The purpose of Revenue Ruling 70-604 is to allow a homeowners association to avoid taxation on its excess membership income by either refunding it to members, or carrying over the excess to the following tax year.
What is a revenue ruling from the IRS?
A revenue ruling is an official interpretation by the IRS of the Internal Revenue Code, related statutes, tax treaties and regulations. It is the conclusion of the IRS on how the law is applied to a specific set of facts.
What is a section 277 carryover?
Section 277(a) generally provides that deductions for the taxable year attributable to furnishing services, insurance, goods, or other items of value to members shall be allowed only to the extent of income derived during that year from members or transactions with members.
What is declaration U S 277A?
As per section 277A, if any person (hereafter referred to as the first person) wilfully and with an intent to enable any other person (hereafter referred to as the second person) to evade any tax or interest or penalty chargeable and imposable under the Act, makes or causes to be made any entry or statement which is …
When does Revenue Ruling 70-604 need to be made?
Revenue ruling 70-604 states “. . . any excess assessments . . .” are the subject of the election. (6) The election under revenue ruling 70-604 MUST be made before the tax return is filed. It SHOULD be made before the tax year has ended. It COULD be made before the tax year even starts. Also see number 5 above.
Can a condo association file Revenue Ruling 70-604?
There are many risks and complexitites so make sure you are educated. At first pass, Revenue Ruling 70-604 may appear to be an inconsequential revenue ruling. However, for condo associations and HOAs that file form 1120 it can be a substantial planning tool.
What to do with excess member income 70-604?
The ruling allows two options only; (1) refund the excess member income to the members or (2) apply the excess to the following year’s assessments.
Can a Hoa file a Tax Form 1120?
Assuming the election is made, if the association has excess membership income, then making a valid election can save significant taxes for the association. The HOA is then able to file Form 1120 and only net non-membership income would be taxed.
