Association issues. Their contention is that 1099’s need not be issued because the Association is a nonprofit entity as defined by IRS regulations. I believe that is incorrect and that they each should have received a 1099, declared the income, and paid whatever taxes were due to the State and Federal Government. I researched the question and found some information from the National Council of Nonprofits that suggests 1099s should have been issued, but the particular circumstance they cite has to do with charitable nonprofits. I don’t think that makes a difference, but would like clarification before I approach them with the information. Thank you for your time and expertise.
Mister Condo replies:
B.D., since I am neither an attorney nor an expert on IRS regulations regarding non-profit organizations, I cannot offer you a legal opinion on this issue. However, I will say it is tremendously unusual for any individual to receive tax-free income from any source and would not likely stand up to the scrutiny of an audit by the IRS. Further, do your governing documents allow for compensation to Board Members? Most condominium association by-laws forbid compensation of any kind to Board Members as it is a voluntary service, meaning the volunteers seek election and then volunteer their time on the Board. If your Board has taken it upon itself to claim compensation for their volunteer efforts, the association may have a legal case to take action against them and have all monies paid to the Board Members returned to the association. Taking funds improperly from the association is theft and punishable with fines and/or jail. It is most definitely time to speak to a qualified attorney from your state to discuss how your Board has decided to conduct business. If laws have been broken, they need to be thrown off the Board and charged accordingly. At the very least, they should return any money they have received in compensation for their voluntary service. Good luck!
2 thoughts on “Condo Executive Board Deferring Common Fees as Payment for Service!”
1099s are required. There is no exception for non-profits. Penalties are stiff. Every responsible person is liable for any taxes that would be due plus penalties and interest, which could be 100% of the tax. 1099s are the IRS’ latest effort. I am a CPA.
Our HOA board is completely volunteer. NO compensation of any kind is allowed, period