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  • December 18, 2018 1:51 PM | Talia Lionetti

    By Teresa Mears

    Courtesy of usnews.com, click here to view the original article 

    If you buy a condominium, townhouse or single-family home in a newer development, you’re likely to become a member of a community association.

    About 20 percent of Americans live in a community governed by a condo association, homeowners association or co-op board, according to the Community Associations Institute, which educates volunteer board members and association management professionals. The number of communities covered by associations has grown from about 10,000 in 1970 to more than 333,000 today.

    Community associations come with rules that determine everything from the number of pets you can own to what color you can paint your front door. Some include amenities such as pools, clubhouses and golf courses, while others provide services such as road maintenance and streetlights.

    The associations are set up by developers and then turned over to a volunteer board of homeowners once all the units in the development are sold. Those volunteers are responsible for making sure facilities are maintained, collecting maintenance dues and enforcing the rules.

    “This is the ultimate form of democracy,” says Frank Rathbun, vice president of communications for the CAI.

    While stories of homeowners associations that deny permission for kids with cancer to build a playhouse or veterans to fly a flag on the wrong kind of pole may steal the headlines, CAI statistics show that 64 percent of residents are satisfied with their community association experience and 26 percent are neutral, with only 10 percent dissatisfied, according to a 2014 survey.

    But the same survey shows that almost a quarter of residents have experienced a significant disagreement with their association, with landscaping and parking being the two most common causes, followed by finances and architectural issues.

    Whether you like or hate the rules that come with community association life, once you’ve bought or rented in an association, you’ve signed on. Being a member of an association ties your fate to your neighbors’ in ways that living in a traditional subdivision does not.

    “You have to overcome that ‘my home is my castle’ issue,” Rathbun says.

    Rules are designed to protect property values, and 70 percent of the respondents in the CAI survey believe they do, while 26 percent believe they make no difference. Disagreements over which rules are required to protect property values often leads to conflicts that can cost residents both time and money if they’re handled poorly.

    “People ought to know that being in a condo is a give-and-take kind of thing,” says Patrick Hohman, author of “Condos Townhomes and Home Owner Associations: How to Make Your Investment Safer” and a longtime volunteer board member who is now a part-time, on-site manager at a condominium near Louisville, Kentucky. He also runs an educational website called www.CondoHOAinfo.com.

    “It’s a nonstop process of building trust and maintaining trust,” Hohman says. “You learn to be forgiving of others and forgiving of yourself. You deal with people where they are and as they are. It’s kind of like dealing with your extended family at Thanksgiving.”

    One challenge for associations is that volunteer board members with no property management experience are charged with maintaining hundreds of thousands of dollars' worth of property. About two-thirds of associations hire professional managers, but the rest are managed by the residents themselves.

    “Board members are almost never trained in property management,” says Richard Thompson, who publishes The Regenesis Report, a weekly newsletter for board members and developers. He also writes a syndicated column for Realty Times and just published the book “Trade HOA Stress for Success.” He recommends professional management – hiring trained and experienced property managers to oversee operations – for most associations. “If the board hires competent people, they’re going to stay ahead of the curve and not put fires out,” he says.

    Communities are dependent upon the skills and personalities that residents and board members bring to the table. Some people are better than others at working with their neighbors, and residents with poor people skills can create problems for everyone, especially if they get on the board.

    Experts say that communications and transparency – being very clear about where the money goes, welcoming residents and board meetings and sharing information about how decisions are made – go a long way toward building community harmony.

    “There is no substitution for communication between the association and the residents,” Rathbun says.

    Here are seven tips getting along in a homeowners association.

    Know the rules before you move in. Too few prospective residents understand the rules before they buy or rent. It’s particularly important to be able to live with policies on pets, parking, collection, rentals, noise and architectural guidelines. “Folks buy into a homeowner association without any clue of what they’re obligated to do,” Thompson says. “Few prospective buyers research these things before they close the deal.”

    Follow proper procedures. Boards should set up clear procedures for everything from getting permission to paint your front door to rental applications to installing a satellite dish, and homeowners should expect to follow those procedures.

    Go to your neighbor before you go to the board. The board is there to make sure the rules and regulations of the development are followed, but if your neighbor’s loud music annoys you, talk to your neighbor first before taking your complaint to the HOA board.

    If you don’t like a rule, get your neighbors together to change it. Changing circumstances may make some rules outmoded, and boards should review the rules every few years to make sure they’re all serving the community. If you don’t like a rule, talk to your neighbors and petition the board collectively for a change.

    Volunteer to help your community. It’s not always evident from the outside exactly what work the board of directors is doing and what issues the community faces. Once you move in, volunteer to help with a project or serve on a committee, and expect to serve on the board at some point. “Get involved. Don’t wait until you’re dissatisfied about something,” Rathbun says.

    Try to stay out of court. Every community has a few people who think the rules don’t apply to them, and some would rather fight than comply. A court battle can be costly, both in money and in emotional turmoil within the community. “Win, lose or draw, we are still talking about neighbors who have this bigger wall between them,” Thompson says. Adds Rathbun: “Be reasonable: That applies to both the homeowners and the volunteer homeowners who serve on the board.”

    Have a long-range plan. State laws regarding reserves and planning vary, but it always makes sense to plan for items you know will have to be replaced or repaired, such as roads, roofs and pools. If the community has no reserves and no plan, a roof leak at a condominium complex could mean a surprise assessment of thousands of dollars for each homeowner. “If the board had been collecting money and planning for this … every member along the timeline would have been paying some portion,” Thompson says.

    https://loans.usnews.com/how-to-successfully-live-under-a-homeowners-association



  • December 17, 2018 4:40 PM | Talia Lionetti

    With prescription prices and utility bills rising faster than Social Security payments, a tax-relief program can help senior citizens who are hard-pressed to pay their property taxes, Cook County Treasurer Maria Pappas said today.

    Seniors whose annual household income is $55,000 or less can apply to the Senior Citizen Real Estate Tax Deferral Program for loans to cover property tax payments.

    “When property taxes are due, too many of our elderly are forced to make difficult choices about which bills to pay,” Pappas said. “This program is one way to ease their worries.”

    The State of Illinois issues the loans, which do not have to be repaid until the property is sold or the homeowner dies. An interest rate of 6 percent per year is charged by the state. The maximum loan is $5,000 per year. To qualify, homeowners must be at least 65 years old by June 1 of the year in which the application is made.

    To apply:

    • Download the application from cookcountytreasurer.com
    • Submit the completed application and copies of the required documents to the Treasurer’s Office
    • The deadline is March 1, 2019. Applications after that date cannot be accepted
    • Homeowners must reapply every year

    Download the original article here

  • December 17, 2018 4:37 PM | Talia Lionetti

    In response to a high volume of requests by taxpayers, accountants and tax advisors, Cook County Treasurer Maria Pappas said today she has posted next year’s First Installment property tax bill to cookcountytreasurer.com, nearly three months before the due date.

    This is the earliest that First Installment payments have been accepted. Property owners should consult with a tax professional about income tax deductions for 2018.

    Tax Year 2018 First Installment taxes, due March 1, 2019, are 55 percent of the prior year's total tax.

    You may look up your tax bill on cookcountytreasurer.com by using your address or 14-digit Property Index Number (PIN). Here’s how to pay:

    • Go to cookcountytreasurer.com and select “Make an Online Payment”
    • Download and print your bill from the website and either:
    • Mail it to the Treasurer’s Office, or
    • Pay in person at a Chase bank branch or the Treasurer’s Office

    Download the original article here

  • December 03, 2018 4:02 PM | Talia Lionetti

    Tom Skweres

    Tom has been in the property management industry for over 35 years.  Tom is currently the Vice President for ACM Community Management and is responsible for marketing, sales, Board member education and monthly manager training.  Tom is a licensed community association manager through the State of Illinois.

    Tom was an Adjunct Faculty member at the College of DuPage for twenty-five years in the facility and property management department and is an Advisor at DePaul University in their School of New Learning.

    Tom is an active committee member of ACTHA (the Association of Condominium and Townhouse and Homeowners Associations), a member of CAI (Community Associations Institute) and a Past-President of ABOMA (the Apartment Building Owners and Managers Association).  Tom is also an Advisory Committee member for CondoLifestyles magazine.

    Tom was the Board Secretary for his former condominium association and a past Board member of the Hinswood Homeowners Association, where he and his family currently live. 

    Tom is an industry article contributor, seminar presenter and published author.

    Marcia Caruso 

    Marcia Caruso began her career in accounting in an apartment community in Pittsburgh and worked her way up to the position of comptroller while attending nightly college classes. She received her degree in accounting shortly after from Lehigh University.

    Once having completed her education, she moved on to become the first woman senior financial analyst. From there she began her 46 year long career in property management and became one of the “grandes dames” in the industry. Her career included working in the states of Connecticut, Florida and then on to Illinois managing a Chicago retirement community in 1984.

    As Marcia worked her way up the chain of command in management she began training others in the field of property management beginning in 1986.

    In 1990 Marcia started working in condominium management. She received her CPM number 7529 which designates an early number when it was a male dominated industry.

    As a woman pioneer in the industry, she has been a real estate broker in the three states of Connecticut, Florida and Illinois specifically in the metropolitan Chicago land area. She also holds her LCAM certification.

    Marcia came to Illinois in 1990 and opened up Caruso Management Group in 2002. Since this time, Marcia has been very active in both ACTHA and CAI. Marcia fostered and facilitated the Learn and Lead program for ACTHA, which trains Board Members in Community governance and Illinois Condo Law. This training started a chain reaction in the industry as others went on to duplicate her efforts in educating Board members and Managers in Community Association living.

    Additionally Marcia expanded her mentoring and training of others to include the responsibilities of budgeting, overseeing maintenance projects and all areas of management through the channels of ACTHA and CAI.

    In 2015 Caruso Management Group was sold to RealManage. Marcia continues working at RealManage as well as mentoring and training other managers throughout the industry.

  • November 28, 2018 4:26 PM | Talia Lionetti

    Countryside Bank specializes in Property Management, Condominium, Townhome and Homeowners Association banking. We work with associations of all sizes and have the products to fit your different needs.  We understand the demanding day-to-day operations of your business. Our Business Bankers help associations like yours meet their treasury management and financial needs. Let our team of experts show you how we can be the key to your success! 

    • Free Operating Account
    • High Yielding Reserve Account
    • HOA Financing 
    • Lockbox 
    • Remote Deposit/Mobile Banking
    • Treasury Management
    • Free Onsite Training for Staff 
    • Educational Seminars offered throughout the year, go to ACTHA.org for more information

    Call Kristin Walker today to discover how partnering with Countryside Bank is the smart choice for your association.


    Kristin Walker

    Countryside Bank

    708-485-9371

    Kristin.Walker@bankcountryside.com

    www.bankcountryside.com


  • November 28, 2018 10:29 AM | Talia Lionetti

    Patricia Bialek, Vice President of First Service Residential, was the speaker on November 27, 2018 at the Countyside Bank, 6734 Joliet Rd, Countryside, Illinois. Kristin Walker was the bank official that hosted the event. The topic was Building a Better Community, How to End Apathy? 

    The interested crowd was given a myriad of ideas on how to “pep up” the community. A power point presentation accompanied her energetic presentation.

    Her main points included:

    • Community Apathy is a bad habit .
    • Community members need a “push cultivated by the Association leaders.
    • Survey the community
    • Employ the community website
    • Newsletters and establishment of website with unit owners contributions.
    • Constant Communications with unit owners.
    • Establish Committees and Volunteers after points of interest are known through the results of the survey.
    • Tap into the community “beavers” :Those who wish to contribute time.
    • Listen to the suggestions and value each contribution.
    • Have picnics, pool get-togethers organized by the committees.
    • Tap into the community interests. Organize clubs of interest. Start traditions.
    • Use the Community Clubhouse for social purposes as well as Association Meetings.

    She gave not only suggestions but concrete examples on how to implement the suggestions.

    Another resource was community businesses, realtors and local, state and Federal Officials and involvement in the ACTHA and CAI organizations.

    The attendees walked away energized and eager to implement the ideas Patricia Bialek offered.

    In conclusion one would summarize the plan for community building . Actions bring results. Involvement of all members of the Community is the formula. Reaching out to the community is the starting point of success. Using the talents of the community and seeking to value the contributions of the volunteers causes a cycle of involvement. Who wouldn’t want to try out these ideas?

    The ACTHA Board of Directors wants to publicly thank Patricia Bialek for her contributions to ACTHA . Also ACTHA Board of Directors would like to thank Kristin Walker, of Countryside Bank for providing our members the location, dinner and refreshments for the evening.

  • November 28, 2018 10:14 AM | Talia Lionetti

    On November 15, 2018 the ACTHA membership had the privilege of hearing Kathryn Formeller speak on the topic of DOING WHAT'S RIGHT FOR YOUR ASSOCIATION: WHEN OWNERS DON’T PAY ASSESSMENTS, collection of Delinquent Assessments and Foreclosures at the Tahoe Village Condominium Association in Wheeling, Illinois. A gathering of Association members attended the seminar during an evening of inclement weather. Kathy Formeller is partner at Tressler LLP.

    Kathryn regularly represents condominium associations as creditors in both Chapter 7 and Chapter 13 bankruptcy proceedings seeking to modify the automatic stay so that they can pursue their state court remedies. Kat is the lead attorney for the Condominium & Common Interest Community Association Law practice. Her practice includes representing condominium associations and common interest community associations in a variety of areas, including rule enforcement, interpretation of governing documents, review and negotiation of contracts, and collection of assessments. She also provides advice to clients on their rights and responsibilities under the Condominium Property Act, Forcible Entry and Detainer Act, General Not for Profit Corporation Act and the Common Interest Community Association Act. Furthermore, Kat practices in the area of commercial litigation nationwide and counsels clients with respect to a wide variety of business disputes.

    In her presentation she explained the need for community association assessments, foreclosures and their threat to the collection of assessments. She focused on sections of the Condo Act 9 (g) 4 and 9 (g) 5 that provide condo associations with an avenue to collect delinquent assessments and attorney fees in foreclosure cases. She explained how to proceed in the collection of delinquent assessments using the Condo Act as your guide.

    She explained the six month rule and the various case laws which shaped the collection and foreclosure process. Seminar attendees were given the opportunity to ask questions pertaining to their association’s challenges and problems.

    The ACTHA board appreciates the expertise of Kathryn Formeller and is grateful for her participation as a presenter at the Seminar monthly series. Our members and guests gained much knowledge on the featured topic.

  • November 27, 2018 2:28 PM | Talia Lionetti

    By: Brad Schneider of Condo CPA

    INTRODUCTION

    Most homeowners and managers understand that Certified Public Accountants (CPAs) can perform audit services and issue an audit report on a community association’s financial statements. However, some may not be familiar with the alternatives to an audit. CPAs can provide other levels of services such as a Review, Compilation or an Agreed upon procedures engagement. The purpose of these engagements is to add credibility to and enhance the reliability of the Association’s financial statements. All audit and review engagements must be performed by an independent CPA. A compilation can be performed by a CPA that is not independent from the association but must state that fact in the accountant’s report included with the financial statements.

    COMPILATION ENGAGEMENT

    The compilation, which is the lowest level of service that a CPA can provide for a client’s financial statements, requires substantially less time than a review or audit engagement because fewer procedures are required. Various states allow a CPA to perform a compilation without having a Peer Review for their firm. Unfortunately there is a wide variance in the quality of the financial statements and accountant’s work papers for compilation engagements since firms that have not followed the Peer Review quality standards generally have not developed a system of quality similar to those firms that follow the standards included in the Peer Review membership program of the American Institute of Certified Public Accountants (AICPA).

    Compilation standards do not require the accountant to perform any procedures to verify or corroborate the financial statement information provided by the Association’s management. However, the accountant must address significant questions that arise in the course of the compilation engagement. If the accountant has reason to believe the information supplied by the Association’s management is inaccurate, incomplete or otherwise unsatisfactory, the accountant is required to obtain revised or corrected information before reporting on the financial statements. The AICPA compilation standards require the accountant to possess an adequate level of knowledge about the accounting principles and practices of the Community Association industry and have a general knowledge about the nature of the Association’s business. The accountant is required to read the compiled financial statements and consider whether they are in appropriate form and free from obvious material errors. Because of the limited scope of compilation procedures, the standard Compilation report disclaims any degree of assurance on the financial statements. The report also states that the accountant has “not audited or reviewed the financial statements and accordingly, does not express an opinion or provide any assurance about whether the financial statements are in accordance with the applicable reporting framework.”

    At a minimum, a compilation engagement with the accompanying accountant’s report is required anytime an external CPA is associated with the financial statements of the Association.

    REVIEW ENGAGEMENT

    A review engagement requires the limited procedures included in a compilation engagement as well as other procedures that enable the accountant to provide limited assurance on the financial statements. These additional requirements are inquiries of the association’s management and analytical procedures. Inquiries are typically directed to knowledgeable persons having responsibility for financial and accounting matters. Please note the questions are being asked of the client’s management and accountants without outside verification. Accountants exercise their professional judgment to determine the extent of inquiries that are needed. Although specific inquiries are tailored for each Association, the inquiries should, at a minimum, relate to: the accounting practices and principles used by the organization; the procedures for recording and accumulating financial information; and the actions taken at meetings of the Board.

    Analytical procedures include:

    • Comparison of current year financial statements with the budget and prior year’s statements
    • Study of the financial statements to identify items or relationships between items that do not conform to expectations based on earlier reports or budget or other information
    • Review and consideration of adjustments made to the financial statements of prior years.

    The purpose of analytical procedures is to identify account balances or relationships that appear unusual so that additional inquiries or review of financial data can be made to determine the cause of the unexpected results. Based on these inquiries adjustments to the financial statements may be necessary.

    Because of the inquiry and analytical procedures included in a review engagement accountants are able to express limited assurance on the Association’s financial statements. Remember in the compilation report the accountant disclaims any assurance on the association’s financial statements. The standard Accountant’s Review Report states that a review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole and that, accordingly, the accountant does not express such an opinion. However, a review report does state that “we are not aware of any materials modifications that should be made to the financial statements.”

    AUDIT ENGAGEMENT

    An audit engagement provides the highest level of assurance on the Association’s financial statements, because many important audit procedures are performed. Some of the more important auditing procedures are:

    • Consideration and evaluation of the internal control system of the Association, which may include testing the effectiveness of the system
    • Tests of the underlying documentation to support the account balances
    • Outside confirmation of bank and investment accounts, loans, insurance coverage and legal status.

    In addition, the auditor is specifically  required to obtain reasonable assurance that the financial statements are not materially misstated due to fraud. In a compilation or review engagement the accountant is not required to document any assessment of fraud risk, nor are they required to consider fraud or search for fraud in the course of the engagement. However, in a compilation or review the accountant is required to report any significant deficiencies in internal control or fraud that comes to their attention. The possibility of this happening is less likely in a review and even less in a compilation since the procedures are less comprehensive in these levels of service. The audit report reflects a higher level of assurance based on the more extensive procedures performed. The standard audit report states, “In our opinion, the financial statements referred to above prevent fairly, in all materials respects, the financial position of your association as of December 31, 20xx and the results of its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the U.S.

    AGREED UPON PROCEDURES

    ENGAGEMENTS

    When special circumstances are present it is often more beneficial to have an Agreed Upon Procedures engagement performed. This type of engagement is often performed when there is either a suspected fraud or a specific issues(s) that the association is trying to address. It is a way to efficiently assist in obtaining evidence and minimize cost by focusing only on those areas of concern to the board. For example, perhaps the association wants to address a garage employee that was suspected of theft, or reconcile special assessment billing. In these cases the procedures to be performed would be designed to test the areas of concern in order to gather any relevant evidence.

    TAXES

    For calendar year-end Associations, (December 31st), the corporate tax returns will be due on March 15th. The Illinois tax returns are due on the same day. The IRS allows you to extend the filing of the tax return to September 15th and Illinois allows the extension to October 15th of 2019. The extension does NOT grant you any additional time to pay the taxes. Fortunately with the low interest rates offered on investments it is more the rarity that an Association owes taxes. Most condominiums, townhomes and homeowner associations can decide which federal form to file each year, the regular corporate tax return, (1120) or the homeowners association tax return, (1120-H). If they are a cooperative they should be filing the 1120-C. The decision to file the 1120 versus the 1120-H is based on a number of factors. If they owe tax the 1120 begins at the 15% rate versus the 1120-H which has a flat rate of 30%. Since most Associations do not pay income taxes, we usually recommend the filing of the 1120- H. It is much safer to file this form with the IRS. Filing the 1120 has numerous issues to deal with that upon IRS audit can trigger the assessment of a large amount of tax. One Association in the Southwest was told that they had painting and other non-capital items going through the reserve fund and that the entire reserve was to be considered taxable. The IRS has attacked the Reserve accumulation in a variety of ways for various Associations across the US. The bottom line is that generally speaking the 1120-H is a better form to file if there is no tax due.

    CONCLUSION

    There are various levels of service that may fit the needs of the various associations. Each association is unique and may have substantially different expectations of what they are trying to accomplish with the CPA firm they select. There are even different levels of CPAs and CPA firms: those that are Peer Reviewed and those that choose not to be Peer Reviewed. Some CPA firms specialize in Community Associations because they love them while others see Community Associations only as a means to supplement their revenue. Whatever your Association’s circumstances, we hope you choose a CPA that is best suited for you based on your specific needs and level of service that you deem appropriate.

  • November 27, 2018 2:12 PM | Talia Lionetti

    By Steve Silberman 

    As a CPA, one of the most frequently asked questions I get from Board members is: Are we a not-for-profit corporation and if we are, do we have to file an income tax return?

    First of all, most associations are usually incorporated as not-for-profit corporations by the developer. If this did not happen to your association, I recommend hiring an attorney to incorporate your association as a not-for-profit corporation, even though you could go to the Secretary of State's website yourself to incorporate. Once incorporated, you must remember that each year your association has to file an annual report with the Illinois Secretary of State and pay an annual fee in order to stay incorporated.

    Residential condominiums, townhomes, and homeowners' associations are not-for-profit corporations that generally do not qualify for Federal income tax-exempt status. Residential associations may be taxed under Internal Revenue Code (IRC) Section 277 or may elect to be taxed under IRC Section 528. Under IRC Section 277, associations file Federal Form 1120 and under IRC Section 528, associations file Federal Form 1120-H. An association can decide annually which form it would like to file. So let's discuss which form is right for your association and the differences between each form.

    FEDERAL FORM 1120-H

    Federal Form 1120-H was developed so that associations would not be taxed for carrying out its main function of managing and maintaining the common elements. Commercial condominium associations cannot file Federal Form 1120-H. IRC Section 528 states that income and expenses must be allocated between exempt function activities and nonexempt function activities. Associations are only taxed on its net non-exempt function income at a Federal tax rate of 30%. (Timeshare Associations are taxed at a Federal tax rate of 32%). So what is exempt and non-exempt function income?

    Exempt Function Income is:

    Operating income received as assessments from owners of condominium, townhome or HOAs. They also can be assessments received from developers on unsold units or lots. These assessments must be assessed ratably to be exempt function income.

    Non-exempt Function Income (or taxable income) is:

    1) Income from non-association property - commercial operations and interest and dividends. 2) Income from non-members for use of association property. 3) User charges to association members for special services unless the user charge is assessed once in a twelve month period and the benefit lasts for the entire 12 month period. An example of a user charge is laundry income.

    The advantages of Federal Form 1120-H are as follows:

    1. Associations are not taxed on exempt function income.

    2. The tax form is a one page form, with supplementary schedules, so it costs less to prepare.

    3. The form has less risk than Federal Form 1120. There are four tests that have to be met to file Federal Form 1120-H, but most residential associations will qualify.

    4. Fund accounting is not required since capital or reserve assessments are not taxed.

    5. No election forms are required like on Federal Form 1120.

    6. As long as you keep filing Federal Form 1120-H, no estimated taxes are required.

    FEDERAL FORM 1120

    The key advantage of Federal Form 1120 is that an association could pay tax at a lower rate than Federal Form 1120-H. Income tax rates start out at 15% on the first $50,000, however, the risk of compliance is far greater since an association must follow certain required procedures. Also, since the form is much longer and more complex it costs more to prepare than Federal Form 1120-H.

    IRC Section 277 states that income for Federal Form 1120 should be allocated between membership and nonmembership income. An association can be taxed on both if there is net income, however, an association can make an annual election to defer net membership income.

    Revenue Ruling 70-604 allows associations to defer net membership income for one year but if the association has net membership income in the next year then the association would have to pay tax in the next year on the deferred income. An association can also make an election under Revenue Ruling 70-604 to refund net membership income, but in my 30+ plus years of working with associations, I have never seen an association refund money. A question that I get asked about all the time is: Can our association transfer excess net membership income to reserves and then not have to pay taxes on this excess? The answer is NO if you are filing Federal Form 1120.

    IRC Section 118 states that an association cannot transfer excess net membership income to reserves to avoid paying taxes since you cannot re-characterize what the assessments were for originally. In order for Revenue Ruling 70-604 to be valid, the election has to be made annually by all members (usually at the annual meeting) and it should preferably be made before the end of the year. The dollar amount does not have to be specified.

    Capital contributions (reserve assessments) will be treated as non-taxable on Federal Form 1120 if certain guidelines are followed:

    1. The purpose of the assessment must be capital in nature. The reserve study supports the purpose of the capital assessment. However, painting, even if it was included in your reserve study, is an operating assessment, not a capital assessment.

    2. Members must have advance notice. Distributing copies of the budget to the members is considered advance notice.

    3. The assessment must be accounted for as a capital contribution and held for that purpose. The books and records, along with the budget should segregate operating and reserve (capital) activities. Therefore, the association should use fund accounting.

    4. Reserve (capital) assessments should be deposited into a separate account and reserve expenditures should be paid out of this separate account. An association can pay for capital expenditures out of the operating fund account as long as the reserve account reimburses the operating account in a relatively short period of time.

    Now that you have a brief understanding of the two forms, you might be wondering which form should your association be using? This is a hard question to answer unless your CPA knows the facts and issues associated with your association.

    Usually if your association has little interest income and no (or minimal) user fees you will file Federal Form 1120-H. As interest income grows, your association should look at filing Federal Form 1120 as an alternative. If your association has minimal interest income, but you have a net loss from your net membership (for example due to a painting project) you may want to file Federal Form 1120 since that loss gets carried forward. If your association files Federal Form 1120 because of the large amount of non-membership income, you want to make sure that you do tax planning ahead of time to minimize your net membership income.

    You now should have a better understanding about the different types of Federal income tax returns and which Federal income tax return is right for your association.

  • October 26, 2018 9:24 AM | Talia Lionetti

    On Wednesday, October 3, 2018, Mark Rosenbaum of Fischel and Kahn Law Firm gave a presentation on the topic of Getting Along on a Board (Without Necessarily Going Along) at The Book Market at Hangar One at the Glen, Glenview, Illinois. The host, Barbara’s Book, provided a splendid venue for the presentation.

    The seminar was well attended with a topic that has perplexed many Board member volunteers as well as unit owners attending Board meetings.

    Mark Rosenbaum, in a comfortable arm chair manner, discussed the mechanics of a Board Meeting and the requirements of a Board Meeting in regards to Illinois Condo Law. He introduced the “gadfly” personality. Who is that? A gadfly is a unit owner who is not on the Board and who insists on complaining about what the Board does or does not do. The personality of the gadfly was explored; the complainer in the audience; one who complains and follows up and the gadfly who complains and never follows up. The Board has to deal with all unit owner personalities and tips were given how to deal with this “gadfly”. The speaker continued with the makeup of the Board. The harmonious Board and the fractured Board and how they affect the functioning or non-functioning of the Board progress and success.

    Various stereotypes of Board members were analyzed. They are the project manager, the gadfly, the controller, the reluctant warrior and the regular. All aspects of these types were explored.

    The final segment was why some boards cannot make any progress. What impedes them? Disputes about money, esthetics, big picture impasse, small picture impasse and a bad blend of temperaments all contribute to a non-performing Board. Mark Rosenbaum was open to questions from the audience and graciously gave real life situations and solutions to common Board interpersonal relationship struggles and road blocks that happen during the Board interactions. This includes Board meetings, neighborhood interaction and time on task. The attendees appreciated Mark’s calm manner and his professional expertise in the Condo world. 

    The ACTHA Board of Directors thanks Mark Rosenbaum and looks forward to inviting him to speak at future seminars.


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