Homeowners Association Tax Exempt Entity vs. Non-profit Entity
The term “tax-exempt” refers to the status granted by the IRS to qualifying organizations. ... 501(c)(3) tax exemption applies to Federal income tax and Federal unemployment tax. States also grant tax exemption, but the process and types of exemption vary from state to state. There is a lot of confusion about the difference between nonprofit, and tax-exempt. Many people use these terms interchangeably but they are completely different.
Homeowner Associations are non-profit corporations, under special rules granted by the IRS that make a part, if not all, of the receipts (or “income”) exempt from tax, it is not a non-profit entity. Only charities and other similar organizations are considered non-taxable entities by the government. Homeowner Associations are taxed under Internal Revenue Code (IRC) Section 528 which defines the type of income the IRS considers taxable and also defines the type of income the IRS considers non-taxable. Some are not taxable, other types of income are taxable.
Homeowner Associations do not have a tax exempt status and accordingly, they do not have a tax-exempt letter from the IRS. The organizational documents for a Homeowner Association would not include verbiage indicating that they have tax exempt status because they do not qualify. Only organizations that qualify for the code section 501(c)(3) tax-exempt status (like charities, churches, schools and other fully tax-exempt organizations) are eligible for tax-exempt status. Homeowner Associations are not part of this group of organizations. They are not for profit but they are not tax exempt.
Because they are not a tax exempt organization, there is no requirement to provide documentation regarding the organizational documents or a tax exempt letter, as no letter exists. They cannot lose their tax exempt status because they are not a tax exempt organization, so there is no exempt status to lose.