Discussion:Taxation of Commercial Property Owners Assoc

I met last week with a property manager regarding the tax return required for a property owner's association. The properties involved are all commercial properties, not residential. The entity was formed as a corporation in 2003. I have copies of the 1120's for 2004 - 2006. 2007 and 2008 have not yet been prepared. The question is, how does this beast get taxed? Here is what I know thus far:

1. The entity has been incorporated in the state as a non-profit entity, but is not an exempt entity under the federal tax code. The entity has been correctly reporting on an 1120. (If it were a homeowners' association, rather than an association of commercial property owners, the entity could report on an 1120H if at least 85% of units were residential units. Since they are not, 1120H is ruled out).

2. Section 528 provides that homeowner associations are tax exempt entities. Clearly this does not apply.

3. Section 277 http://www.taxalmanac.org/index.php/Internal_Revenue_Code_-_Subtitle_A_-_Index provides that expenses incurred by a "social club or other membership organization which is operated primarily to furnish services or goods to members and which is NOT exempt from taxation" are deductible only against member income and not deductible against nonmember income, but excess deductions may be carried forward to be applied against member income in future years.

4. Rev-Rule 70-604 http://www.emochila.com/sb/pics/hukriede/700/70-604.pdf provides that excess assessments of condo associations may be treated as nondeductible if the stockholder-owners make an election to either refund such excess assessments or apply the excess against the following year's assessments.

5. Following (I guess) RR 70-604, the prior accountant has "accrued" for major repairs for 2005 and 2006 amounts equal to the net income for each year so that the net income showing on each year's return is $0.

A fellow tax practitioner who is a member of this entity by virtue of a commercial building he owns believes all of this similarity to a homeowners' association is smoke and mirrors and the income is taxable like an ordinary C corp.

Does anyone out there have any familiarity with this type of entity? Do these rules have any bearing on this entity, or is any excess of income collected from members just plain old C corp taxable income, with loss c/f and c/b following the rules for every other C corp? If you can direct me to any authoritative or semi-authoritative documents I would greatly appreciate your assistance.

Thanks.