Discussion:HOA, in a real pickle here

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Discussion Forum Index --> Business Growth Community --> HOA, in a real pickle here


BrockEA (talk|edits) said:

9 March 2014
Okay, long story short. I have been working with my HOA's Treasurer to straighten out their books for 2013. They were an unmitigated MESS and we more or less had to do a reset using her excel spreadsheets showing member balances along with bank statements. I created the chart of accounts based on the expectation that they would be filing 1120-H but they slightly failed the 90% expense test because they host a swim team and do some social functions (Labor day and Memorial Day events). My focus thus far has been getting the bookkeeping correct and a process in place.


Well, we came up to tax time and I was engaged to prepare the tax return. I was a bit, honestly, surprised by the requirement to file 1120 thanks to the failure of the 90% expense test. Once I began digging into the 1120 form for HOA associations, I have become increasingly worried. I watched a video from an expert who was giving the doomsday scenarios of not having the members elect 70-604 each year (our HOA didn't), not properly setting up capital assessments under section 118 (I'm sure ours didn't), and potentially (if audited) the implication of a section 481 improper tax accounting adjustment for capital reserve issues.


This HOA has no cohesive records beyond when I became involved and I set up their Quickbooks. They have never filed a tax return, not one Federal and not one State. They have no records other than bank statements all the way back to inception in 1981 and probably do not have all of those. We're not a huge HOA, we have $60K in savings earmarked for pool resurfacing, tennis court resurfacing, etc. Our net income (everything, exempt and non-exempt) is $5K and is made up mostly of income from the swim team.


So I am in a pickle. I'm thinking that the best recommendation I can make to protect myself is to file an 1120 extension with them paying tax on the net income of the association for 2013. Then help them find someone who is very well versed in HOA taxation to do the return. The problem with this HOA is the lack of record keeping, never having filed a tax return and treatment of the reserves. I have a BAD feeling that the filing of this return is going to trigger the IRS to request back year returns.


Anyone want to argue another pathway?

Nilodop (talk|edits) said:

9 March 2014
Re-post this in Tax Questions and you'll be more likely to get help.

BrockEA (talk|edits) said:

9 March 2014
I did, from a different angle.


I posted it here as more of a self-preservation aspect. We have some true experts in here that might have some experience running upon a completely FUBAR client. My main goal at this point is to not get sued. It's often the lifeguard who gets drown by the person they are trying to save. :D

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