This Week's Q & A

Q: Can a condominium association qualify as a tax-exempt organization? The question arises at our small (three-unit) condominium association, because the monthly fee on our checking account has doubled as a result of a recent bank merger. A bank employee suggested that, if we were certified as tax-exempt, we would be eligible for a special, no-fee checking account that also would pay interest. This sounds like a good deal and we’d like to take advantage of it if we can.

A: It may, indeed, be a good deal, but if it is available only to tax-exempt organizations, you’re not eligible for it. The bank employee who suggested this strategy may be confused because some condominium association income may qualify as tax-exempt, meaning the association isn’t taxed on that portion of its income. (Common expense payments made by unit owners is one example of income on which condo associations are not taxed). But that doesn’t make the association itself “tax-exempt.”

Condominiums are not established exclusively for charitable, religious or educational purposes, which is how the IRS defines a tax-exempt (501C-3) entity. As a result, all condo associations are required to file state and federal tax returns. That requirement applies even to small associations, like yours, that don’t typically end up owing any taxes.

That does not mean you have to accept the doubling of your checking account fee, however. Your big bank (now bigger because of its recent merger) may not be concerned about keeping your small account, but I’d bet you can find other financial institutions that are interested in doing business with you. It’s definitely worth shopping for a better deal. You may not be able to change your tax status, but you certainly can change your banking relationship, and from the sound of it, that is precisely what you ought to do.