By Donie Vanitzian

April 24, 2016

Question: Last holiday season our board voted to hand out money to vendors, employees, management and anyone else they felt deserved a “tip” or “bonus.” Several owners in attendance at that board meeting objected, stating “association funds should not be given away in this manner.” The association’s accountant told the board that gifts and bonuses of association funds violate IRS Revenue Code 70-604. The board said they consulted with the association’s attorney, who assured the board that such tips and bonuses were fine because courts give deference to board decisions.Many owners here have lost their jobs and others do not make enough money to pay their bills, let alone their monthly assessments. There have been bank foreclosures and the board has foreclosed on owners who couldn’t pay their association dues. Rather than give owners’ money away, shouldn’t it go back to titleholders who paid it? Is the association’s attorney right? Is it true that the board alone can make decisions to hand out bonuses of association funds to third parties?

Answer: While this question arises from a holiday season circumstance, it is an issue that has year-round implications for any bonus or tip giving. The association attorney is correct that courts tend to give deference to board decisions, but the same is not true of the IRS and adherence to the tax code. The simple irrefutable rule is: Follow the money. From where did the tips and bonus money originate? Paying monthly homeowner association payments is not a donative act; it is mandated by law, the failure of which results in foreclosure of one’s property. Titleholders pay that money to fund association operations.

The board’s so-called deference also is a “qualified” action predicated on using sound business judgment in matters directly related to the common interest development that it has been elected to oversee. Deference does not mean that a board’s actions are beyond reproach.  Read more:

http://www.latimes.com/business/realestate/la-fi-associations-20160424-story.html