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IRS TAX
RESOLUTION
 My article on the IRS Tax Resolution generated a lot of interest and feedback. Following are responses from two industry professionals specializing in community associations.
Gary Porter, FMP, RS, RRC, CPA. Gary reported that he had discussions on this topic more than twenty years ago with the IRS National Office and the author of Revenue Ruling 70-604 in the 1990s.
He was concerned about the requirement that members approve the disposition of association funds—authority that should reside with the board of directors. The IRS attorney who authored Revenue Ruling 70-604 acknowledged that he was not aware of the distinction between member and board authority and, to his recollection, no tax professionals were consulted at the time.
In a later discussion that Gary had with the IRS National Office’s Special Industries and Pass-Through Group, the division responsible for this sector, they indicated they would accept board approval of the Resolution as equivalent to member approval. However, this was conveyed verbally in an informal setting, and no written guidance was ever issued.
Based on Gary's experience, the IRS has generally accepted board approvals in lieu of member approvals over the past decade. However, he recommends that a tax resolution be a standing ballot item at annual meetings, followed by formal ratification by the board at its first meeting thereafter.
He typically recommends filing Form 1120-H for all qualifying associations, as it presents minimal tax risk compared to Form 1120, which carries more significant exposure, particularly with respect to reserves and excess member income.
Donald W. Haney, CPA ret., MBA, MS(Tax). Don has a slightly different take on the issue. He wrote that although Revenue Ruling 70-604 has never been formally revoked, its practical significance has been largely eclipsed by Revenue Rulings 75-370 and 75-371. Revenue Ruling 75-370 holds that member assessments collected in excess of an association’s operating expenses do not constitute gross income, provided the funds are held to maintain the common areas and other benefits of the community. Because such amounts are not gross income in the first place, no member vote is required to avoid taxation.
In 1976, Congress enacted Internal Revenue Code § 528, which created Form 1120-H. When an association files Form 1120-H, it is taxed only on “non-exempt function income,” which generally consists of interest and other investment income. Member assessments are excluded from taxable income under the statute.
Don wrote that boards should also be aware of the difference in tax rates. Non-exempt function income is taxed at a flat 30% rate under Form 1120-H, while income taxed under Form 1120 is subject to the current 21% corporate tax rate. For associations with more than modest amounts of non-exempt function income, often exceeding $10,000, filing Form 1120 may deserve consideration.
HOW AI IS CHANGING
THE HOA INDUSTRY
 Adrian Adams, Adams Stirling PLC, and Brad Perry, Chief Information Officer for Action Property Management, will be hosting a webinar titled "How AI Is Changing the HOA Industry."
They will discuss the practical application of artificial intelligence and how it will change the way HOA boards and managers do business.
The webinar will be held on Tuesday, April 28, 2026. You can register for the webinar here.
 HIRINGATTORNEYS
Our firm is growing. We are looking for a litigation attorney, a litigation paralegal, and two HOA attorneys. If you are interested or know someone who may be a good candidate, you can contact Adrian Adams confidentially by email or by phone at (800) 464-2817.
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DISCLAIMER. Our newsletter provides commentary, not legal advice. Boards needing legal advice should have an attorney review the facts and law for their particular situation. We serve as corporate counsel to California associations.
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