On 1/2/24, POHOA President Lora Ballweber was called as the first speaker at the HOA Homeowners Rights Task Force meeting. I was signed up to speak as well, which has been part of my advocacy since 2019. I’ve spoken many times in front of Committees at the Colorado State Capital. I’ve spoken as an individual, and as a member of the Colorado HOA Homeowners Advocates (CHHA). But, even while serving as a Director, I’ve never attempted to represent the Non-Profit Corporation, Poudre Overlook HOA of Fort Collins.
But, President Ballweber opened with a statement that she had been authorized by the rest of the POHOA Board to give her statement. That’s different than her citing her position, which is common in stakeholding sessions before governmental bodies. It helps the legislators and task force members understand the perspective of the speaker giving testimony. In this case, she was indicating an official act of the Association, again, a Non-Profit Corporation.
So, after the meeting, I requested that the POHOA Board post the Action Without A Meeting (AWAM) documentation on the Frontsteps website, because there must have been a vote. On January 9, President Ballweber posted the documents, signed by the Board of Directors – absent my signature, as my election is in dispute. This may affect the legitimacy of the action, which is an aside, for the moment.
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Open in new tab Now, the fact that there are factually inaccurate and misleading statements within the testimony is another matter to leave to the side for this analysis. The question is whether POHOA was attempting to make lobbying a primary activity of our Non-Profit Corporation. When I showed this to some of the HOA stakeholders I’ve been working with for several years, they were shocked that any HOA would take this type of official action – in writing, no less. There are legitimate questions about whether this is proper fiduciary duty.
But, the POHOA Board didn’t stop there. At the Regular Board Meeting on 1/10/24, the POHOA Board used a cryptic agenda item to take an action that appears to hide the intentions of the POHOA Board. I wrote about it in the review of the meeting in this article: DECODED AGENDA: Beneath The Surface Of A Mundane Meeting
While the agenda item was “Larimer County Legislative Contact”, President Ballweber admitted that they were voting on making her husband, Jeff Ballweber, who said had an “insane amount of lobbying experience” the “liaison” with legislators. Except there are none at Larimer County (meaning the County Government), because we don’t have a legislative body at Larimer County. I asked at the meeting whether she was attempting to influence County Commissioners who can vote to pass County Code, and she said that wasn’t it. Odd. She tipped her hand when she said “the legislative session only begins today” when asked what the purpose of having such a person was, and that they intended to react to proposed HOA legislation, or, as the written statement advocates, call for legislators to create laws that address concerns they outline.
That’s different. It means that according to Colorado Statutes, we’ve now created a “volunteer lobbyist” without the explicit consent or notification of the members of the Association. Unless, of course, putting “Larimer County Legislative Contact” is the means by which the POHOA Board thinks it gave notice, and having 2 homeowner households allowed 2 minutes to speak at the meeting when the vote was taken is some form of consent.
“CRS 24-6-301(7) “Volunteer lobbyist” means any individual who engages in lobbying and whose only receipt of money or other thing of value consists of nothing more than reimbursement for actual and reasonable expenses incurred for personal needs, such as meals, travel, lodging, and parking, while engaged in lobbying or for actual expenses incurred in informing the organization making the reimbursement or the members thereof of his lobbying.”
Also noted is the section on prohibited activities in 24-6-308. Prohibited practices.
“(1) No person engaged in lobbying shall:
(b) Knowingly attempt to deceive, or make a false statement to, a covered official regarding any material fact relating to a matter that is within the scope of duties of the covered official;
(e) Knowingly represent an interest adverse to the lobbyist’s client without first obtaining the consent of the client after full disclosure by the lobbyist of the adverse interest;“
The penalty for violating these laws is outlined in the same section. It’s a misdemeanor. Given the evidence that false statements are in the document signed by the Board above, and the fact that the action was taken via AWAM (prior to an open meeting making Director Jeff Ballweber an official volunteer lobbyist), it raises questions as to whether or not these Directors did proper due diligence, and whether they are property exercising their fiduciary duties.
NON-PROFIT STATUS
The first thing that most astute HOA homeowners will think of is whether or not lobbying risks the Tax-Exempt Status of the Non-Profit Corporation, Poudre Overlook HOA of Fort Collins. There are numerous articles about whether an HOA should become a 501(c)(4) or 501(c)(7) organization, and how each structure has different rules related to lobbying. Were POHOA either of these types, the answer as to whether this lobbying is a primary activity and the creation of an official “volunteer lobbyist” wades into such waters would certainly be a valid inquiry.
One such article is TAX EXEMPT ASSOCIATIONS – THE COMPLETE GUIDE by Gary A. Porter CPA. We can distill from this article two important points:
- 501(c)(4) is for social welfare organizations
- 501(c)(7) is for recreational activity organizations
We don’t appear to be either of these. And, I can’t recall a single homeowner ever saying they want us to be at POHOA at any meeting.
So, if we aren’t either of those, how are we a Non-Profit Corporation?
The confusing answer is: We are not actually a Non-Profit with the IRS. And, while we may use certain forms with the IRS to write off our expenses, there’s some interesting twists regarding how much of a ratio of our expenses can be used for certain activities, as well as whether or not we pay taxes on any income that is not derived from assessments. More on that later.
According to Colorado Attorneys, McNurlin Hitchcock & Associates:
“Homeowner Associations or HOAs are unique because they are really designed to act on behalf of individual owners or members. For that reason, the HOA is not generally taxed on dues and assessments which are collected from members for the purpose of maintaining the property, even when the dues collected are more than the amounts spent in a year.
The State of Colorado recognizes the HOA as a nonprofit corporation. It is important to note that a nonprofit corporation in Colorado is not tax exempt under the Internal Revenue Code (IRC). To become tax exempt, the requesting organization must file complicated paperwork and report their mission to the IRS. That topic will be covered in a future blog. For now, the key take-away is that a Colorado nonprofit corporation is not exactly tax exempt.”
So, we learn from several legal sources what this “complicated paperwork” is about. One source is Clark Simson Miller, who gives a good brief on the subject in this article. We learn about both the 501(c)4) and 501(c)(7) parameters, but then also about “IRC 528. Tax exemption for HOA communities specifically. These exempt HOAs from taxing dues and assessments when they use the monies for the property’s maintenance and improvement.“
This is where it gets interesting. There’s a formula regarding how an HOA Budget is spent.
IRC SECTION 528
From the aforementioned Clark Simson Miller source:
“The IRS offers IRC 528 to homeowners associations as an alternative to Section 501(c)(4). It’s also more achievable than Section 501(c)(7). IRC 528 exempts assessments and dues from income taxes where the HOA uses them for maintaining and enhancing the property. Every association described under IRC 528 may qualify, though the status is more of a quasi-exemption than a complete one. It is not a determination of tax exemption.
Requirements
Like the previous two sections, IRC 528 has specific requirements for qualifying associations. Condominium associations and homeowners associations must meet the following:
- The association must be managed and operated to offer the upkeep, construction, management, and purchase of association property
- An HOA’s net earnings cannot inure private individuals or shareholders
- 60% of the HOA’s gross income must be solely comprised of membership fees, assessments, and dues (function income exempt)
- 90% of the HOA’s expenses for the taxable year are for the care, upkeep, management, construction, and purchase of association property
- Associations must elect to apply for the section for the taxable year
Given these requirements, one of the concerns is about the POHOA Budget. While there is likely room to debate whether a legal budget is applicable “management” of the “association property”, it is clear that in 2021 and 2022, we exceeded the 10% threshold. Considering the legal boondoggles the POHOA Board has regularly spent money on, it’s at least a valid question for a professional.
IRS FORM 1120
We also learn that besides expenses above and beyond 10% of the budget could risk tax exemption under IRC 528, that we also may be creating income that is subject to a significant tax rate between 21-30% when it is derived from “investment income”.
“HOAs that elect to file form 1120-H will start the process by designating each item of revenue as “exempt” or “nonexempt”. Generally, exempt income would include dues, assessments and anything that is charged to members based on their ownership interest. Everything else, such as investment income, rental income and vending income is non-exempt.
Non-exempt income, less all associated expenses and a $100 statutory deduction, is subject to tax on form 1120-H at a flat Federal rate of 30% (plus State). Associated expenses would include any costs the HOA incurred to earn that non-exempt money such as cash management costs, rental expenses, vending purchases, and management fees related to the non-exempt income.”
With a POHOA Treasurer actively advocating for investment of our Reserves into Gold Coins (sold from the coin shop where he works), we are wading into some fairly questionable waters from a tax standpoint. Even if the banks collapse, as he predicts, I guess we are relying on the IRS to collapse as well to avoid having such high taxes dig into whatever predicted returns he has shown on various slide shows at his meetings (which we aren’t allowed to take pictures of, or get copies of his presentations).
SUMMARY
While it may appear that the POHOA Board escapes risking out tax exempt status by engaging in “volunteer lobbyist” activities, their failure to consider the consequences of putting false information in written testimony is a reasonable question about execution of fiduciary duty. There are legitimate questions about engaging in these activities without notice to the members, and whether their lobbying actually represents all members to begin with.
And, because this draws attention to our tax filings overall, the fact that we are engaged in spending over 10% of our budget on legal endeavors that don’t really address the maintenance of the physical shared POHOA property, and because we have now turned our Treasurer into an Investment Advisor who is apparently unaware of potential tax implications of creating income from investments, we could be creating a mess for a future board to clean up – at the expense of the association members.
But, we’ve entered a phase of homeowner “apathy”, were few are paying attention or showing up to meetings. This is why, if the consequences materialize, they will be a shock or surprise when they really shouldn’t be. This is all being done in plain sight – with few being willing to speak up because they can observe the retaliation I have endured.