Refund checks not cashed

All,

I have a situation where checks, dated December 2012, were sent to two members to refund overpayment of 2012 assessment have not been cashed. I've sent letters to them asking that they cash the check or let me know if the check is lost so it can be reissued. I have not received any response to those letters.

As I see it, my options are:

1) Let it be and continue to reconcile bank statements noting the uncashed checks.

2) Stop payment and issue new checks (but the stop payment fee is more than the checks are written for).

3) Stop payment and credit accounts for amount refunded.

4) Issue new checks or credit accounts without issuing a stop payment.

Any suggestions on which course of action I should recommend to my Board?

For Bruce, at what point do we count the amount as income and, if needed amend returns.

Tim,

I'm not sure, but I believe most banks won't cash checks that are over a certain date. It might be something like six months or a year. You might want to check with your bank to be sure and how old the check must be before they will refuse to honor it.

In the future, you might want to have a line printed on your checks saying something like "not valid after 90 days" or something similar. I don't know if that really means anything, but it might encourage people to cash them rather them leave them lie around.

It sounds like the lowest cost option is to just let things remain.

As far as taxes go, if you are filing form 1120-H there is no requirement from the IRS that you refund unused assessments to the homeowners.

Also, since you have already issued the checks, you have already refunded the amounts as far as the IRS is concerned. When you are on a cash system, income is received when it is made available to you. In other words, if you receive a pay check you have earned the income when the check was issued. If your employer issues your pay check on Dec. 31, 2012, it is 2012 income even though you don't cash the check until sometime in January 2013.

It works the same way when you itemize deductions. Let's say your medical expenses are high enough to deduct. Suppose you receive a doctor's bill in December 2012. If you issue the check to pay the bill in December, then you can deduct the bill on your 2012 taxes. However, if you don't issue the check until January, then you cannot claim the deduction for 2012, but you can claim it when you do your 2013 taxes, even though you received the bill in December of the prior year.

Similarly, when you issued the refund checks, that money is no longer available to the association, so the fact that the homeowners have not cashed the checks does not mean it should be treated as income to the association.