expenditures

Started by MichaelJ8 • 7 replies • 1544 views

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MichaelJ8 (Illinois)
Posts: 113

Posted:

I took the paper work showing income and expenses to the accountant. I told her that we opened another account for the reserve fund. I did not put down the amount deposited to the account as an expense. The accountant did not show it anywhere on form 1120H. If we showed the full amount that was deposited we would have more expenses than income. (The association used excess money in the checking account from the last 2 years to start the reserve fund.) Any thoughts on this. I do have a meeting scheduled with her before I mail it in.

TimB4 (Tennessee)
Posts: 21,047

Posted:

It might be seen as an expense to the operating budget but not to the Association.

The IRS doesn't care where the money is physically located (unless it's off shore

). They just want to know how much you took in and how much you paid out.

Tim

SusanW1 (Michigan)
Posts: 5,202

Posted:

Your Balance Sheet should show ALL HOA funds.

I can't believe that your IRS form did not ask for this info.

Check again.

Ps "Transfers" from one account to another are not posted as income or expenses.

MichaelJ8 (Illinois)
Posts: 113

Posted:

Tim,
When you say paid out are you refering to actual expenses such as lawn care, building insurance, electricity and not what we put into the reserve fund?
Thanks for your reply

TimB4 (Tennessee)
Posts: 21,047

Posted:

Yes

MichaelJ8 (Illinois)
Posts: 113

Posted:

Susan,
Would you look at a 1120h form and see if you could spot want you meant by this statement,"I can't believe that your IRS form did not ask for this info." As I said I am having the accountant do the paper work. I am just trying to educate myself.

Thanks

RickE1 (Louisiana)
Posts: 17

Posted:

As a newly elected treasurer last year I wrestled with this issue in learning that we should be filing the 1120-H form rather than the Form 990 our previous "professional" tax-preparer was filing. On another web site I came across covering something called the "Electronic Code of Federal Regulations" it quoted an IRS document under Title 26 Section 1.528-6 that clearly states that "transfers to a sinking fund account for the replacement of a roof (for example)would not be considered an expenditure for purposes of the 90% rule". In other words money transferred to a Reserve Fund "shall not be counted" as an expenditure. Therefore itemize your expenditures not counting the Reserve Fund to determine if you meet the 90%test. I just filed our 2011 Form 1120-H using this method as I did last year. I'm sure a quick call to an IRS Agent could confirm this as well...Good Luck!

TimB4 (Tennessee)
Posts: 21,047

Posted:

Per the instruction:

"At least 90% of the association’s expenses for the tax year must consist of expenses to acquire, build manage, maintain, or care for its property" and that the association's "do not include investments or transfers of funds held to meet future costs".

Therefore, as I understand it:

90% of the expenses doesn't mean how 90% of the income received is spent.

Example:

$100 from assessments
$30 transferred to reserve fund
$20 administrative supplies
$40 lawn contracts
$8 utilities
$2 activities

Therefore, you $70 in expenses (since transfers to reserves don't count).
Of that $70, $2 were not used for the community.
68/70 = 97% of expenses for community

This meets 26CFR 1.528-6

Am I misunderstanding this?

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