Sunriver Homeowners Association in Oregon is not just a non-profit entity exempt from property tax, but exempt from federal income tax as a 501(c)(4) “social welfare” organization with the IRS since year 1994.
An HOA with a 501(c)(4) status has to provide a community benefit to qualify under IRC § 501(c). Sunriver requested from the IRS clarification on cost of recreational facilities services on October 4, 1997. The IRS responded with a Private Letter Ruling (PLR # 9539005) stating that to be able to qualify as a 501(c)(4) “Nonmembers, whether they rent from members who do not pay the five percent fee or are daily visitors, can pay a nominal use fee for use of the tennis courts and pools if they so desire. The use of all other recreational facilities is free.“
In 2009 the homeowners through a special assessment fee paid for the construction of SHARC, the homeowners water park and fitness facilities, an $18M project.
In 2012 SHARC opened to the general public charging commercial rates equivalent to what other water parks in the country charge.
SHARC is being used as a feeder organization, since it’s engaged with the general public in a business regularly carried on, priced at a commercial rate. Basically there is no distinction between SHARC and other commercial enterprises like it.
What is considered a feeder organization under IRC § 502, cannot qualify for IRC § 501(c). A feeder organization is an entity which supports cost and operations of an exempt entity. Non-exempt function income cannot be used to cover cost for exempt function activities.
Sunriver has not reported SHARC’s unrelated business income on IRS Form 990 and failed to pay unrelated business income tax.
SHARC was also engaged in unfair business practices with Sunriver Fitness and Aquatics, LLC., a for profit entity which was required to pay tax. It has also monopolized the local market through its Recreation Plus Pass program in which most vacation homes carrie passes, in addition to the heavy advertising for the SHARC Sunriver does in the Sunriver Scene. SHARC has no right to compete with a for profit entity as competition implies a for profit motive.
Idea of SHARC was sold to the owners in a spirit of competition with its own members and other resorts.
Issues addressed in the petition which request the IRS to open an investigation on:
◦ Sunriver should charge a nominal entry fee for the general public for its recreational facilities, as the Private Letter Ruling they received in 1994 states. IRS defines nominal fee as a charge to defray expense of the business it runs.
◦ All parks and boat lunch have to be available to the general public for access for free.
◦ According to IRC § 511, Sunriver should report and pay its unrelated business income tax, to level the playing field.
◦ Sunriver should close the monopoly over the market by closing the sale of Recreation Plus Pass program. Per Investopedia “A monopoly is a market structure with a single seller or producer that assumes a dominant position in an industry or a sector. Monopolies are discouraged in free-market economies because they stifle competition, limit consumer substitutes, and thus, limit consumer choice.”
◦ Investigate and make a referral to OPR conflict of interest of Candice Fronk with Price, Fronk & CO in her position as Chair of the Board of Accountancy the dismissal of a complaint against her with the BOA, including preparing and filing taxes for Sunriver.
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The petition has been initiated by the owner of Sunriver Fitness and Aquatics, Persida Myers, who is also a paying member, without a voting right as per the latest Consolidated Plan, of Sunriver Homeowners Association. Find petition at www.change.org/nominalfee