Documentation for assessments
Dennis,
What are the rules regarding the amount a HOA can assess beyond the amount needed to cover your operating expenses for the year as well as funding the general reserve based on the most recent reserve study. Our HOA is correctly assessing us for our these two things. However, they have also been assessing us for an additional assessment (lets say sidewalks) for the last seven and one half years. Sidewalks are also a line itme in our general reserve and have been fully funded in every reserve study since 2016. For the first two years, this second assessment for sidewalks was deposited into the general reserve. For the last five and one half years the sidewalk assessment has been deposited into the operating account and has not been segreated from the other operating funds. There have not been any expenses in either the operating fund or the general reserve fund for sidewalks for the entire time they have collected the sidewalk assesssment. Can a HOA assess all residents for a sidewalk assessment in addition to the regular assessment which funds the sidewalks fully in the general reserve? Since they have yet to use a penny of the sidewallk funds collected, it would seem to reason that they lack the proper supporting documentaion for this assessment. Also, since the sidwalk moeny has not been properly segreated in the operating fund, it has been used for other line item expenses in the operating fund. I’ve requested that these questions be asked to our auditor, but so far, our BOD has not done so and wants to continue to assess until the next reserve study is completed. They have also stated, that the funds will not be returned if they are found to be in err.
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DPK
The association has the right to assess the members for their normal operating budget and to account for their contributions for the general or specific reserves. A sidewalk assessment must be deposited in a reserve account to be used only for sidewalk repairs. They can have any number of reserve accounts, but reserve account money cannot be intermingled with operating accounts. Some associations have borrowed from reserve accounts to address unexpected operating expenses and then paid that back the following year from the operating budget. As none profit corporations, they cannot make a profit and when they use reserve money to coverup a total lack of control over their operating budget they can and will get in trouble by the IRS. The sidewalk fund is simply being used as a slush fund that allows the association to ignore any proper budgeting consideration of diligence.
The association only has the right to assess the owners what they predict they need to run the association for a year. They can establish any number of reserve accounts but must dedicate those accounts only to the stated purpose of that account. See the IRS rules for filing Form 1020 or 10209H, relative to reserve accounts and taxable income.
Dennis