HOA Hasn’t Filed a Tax Return in Years
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What do you do if our HOA hasn’t filed a tax return in years?
This is easily the most common question I get from around the country. There isn’t always an easy fix to this problem. Many factors can dictate the proper course of action for your particular HOA when trying to catch up on past tax returns. We will talk about one of those common situations and my recommended steps for fixing it.
An HOA with $40,000 in annual member assessments hasn’t filed taxes in 6 years. They would have met all the conditions necessary to file Form 1120H, had they done so.
Step 1: The first thing I would do in this situation is locate the last tax return filed.
This will give you a starting point and will help you fill out the tax returns that you will need to file. If you are unable to locate the last tax return filed for your Association, you will need to contact the IRS to find out when the last return was filed and request a transcript of that return from the IRS.
Step 2: File your current year tax return.
This makes sure that you stay current and don’t miss the deadline for filing as an 1120H, while trying to determine how to clean up the past years.
Step 3: Contact your local IRS office and see if they will allow for you to file 1120H for the past years.
The biggest issue with not filing an 1120H in a timely manner is that you may no longer qualify to file an 1120H. This is because filing an 1120H is active election that needs to be made within 12 months from the due date of the tax return including extensions. The election is only made by filing the actual 1120H form. If a tax return was not filed within this time period then the association would have to file a regular Form 1120. This is the main reason I suggest contacting your local IRS office, because they have allowed my clients to submit an 1120H for prior years even though they technically didn’t qualify. There is no guarantee that an 1120H for prior years will be accepted but it is worth a shot.
Step 4: Complete all the prior year tax returns allowed and submit them to the proper IRS location.
Your local IRS office can instruct you where to send your prior tax returns. I suggest sending them all in one envelope, this will help to ensure that they get processed in the same time period. There are many ways to fill out the 1120H for prior years, you can go to the IRS website and download the proper forms, or you can get your CPA to complete and file the forms, or you can use the HOA Tax Help website to complete prior year 1120H.
Many times board members are worried about filing a tax return for the Association if the Association hasn’t filed in the past and chose to keep ignoring the situation. This is never your best option, as the statute of limitations for a given tax year never runs out if a tax return was never filed. Always try to fix the situation and if you need help please give me a call. (1-855-384-8916)
Doug McLain, CPA