Let’s Play 20 Questions: Taxes & Audits! Catherine Kuhn {Editor’s Note: The following is the first in a two-part article. Part two will appear in the April issue.}
One thing is certain for community associations: An annual federal Accountant (CPA) audit. If this is surprising to you, read on. If this is not surprising to you, read on anyway; as community associations
Are associations required to file an annual federal tax return? YES. Associations are required to file annually, even if they do inception, even if assessments are not yet billed.
What type of tax return do associations file? Most associations file a form 1120-H return, which is a special return for this industry. Some associations file a form 1120 return, which is the regular corporate return. This industry is unique law since most associations may “flip flop” back and forth each year between an 1120-H and an 1120. Some associations (such as commercial associations, and associations that don’t meet certain tests) are required to file an 1120 return. A few associations are 990 tax return. This is rare and has stringent/narrow requirements.
16 Community Associations Journal | March 2018
Do associations pay tax? on all accounts, income from non-members (such as cell tower income or rental of an association owned unit), and “user fees” from return for the association.
Is there a way to avoid tax? If the Association has interest/investment income, or income from the 1120 return is recommended in limited circumstances due to the requirements, and higher IRS audit risk.
Calling...
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