Filing form 1120H

Started by DianeW • 15 replies • 4013 views

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DianeW (Maryland)
Posts: 147

Posted:

I have just accepted the position of treasurer in our association in Florida. I was treasurer in 2005 as well. Up until that time tax returns had never been filed. I went to an accountant and we did a late filing for 2004 and I filed for 2005. It was my understanding from talking to the accountant that we owed 30% of taxable income and the interest from our CD's we had qualified as taxable income. So we paid the 30% of the amount shown on the 1099 from our bank. The treasurer that took over for 2006 & 2007 did not file a return for 2006 and IRS came back to us for a filing. Although I see a 1099 for 2006 in the amount of approx $1300, the treasurer claims she talked to IRS and was told we did not owe anything. I do not have copies of any forms she completed. My question is, do we or don't we owe 30% of the interest income to IRS?

LaverneB (Florida)
Posts: 129

Posted:

The owner does know about the by-laws and we do have a copy of the lease, but they were never screened. In our docs it says homes can be rented but must go through the same screening as the buyer. Donna you are right the office or board might have let this slipped by as they became lax in the past 3 years. I don't understand the 20% thing but will look it up.

RogerB (Colorado)
Posts: 5,067

Posted:

Diane, Your previous treasurer is wrong. You owe 30% on the interest yield each year after deductions for taxes paid, tax preperation cost, and the $100 standard deduction.

DianeW (Maryland)
Posts: 147

Posted:

Taxes paid? Would that be the real estate taxes for the current year? Tax prep costs from the year before? because the accountant did not take the real estate taxes into the equation in 2004. And that would mean I could have used the tax prep costs from 2004 when I filed for 2005? I just looked at the 1120H and don't see which category the tax prep costs would fall under.

RogerB (Colorado)
Posts: 5,067

Posted:

Diane, tax and tax prep deductions apply only for the year for which you are filing. When filing 2007 1120-H by 3/15/08 use expenses incurred in 2007. We enclose a yearly Income Statement which shows these as two of the line items.

DianeW (Maryland)
Posts: 147

Posted:

Thanks Roger. I got out the return for 2004 and the accountant did list his fee as an item in the Expenditures for 90% test area. He did NOT list it or the real estate taxes or any other item in the Deductions section. That is why I am so confused. This accounting firm was supposedly "up" on HOA filings! If there had been allowable deductions in that section, we would not have owed any taxes and for 2005 I followed their lead and filed the same way and paid taxes which I also would not have needed to do as we had even more expenses that year. This is very confusing when even accountants don't give you the correct answers.

FrankD2 (New Jersey)
Posts: 58

Posted:

Diane
you are allowed to deduct as an expense from income
any expense directly incurred in obtaining the income

DianeW (Maryland)
Posts: 147

Posted:

I just got of the phone with the firm that prepared the tax return in 2004 and I was told that expenses related to the running of the association are used in the 90% expenditure test but they are NOT used again below in the deduction section and that a 30% tax is incurred on interest income unless we file an 1120 for corporations. Clear as mud but I am comfortable with his information. Thanks for everyone's input.

RogerB (Colorado)
Posts: 5,067

Posted:

Diane, the firm that gave you that information on deductions is absolutely wrong.

DianeW (Maryland)
Posts: 147

Posted:

Great - so now what do I do? The association paid dues for 2004 & 2005 based on their information. The dues for 2004 were not paid till fourth quarter 2005 and a penalty and interest were paid. Taxes were paid for 2005. All together we are talking around $1000. If I go to a tax firm to get a refund, all I will end up doing is paying the tax firm instead but at least I would then have the knowledge to go forward. Care to steer me somewhere?

DianeW (Maryland)
Posts: 147

Posted:

In reading the directions for filing form 1120-H under Definitions: Taxable Income. Item 2 states "Allowed deductions directly connected with producing any gross income EXCEPT exempt function income. To my mind since all income we have is exempt function income, there are no deductions allowable to offset taxable interest. This would correlate with what our accountant has told us.

RogerB (Colorado)
Posts: 5,067

Posted:

Diane, all of an association's income usually is not the same as their exempt function income. For example interest earned from investments, payments by non-members, payments by members for special use of the organizations facilities apart from the use generally available to all members(look at the current thread discussing rental of horse stalls), and payments for work done on nonassociation property.

Attached is a file copy which may help you. One of my first posts on HOAtalk.com solicited thoughts on the 1989 Concord Comsumers Cooperative Case. I am interested in hearing from those who use the 10% cash management deduction.

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📝12426483571.doc(28 KB)

DianeW (Maryland)
Posts: 147

Posted:

Thanks Roger. All of our HOA income is from dues and for 2006 we also had an assessment to cover the expense of paving the roads.

DianeW (Maryland)
Posts: 147

Posted:

Also we have no management company nor did we have tax prep fees.

DonnaS (Tennessee)
Posts: 5,671

Posted:

Diane,
How big is your membership and what is your annual income? You may also have some issues with the State as for auditing/compliation requirements

DianeW (Maryland)
Posts: 147

Posted:

We have approximately 120 parcels and annual dues are $120 per year. We do file the annual corporation form in March which is a little over $60.

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