Homeowner Associations

Despite the large number of homeowners associations that exist and operate in NC, most people do not understand the unique taxation rules that the IRS has established for HOAs. My experience since 1999 preparing hundreds of HOA tax returns has provided me with the specific expertise and competence that your association needs. Homeowners associations are also very unique when it comes to audits, review, and compilations. Trust a firm that specializes in this unique area, and not one that only has general experience and knowledge.

Types of Financial Reports

Compilation

During a compilation a CPA prepares financial statements from information provided by management. The CPA offers no assurance as to whether significant changes are necessary for the statements to be in conformity with generally accepted accounting principles (or some other accounting basis). Obvious errors and omissions are corrected, but no analysis is done beyond a surface level.

Review

During a review engagement a CPA performs procedures that provide limited assurance that material changes to the financial statements are not necessary. Many associations choose to have a review done because it is a cost effective way to obtain a basic level of assurance that the financial statements are properly reported.

Audits

During an audit engagement the CPA provides an unqualified opinion that the entity's financial statements fairly present its financial position and result of operations in accordance with generally accepted accounting principles. The testing and sampling conducted during an audit are much more extensive than that conducted during a review. This is the highest level of assurance that independent auditors provide.

For more information about the different level of financial reporting services I offer, please don't hesitate to contact me.

Taxation

Tax Form Selection

The IRS has established a specific form, 1120H, for homeowner associations to use in completing their tax return. This streamlined form is much easier and quicker for associations to complete so that they can comply with IRS filing requirements. This form has a flat tax rate of 30% (Reg 1.528-8). Homeowners associations may also choose to file as a regular corporation on form 1120, and be subject to regular corporate tax rates (generally 21%). While this form offers a lower tax rate, it is much more complex to file and can open the association up to greater IRS scrutiny of other income sources if strict rules are not followed (Rev. Ruling 70-604). Because most associations do not face a major tax liability, the easier and safer choice is to file the simplified form 1120H. [Reg 528]