Cohousing-L Mailing List: Re: Food and Taxes

[David L. Mandel (dlmandel]

Slight addendum to my neighbor, Liz:

It's OK to have a certain amount of income (such as common house rental)
that's not related to the primary purpose of an HOA that has IRC 528
tax-exempt status -- up to 40% of revenue can be "non-exempt function
income." It would be subject to taxation but wouldn't risk an HOA's
otherwise tax-exempt status unless it exceeded the limit. The return we
receive on investment of our reserves is taxable, for instance (and the rate
is rather high -- a reason we have a lot of it in tax-free bonds), but it
doesn't threaten our exempt status. This is all federal law, so it would
apply anywhere in the U.S.

It was primarily for other reasons, not taxation, that we decided not to
allow outsider use (whether commercial, including event rental, or not) of
the common house. It's just not the kind of atmosphere we want for the
space. Hosting events for nonprofits in which a member is actively involved,
and members' own private parties, are OK, with limits as to how often that
can happen.

But if another community wants to rent out the common house occasionally to
generate income, that shouldn't jeopardize 528 status. Remember that the
revenue will be taxable.

Having our separate club for meals and laundry costs prevents a challenge to
their exempt function. It would be an interesting legal case to argue, and I
think we'd win, but we've chosen to avoid it. More significantly, however,
keeping this outside the HOA avoids what could be a tougher case if the HOA,
a corporation after all, were "selling" meals. The state might then want its
cut in sales taxes.

David

----- Original Message ----- 
From: <tamgoddess [at] comcast.net>
To: "Cohousing-L" <cohousing-l [at] cohousing.org>
Sent: Thursday, December 28, 2006 11:31 AM
Subject: Re: [C-L]_ Food and Taxes


> Here in California, we have to keep any money taken in separate from HOA,
or lose our tax-exempt status. So we have a separate club for food and money
we take in from the laundry. It's very important not to make any profit from
 our common areas, so we can't take money for renting anything out, either.
Donations can be made, though I'm not sure if they go to the HOA or the
club.
>
> Liz
>  -------------- Original message ----------------------
> From: balaji [at] ouraynet.com
> > Hi,
> >
> > Are the costs for meals, housing, clothes, etc. incurred in some types
of
> > intentional communitues reported on tax forms or 990/900-PF forms as
> > regular corporate expense or as taxable in kind wages, or as
> > taxable/exempt fringe benefits or as non-cash dividends? Thanks.
> >
> > Charles N.
> > Tuscaloosa Cooperative Association
> >
> >
> > _________________________________________________________________
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