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NON-PROFITS
AND FORM 990
Q: I
read an article about non profits and the need to file what the
referred to as a Form 990?? Does this impact Community
Associations?
 A. Federal
Form 990, Return of Organization Exempt From Income Tax, is the
IRS's primary tool for gathering information about tax-exempt
organizations, for educating organizations about tax law
requirements, and for promoting compliance with tax law. It
is a comprehensive, difficult, and time consuming return to
prepare. It is the return used by any regular (Not Common
Interest Community- CIC) nonprofit entity that is large enough in
their operations that they cannot use the shorter Form 990-EZ.
(Believe me it is not that much shorter or EZier!)
These are primarily charitable organizations that have been organized
under the Federal 501 (c) sections of the IRS code. Such
organization must have an approval letter from the IRS that
indicates that they have been approved as a charitable organization
and which section of 501 applies to them.
Form 990 rarely applies in the CIC situation. So far I have
only worked with one that had obtained its nonprofit status, and it
was formed back in the '60's. It is pretty easy to determine
whether a CIC can file a Form 990 - they need to produce the
approval letter. I check this even if the association shows
me filed Form 990's from prior years. Because, unfortunately
I have seen situations where a Form 990 was prepared and filed when
it should not have been.
A CIC can choose between the Form 1120 - U.S. Corporation Income
Tax Return, or Form 1120-H - U.S. Income Tax Return for Homeowners
Associations. The choice should be weighed each year and the
appropriate filing elections made depending on the return that is
being filed.
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HIRE
A CPA?
Q: We
are a very small association of 12 units. Do we need to hire a CPA
firm to do our tax returns or can the Board prepare them?
 A: There is no
requirement to hire outside assistance to file your tax returns,
but you definitely should have someone that understands the tax
codes and options for filing as they relate to CIC's. Most small
associations file what is called an 1120-H Form, but competent
advice is required even for the small associations.
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BEST
DECISIONS
Q:
Our Board is aware of the Audit/Review option as defined in
515B.3-121 Accounting Controls and has in the past voted at the
Annual Meeting to vote against hiring a CPA to do the Annual
Review. As a fiduciary is this the best decision for the Board? What
if we forget to add this to the Annual Meeting agenda? Are we
required to have the work done if the vote of the members was not
taken?
A: The code you referenced is the Minnesota Common Interest
Ownership Act (MCIOA) and it has various requirements and all
accounting controls applicable to your CIC must be met to be in
compliance. Note that MCIOA currently has an annual review
requirement, not an annual audit requirement. However, each
CIC should read its governing documents to ascertain that they do
not have an audit requirement.
The MCIOA language is "shall" for completing a review
"unless" you meet the other requirements. This would say
that you MUST perform the review unless:
*prior to 60
days after the end of the fiscal year a vote is taken at a meeting
or by mailed ballots
*at least 30 percent of the votes waive the review requirement
*waiver does not apply for more than one year
If you do not
get a waiver from your members, you must provide the reviewed
financial statement to ALL members within 180 days after the end of
the fiscal year. (Individual governing documents may vary from the
180 days.) The review shall be made by a licensed,
independent certified public accountant. The reviewed financial
statements must conform to generally accepted accounting principles
and be presented using the funds method which segregates operating
and replacement reserve activities. Sending out your
internally prepared financial will not meet the requirements of
this section of the code.
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*The comments and answers above are general in
nature. Specific interpretations should be confirmed with the
existing legal counsel or tax preparer. For more information please
visit our website at www.catsmn.com.
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