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S E P T E M B E R , 2 0 1 6
A
s the old saying goes, there is one thing that is cer-
tain in life and that is taxes. This doesn’t just apply
to individuals, it also applies to most Associations.
The great majority of associations file their annual federal
tax returns as either a regular corporation (Form 1120) or
electing to file as a homeowner/condominium association
(Form 1120H) under IRC section 528. In either case,
the association is subject to federal income tax on certain
qualifying income. The tax rate applied when filing as a
regular corporation is a graduated tax starting at 15% up to
the first $50,000. The tax rate followed when filing as a
Exempt Social Welfare Organizations
Could Your Association Qualify?
By Carol Koransky, CPA
Wilkin & Guttenplan, P.C.
homeowner/condominium association is a flat tax of 30%
on certain qualifying income. Qualifying income is defined
differently under these alternatives as well.
There is one exception that some Associations have been
able to meet. That exception is to qualify as a Sec. 501 c
(4) organization – an Exempt Social Welfare Organization.
The exception is very limited and a number of Associations
that have applied for this status have been denied it. Just
recently, the IRS has been busy once again with issuing
a private ruling on a homeowner Association requesting
such a status. In the recent ruling, the IRS ruled that the
Association that requested this status was denied the status
as it didn’t qualify as a social welfare organization.
What does an Exempt Social Welfare Organization
mean? An organization is considered to be an exempt
social welfare organization if it is primarily engaged in
promoting in some way the common good and general
welfare of the people of the community. The organization
must be operated primarily for the purpose of bringing
about civic betterments and social improvements. The IRS
has described three elements that must be satisfied for a
homeowner Association to qualify for this exemption:
Carol Koransky, CPA, MBA is a principal at Wilkin &
Guttenplan, P.C. Wilkin & Guttenplan is a medium
sized public accounting firm located in East Brunswick,
NJ. Founded in 1983, Wilkin & Guttenplan serves
closely-held/middle market businesses and their
owners, high net worth individuals, the sports and
entertainment industry, medical/healthcare practices,
and a multitude of real estate entities. The firm also
specializes in a number of niche markets, specifically the Common Interest Realty
Association (CIRA) market. Wilkin & Guttenplan is recognized as one of NJ’s top
mid-sized businesses according to NJBiz Best Places to Work in NJ.
Courtesy CAI-NJ.
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