Interest On Deposits

SamuelB (North Carolina)
Posts: 83

Posted:

The HOA is in North Carolina and there isn't a definitive answer to the following question, to the best of my knowledge, in our CC&R's.

To what account should interest on deposits be credited to? For years, the interest has gone into the General Fund, and now the board has created a "Reserve" account specifically for interest deposits. Thoughts?

I fly because it releases my mind from the tyranny of petty things . . . - Antoine de St-Exupéry

RobertG (Arizona)
Posts: 505

Posted:

Did you look at the recent discussion on this topic?

What was the purpose of the money that the interest was made from? Was the original principal a reserve account?

SamuelB (North Carolina)
Posts: 83

Posted:

Quote:

Posted By RobertG on 07/22/2007 3:38 PM
Did you look at the recent discussion on this topic?

What was the purpose of the money that the interest was made from? Was the original principal a reserve account?

Robert, Many thanks for the timely response. I did not look at the thread covering this topic; sorry, I just got back into this forum after a long absence.
It is difficult to answer where the interest came from because we have several CD's which are funded by both Reserve accounts and the General fund. The CD funding was never broken out as to which was which. The accountant didn't see a need to do that.

I fly because it releases my mind from the tyranny of petty things . . . - Antoine de St-Exupéry

DavidR5
Posts: 99

Posted:

Quote:

Posted By SamuelB on 07/22/2007 3:49 PM

Posted By RobertG on 07/22/2007 3:38 PM
Did you look at the recent discussion on this topic?

What was the purpose of the money that the interest was made from? Was the original principal a reserve account?

Robert, Many thanks for the timely response. I did not look at the thread covering this topic; sorry, I just got back into this forum after a long absence.
It is difficult to answer where the interest came from because we have several CD's which are funded by both Reserve accounts and the General fund. The CD funding was never broken out as to which was which. The accountant didn't see a need to do that.

I don't see what difference it makes. Interest is general revenue. The reserve is a fixed fund, and as an asset, it can generate revenue. Its no different than advertising that you sell in your newsletter. It should estimated in your budget as part of your revenue flows.

SamuelB (North Carolina)
Posts: 83

Posted:

Quote:

Posted By DavidR5 on 07/22/2007 4:01 PM

Posted By SamuelB on 07/22/2007 3:49 PM

Posted By RobertG on 07/22/2007 3:38 PM
Did you look at the recent discussion on this topic?

What was the purpose of the money that the interest was made from? Was the original principal a reserve account?

Robert, Many thanks for the timely response. I did not look at the thread covering this topic; sorry, I just got back into this forum after a long absence.
It is difficult to answer where the interest came from because we have several CD's which are funded by both Reserve accounts and the General fund. The CD funding was never broken out as to which was which. The accountant didn't see a need to do that.

I don't see what difference it makes. Interest is general revenue. The reserve is a fixed fund, and as an asset, it can generate revenue. Its no different than advertising that you sell in your newsletter. It should estimated in your budget as part of your revenue flows.

Even though I tend to agree with you, when the Reserve Account has been created in the middle of the year without being ratified by the membership, it tends to imply an overfunding of the Reserves.

I fly because it releases my mind from the tyranny of petty things . . . - Antoine de St-Exupéry

RobertG (Arizona)
Posts: 505

Posted:

Quote:

Posted By SamuelB on 07/22/2007 3:49 PM

Posted By RobertG on 07/22/2007 3:38 PM
Did you look at the recent discussion on this topic?

What was the purpose of the money that the interest was made from? Was the original principal a reserve account?

Robert, Many thanks for the timely response. I did not look at the thread covering this topic; sorry, I just got back into this forum after a long absence.
It is difficult to answer where the interest came from because we have several CD's which are funded by both Reserve accounts and the General fund. The CD funding was never broken out as to which was which. The accountant didn't see a need to do that.

I hope you don't really mean you have a cd that has funds from both general funds and reserve. That could get you in trouble with the IRS. This has been discussed in some detail.

DaneC (California)
Posts: 210

Posted:

Interest should be kept with the fund it relates to. Placing Reserve interest into the General Fund could create Tax consequences. In a Revenue Ruling, the IRS has stated -
"The revenue ruling states that the sole authorized activity of a
condominium management association is the assessment of its stockholder-owners for the purposes of managing, operating, maintaining, and replacing the common elements of the condominium property. The stockholder-owners hold a meeting each year to
decide whether to return any excess assessments to themselves or to have the excess applied against the following year’s assessments."
ALSO
"The revenue ruling was not intended to permit a condominium management association to build a reserve."
In other words they are saying budget properly.

Internal Revenue Service
Excess Assessments

http://www.irs.gov/pub/irs-wd/01-0176.pdf#search=%22irs%20revenue%20ruling%2070-604%22
http://www.irs.gov/pub/irs-wd/04-0231.pdf#search=%22irs%20revenue%20ruling%2070-604%22

DavidR5
Posts: 99

Posted:

I'm not sure what that ruling has to do with anything. Revenue is revenue. A reserve is not a retirement account. You have all sorts of unpredictable revenues; advertising in your newsletter, interest on your float if you have any. You have unexpected expenses as well.

Interest on a reserve fund still has to be declared as income/revenue. If you have a large reserve, that interest should be somewhat predictable and included in your budget calculations.

SamuelB (North Carolina)
Posts: 83

Posted:

Quote:

Posted By RobertG on 07/22/2007 6:16 PM

Posted By SamuelB on 07/22/2007 3:49 PM

Posted By RobertG on 07/22/2007 3:38 PM
Did you look at the recent discussion on this topic?

What was the purpose of the money that the interest was made from? Was the original principal a reserve account?

Robert, Many thanks for the timely response. I did not look at the thread covering this topic; sorry, I just got back into this forum after a long absence.
It is difficult to answer where the interest came from because we have several CD's which are funded by both Reserve accounts and the General fund. The CD funding was never broken out as to which was which. The accountant didn't see a need to do that.

I hope you don't really mean you have a cd that has funds from both general funds and reserve. That could get you in trouble with the IRS. This has been discussed in some detail.

Robert, can you give me a link to the other discussion? I think I have some reading to do. Thanks much, everyone. I appreciate the input. Lots to think about.

I fly because it releases my mind from the tyranny of petty things . . . - Antoine de St-Exupéry

DaneC (California)
Posts: 210

Posted:

Quote:

Posted By DavidR5 on 07/22/2007 6:46 PM
I'm not sure what that ruling has to do with anything. Revenue is revenue. A reserve is not a retirement account. You have all sorts of unpredictable revenues; advertising in your newsletter, interest on your float if you have any. You have unexpected expenses as well.

You need to have a chat with your CPA. "Revenue is revenue" does not fly with the IRS. They look at it as "function income", and "non function income", and under IRC 528 you have both income and expenditure tests.

http://www.irs.gov/pub/irs-pdf/f1120h.pdf

DavidR5
Posts: 99

Posted:

So are you claiming (or does your CPA claim) that interest on your general fund is not exempt function income and interest on your reserve is? They are both interest on exempt function funds, so I don't see the difference. Of course we're a new building and don't have a reserve yet so I haven't had the conversation.

RobertG (Arizona)
Posts: 505

Posted:

Quote:

Posted By SamuelB on 07/22/2007 6:50 PM

Posted By RobertG on 07/22/2007 6:16 PM

Posted By SamuelB on 07/22/2007 3:49 PM

Posted By RobertG on 07/22/2007 3:38 PM
Did you look at the recent discussion on this topic?

What was the purpose of the money that the interest was made from? Was the original principal a reserve account?

Robert, Many thanks for the timely response. I did not look at the thread covering this topic; sorry, I just got back into this forum after a long absence.
It is difficult to answer where the interest came from because we have several CD's which are funded by both Reserve accounts and the General fund. The CD funding was never broken out as to which was which. The accountant didn't see a need to do that.

I hope you don't really mean you have a cd that has funds from both general funds and reserve. That could get you in trouble with the IRS. This has been discussed in some detail.

Robert, can you give me a link to the other discussion? I think I have some reading to do. Thanks much, everyone. I appreciate the input. Lots to think about.

It is titled "Reserve Fund Income" and should be on the next page of titles.

SamuelB (North Carolina)
Posts: 83

Posted:

Got it; thanks RobertG

I fly because it releases my mind from the tyranny of petty things . . . - Antoine de St-Exupéry