QUESTION: The board is looking for new revenue streams instead of raising assessments. They want to allow business advertising in the laundry rooms. I thought that funds could only come from assessments. Wouldn't advertising revenue cause problems with the association's nonprofit status?

ANSWER: No, the outside revenue will not cause problems. Instead of being "tax exempt" like charities, most HOAs are nonprofit mutual benefit corporations. There are a number of ways that tax exempt entities can lose their tax exempt status none of which apply to HOAs.

Tax Filing. Whether an HOA files its tax returns under Internal Revenue Code (IRC) §528 (1120H) or as a non-exempt entity operating within the rules of IRC §277 (1120), there are provisions to deal with non-member user fees and revenue streams. An HOA may end up paying an income tax on such non-member income. However, most CPAs familiar with the HOA industry can minimize this potential tax.