1. If an association files tax form 1120H, Revenue Ruling 70-604 does not apply and no excess income tax resolution is needed.
2. If an association files tax Form 1120, any excess income at the end of
the fiscal year (a budget surplus), must be applied to next year's
assessments or refunded to the membership. Revenue Ruling 70-604 and 75-371.
If the money is applied to next year's budget, members must approve an
excess income resolution. Since the resolution does not require a vote
by secret ballot, the membership can approve it by (i) a voice vote
at the annual meeting and record the vote in the minutes of the meeting
or (ii) include it on the ballot with the election of directors.
WHEREAS the _________________ Association is a nonprofit mutual benefit corporation; and
WHEREAS the corporation seeks to act in accordance with applicable IRS Revenue Rulings;
RESOLVED, that any surplus funds remaining in the Association's budget at the end of the fiscal year shall be applied to the following year's budget as provided for in IRS Revenue Ruling 70-604.
This sample resolution is an example of a formal resolution used by some associations. The vote can also done without the "WHEREAS" and "RESOLVED" formalities. Since the resolution does not require a secret vote, approval can be done either by a membership voice vote at the annual meeting or by placing it on the ballot.
ASSISTANCE: Associations needing legal assistance can contact us.
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