End of Year Credit Balances - What do you do with them?

All,

A few years ago my Association adopted a policy that any credit balances at the end of the year that were not designated for the following year's assessment, would be refunded to the member. These are typically in the dollar amount range of $1-$10.

I'm curious to know how other Associations handle minor credit balances at the end of the year.

Tim

Tim,

Are you talking about credit balances in the accounts of individual homeowners or a credit balance in association operating account?

Regarding homeowner balances - we have many owners who prepay their assessments as much as a year in advance. In January we send a statement to all homeowners who have a non-zero balance (either positive or negative). The accompanying letter states that they can request a refund of any credit balance or reduce subsequent assessment payments in that amount.

Regarding operating account balances at year end - we have run an operating surplus in each of the last 5 years. We created a Capital Improvement Fund and the board votes to transfer the operating surplus to the CIF at the end of each year. The CIF is over and above an operating contingency equal to 20% of annual assessments that is carried on the balance sheet as "unappropriated members equity".

I once worked part time for a major retailer. They had a commission plan that was a joke. I often got commission checks for less then $1.00. If the check was for less the $1.00, I ripped it up and threw it away. I considered them having to carry/account for it cost them more money then the check was worth. My silent protest to a joke of a plan.....LOL

David,

Owners can carry a credit balance. Many have already paid next years assessments but those funds were specifically identified for 2014.

Our accountant advised us that if the credit isn't identified by the member to be applied to the following years assessment that we either needed to refund the over payment or consider it as taxable income for that year.

Based on this advice, the Board chose to adopt a policy to refund the small amounts. Last year that wasn't too much of an issue except for one individual who, like John, hasn't cashed the check or responded to our inquiries if they wanted a new check issued or the credit applied. I've already spent $1.80 inquiring about a $3 check and asking that that they fill out a simple half page form to resolve the issue.

This year, I have already issued 8 refund checks. They have ranged from $1.10 to $75. I almost had to issue a refund of over $200 but the member finally responded to my earlier request that the amount should be carried over.

This is the wording of the policy I have to comply with:

"Any funds remaining from a regular assessment payment shall be applied towards future payments PROVIDING that any excess funds that are in the account for that years annual assessment are returned to the member of record at the end of the fiscal year the assessment occurred."

This is why I asked how others who may have this problem handle their individual accounts.

Tim, posted "Our accountant advised us that if the credit isn't identified by the member to be applied to the following years assessment that we either needed to refund the over payment or consider it as taxable income for that year."

I presume you use 1120-H as do most HOAs. There is no tax liability for the situation you describe. My advise is to get a different accountant or at a minimum someone who is knowledgeable about HOA tax requirements. Simply carry forward the balance on each account which has a credit; just like you do on a debit.

Thanks Roger.