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Contents

HOA Help!

Hello -

I just inherited an HOA and I am in over my head with this one and I am hoping you can provide some sort of guidance.


In 2006 and 2007 an 1120 was filed and taxable loss was (1,218) and (1,493). In 2008 there is a small amount of profit - I have applied to prior NOL's to the current year. Is this correct treatment? I realize that technically HOA's cannot have NOL BUT the prior year returns are showing a loss. In addition on the M-1 it states that the excess memberships expenses were 9,802 and 10,000 in 2006 and 2007 which is significantly more than the NOL.

My second questions is that the HOA paid an insurance bill with their replacement reserve funds instead of their operating funds - I have taken this as a deductible expense as well - would this be correct?

Any guidance would be appreciated - thank you in advance. I will certainly think twice before accepting any HOA's again!


BearAcct 14:05, 8 February 2009 (CST)BearAcct

Hoa

Thanks so much for your response - I appreciate you taking the time.

The HOA does NOT have any non-membership income. I too am confused why there would be an NOL in prior years.


I realize this is not the most correct way to do it, but I think I will take 2006 and 2007 NOLs against current year income since the NOL's are significantly less than the excess membership expenses in prior years. Atleast in some sense I am being conservative....any thoughts on that? Am I making it worse by doing that? Another option might be for me to have an other expense deduction item that reads prior year excess membership expense? If my understanding is correct, the HOA can take prior year excess expenses against current year income.

Thanks again for your response.

BearAcct 10:20, 9 February 2009 (CST)BearAcct

hoa continued

Thanks for bouncing ideas back to me.

Unfortunately a 1120h is not an option because this is a HOA for office buildings - my understanding is that an 1120h is only for hoa's that primarily service individual owner units.

i did take a look at prior year financials and I see there was an excess of expenses over revenue of $11,560, but for some reason they only took sec 277 for 10,000 and not the full amount - not sure what is causing the difference but that difference is the reason for the NOL. I can confirm that they have correctly recorded the reserve account as non taxable/deductible items.

I think I will go ahead and create and take an expense under other expenses for prior year sec 277 expenses. The fact that I can see they did not take 10k in the prior year gives me some comfort that i can take some of that excess this year.


Thanks again for having the discussion with me - i know it is difficult without having the limited info you have on my situation but you have been very helpful.


BearAcct 14:15, 9 February 2009 (CST)BearAcct

homeowner taxation of excess income

The following is a question I just posted on the website. You appear to have extensive experience in this area so I would appreciate your comments. Thanks.

Hscala (talk|edits) said: 21 July 2009 I have been asked to advise a homeowner's association regarding possible taxation of surplus funds. In 2006 the Association had excess expenses over dues so it filed an 1120-H tax return. In 2007 & 2008 the Association had excess collections of dues over expenses of $70,000 & $54,000 respectively. Regular corporate 1120 tax returns rather than 1120-H's were filed for those years. I believe this should not have been done without membership (owner) approval. Compounding this error the Board failed to go to the membership pursuant to Revenue Ruling 70-604 which allows an 1120 corporation to avoid tax on the surplus if that surplus is returned to the members within one year. If the association remains an 1120 and fails to return the money to the members, it faces a potential federal tax of 15% & state tax of 5.5% on that surplus plus interest and penalties. The Treasurer proposes to file amended 1120-H returns for both years & not include the excess funds as taxable income. The Board's purpose is to retain the funds rather than return it to the members. The Treasurer has stated that the amended return for 2008 is automatic, but the 2007 amended 1120-H is subject to IRS approval. If this was not approved, I believe the Association might be opening the door for an audit & taxation of the 2007 surplus. I have suggested that the Association stand on their current 1120 returns & have the members vote to retroactively approve the filing of same. The Association would then return the excess funds to the members pursuant to 70-604 which is something many members desire. I believe this could be done with no problem for 2008 since the funds would be returned within one year of the surplus. There is a problem as to the 2007 excess since they would not be returned within one year of that surplus. If the association was audited for 2007, it could then state that they simply corrected a prior error by returning the money & hope that the IRS would forgive this error. I ask for your input concerning the two proposals that are on the table. Thanks.

You can respond to me directly at hscala@comcast.net.

Non Filing HOA

Hey, Rodney...have enjoyed your posts for some time. And you seem to have cornered the HOA world somehow. I'm wrestling with a non filing issue and just feel frozen. I've mentioned it on the board, perhaps obliquely so that nothing I'd say there would come back to haunt me.

And you're free not to answer...and if you do, I will delete your response to CYA. I'm looking for practical guidance.

This HOA is fairly new to me, been around since 1998! And never ever filed anything. They don't even have an FEIN that I know of...tho' something must be on the bank account. They've had surpluses all along. Obviously, I can't file retroactive 1120-H's. And my concern is that if I start to, that opens the questions of where are the prior years? I can't lie about the org date, nor that this is the initial return. Nor do I want to expose the HOA to a massive amount of tax and penalty by filing 1120's for a bunch of years...(if I even knew how to file an HOA on an 1120, which I don't!). Income is dues and some interest income. Expenses typical stuff for lawn and snow maintenance, playgrounds, building repairs. All volunteer, of course.

What to do? Thanks, Jeff

JR1 17:45, 20 May 2010 (CDT)

Parking Lot Rental Income

For the first time this past year we received parking lot rental income from nonmembers of $4,940. Our total parking lot income was $10,008. We had parking lot expenses of $6,781. Since the $4,940 is taxable income can I take the amount that I need from the expenses to offset the income to net it to zero or do I have to perform some type of calculation? Also...do I record the expense to offset income on line 10 or 15 of form 1120-H? dwerkcssDwerkcss 15:38, 18 February 2012 (UTC)

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Not For profit Financials and 990

Not For Profit Financials and 990

Hey Rodney, I am doing a review for a NFP that I had asked a question on a few years back. My scenerio was that the tax preparer/bookkeeper for this entity had never shown depreciation on the 990, and carried the small ammount of fixed assets that they had at historical cost. Upon doing the review this year I was advised by the owner that a good portion of the assets were disposed of last year.

I have taken your advice in prior years and have written about the departure from GAAP for the FS. This year however I would like to write off these assets in both the FS and the 990. Can you advise how I can do this? I am not overly familiar with the preparation of 990's and im trying to make sure that the preparer handles this properly.

Any help would be great!

Thanks,

Jonathan'

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