IRS RULING 70-604

CAN ANYONE EXPLAIN THIS RULING.
IT COVERS THE RETURN OF ECWSS INCOME OF HOA

Frank, basically, 70-604 is a tax election that states that any excess membership income remaining at the end of the year is carried over into the next year, or is refunded to owners. This election may allow the Association to file form 1120 (rather than form 1120-H) for its Federal taxes and pay tax at 15% on the first $50,000 of taxable income rather than 30%. (Note: taxable income is generally interest and possibly other nonmember income). If your HOA wants to consider using 70-604 the membership should vote on this at each annual meeting and it is best to have the annual operating budget incorporate the excess member's income from the prior year.

There can be advanages and disadvantages of each 1120 and 1120-H. The advantage goes to 1120-H is when nonmember income (interest, ect.) is below several thousand dollars. We have use 1120-H exclusively.