1120h

[mred163]

Client neglected to file 1120H for past 5 years. Anyway to avoid having to file as an 1120?

[OldJack]

I would pepare and file all 5 years past due forms 1120H as that is the only way to claim exemption from taxes for the membership and other income. If the IRS was to question the late filings you could probably come up with a reasonable cause to get the IRS to wave penalties and taxes. If you file forms 1120 you would have to pay taxes so you have nothing to lose to file the 1120H tax returns.

[Bees Knees]

Regulation Section 1.528-8(b), "For taxable years ending after December 30, 1976, the election must be made not later than the time, including extensions, for filing an income tax return for the year in which the election is to apply."

Sorry, you can't make the election after the extension deadline. Form 1120 is your only option.

[OldJack]

The election is made when the entity files its initial corporate tax return. Once the entity has elected it thereafter files form 1120H (Homeowners Assoc) tax form showing exempt from tax on certain type revenue such as membership dues. Think of it the same as a S-corp election with form 2553... you don't file an election every year. Duh!

[Bees Knees]

You might want to read the instructions before you speak...

Form 1120-H instructions:

"A homeowners association elects to take
advantage of the tax benefits provided by
section 528 by filing a properly completed Form
1120-H. The election is made separately for
each tax year and generally must be made by
the due date, including extensions, of the
income tax return."

In other words, it is a year by year election. You can file 1120-H one year, and then 1120 the next, and then 1120-H, and so on.

[OldJack]

You are correct, I should have read the instructions. I would still file forms 1120H and request waiver due to reasonable cause.