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CA Woman Admits Stealing Over $1 million From Minneapolis HOAs

CA Woman Admits Stealing Over $1 million From Minneapolis HOAs

A Fresno, California woman has pleaded guilty to stealing over $1 million from homeowners’ associations (HOAs) in Minneapolis, Minnesota.

According to The Fresno Bee newspaper, Mai Houa Xiong, 47, admitted to federal charges of wire fraud, aggravated identity theft, and filing a false tax return.

Between February 2015 and February 2022, Xiong, who worked as a financial manager for a company that provided financial services to HOAs, devised a scheme to embezzle money from the organizations. She ultimately stole funds from multiple homeowners’ associations based in the Twin Cities area.

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The United States Department of Justice shared that Xiong’s duties included bookkeeping, which gave her total access to the victimized homeowner’s associations’ bank accounts, vendor and contractor payments, and bookkeeping software.

Per the DoJ, Xiong’s embezzlement scam involved transferring funds from the HOAs’ bank accounts into her personal accounts. She got away with her plan for years by fraudulently labeling the transactions as legitimate transfers. Furthermore, Xiong used her status as a signatory to make cash withdrawals directly from the victimized organizations’ financial accounts.

Xiong was fired in July 2021 and continued embezzling funds even after that date.

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This case is the result of a joint investigation among IRS – Criminal Investigation, the Minnesota Bureau of Criminal Apprehension, and the Minneapolis Police Department. Xiong’s sentencing date has not been confirmed.

Understanding HOAs and Federal Taxes

If you are part of an HOA board, it is important to be aware of the fact that the vast majority of these organizations are required to pay federal taxes. There are two different IRS forms that homeowners’ associations can submit – Form 1120 or Form 1120-H.

Form 1120 is officially the “U.S. Corporation Income Tax Return,” while Form 1120-H is the “U.S. Income Tax Return For Homeowners’ Associations.” Given these two names, it might seem intuitive to file Form 1120-H, but some benefits come with choosing Form 1120 instead. In fact, the majority of HOAs choose the latter.

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The HOA Management website explains that the biggest reason for this is that “HOAs that file this form [1120] experience a lower tax rate (15%) for the first $50,000 of net income.”

The downside to this, though, is that your Association’s entire net income is subject to taxation – even money that is unused at the end of the tax year must be reported. In short, using Form 1120 may save you money but typically requires the assistance of a qualified tax professional.

In very rare cases, a homeowners’ association might be able to secure tax-exempt status. Per the IRS specific criteria must be met.

The burden of proof taken on by any HOA wishing to become tax-exempt includes proving it doesn’t perform exterior maintenance on any privately-owned homes and that the land it maintains is for the entire community's good (i.e., a playground, fishing pond, or soccer field.)

What do you think about this HOA embezzlement case?

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Gordon W. McNamee

Gordon W. McNamee

Gordon W. McNamee is a Certified Public Accountant (CPA) based in Rancho Cucamonga, CA. Gordon W. McNamee can assist you with your tax return preparation, payroll, accounting and tax planning needs. <br /> <br /> 2021 is Gordon W. McNamee, CPAs 38th year in the profession. As as a former IRS agent (1984 through 1987), Gordon has been in public accounting since 1987. Gordon specializes in individual, corporate, HOA, trust, estate and payroll taxes. He also prepares financial statements and provides accounting & bookkeeping services. He enjoys making his clients feel at ease while providing a personalized professional service.

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