Reducing Inherent Risks of Form 1120

Although it is possible for homeowners' associations to successfully file Form 1120, it's critical that those who do so reduce their task risk through properly applying tax law, being conservative in their tax approach, and following proper procedures for documenting their actions.

Rather than stretching tax law and creating tax risk, you can file Form 1120-H, although you'll pay more taxes. Or you can reshape your association to fit within existing Form 1120 tax law by taking the following steps:

1) Proper application of IRC Section 118 (reserves assessment)
2) Proper application of IRC Section 277 (membership income and deductions)
3) Proper application of IRC Section 263 (reserve expenditures)
4) Proper application of Revenue Ruling 70-604

If your association is not willing to expend the effort to properly reduce the risk on Form 1120, then you should be filing Form 1120-H. We routinely recommend filing Form 1120-H to protect you from the enormous tax risks of Form 1120.

If you're determined to file Form 1120 or are required to do so, make sure you reduce your tax exposure by documenting all financial transactions, and remember that how you do something is often more important than what you do.

Use our Form 1120 checklist and follow all the critical steps to ensure you safely file Form 1120.