Re: How to accept donations
From: Raines Cohen (
Date: Mon, 15 Dec 2008 05:38:03 -0800 (PST)
On Sun, Dec 14, 2008 at 10:02 AM, Rob Sandelin <floriferous [at]> wrote:
> ANY income you generate from any source is taxable at 15%. This is simply
> how the tax system works. Unless you spin off a 501C3 as an adjunct to your
> organization, and this is complex and expensive, any donations made in cash
> that get on your books are taxable.

When looking at this issue for a California condominium association
(HOA) several years ago, the Finance committee came to the following
conclusions, based on its reading the law and some professional
interpretations of it, for this particular case, based on IRS section

- regular applies-to-all homeowner's dues (assessments) are NOT taxed,
under CA/Fed law. This can include different fees for different units,
so long as they are based on a universal formula approved by the HOA
board; this can include differential amounts related to unit size,
number of residents. Under the code affecting this HOA, it was
required to account for all funds received each year and could not
routinely "carry over" an excess year-to-year without declaring its
purpose. Note that at least 60% of the association's income must be
from dues.

- user fees, like guestroom fees (the example given in the legal docs
we looked at was a pool club fee), are taxed at a Federal rate of at
least 30% BUT all expenses related to maintaining and operating the
property (including, say, utilities) can be deducted, so your net rate
can be much lower.

- "unearned" income, contributions made without any expectation of
return/service/obligation, were NOT subject to tax; presumably there
are limits on annual gift amounts, as there are for unsolicited
contributions to individuals. You may want to talk with your
bookkeeper about how to record this properly and legally.

501c3's nonprofit organizations provide a tax deduction to the
contributor. The issue being discussed here, taxability for the
recipient, is a different ball of wax.

Here's the federal tax form for HOA's, form 1120-H:

Page 3 has the key definition:
> Exempt function income. Exempt function income consists of membership dues, 
> fees, or
> assessments from (a) owners of condominium housing units [...]

Note the "60% gross income test" and "90% expenditure test" hoops to
jump through, yet notice that dues income that meets the standards is
NOT part of the taxable income calculation. Capital gain and taxable
interest is.

I learned a bit about the history of homeowner associations as legal
entities from wikipedia:'_association

(it is particularly helpful to note the "Undemocratic" section and
compare the challenges of many HOAs to the solutions cohousing
neighborhoods have found in consensus-based participation by all

Raines Cohen, Cohousing Coach
Planning for Sustainable Communities (Berkeley, CA)
Moving into our new downtown Berkeley office and planning classes and

Offering cohousing community news and events updates via Twitter:
Share your news by starting messages with @cohousing
Twitter users: FOLLOW COHOUSING or catch up at

Results generated by Tiger Technologies Web hosting using MHonArc.