INTERNAL REVENUE SERVICE -- OR HOW TO CATCH A THIEF!

The three letters IRS are really looking pretty scary. But sometimes the IRS can be of help in order to catch a thief -- or thieves -- in your community association.

Remember Al Capone? He wasn't convicted of murder, theft, racketeering and/or bootlegging; he was jailed for income-tax evasion.

You will ask: What does my community association have to do with Al Capone?

Easy explanation: When the FBI couldn't find enough evidence to convict Al Capone of the actual crimes he was notorious for, they turned to the IRS -- and they finally put him away.

As we all know -- or have found out in the meanwhile -- Florida's law enforcement is not very much inclined to prosecute embezzlers and scam artists in our community associations. Their normal excuse: It's a civil matter!

In my opinion it's not a civil matter -- it surely is criminal if somebody called president or treasurer embezzles the money of his/her neighbors.

But the attempt (H1397) to create a DBPR "police force" of specialized employees knowledgeable in condo law and accounting was met by harsh resistance from attorneys and board members -- I wonder about their motive for opposing these "safeguards" -- who used about every excuse known to mankind to kill this proposal. From violation of constitutional rights to outrageous cost -- we heard it all.

To me it is very obvious why so many board members and/or attorneys are opposed to stricter supervision, and/or punishment of the bad guys! To me it looks like too many of these folks have their hands in the cookie jar.

And that is exactly where the IRS comes into play. Don't forget, even ill-gained money is taxable! Some directors are straightforward -- they just take the money. Others are more sneaky. They just "forgive" their own monthly dues, play kickbacks with contractors, pay themselves as "managers" and/or use association credit cards to do the shopping.

I call it "ill-gained extra income" -- the IRS calls it "inurement." Please check the explanation given by the IRS:

Code of Federal Regulations]

[Title 26, Volume 7]

[Revised as of April 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 26CFR1.528-7]

[Page 238-239]

TITLE 26 -- INTERNAL REVENUE

CHAPTER I

INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY

(CONTINUED)

Private Foundations--Table of Contents

Sec. 1.528-7 Inurement.

An organization is not a homeowners association if any part of its net earnings inures (other than as a direct result of its engaging in one or more exempt functions) to the benefit of any private person. Thus, to the extent that members receive a benefit from the general maintenance, etc., of association property, this benefit generally would not constitute inurement. If an organization pays rebates from amounts other than exempt function income, such rebates will constitute inurement. In general, in determining whether an organization is in violation of this section, the principles used in making similar determinations under Section 501(c) will be applied.

[T.D. 7692, 45 FR 26323, Apr. 18, 1980]

The IRS has a special form -- Form 3949 A -- that was created to report suspected Tax Fraud activity:

If you suspect or know of an individual or company that is not complying with the tax laws, you may report this activity by completing Form 3949-A. You may fill out Form 3949-A online, print it and mail it to:

Internal Revenue Service
Fresno, CA 93888

If you do not wish to use Form 3949-A, you may send a letter to the address above. Please include the following information, if available:

Name and address of the person you are reporting
The taxpayer identification number (social security number for an individual or employer identification number for a business)
A brief description of the alleged violation, including how you became aware of or obtained the information
The years involved
The estimated dollar amount of any unreported income
Your name, address and daytime telephone number

Although you are not required to identify yourself, it is helpful to do so. Your identity can be kept confidential.

You are not required to state your name, but you may want to -- in case your complaint is successful and the IRS is paying a reward: Check out:

Procedure Unveiled for Reporting Violations of the Tax Law, Making Reward Claims

Here is some more information, especially interesting if your complaint doesn't meet the high thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less that $200,000. If you don't meet the threshold, the Informant Claims Program kicks in:

Whistleblower - Informant Award

As to protection of the informant: WHISTLEBLOWER is the magic word. To mind comes the "Sarbanes-Oxley Act of 2002"

There is another issue that everybody has to be concerned about: HOAs and Condos have to fulfill all the needed obligations to be tax-exempt as a not-for-profit corporation. Please read: Form 1120-H -- U.S. Income Tax Return for Homeowners Associations. The danger: Expenses that are "not substantially related to the exempt purpose" could kill the exempt status. And it happens all the time that money is used for purposes that only benefit a few -- not the whole community!

Scumbags don't like to declare their ill-gained money on tax returns. It would create proof against them. Always remember: If law enforcement doesn't want to prosecute the scumbags fleecing your community -- there is always the IRS. Worked with Al Capone, why shouldn't it work for board directors and community association managers?

TO GET MORE INFORMATION ABOUT THIS PROGRAM, PLEASE GO TO THE WEBSITE OF THE:

Internal Revenue Service