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Woman Sentenced to Prison After Stealing Funds From Homeowners' Associations

Woman Sentenced to Prison After Stealing Funds From Homeowners' Associations

Debra Campbell, 66, of Grand Junction, Colorado, has been sentenced to 37 months in federal prison after engaging in a scheme to steal funds from homeowners’ associations. 

Between the years of 2009 and 2018, Campbell owned a company called A Better Alternative Management (ABAM). She worked with HOAs to manage their finances, ultimately gaining a great deal of control over their money.

An official release from the IRS indicates that Campbell had full access to, and signatory authority for, the HOAs’ bank accounts. As time passed, Campbell realized that some of the homeowners’ associations she represented did not closely monitor their finances. 

Beginning in March 2015, she violated the trust of these HOA boards by when she started making unauthorized transfers to ABAM’s bank accounts in order to pay personal expenses unaffiliated with the HOAs or the business.  

To cover her tracks, Campbell altered her clients’ bank statements, so they falsely reflected higher balances than they actually had. Over the course of three years – until April 2018 – Campbell stole approximately $250,000 from 23 Colorado homeowners’ associations.

She also underreported her income on federal tax returns from 2014 through 2017, resulting in a loss of $150,000 to the IRS.

When Campbell is released from prison, she will serve three years of probation. 

“Campbell took advantage of her clients and further compounded her greed by attempting to hide her ill-gotten gains from the IRS,” said Andy Tsui, Special Agent in Charge, IRS-CI Denver Field Office. 

Tsui continued, “This sentencing should serve as a reminder to small businesses and HOAs about the importance of having financial safeguards in place to avoid becoming a victim of fraud.”

This HOA fraud scheme was jointly investigated by the IRS Criminal Investigation Division and the FBI. 

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. 

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 Debra Campbell taking advantage of HOAs that trusted her?

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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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