Maine Alliance for Road Associations
Our RA is a non-profit corporation and we file an annual 1120H tax return, 1099-NEC for our contractors (over $600), annual report and have the appropriate insurance policies.. Has been this way for 50 years.
Recently a nearby road formed a Statutory RA and had trouble getting Liability insurance because their rep asked about their RA being "registered with the State" Is there such a registration for Statutory RAs? Do they use an EIN? Also do Statutory RAs file a tax return or issue 1099-NEC?
There is no registration with the State of Maine or anywhere else. You could record a Notice of Statutory Road Association in your county Registry. (See handout from Mary Denison for 2023 MARA Road Conference for details).
I have run your question by our Board Members. Speaking as individuals not as Board Members, one told me an EIN number is necessary for a road association to open a bank account. None of us file income tax returns since nearly all maintenance fees and assessments collected go toward road maintenance. None of us now uses 1099 reporting; I'm unsure of this, perhaps we should. Anyone have more information on 1099 reporting?
If you are paying a member, for services and is an independent contractor who does not own a business for such services, and a payment for such services in within a calendar year and is over $600, then yes you must file a 1099 to the IRS.
This is a very slippery slope, especially if this person is on your board of directors. The concern is a conflict of interest. To avoid any conflict, our association contracts only with businesses, thereby we are not required to file a 1099.
We have composed a contract for grading and or snow plowing if our board were to pay a member, with extreme strict rules to protect the association and prevent any conflicts. If you are interested to see these contracts, please contact me privately, as I will not share it on this public website.
From this last post, it sounds like the problem with the IRS comes if you are paying a member who is an independent contractor and not a business to do road maintenance. It also sounds like paying a member less than $600 in a year would not be a problem, for example, if you paid a member for filling in a few pot holes, or for mowing roadsides, and the bill was below that limit. The question of a conflict of interest could still be raised, especially if the person is a Board member.
But it sounds like the original question here was whether a Statutory Road Association has to file with the State, have an EIN, or file a tax return. As long as funds are being spent in accordance with 23 MRS section 3101, leaving no profit, I think the answer to all three questions is No. But other agencies (bank, insurance,) may require an EIN, and certainly there is no harm in playing it safe and going above what is strictly required, if that assures everyone's peace of mind.
Your question has several parts so let’s take them individually:
Regarding the neighboring road association’s difficulty obtaining liability insurance, that particular RA should have pointed the agent to the Private Ways Act which gives owners along private roads specific procedures to form an association that has the right to assess and collect assessments for the maintenance of the road. Liability insurance is specifically included as an allowable cost (Maine Title 23 §3101.9). The act does not require road associations to register with the state, but it does provide statutory authority for its existence. Perhaps the insurance agent was not aware of this so in the future please feel free to contact MARA for assistance.
Regarding EIN requirements: Provisions of the Patriot Act of 2001 contains “Customer identification program requirements” for most banking institutions. As a result, banks require (among other things) a tax identification number (social security number or employer identification number) to open bank accounts.
Regarding filing tax returns: The short answer is yes; road associations are required to report income to the IRS on one form or another. The IRS recognized that homeowner associations (which loosely includes road associations) do not fall nicely under any of the many paragraphs in IRC §501 permitting tax-exempt organizations. So, in 1976, the Internal Revenue Code was amended to include §528 which allows certain organizations to choose to be treated as a qualifying homeowner’s association and be taxed in accordance with provisions of that section. For those organizations, IRS form 1120-H is the proper form to use to report income. From the IRS website: “If the association does not elect to use Form 1120-H, it must file the applicable income tax return, for example, Form 1120, U.S. Corporation Income Tax Return.”
That may be the rule while not being the practice for small organizations if only because, for most road associations, expenses equal or exceed income, and dues and maintenance assessments are exempt forms of income under §528, so no tax is due, and no one likes useless paperwork.
Regarding 1099 NEC’s: The IRS treats businesses, nonprofits and HOA’s (and thus road associations) the same when it comes to issuing 1099 forms, it is a requirement. From the IRS website: “For more information regarding reporting non-employee compensation and exception to reporting refer to the Instructions for Forms 1099-MISC and 1099-NEC “
Disclaimer: Having said all that, the Internal Revenue Code is extremely complex as are instructions issued by the IRS and issues may mot be exactly as they appear on the surface so each organization should consult with an accountant or tax attorney with experience on these issues to determine the appropriate course of action for their organization.
Thank you all this was very helpful!
The Maine Alliance for Road Associations