In case your board is unaware, virtually all community associations must file a federal income tax return. Associations must file or request an extension on or before March 15. As you prepare to file the association’s 2015 tax return, the board should discuss the filing options with the association’s tax professional. The two most common form associations file with the IRS are the standard 1120 form and the community association specific 1120-H form.
The board should discuss these options with the association’s tax professional. The discussion should include more than simply a statement of the relevant tax rates and total taxes owed. The board should ask about (1) whether Association is eligible to file an 1120-H, (2) the potential risks and benefits associated with each filing option, (3) the risk of additional taxes and/or an audit associated with each selection, and (4) the proper accounting practices necessary to reduce both the association’s risk of audit and to limit its income tax liability.