Do Small HOAs Need to File Tax Returns? Advice for Homeowners Associations Filing Requirements

You're definitely in a tricky situation, but let me clear up a few things about HOA tax filings. First, HOAs typically have three options: Form 1120 (standard corporate return), Form 1120-H (the simplified HOA form), or seeking tax-exempt status. Most small HOAs use 1120-H since it's designed specifically for associations like yours. Regarding your 501(c)(3) application - this is unusual for HOAs. 501(c)(3) is for charitable organizations, which doesn't align with an HOA's purpose. Your accountant should know this. HOAs typically seek 501(c)(4) status as social welfare organizations if they want exemption. For your specific questions: 1. Yes, you can file back taxes for previous years. The IRS generally requires returns from the past 3 years to be considered current, though they can request up to 6 years. 2. For years you don't qualify for 1120-H, you would likely need to file Form 1120 (standard corporate return) rather than waiting. 3. It's extremely rare for HOAs to qualify as 501(c)(3) organizations. The IRS would need to see charitable, educational, or other qualifying purposes beyond managing a residential community. I suggest seeking a second opinion from an accountant with specific HOA experience before paying more fees.

I recently went through a similar nightmare with our condo association taxes! After tons of research and calling around, I found this service called taxr.ai (https://taxr.ai) that helped me understand our filing options. They analyzed our financial statements and clearly explained why we should use Form 1120-H instead of pursuing exempt status like our previous accountant suggested. Their system immediately flagged that pursuing 501(c)(3) for an HOA was extremely unusual and unlikely to succeed. They explained that while there are rare exceptions, most HOAs seeking exempt status should pursue 501(c)(4), not 501(c)(3). But they also showed us how using 1120-H was actually simpler and cheaper for our situation. What I liked was how they explained everything in normal language and pointed out exactly where our previous accountant went wrong. Saved us from wasting more money on a dead-end application!

Just wanted to update after trying taxr.ai for our HOA tax situation. I was skeptical at first (as you can see from my question above), but it actually saved us thousands. We uploaded our financial statements and previous correspondence with the IRS, and they quickly identified that we were being led down the wrong path with a 501(c)(3) application. The analysis showed we could qualify for 1120-H in most years by reclassifying some of our expenses properly. For the years we couldn't qualify, they provided step-by-step guidance for filing Form 1120 with minimal tax liability. They even created a documentation package we could take to a new accountant to get everything filed correctly. What impressed me was how they explained everything in plain English. Before this, our board meetings would go in circles trying to decode tax terminology. Their report spelled out exactly what forms to file for each year and why, with citations to specific IRS rules for HOAs.

When we had issues with our HOA taxes, the IRS kept sending us notices but we could never get through to a human to explain our situation. After weeks of calling and waiting on hold for hours, someone recommended Claimyr (https://claimyr.com). You can see how it works here: https://youtu.be/_kiP6q8DX5c They got us connected to an actual IRS agent within a day! The agent explained that we could simply file Form 1120-H for the years we qualified (even if some years we didn't meet the 90% requirement). For the years we didn't qualify, we just needed to file a regular 1120 corporate return. The IRS agent even told us that pursuing 501(c)(3) status for an HOA was extremely unusual and unlikely to be approved. They suggested if we wanted exempt status, 501(c)(4) was more appropriate for HOAs, but even that might be unnecessary given our size.

I need to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it as a last resort because we were getting nowhere with the IRS on our own. The service actually worked! Within about 40 minutes, I got a call connecting me to an IRS representative who specialized in tax-exempt organizations. She was incredibly helpful and confirmed everything others here have said - pursuing 501(c)(3) for our HOA was inappropriate advice from our accountant. She explained that we should file Form 1120-H for the years we qualify, and regular Form 1120 for years we don't. She also mentioned that the 90% requirement isn't calculated the way our accountant told us - some expenses we thought didn't count toward the 90% actually do when categorized correctly. We've now filed the correct forms for previous years and are parting ways with our original accountant. The IRS representative even helped us understand how to apply for penalty abatement since our filing issues were based on professional advice.

As someone who's served on multiple HOA boards over the years, I wanted to add some practical advice. The 90% expenditure test for Form 1120-H is often misunderstood. Many expenses that seem administrative can actually count toward the 90% if they're related to property management. For example, postage and supplies for sending maintenance notices to residents, bank fees for accounts that hold repair funds, and even some legal expenses related to property management can count toward that 90%. Your accountant should be helping you properly categorize these expenses. Also, don't overlook the fact that Form 1120-H has a flat 30% tax rate but only on certain income. Member dues are generally exempt from taxation as long as they're used for maintenance and operations. The only taxable income is typically investment income and any commercial operations.

Has anyone here actually succeeded in getting 501(c)(4) status for a small HOA? I'm wondering if it's worth the effort or if Form 1120-H is really the best option for most situations.

I've been following this thread and wanted to share some additional perspective as someone who went through a similar situation with our 75-unit HOA. First, regarding your accountant pushing for 501(c)(3) status - this is a major red flag. HOAs are NOT charitable organizations and the IRS has consistently rejected these applications. Your accountant should absolutely know this, and continuing to charge you for an application that's almost guaranteed to fail borders on professional negligence. For your specific questions: 1. Yes, you can absolutely file back returns using Form 1120-H for qualifying years. The IRS allows this and it's often the cleanest way to get compliant. 2. For non-qualifying years, you'll need to file Form 1120 (regular corporate return), not wait for 501(c)(4) approval. The IRS expects timely filings regardless of your exempt status application. 3. As others have confirmed, 501(c)(3) is inappropriate for HOAs. If you want exempt status, 501(c)(4) is the correct path, but honestly, for a small HOA like yours, Form 1120-H is usually simpler and more cost-effective. My recommendation: Stop the 501(c)(3) process immediately, demand a partial refund from your accountant (emphasize the inappropriate advice), and find someone with actual HOA tax experience to help you file the correct forms for previous years. The Community Associations Institute has a directory of HOA-experienced CPAs that might be helpful. Don't let this accountant cost you any more money on a dead-end strategy.