Homeowners Associations

Homeowners Associations

Hinricher, Douglas & Porter, LLP is recognized nationwide for its specialty practice in homeowners associations (HOA). Our HOA practice represents more than 100 associations.  Our significant concentration within a single industry has allowed us to accumulate a considerable body of knowledge. Our proven technical expertise has given the firm national recognition.

Gary Porter CPA heads up the Firm’s practice for all types of homeowners and timeshare associations. He has more than 30 years of HOA auditing and consulting experience, serving associations since 1976. Our team of experienced professionals is ready to serve you, and we offer a range of services that is absolutely unique in the industry. And, there is only one CPA who can claim that he "wrote the book" on associations. Gary Porter is the co-author of PPC's (Practitioners Publishing Company) Guide to Homeowners Associations and Other Common Interest Realty Associations, and Homeowners Association Tax Library. Mr. Porter was the editor of CAI's "The Ledger Quarterly" for its entire 15-year production run. Mr. Porter has also authored more than 250 technical articles on various association matters.

Audit, Review, and Compilation Services

Tax Services

Books & Articles

Industry Links

News and Events

Our staff is very stable, which means you get the benefit of the same auditors back year after year. You won't be stuck having to "break in" and "train" new staff members from the CPA firm every year. It is also our philosophy to have Mr. Porter review every audit or review engagement. And for the larger engagements, he also participates in the audit field work. By stripping away the administrative layers in the CPA firm, we become more efficient, and you receive the direct benefit of very experienced auditors.

The firm has gone through seven AICPA peer reviews, and has received an unmodified report on each review.

 

Audit, Review, and Compilation Services for Homeowners Associations

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We offer three levels of financial statement services to meet the needs of every association.  Our experience and nationally recognized expertise with a wide variety of associations provides us with the background to work with virtually any type of association.  Our experience translates into efficiency that allows us to maintain competitive fees, plus provide our clients with unparalleled guidance and advice.

Audit Services - In this highest level of service, the CPA performs an examination of the financial statements, and issues a positive statement as to their compliance with Generally Accepted Accounting Principles (GAAP). Extensive procedures are performed. This level of service requires more extensive industry knowledge by the CPA, and that the CPA is independent with respect to the association.

Review Services - The CPA performs limited procedures, consisting primarily of inquiries and analytical procedures; and provides negative assurance to the Association that financial statements are properly prepared in accordance with GAAP. This level of service requires familiarity with the industry by the CPA and that the CPA is independent with respect to the association.

Compilation Services - In the lowest level of service, the CPA compiles information in the form of financial statements. Such information is specifically the representation of management of the association.     The CPA takes little responsibility for these statements, is required to perform very few procedures, and gives no assurance as to compliance with GAAP. The CPA is not required to be independent of the association, but must disclose if he or she is not independent.

Our firm is noted for being able to provide quality services at competitive fees.  We are able to do this because of the efficiency we have gained over time.  Our efficiency stems from three points:

  1. Experience gained on working with many different types of associations over the last 30 years, and experience in working with many different accounting systems.
  2. Our internal development of standardized procedures and programming to allow us to work very efficiently in a completely electronic environment.  The savings of this efficiency is passed along to our clients, keeping our fees at a very competitive level.
  3. Stable staff -  no "on-the-job" training because they already have the experience.

Another unique capability in today's ever-increasing electronic environment is our ability to audit "through the computer" using sophisticated data extraction software.  This allows us to access and use your computer transactions without disturbing your underlying data. The extracted data can be analyzed and manipulated to generate information that you are unable to retrieve from your own system. This makes us more efficient in our audit procedures, as we can test vast amounts of data in a relatively brief period of time.


Association Taxation

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Association taxation is one of the most complex areas of tax law, but we make it easy for you. As part of every tax engagement, we provide you with a comparison of taxes under either the Form 1120 filing method, or the Form 1120-H filing method. See our list of published books and articles published for further information on taxation.

Gary Porter is the primary author of PPC's Guide to Homeowners Associations and Other Common Interest Realty Associations and Homeowners Association Tax Library, and is generally recognized as one of the top tax professionals in the country on association taxation.  He has provided tax consulting services to more than 500 CPA firms.  He is also the author of CAI's national public policy on association taxation.

The subject of association taxation is so complex and so specialized that we have established separate websites that focus specifically on these matters.  See our tax sites at:

Homeowner association taxation overview

Revenue Ruling 70-604

Tax exempt associations

We are well aware of the risks inherent in homeowner association taxation.  Our primary goal is to limit tax risk for our association clients.  As part of this process we attempt to identify tax planning opportunities to minimize your current and future tax liabilities.

Condominium and Planned Development Associations

An estimated 90% to 95% of the more than 330,000 associations fall into this category, and the major issue is the decision to file Form 1120 or Form 1120-H. We know how to make this easy for you.  While other CPAs discuss only the difference in tax rates, we discuss tax rates in conjunction with tax risk, which is very high on Form 1120, and nonexistent on Form 1120-H.

As indicated above, what seems like a simple issue is actually very complex.  Consider that Gary Porter wrote the nearly 100 page tax chapter of PPC's Guide to Homeowners Associations and Other Common Interest Realty Associations and the more than 900 page Homeowners Association Tax Library.  These are detailed, technical writings aimed at CPAs who are already considered experts in taxation.

No one can match our documented expertise in taxation.

Timeshare Associations

Gary Porter has been working in the timeshare industry since 1986.  He has provided audit, tax and reserve study services to the industry continuously since that time.  Timeshare associations were granted the ability to file Form 1120-H with the modification of Internal Revenue Code Section 528 in the 1990's.  Given the IRS position of timeshare associations set forth in their Audit Techniques Guide for Timeshare Associations, we have adopted a conservative position of filing Form 1120-H for our timeshare clients whenever possible to reduce tax risk.  See our full discussion of timeshare associations.

Exempt Association Taxation

Gary Porter is also one of the pioneers in seeking complete exemption from taxation for associations. He has successfully prepared nearly 100 exemption applications under IRC Section 501(c)(4), with a 100% success rate. These have even included a number of gated communities that many inside the IRS contend could never qualify for exemption. The cumulative tax saving to these clients alone exceeds $18,000,000.  Contact us to see if your association qualifies.  Visit our tax exempt website at www.501c4taxexempt.com.

Cooperative Association Taxation

Cooperative association taxation evolved rapidly in the 1990's with a series of major tax court cases. Gary Porter then expanded these concepts to new areas, generating more than $1,000,000 in tax refunds for the Firm's cooperative clients.  Mr. Porter regularly consults with other CPA firms to assist them in understanding this unique area of taxation.

The form of legal ownership is completely different than all other types of common interest developments and makes them unique in the tax area.  In cooperative associations, the association typically owns all real property, with owners/members establishing their ownership interest via issuance of stock or membership shares, and possibly with a lease related to their unit.

Tax issues related to cooperative associations are also unique.  Cooperatives are taxed under Subchapter T of the Internal Revenue Code (IRC), Sections 1381 - 1388.  In addition, for those cooperatives that meet the qualification, they may be recognized as a "Cooperative Housing Corporation" under IRC Section 216, which allows the pass-through of interest and property tax deductions from the cooperative to the owners/members.

Condo Hotel Associations

 

Condo Hotel Associations present significant tax challenges.  Their ownership structure is that of a full ownership condominium association, but their operations are those of a hotel.  This presents unique challenges in the management of the association.  The management staff must not only be conversant with laws regulating full ownership associations, but must be familiar with hotel-type operations.  It also presents challenges from a tax perspective, as the nature of operations means that the association will generally not qualify as residential in nature, and will not qualify as a timeshare association, so generally can't file Form 1120-H.  This leaves condo hotel associations in the worst possible tax position, being forced to file Form 1120, thus placing them in the highest risk tax position.

 

Industry Links

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Our Publisher 

PPC - Practitioners Publishing Company

Industry Resources 

HOA Pulse - Homeowners association industry resource site with current news and articles, business directory, state statutes, case law, and more information

Reserve Studies

Reserve Study Software

Industry Trade Organizations 

CAI - Community Associations Institute

CACM - California Association of Community Managers

APRA - Association of Professional Reserve Analysts

ICBI - International Capital Budgeting institute

 

Books And Articles

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Gary Porter has written or co-authored the following books and articles

Books

  • PPC's Guide to Homeowners Associations and Other Common Interest Realty Associations (Updated annually, currently in 25th edition)
  • PPC's Homeowners Association Tax Library (Updated bi-annually, currently in 15th edition)
  • Reserve Study Manual (1987)  (Out of print)
  • Reserve Studies - The Complete Guide (2014)

Articles

Homeowners Association Articles

The Practical Accountant - Tax Planning for residential Homeowners Associations

Common Ground - a publication of CAI

  • AICPA Issues CIRA Guide
  • The Lowest Bid is Not Always the Best Buy
  • Going by the Book
  •  A Day in the Life of Chuck Miller

The Ledger Quarterly - a publication of CAI

            More than 100 articles published 1989 - 2004

HOAPulse.com

Dozens of articles published on line since 2011.

Select author Gary Porter and click on "Search" for list of articles

 

Mr. Porter has also been quoted in The Wall Street Journal, Money Magazine, and Kiplinger's Personal Finance, and has been published in major newspapers nationwide.

 

News and Events - Press Releases

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April 23,  2015 - Press release – New Reserve Study Standards

Hinricher Douglas & Porter partner Gary Porter, CPA has long been recognized as a leader in the community association and timeshare industries. Mr. Porter has also been long involved in preparation of reserve studies, reserve study methodology, and reserve study software development. Gary Porter is also president of the International Capital Budgeting Institute (ICBI) and president of Facilities Advisors International, a reserve study company.

ICBI announced the adoption of new professional reserve study standards effective April 16, 2015. These standards, known as Generally Accepted Reserve Study Principles and Generally Accepted Reserve Study Standards, represent the culmination of a year-long effort by ICBI to provide standards for better reporting of reserve studies for the community association and timeshare industries. These standards represent the biggest change in the reserve study process in twenty years and will result in better reliability and consistency of reporting in reserves.

ICBI president Gary Porter formed a team of 16 industry professionals from six countries for this process. The ICBI standards committee included a broad spectrum of industry professionals that were able to provide a perspective reflecting all stakeholders in the industry. These are truly global standards and are already being applied in several countries.

The primary differences of the new ICBI standards as compared to previously existing standards are best summarized in four broad categories:

1) A more comprehensive definition of components – The standards expand and clarify the definition of components to reflect the true maintenance responsibility of the association. This results in greater consistency and reliability in reserve studies.

2) A more definitive description of service levels – ICBI provides for three service levels; independent study, reserve management plan (collaborating with the association), and consulting.          

3) A requirement for consistent calculations – ICBI standards establish requirements for consistent calculation methods and software capable of making accurate calculations. Standards also require consistent terminology definitions.                               

4) A consistent and uniform approach to reporting on reserve studies – ICBI standards require specific, consistent reporting formats on a summary basis, generally with a report of no more than 20 pages. Supplemental schedules providing the detail are generally separated from the basic report.

The result to the public is a reliability and uniformity that benefits all users of reserve studies.

There are articles providing a more complete description of these standards in the Linkedin groups “Condo and HOA Finances” and “Condo and HOA Reserve Studies.” Another financial related group is “Condo and HOA Taxes.” All are open groups, but you have to be a member of Condo and HOA Finances before you can join the other two.

ICBI                www.capitalbudgeting.org

Standards        http://www.capitalbudgeting.org/index.php/rs-professional-standards

Committee      http://www.capitalbudgeting.org/index.php/rs-standards-committee

March 15, 2015 - Gary Porter had an article published "Another look at Fraud" in the Focus Magazine for the Los Angeles Chapter of CAI.

October 26 - 27, 2014 - Gary Porter presented a session on timeshare association reserve studies at the TBMA (Timeshare Board members Association) conference in San Diego, California.  There were a number of other individuals presenting sessions on various aspects of timeshare operations.

August 5, 2014 - Hinricher Douglas & Porter, CPAs received notice from the IRS that an application prepared by the firm for a homeowners association in Texas has been approved by the IRS for tax exempt status under Internal Revenue Code Section 501(c)(4).  This Association was previously recognized as exempt under Internal Revenue Code Section 501(c)(7) as a recreational organization, and categorized as a "private club."  The Association had a number of factors  that indicated (7) was the wrong section of the Code, and that (4) was a better fit.  We applied for exemption Code Section 501(c)(4) under  the premise that the Association, although it did have limited restricted access of certain common areas, was essentially open to the public, and therefore qualified for exemption under Code Section 501(c)(4). 

Due to the nature of its operations, this Association will recognize little federal income tax benefit, other than reduction of tax risk, but will receive significant tax benefit by now qualifying for exemption from Texas state sales tax on purchases.  This will result in savings of an amount that is multiples of the cost to obtain exempt status, and the annual savings is equal to several thousand dollars.

August 2, 2014 - Hinricher Douglas & Porter, CPAs received notice from the IRS that an application prepared by the firm for a public charity in Arizona has been approved by the IRS for tax exempt status under Internal Revenue Code Section 501(c)(3).  This charitable organization is related to an age restricted Association of more than 20,000 homes that is exempt under Internal Revenue Code Section 501(c)(4).  The primary purpose of the charitable organization is to provide assistance to the elderly that live within the Association and surrounding areas.

The related Association is so large that, by itself, it qualifies as a "community" as contemplated in the Internal Revenue Code.  The work of the new charitable organization will provide significant benefits primarily to  fixed income senior citizens, and will reduce the burdens of local government.

HDP, CPAs is proud to have played a small part in the creation of this organization.

May 17 - 18, 2014 - Gary Porter attended the 2014 APRA symposium in Orlando, Florida.  The symposium included eight hours of continuing education on a number of technical reserve study topics.

May 14 - 16, 2014 - Gary Porter attended the 2014 CAI National conference in Orlando, Florida.  In addition to attending a number of educational sessions and the reserve professionals "shoptalk" session, Gary met with a number of management companies and large scale associations.

May 5 - 6, 2014 - Gary Porter presented a session of unique aspects of timeshare association reserve studies at the TBMA (Timeshare Board Members Association) conference in Orkando, Florida.  There were a number of other individuals presenting sessions on various aspects of timeshare operations.  This was a great event featuring the top leaders of the timeshare industry.

April 28 - 29, 2014 - Gary Porter presented a session of unique aspects of timeshare association reserve studies for more than 200 resort managers at the VRI (Vacation Resorts International) conference in San Antonio, Texas.  There were a number of other individuals presenting sessions on various aspects of timeshare operations.  This was a great event with a great group of speakers.

May 5, 2014 - Gary Porter had an article published "The 2012 Syndrome and Reserve Funding" at the industry resource website, HOA Pulse.  This article discusses the "head in the sand" approach used by some individuals because "I won't be here when those expenditures are required."

March 26, 2014 - Gary Porter had an article published "Penny Wise, Pound Foolish = Big Problems " at the industry resource website, HOA Pulse.  This article discusses the pitfalls failing to perform routine maintenance that results in much larger long-term expenditure requirements.

January 15, 2014 - Gary Porter had an article published "Funding Reserves Based on Percentage of Assessments" at the industry resource website, HOA Pulse.  This article discusses the pitfalls of approaching reserves based on available funds rather than actual expenditure requirements.

December 4, 2013 - Gary Porter attended the 2013 Cooperator Florida conference in Ft. Lauderdale, Florida.  On the way back, he spent two days in Sandestin, Florida working on a reserve study for an exclusive private residence club.

December 4, 2013 - Gary Porter had an article published "Reserve Loans and Interest Deductions" at the industry resource website, HOA Pulse.  This article explains the tax issues related to deductibility of loan interest on loans made for reserve projects.

October 15, 2013 - Gary Porter had an article published "Who owns the Reserve Study report?" at the industry resource website, HOA Pulse.  This article discusses the different points of view regarding independent reports versus consulting reports.

September 19, 2013 - Gary Porter had an article published "Reserve Study Versus Insurance Appraisal or PCA" at the industry resource website, HOA Pulse.  This article explains the difference between the three different types of services commonly provided for homeowners associations.

September 4, 2013 - Gary Porter had an article published "Contingencies in the Reserve Study" at the industry resource website, HOA Pulse.  This article discusses the different ways that contingencies can be calculated and presented in the reserve study.

August 14, 2013 - Gary Porter had an article published "Selecting a Reserve Study Company" at the industry resource website, HOA Pulse.  This article helps the reader address the important issues in selecting a reserve study company.

August 14, 2013 - Gary Porter had an article published "Setting the Scope of the Reserve Study" at the industry resource website, HOA Pulse.  The most important, yet most overlooked step in the reserve study process is explained in detail.  This helps YOU take control of your reserve study.

July 24, 2013 - Gary Porter had an article published "Reserve Studies and Remaining Life" at the industry resource website, HOA Pulse.  Discusses the importance of determining remaining life and the various methods that can be used to calculate remaining life.

July 10, 2013 - Gary Porter had an article published "The Importance of the Reserve Fund" at the industry resource website, HOA Pulse.

May 7, 2013 - Gary Porter had an article published "Some Brief Notes on Roof Maintenance" at the industry resource website, HOA Pulse.

April 2013 - Gary Porter had an article published "Calculating Reserves" at the industry resource website, HOA Pulse.  HOA Pulse is one of the industry's most heavily visited websites, attracting thousands of readers each month.

April 27, 2013 - Gary Porter presented a session on reserve studies for more than 100 homeowner members as part of the Wildernest Board member Bootcamp in Silverthorne, Colorado.  Other speakers of the day presented sessions on insurance, legal update, regulatory issues, keyless entry systems, and board member responsibilities.  A great event with a great group of speakers.

April 2013 - Gary Porter was a speaker on a panel of three reserve professionals on the subject of contracts for reserve study services.  This discussion was part of APRA's 2013 symposium in San Diego, California.

April 2013 - Gary Porter attended the 2013 APRA symposium in San Diego, California.  The symposium included eight hours of continuing education on various reserve study topics.  Technical presentations included in the education courses included HVAC systems, Flat Roofing systems, legal issues.

April 2013 - Gary Porter attended the 2013 CAI National conference in San Diego, California.  He attended a number of educational sessions and the reserve professionals "shoptalk" session.

In addition, since this was CAI's 40th anniversary, special recognition was given to all of CAI's past presidents.  Gary Porter was CAI's 25th president, and participated in the opening general session ceremony, attended the Presidents Club meeting, and introduced a group of speakers at a Friday morning educational session.

January 2013 - Gary Porter speaks as a panel member at CAI's Law Seminar in Tucson, Arizona.  The topics were associations finances and reserve issues, as part of the CIRMS Masters Series of courses.  Other panelists included three insurance professionals, and representatives of FHA and FNMA.

May 2012 - Gary Porter attended the 2012 APRA symposium in Las Vegas, Nevada.  The symposium included eight hours of continuing education on various reserve study topics.  Technical presentations included in the education courses included swimming pools, decking, flooring systems, and energy efficient systems.

May 2012 - Gary Porter attended the Community Associations Institute (CAI) National conference in Las Vegas, Nevada. 

November 12, 2011 - Gary Porter presented at a Reserve and Budgeting Seminar and NEW Utah State Law in Salt Lake City, Utah.

June 2011 - Gary Porter attended the 2011 APRA (Association of Professional Reserve Analysts) symposium in Chicago, Illinois.  The symposium included eight hours of continuing education on various reserve study topics.  Technical presentations included in the education courses included elevator maintenance, siding installation and maintenance issues, and window installation and maintenance issues.

January 25, 2010 -  The Firm recently received notice from the IRS that an application prepared by the firm for a homeowners association in Hawaii has been approved by the IRS for tax exempt status under Code Section 501(c)(4).

This master association has almost 3,000 lots, and is home to more than 8,000 residents.  The Association is not gated, and contains 20 smaller condominium and single family home associations.  Maintenance activities include maintaining parks, trails and paths that are open to the general public.  The Association’s clubhouse is also available for public use on a fee basis.  In addition, the Association’s patrol service coordinates with local law enforcement agencies in combating crime, and the Association has a very active graffiti prevention and cleanup program.

Tax refunds claimed for the tax years open under the statute of limitations far exceeded all costs related to the filing, and the Association’s future tax savings are substantial each year.

HDP, and its predecessor, Porter and Company, CPAs have prepared more tax exemption applications than any other tax professional serving the HOA industry.  All exemption applications submitted that have been processed by the IRS have ultimately been approved.  We usually have several applications pending at any given time.  Most tax exemption applications submitted have been for associations allowing substantial public access to their common areas, such as the one in Hawaii described above.  However, we have also successfully gained tax exempt status for several gated associations that meet other criteria, and have successfully regained tax exempt status for several associations that had previously had their exempt status revoked by the IRS.  Our expertise with the tax exemption process has benefited many associations across the country.

For more information on tax exemptions for homeowners associations, contact Gary Porter CPA at (800)304-6700 or gporter@hdp-cpas.com.  View our website at www.501c4taxexempt.com.

December 3, 2009 - Gated association gains tax exempt status.  HDP, and its predecessor, Porter & Company, CPAs recently received notice from the IRS that a homeowners association in the southeastern U.S. has been approved by the IRS for tax exempt status under Code Section 501(c)(4). 

This association consists of more than 5,000 lots and is a gated community.  It is very rare for a gated association to qualify as a tax exempt social welfare organization.  However, this association qualified for tax exemption because it is large enough to constitute a community in and of itself, and because it also performs a number of quasi-governmental functions. 

The activities performed include road maintenance for more than 40 miles of roads, security patrol coordinated with Sheriff’s department, architectural review board, and community governance.  The Association is also home to a County Fire Department station, and the association is designated as a first responder in case of emergencies.  Recreational activities consist of boating, equestrian trails, and sports courts serving the community.  The Association also operates timeshare units that are available to the public.

The Firm has prepared more tax exemption applications than any other tax professional serving the HOA industry, and we have successfully regained tax exempt status for several associations that had their exempt status revoked by the IRS.  Our experience has benefited many associations across the country. 

For more information on tax exemptions for homeowners associations, contact:
Gary Porter CPA
805-496-1883
View our website at
www.501c4taxexempt.com

November 16, 2009 - HDP, through its predecessor Porter & Company CPAs, recently received notice from the IRS that two more associations have been approved by the IRS for tax exempt status under Internal Revenue Code Section 501(c)(4). One association, located in Orange County, California, consists of approximately 2,000 homes and provides trails and nature preserves to the surrounding communities. The other association, located in San Diego County, California, consists of almost 3,000 homes and maintains streets, trails, and a nature preserve open to the public. The addition of these two association brings the count to more than 80 associations successfully approved, with none denied exempt status. Cumulative tax savings to our clients now exceeds $17 million.

And, we still have several exemption applications pending for associations from Hawaii to the east coast and points in between.

The Firm has prepared more tax exemption applications than any other tax professional serving the HOA industry. We have successfully regained tax exempt status for several associations that had their exempt status revoked by the IRS. We have successfully re-filed for exempt status where others tried and failed. We have successfully gained exempt status where other tax professionals and advisors stated that the associations would not qualify. We snatched one association from the gaping maw of the IRS just as it was ready to issue a significant tax deficiency notice based on the IRS audit of the Form 1120 tax return. Our experience has benefited many associations all across the country.

For more information on tax exemptions for homeowners associations, contact:

Gary Porter CPA

805-496-1883

and view our website at
www.501c4taxexempt.com