Heathlake’s Federal Tax Exemption Surprise – 501c4

Heathlake and Tax Exempt Status 501 c 4.

Heathlake has claimed to have the 501 (c) 4 federal tax exemption for decades. We recently tried to take advantage of a free upgrade to our Slack workplace software and to do so needed to prove our tax exempt status. The current board had not been able to find proof so we enlisted our management company to help us gain a copy of the tax status approval.

Much to our surprise, when Graham Management contacted the IRS agent they informed us that the association did indeed apply for tax exempt status in 1995, but the application was declined. Unfortunately this information was ignored and lost throughout the years as successive boards have since operated under the believe that it had been granted. 

For the past 7-8 years we have been filing federal tax returns through Canady and Canady and each year assumed our tax exemption. The IRS did not correct or comment on the returns for past last 6 years at a minimum.

We have researched Heathlake’s options going forward and believe it is in our communities best interest to apply for a 501c4 tax exemption going forward.  Unfortunately there was not a simple solution for the back tax liability associated with claiming an exemption that was not granted.  We will learn more about the implications as our attorneys learn more and we apply for the exemption going forward.

We bid out the permitting and have decided on the attorney’s Holt & Young.  They are experts in the space, are familiar with our association, and were 3x cheaper than Canady and Canady.

Holt & Young will be researching and assisting Heathlake with applying for federal, state, developer and any other associated tax forms with a goal of reclaiming the exemption status that we believed to have had for the past 26 years.

This was an unknown and a surprise to us all and as such there is $2000 set aside in the 2022 budget to account for the costs of refiling. We do not yet have indication on the consequences, fines or tax liability that this mistake may imply. We will learn more as we apply for the tax exemption and take the misunderstanding to the IRS as opposed to waiting for the IRS to pursue the association. 

We did reconfirmed with the State of Texas that we are indeed exempt from paying sales tax!

If you have further questions you can reach Per at Treasurer@heathlake.org or Stephen at President@heathlake.org