There are a number of additional tax citations directly and indirectly related to Revenue Ruling 70-604 that are important to be aware of if one is to gain a complete understanding of the intricacies of Revenue Ruling 70-604.
Revenue Ruling 2003 - 73
This Ruling issued by the IRS in 2003 specifically to explain the calculation of taxable income for homeowners associations that file Form 1120 as non exempt membership organization. It provides an example of calculation of the carryover allowed under Revenue Ruling 70-604.
GCM (General Counsel Memorandum) 34613
GCM 34613 contains wording that indicates that Revenue Ruling 70-604 was intended to be a one year only election; that it could not be used yearly indefinitely.
Technical Advice Memorandum (TAM) 9539001
InTAM 9539001 was issued in relation to a series of IRS audits of timeshare associations by the Jacksonville, Florida IRS District office. The TAM takes the position that a timeshare association did not qualify to make an election under Revenue Ruling 70-604. Further, in IRS Note 3 to the TAM, the IRS indicates that an election under Revenue Ruling 70-604 need not be made at the annual membership meeting.
Mission Heights Homeowners Association
The Court granted summary judgment to the IRS, ruling against the association in part, because ". . . it failed to follow the procedures identified in Revenue Ruling 70-604so that it could exclude its excess assesments from income."
8ARD 176-4 FSA 1992 0208-1
The IRS clearly states that excess income may NOT be transferred to reserves as an option of an election under Revenue Ruling 70-604. The only two options are to refund the excess to members or carry the excess over to the following tax year.
Information Letter 2009 - 0233
This IRS response to a request for information states that it is intended to provide clarification about Revenue Ruling 70-604. The only new issue discussed is that the excess revenue was specifically identified as a working capital reserve.
Note:
The attached analysis of the above rulings are excerpted (with permission) from PPC's (Practitioners Publishing Company) "Homeowners Association Tax Library," which provides a line by line expert analysis of each citation.
Serious tax researchers (CPA's and tax attorneys that serve the industry) should subscribe to PPC's online tax service for full information. The "Homeowners Association Tax Library" provides ALL relevant tax citations for the homeowners association industry, with expert analysis and cross referencing of all citations.