Form 1120-H U.S.

Income Tax Return

for Homeowners Associations
OMB No. 1545-0127

Department of the Treasury

Internal Revenue Service © For Paperwork Reduction Act Notice, see page 2.
For calendar year 1994 or tax year beginning , 1994, and ending , 19
Use Name Employer identification number (see page 4)
IRS
label.
Other- Number, street, and room or suite no. (If a P.O. box, see page 4.) Date association formed
wise,
please
City or town, state, and ZIP code
print or
type.
Check applicable boxes: (1) Final return (2) Change of address
Amended return (3)
A Total exempt function income. Must meet 60% gross income test (see instructions) A
B Total expenditures made for purposes described in 90% expenditure test (see instructions) B
C Association’s total expenditures for the tax year (see instructions) C
D Tax-exempt interest received or accrued during the tax year D
Gross Income (excluding exempt function income)
1 Dividends 1
2 Taxable interest 2
3 Gross rents 3
4 Gross royalties 4
5 Capital gain net income (attach Schedule D (Form 1120)) 5
6 Net gain (or loss) from Form 4797, Part II, line 20 (attach Form 4797) 6
7 Other income (excluding exempt function income) (attach schedule) 7
8 Gross income (excluding exempt function income). Add lines 1 through 7 8
Deductions (directly connected to the production of gross income, excluding exempt function income)
9 Salaries and wages 9
10 Repairs and maintenance 10
11 Rents 11
12 Taxes and licenses 12
13 Interest 13
14 Depreciation (attach Form 4562) 14
15 Other deductions (attach schedule) 15
16 Total deductions. Add lines 9 through 15 16
17 Taxable income before specific deduction of $100. Subtract line 16 from line 8 17
18 Specific deduction of $100 18 $100 00
Tax and Payments
19 Taxable income. Subtract line 18 from line 17 19
20 Enter 30% of line 19 20
21 Tax credits (see instructions) 21
22 Total tax. Subtract line 21 from line 20. See instructions for recapture of certain credits 22
23 Payments: a 1993 overpayment
credited to 1994 23a
b 1994 estimated tax payments 23b c Total © 23c
d Tax deposited with Form 7004 23d
e Credit from regulated investment companies (attach Form 2439) 23e
f Credit for Federal tax on fuels (attach Form 4136) 23f
g Add lines 23c through 23f 23g
24 Tax due. Subtract line 23g from line 22. See instructions for depositary method of tax payment 24
25 Overpayment. Subtract line 22 from line 23g 25
26 Enter amount of line 25 you want: Credited to 1995 estimated tax © Refunded © 26
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge
Please and belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Sign
Here © Signature of officer Date © Title

©
Date Preparer’s social security number
Paid Preparer’s Check if self-
signature employed ©
Preparer’s
©
Firm’s name (or E.I. No. ©
Use Only yours if self-employed)
ZIP code ©
and address
Cat. No. 11477H Form 1120-H (1994)
Form 1120-H (1994) Page 2

Paperwork Reduction Definitions Assessments or fees for a common

activity qualify, but charges for providing
Homeowners association.—There are two
Act Notice kinds of homeowners associations:
services do not qualify.
We ask for the information on this form to Examples.—In general, exempt function
1. A condominium management income includes assessments made to:
carry out the Internal Revenue laws of the association organized and operated to
United States. You are required to give us acquire, build, manage, and care for the 1. Pay principal, interest, and real estate
the information. We need it to ensure that property in a condominium project taxes on association property.
you are complying with these laws and to substantially all of whose units are homes 2. Maintain association property.
allow us to figure and collect the right for individuals, and 3. Clear snow from public areas and
amount of tax. remove trash.
2. A residential real estate management
The time needed to complete and file association organized and operated to Income that is not exempt function
this form will vary depending on individual acquire, build, manage, and care for a income includes:
circumstances. The estimated average time subdivision, development, or similar area
is: 1. Amounts that are not includible in the
substantially all of whose lots or buildings organization’s gross income other than
Recordkeeping 11 hr., 14 min. are homes for individuals. under section 528 (for example,
Learning about the Regulations section 1.528-4 explains the tax-exempt interest),
law or the form 5 hr., 9 min. “substantially all” test. In addition: 2. Payments from nonmembers,
Preparing the form 12 hr., 59 min. ● At least 60% of the association’s gross 3. Payments from members for special
Copying, assembling, income for the tax year must consist of use of the organization’s facilities, apart
and sending the form exempt function income. See instructions from the uses generally available to all
to the IRS 2 hr., 9 min. below. members,
If you have comments concerning the ● At least 90% of the association’s 4. Interest on amounts in a sinking fund,
accuracy of these time estimates or expenses for the tax year must consist of
expenses to acquire, build, manage, and 5. Payments for work done on
suggestions for making this form simpler, nonassociation property, and
we would be happy to hear from you. You care for its property. See Item B on
can write to both the Internal Revenue page 4. 6. Members’ payments for
Service, Attention: Tax Forms Committee, ● No private shareholder or individual can transportation.
PC:FP, Washington, DC 20224; and the profit from the association’s net earnings For more information, see Regulations
Office of Management and Budget, except by acquiring, building, managing, or section 1.528-9.
Paperwork Reduction Project (1545-0127), caring for association property or by a Electing To File Form 1120-H
Washington, DC 20503. DO NOT send the rebate of excess membership dues or
tax form to either of these offices. Instead, other fees. By filing a properly completed Form
see Where To File on page 3. 1120-H, the association elects to take
● The association must file Form 1120-H advantage of the tax benefits provided by
to elect under section 528 to be treated as section 528. This election must be made
A homeowners association should a homeowners association. not later than the time, including
compare its total tax computed on Form Association property.—Association extensions, for filing an income tax return
1120-H with its total tax computed on property includes real and personal for the year in which the election is to
either Form 1120, U.S. Corporation property that: apply. The association makes the election
Income Tax Return, or Form 1120-A, U.S. 1. The association holds, separately for each tax year. Once Form
Corporation Short-Form Income Tax 1120-H is filed, the association cannot
Return. The homeowners association may 2. The association’s members hold in
common, revoke its election for that year unless the
file the form that results in the lowest tax. Commissioner consents. If the
3. The association’s members hold
Note: The taxable income of a homeowners association has filed Form
privately within the association, and
homeowners association that files its tax 1120-H, it may request the consent of the
return on Form 1120-H is taxed at a flat 4. Is owned by a governmental unit and Commissioner to revoke the election to file
rate of 30%. This rate applies to both is used to benefit the unit’s residents. Form 1120-H by filing a ruling request with
ordinary income and capital gains. For more information, see Regulations the IRS. A user fee must be paid with all
section 1.528-3. ruling requests. For more information on
Taxable income.—Taxable income is the ruling requests, see Rev. Proc. 94-1,
General Instructions excess, if any, of: 1994-1, I.R.B. 10.
Section references are to the Internal 1. Gross income for the tax year, If the homeowners association does not
Revenue Code unless otherwise noted. excluding exempt function income, over elect to use Form 1120-H, it must file the
2. Allowed deductions directly applicable income tax return (Form 1120,
A Change To Note connected with producing any gross etc.).
Some associations are required to use a income except exempt function income. If the association is tax exempt under
new method of depositing taxes for taxes Allowed deductions include a specific $100 section 501, do not file Form 1120-H. See
due after 1994. Generally, the requirement deduction. The following are not allowed: section 6033 and related sections. If the
applies to associations whose total association loses its exempt status, see
deposits of certain taxes during calendar ● Net operating loss deduction (section
172). Regulations section 1.528-8(e).
year 1993 exceeded $78 million. Other
associations may use the new method ● Deductions under Part VIII of subchapter When To File
voluntarily. For details, see Depositary B (special deductions for corporations).
In general, an association must file Form
Method of Tax Payment on page 3. If facilities are used (or personnel are 1120-H by the 15th day of the 3rd month
employed) for both exempt and nonexempt after the end of the tax year.
Purpose of Form purposes, see Regulations section
A homeowners association files Form 1.528-10. If the due date falls on a Saturday,
1120-H as its income tax return to take Sunday, or legal holiday, file on the next
Exempt function income.—Exempt business day.
advantage of certain tax benefits. These function income consists of membership
benefits, in effect, allow the association to dues or other fees the homeowners Extension.—File Form 7004, Application
exclude exempt function income from its association received from those who own for Automatic Extension of Time To File
gross income. the association’s residential units or lots. Corporation Income Tax Return, to request
This income must come from members as a 6-month extension of time to file.
owners, not as customers of the
association’s services.
Form 1120-H (1994) Page 3

Where To File Accounting Methods Caution: If the association owes tax when
Taxable income must be computed using it files Form 1120-H, do not include the
If the association’s Use the following
principal office is Internal Revenue the method of accounting regularly used in payment with the tax return. Instead, mail
located in Service Center address keeping the association’s books and or deliver the payment with Form 8109 to a
Ä Ä records. Generally, permissible methods qualified depositary or FRB.
include the cash, accrual, or any other Generally, associations whose total
New Jersey, New York
(New York City and method authorized by the Internal Revenue deposits of withheld income, social
counties of Nassau, Holtsville, NY 00501 Code. In all cases, the method used must security, and Medicare taxes during
Rockland, Suffolk, and clearly reflect taxable income. calendar year 1993 exceeded $78 million
Westchester)
Generally, an accrual basis taxpayer can are required to deposit all depositary taxes
New York (all other deduct accrued expenses in the tax year in due after 1994 by electronic funds transfer
counties), Connecticut,
which all events that determine the liability (EFT). TAXLINK, an electronic remittance
Maine, Massachusetts, Andover, MA 05501 processing system, must be used to make
New Hampshire, Rhode have occurred, the amount of the liability
can be figured with reasonable accuracy, deposits by EFT. Associations who are not
Island, Vermont
and economic performance takes place required to make deposits by EFT may
Florida, Georgia, South voluntarily participate in TAXLINK. For
Carolina Atlanta, GA 39901 with respect to the expense. There are
exceptions for recurring items. See section more details on TAXLINK, see Rev. Proc.
Indiana, Kentucky, 94-48, 1994-29 I.R.B. 31. You may also
Michigan, Ohio, West Cincinnati, OH 45999 461(h) and the related regulations for the
rules for determining when economic call the toll-free TAXLINK HELPLINE at
Virginia
performance takes place. 1-800-829-5469.
Kansas, New Mexico,
Austin, TX 73301
Oklahoma, Texas Generally, the association may change Estimated Tax, Alternative
Alaska, Arizona, California the method of accounting used to report Minimum Tax, Environmental Tax,
(counties of Alpine, Amador, taxable income (for income as a whole or
Butte, Calaveras, Colusa, Investment Credit, and Jobs
Contra Costa, Del Norte, El any material item) only by getting consent Credit
Dorado, Glenn, Humboldt, Lake, on Form 3115, Application for Change in
Lassen, Marin, Mendocino, Accounting Method. For more information, These items do not apply to homeowners
Modoc, Napa, Nevada, Placer, get Pub. 538, Accounting Periods and associations electing to file Form 1120-H.
Plumas, Sacramento, San Methods. However, a homeowners association that
Joaquin, Shasta, Sierra, Ogden, UT 84201
does not elect to file Form 1120-H may be
Siskiyou, Solano, Sonoma, Change in Accounting Period required to make payments of estimated
Sutter, Tehama, Trinity, Yolo,
and Yuba), Colorado, Idaho, Generally, before changing an accounting tax. Because the election is not made until
Montana, Nebraska, Nevada, period, the Commissioner’s approval must the return is filed, Form 1120-H provides
North Dakota, Oregon, South be obtained (Regulations section 1.442-1) lines for estimated tax payments and the
Dakota, Utah, Washington, by filing Form 1128, Application To Adopt, crediting of overpayments against
Wyoming estimated tax if payments or overpayments
Change, or Retain a Tax Year. Also see
California (all other Pub. 538. apply.
Fresno, CA 93888
counties), Hawaii
Illinois, Iowa, Minnesota, Rounding Off to Whole Dollars Interest and Penalties
Kansas City, MO 64999
Missouri, Wisconsin The association may show amounts on the Interest.—Interest is charged on taxes not
Alabama, Arkansas, Louisiana, return and accompanying schedules as paid by the due date even if an extension
Mississippi, North Carolina, Memphis, TN 37501 whole dollars. To do so, drop any amount of time to file is granted. Interest is also
Tennessee charged on penalties imposed for failure to
less than 50 cents and increase any
Delaware, District of amount from 50 cents through 99 cents to file, negligence, fraud, gross valuation
Columbia, Maryland, Philadelphia, PA 19255 overstatements, and substantial
Pennsylvania, Virginia the next higher dollar.
understatement of tax from the due date
Associations having their principal place Depositary Method of Tax Payment (including extensions) to the date of
of business outside the United States must The association must pay the tax due in payment. The interest charge is figured at
file with the Internal Revenue Service full no later than the 15th day of the 3rd a rate determined under section 6621.
Center, Philadelphia, PA 19255. month after the end of the tax year. Late filing of return.—In addition to losing
Deposit association income tax payments the right to elect to file Form 1120-H, a
Who Must Sign with Form 8109, Federal Tax Deposit homeowners association that does not file
The return must be signed and dated by Coupon. Do not send deposits directly to its tax return by the due date including
the president, vice-president, treasurer, an IRS office. Mail or deliver the completed extensions, may have to pay a penalty of
assistant treasurer, chief accounting Form 8109 with the payment to a qualified 5% of the unpaid tax for each month or
officer, or any other association officer depositary for Federal taxes or to the part of a month the return is late, up to a
(such as a tax officer) authorized to sign. Federal Reserve bank (FRB) servicing the maximum of 25% of the unpaid tax. The
Receivers, trustees, or assignees must sign association’s geographic area. Make minimum penalty for a return that is more
and date any return filed on behalf of an checks or money orders payable to that than 60 days late is the smaller of the tax
association. depositary or FRB. due or $100. The penalty will not be
If an association officer completes Form To help ensure proper crediting, write imposed if the association can show that
1120-H, the Paid Preparer’s space should the association’s employer identification the failure to file on time was due to
remain blank. Anyone who prepares Form number, the tax period to which the reasonable cause. Associations that file
1120-H but does not charge the deposit applies, and “Form 1120-H” on the late must attach a statement explaining the
association should not sign the return. check or money order. Be sure to darken reasonable cause.
Generally, anyone who is paid to prepare the “1120” box on the coupon. These
Late payment of tax.—An association that
the return must sign it and fill in the Paid records of deposits will be sent to the IRS.
does not pay the tax when due may have
Preparer’s Use Only area. A penalty may be imposed if the to pay a penalty of 1⁄2 of 1% of the unpaid
The paid preparer must complete the deposits are mailed or delivered to an IRS tax for each month or part of a month the
required preparer information and: office rather than to an authorized tax is not paid, up to a maximum of 25%
● Sign the return, by hand, in the space depositary or FRB. of the unpaid tax. This penalty may also
provided for the preparer’s signature For more information on deposits, see apply to any additional tax not paid within
(signature stamps and labels are not the instructions in the coupon booklet 10 days of the date of the notice and
acceptable). (Form 8109) and Pub. 583, Taxpayers demand for payment. The penalty will not
● Give a copy of the return to the Starting a Business. be imposed if the association can show
taxpayer. that the failure to pay on time was due to
reasonable cause.
Form 1120-H (1994) Page 4
Other penalties.—Other penalties can also Specific Instructions ● Current operating or capital expenditures
be imposed for negligence, substantial for tennis courts, swimming pools,
understatement of tax, and fraud. See Period covered.—File the 1994 return for recreation halls, etc.
sections 6662 and 6663. calendar year 1994 and fiscal years that ● Replacement costs for common
begin in 1994 and end in 1995. For a fiscal buildings, heating, air conditioning,
Other Forms and Statements That year, fill in the tax year space at the top of
May Be Required elevators, etc.
the form.
The association may have to file any of the Do not include expenditures for property
Note: The 1994 Form 1120-H may also be that is not association property. Also, do
following: used if (1) the organization has a tax year not include investments or transfers of
Form W-2, Wage and Tax Statement. of less than 12 months that begins and funds held to meet future costs. An
Form W-3, Transmittal of Income and Tax ends in 1995 and (2) the 1995 Form example would be transfers to a sinking
Statements. 1120-H is not available at the time the fund to replace a roof, even if the roof is
Form 1096, Annual Summary and organization is required to file its return. association property.
Transmittal of U.S. Information Returns. However, the organization must show its
1995 tax year on the 1994 Form 1120-H Item C.—Enter the association’s total
Form 1098, Mortgage Interest Statement. and must incorporate any tax law changes expenditures for the tax year including
This form is used to report the receipt of that are effective for tax years beginning those expenditures directly related to
$600 or more of mortgage interest in the after 1994. exempt function income. Use the
course of the association’s trade or association’s accounting method to figure
business during any calendar year. Address.—Include the suite, room, or the entry for item C.
other unit number after the street address.
Forms 1099-A, B, C, DIV, INT, MISC, If a pre-addressed label is used, include Line 21.—Tax credits—The association
OID, PATR, R, and S. These information this information on the label. may qualify for the following tax credits:
returns are for reporting of abandonments, Foreign tax credit. See Form 1118,
acquisitions through foreclosure, proceeds If the Post Office does not deliver mail
to the street address and the association Foreign Tax Credit—Corporations.
from broker and barter exchange Credit for fuel produced from a
transactions, discharges of indebtedness, has a P.O. box, show the box number
instead of the street address. nonconventional source. See section 29 for
certain dividends and distributions, interest a definition of qualified fuels, provisions for
payments, medical and dental health care Note: If a change in address occurs after
the return is filed, the association can use figuring the credit, and other special rules.
payments, miscellaneous income
payments, nonemployee compensation, Form 8822, Change of Address, to notify Alcohol fuel credit. See Form 6478,
original issue discount, patronage the IRS of the new address. Credit for Alcohol Used as Fuel, and
dividends, distributions from profit-sharing Employer identification number (EIN).— section 40.
plans, retirement plans, individual Show the correct EIN in the space Credit for increasing research activities.
retirement arrangements, insurance provided. If the association does not have See Form 6765, Credit for Increasing
contracts, etc., and proceeds from real an EIN, it should apply for one on Form Research Activities, and section 41.
estate transactions. Also use these returns SS-4, Application for Employer Low-income housing credit. See Form
to report amounts that were received as a Identification Number. Form SS-4 can be 8586, Low-Income Housing Credit, and
nominee on behalf of another person. obtained at most IRS and Social Security section 42.
For more information, see the Administration (SSA) offices. If the Enhanced oil recovery credit. See Form
instructions for Forms 1098, 1099, 5498, association has not received its EIN by the 8830, Enhanced Oil Recovery Credit, and
and W-2G, and Pub. 937, Employment time the return is due, write "Applied for" section 43.
Taxes. in the space for the EIN. See Pub. 583 for Disabled access credit. See Form 8826,
Note: Every association must file Form more information. Disabled Access Credit, and section 44.
1099-MISC if, in the course of its trade or Final return, change of address, or Qualified electric vehicle credit. See
business, it makes payments of rents, amended return.—If the association Form 8834, Qualified Electric Vehicle
commissions, or other fixed or ceases to exist, file Form 1120-H and Credit, and section 30.
determinable income (see section 6041) check the “Final return” box at the top of
the form. If the association has changed its Renewable electricity production credit.
totaling $600 or more to any one person See Form 8835, Renewable Electricity
during the calendar year. address since it last filed a return, check
the box for “Change of address.” Production Credit, and section 45.
Form 8300, Report of Cash Payments Enter the total amount of credits on line
Over $10,000 Received in a Trade or To amend a previously filed Form
1120-H, file a corrected Form 1120-H and 21 and attach the appropriate form(s).
Business. Generally, this form is used to
report the receipt of more than $10,000 in check the “Amended return” box at the top Line 22.—If the association must recapture
cash or foreign currency in one transaction of the form. any of the low-income housing credit (or
or a series of related transactions. Item A.—Enter the association’s exempt the qualified electric vehicle credit), include
function income for the tax year, figured by the amount of the recapture in the total for
Cashier’s checks, bank drafts, and line 22. To the right of the entry space,
money orders with face amounts of the association’s accounting method. This
income must meet the 60% test explained write “LIH recapture” (or “QEV recapture”)
$10,000 or less are considered cash under and the amount. See Form 8611,
certain circumstances. For more under Definitions on page 2.
Recapture of Low-Income Housing Credit,
information, see Form 8300 and Item B.—Enter the association’s and section 42(j) for more details. Also get
Regulations section 1.6050I-1(c). expenditures for the tax year to acquire, Pub. 535, Business Expenses, to see how
Attachments.—Attach Form 4136, Credit build, manage, and care for association to figure the recapture for the qualified
for Federal Tax on Fuels, to Form 1120-H. property. Include current and capital electric vehicle credit.
Attach schedules in alphabetical order and expenditures. These expenditures must
meet the 90% test explained under Backup withholding.—If the association
other forms in numerical order after Form had income tax withheld from any
4136. Definitions on page 2. Use the
association’s accounting method to figure payments it received, because, for
To assist us in processing the return, example, it failed to give the payer its
please complete every applicable entry the total.
correct employer identification number,
space on Form 1120-H. Do not write “See Include: include this amount in the total for line
attached” instead of completing the entry ● Salary for an association manager or 23g. This type of withholding is called
spaces. If you need more space on the secretary. “backup withholding.” Show the amount
forms or schedules, attach separate ● Expenses for gardening, paving, street withheld in the blank space in the right-
sheets. Use the same size and format as signs, security guards, and property taxes hand column between lines 22 and 23g,
on the printed forms. But show the totals assessed on association property. and label the amount as “backup
on the printed forms. Attach these withholding.”
separate sheets after all the schedules and
forms. Be sure to put the association’s
name and EIN on each sheet.
Printed on recycled paper