Homrowner Assoc.

[superman]

Has anyone ever done a homeowners accoc tax return? I have a person that contacted me and need to do a return for their homewoners assoc she is the defacto president because no one else wants to do it but the problem is that for the past 6 yrs no return has been done. When this person took over previous president told her the assoc was tax exempt and non profit so they did not have to file a return. Now she recieved a 1099 from the bank for dues paid to the assoc for a condo in the complex that was foreclosed on and this brings up a tax question to her do I have to file.

My main question is it better to pass this on to someone that works on these on a daily basis or is it doable? What are the items that you would need and how much is the going rate for this?

Any help would be great.

Superman

[Uncle Sam]

Homeowner Asociation

I have a condominium association - but they're pretty much the same - they're called CIRAs' - Common Interest Realty Associations.

Tax Exempt issue - NOT TRUE - they're misinterpreting the meaning of tax exempt.

I will be back shortly with an explanation of what it really means.

If you want - you can PM me .

[Uncle Sam]

Homeowner Association

I suggest you read up on IRC Sec 277 and 528

A homeowner association is a taxable entity just like any commercial business in the reporting of its financial activities.

HOWEVER - the IRS provides under either or both of the section numbers I referenced above the OPTION, which is made annually, to be TREATED AS IF the organization was a tax exempt organization, by only taxing non-exempt function income and related expenses.

So instead of filing Form 1120, the corporation is able to file Form 1120-H that taxes only the non related revenues to being a homeowner association - such as interest income on savings accounts, late fees from unitholders, commercial business fees from vending machines, laundry room rentals, storage facilities on premises, etc.
Then you're able to deduct expenses that are strictly management related items not related to the real estate operation.
However, there needs to be an exempt 60% test for revenues and 90% test for expenses to be qualifying under this alternative.
The net result of non exempt function items minus a $ 100 exemption is taxed at a flat 30%. If that results in a lower income tax than filing the 1120 under the normal circumstances - it's advisable to do that.

But the "tax exempt" misconception comes from the ability to file an alternative tax return excluding out the exempt items from the tax calculation.

[tpert]

Uncle Sam,

Since you seem knowledgeable, I was wondering on your thoughts about tax preparation fees and accounting fees. Do you treat them as "related expenses?"

I generally treat these as expenses which are deductible against non-related revenues and also bank fees and the like. However, recently, I have inherited two of these where they deducted all of these miscellaneous expenses against exempt function income.

Do you know of anything that cites examples of related and unrelated income and expenses or is it fairly straightforward?

Thanks.

[AJsTax]

split expenses

between related and non related income on a percentage basis of the total income.

[Uncle Sam]

Homeowner Association

I practically do the same as AJ.

There's no real hard/fast absolute answer to treating one way or the other.
My tendency has been, though, to treat accounting fees really more as administrative than exempt function.

[superman]

Thanks

for the information I will read the irs sec. Do you have a range that you would charge for a return like this? As I said I have never done anything like this so I do not want to underprice it and regret that later.

Once again thanks for the information I will keep you updated on the progress.

Superman

[Uncle Sam]

Homeowner Association

Bill according to your regular normal billing rates.

It really depends upon the financial size of the client.

The main one that I have is an 80 unit condominium association in a city.

The fee really varies depending upon how much of the bookkeeping/accounting you need to do in order to get the tax information ready for tax preparation.

[taxmandan]

I believe that they have to elect to file the 1120H on a timely filed tax return, so prior years will be form 1120 only.