Form 1120 Checklist

Homeowners' associations that decide to file Form 1120 should start their tax planning on the first day of their tax year. Don't wait until a month after year end to consider important factors such as these:

1.) Maintain the proper types of bank accounts. Most HOAs already have operating and reserve accounts, but the IRS looks at reserves quite differently than those in the HOA industry do. If you co-mingle funds, you kill your chances of safely filing Form 1120.

2) Conduct a reserve study supporting the specific capital purpose for your reserve assessments. This is absolutely required under Code 118. Make sure your budget agrees with its results.

3) Be able to separately account for operating and reserve transactions in your financial statements, especially between capital vs. non-capital reserve transactions.

4) Have your members annually approve your association's election to file Form 1120 under Rev. Rul. 70-604.

5) Keep operating and reserve funds segregated. Don't ever co-mingle between bank accounts.

If your association cannot guarantee the above items, your tax preparer cannot overcome the deficiencies and inherent task risks you now face.

Form 1120 is very complex and, if you don't plan properly, you could open yourself up to major tax exposure. For this reason, we recommend filing Form 1120-H for most associations.