Form 1120H, authorized under Internal Revenue Code Section 528, provides a specialized filing option for qualifying associations. It exists because Congress recognized that associations do not operate like traditional corporations and therefore should not be taxed as if they were. The form divides revenue into categories that reflect how associations collect and use funds. Its most important feature is that it protects assessment income from taxation.


Since assessments make up most of the association revenue, this protection is central to the form’s importance.


Form 1120H separates income into exempt function income and non-exempt income. Exempt function income includes the assessments that owners pay in their roles as members, including regular assessments, special assessments, and contributions intended for reserves. These amounts are counted when determining whether the


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