Thinking about 501(c) status for your association?

Loura K. Sanchez | Wednesday, August 6, 2014 | Community Associations Miscellaneous

Occasionally associations consider seeking 501(c) status from the Internal Revenue Service. There are many reasons to do so depending on the objectives of the associations. However, in this interesting article published by Forbes you can see why the decision should be made carefully and with the guidance of professionals.

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The qualification of a community association as we view them - a not for profit mandatory association where membership is based on the members ownership of a real property interest - for benefits as a 501(c) 4 does not fit into our insurance program in the normal course. Specifically, to qualify under 501(3), the association must have a "public" purpose, or amenities must be open to the public. From a tax stand point, most community associations are covered by IRS Code 528. To qualify under 528, there is no public purpose requirement. In our program, we contemplate that the association is limited to the association members and their guests (as well as tentants). Once the association is open to the public, we can obtain insurance for them, but it will not be in our programs at our program prices. Once there is regular public access, the association begins to assume liability exposure that it does not have to voluntarily assume. This in turn exposes the budget driven community association to greater exposure than it need assume.

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