Form 1120-H U.S. Income Tax Return OMB No. 1545-0127 Department of the Treasury for Homeowners Associations 2007 Internal Revenue Service For calendar year 2007 or tax year beginning , 2007, and ending , 20 Name Employer identification number (see page 5) Use IRS label. Number, street, and room or suite no. (If a P.O. box, see page 5.) Date association formed Other- wise, print or City or town, state, and ZIP code type. Check if: (1) Final return (2) Name change Address change (3) (4) Amended return A Check type of homeowners association: Residential real estate association Condominium management association Timeshare association B Total exempt function income. Must meet 60% gross income test (see instructions) B C Total expenditures made for purposes described in 90% expenditure test (see instructions) C D Association’s total expenditures for the tax year (see instructions) D E Tax-exempt interest received or accrued during the tax year E Gross Income (excluding exempt function income) 1 Dividends 1 2 Taxable interest 2 3 Gross rents 3 4 Gross royalties 4 5 Capital gain net income (attach Schedule D (Form 1120)) 5 6 Net gain or (loss) from Form 4797, Part II, line 17 (attach Form 4797) 6 7 Other income (excluding exempt function income) (attach schedule) 7 8 Gross income (excluding exempt function income). Add lines 1 through 7 8 Deductions (directly connected to the production of gross income, excluding exempt function income) 9 Salaries and wages 9 10 Repairs and maintenance 10 11 Rents 11 12 Taxes and licenses 12 13 Interest 13 14 Depreciation (attach Form 4562) 14 15 Other deductions (attach schedule) 15 16 Total deductions. Add lines 9 through 15 16 17 Taxable income before specific deduction of $100. Subtract line 16 from line 8 17 18 Specific deduction of $100 18 $100 00 Tax and Payments 19 Taxable income. Subtract line 18 from line 17 19 20 Enter 30% of line 19. (Timeshare associations, enter 32% of line 19.) 20 21 Tax credits (see instructions) 21 22 Total tax. Subtract line 21 from line 20. See instructions for recapture of certain credits 22 23 Payments: a 2006 overpayment credited to 2007 23a b 2007 estimated tax payments 23b c Total 23c d Tax deposited with Form 7004 23d e Credit for tax paid on undistributed capital gains (attach Form 2439) 23e f Credit for federal tax on fuels (attach Form 4136) 23f g Add lines 23c through 23f 23g 24 Amount owed. Subtract line 23g from line 22 (see instructions) 24 25 Overpayment. Subtract line 22 from line 23g 25 26 Enter amount of line 25 you want: Credited to 2008 estimated tax Refunded 26 Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. Sign May the IRS discuss this return Here with the preparer shown below (see instructions)? Yes No Signature of officer Date Title Date Preparer’s SSN or PTIN Paid Preparer’s Check if signature self-employed Preparer’s Firm’s name (or EIN Use Only yours if self-employed), Phone no. ( ) address, and ZIP code For Privacy Act and Paperwork Reduction Act Notice, see instructions. Cat. No. 11477H Form 1120-H (2007) Form 1120-H (2007) Page 2 How To Get Forms Purpose of Form The tax rate for timeshare associations and Publications is 32%. These rates apply to both A homeowners association files Form ordinary income and capital gains. Internet. You can access the IRS 1120-H as its income tax return to website 24 hours a day, 7 days a take advantage of certain tax benefits. If the association is tax exempt week, at www.irs.gov to: These benefits, in effect, allow the under section 501(a), do not file Form ● Download forms, instructions, and association to exclude exempt 1120-H. See section 6033 and related publications function income (defined later) from its regulations. If the association loses its gross income. exempt status, see Regulations ● Order IRS products online section 1.528-8(e). ● Research your tax questions online Electing To File Form ● Search publications online by topic 1120-H Definitions or keyword A homeowners association elects to Homeowners association. There are ● View Internal Revenue Bulletins take advantage of the tax benefits three types of homeowners (IRBs) published in the last few years provided by section 528 by filing a associations. ● Sign up to receive local and national properly completed Form 1120-H. The 1. A condominium management tax news by email. election is made separately for each association organized and operated to tax year and generally must be made acquire, build, manage, maintain, and IRS Tax Products CD/DVD. You can by the due date, including extensions, care for the property in a order Pub. 1796, IRS Tax Products of the income tax return. condominium project substantially all CD/DVD, and obtain This extension does not extend the of whose units are homes for ● Current year forms, instructions, and time to pay the tax. individuals. publications Once Form 1120-H is filed, the 2. A residential real estate ● Prior-year forms, instructions, and association cannot revoke its election management association organized publications for that year unless the IRS consents. and operated to acquire, build, The association may request IRS manage, maintain, and care for a ● Bonus: Historical Tax Products consent by filing a ruling request. A subdivision, development, or similar CD/DVD - Ships with the final release user fee must be paid with all ruling area substantially all of whose lots or ● Tax Map: An electronic research requests. For more information on buildings are homes for individuals. tool and finding aid ruling requests, see Rev. Proc. 3. A timeshare association (other ● Tax law frequently asked questions 2007-1. You can find this revenue than a condominium management ● Tax topics from the IRS telephone procedure on page 1 of Internal association) organized and operated response system Revenue Bulletin 2007-1 at to acquire, build, manage, maintain, www.irs.gov/pub/irs-irbs/irb07-01.pdf. and care for the property that has ● Fill-in, print, and save features for most tax forms If the association does not elect to members who hold a timeshare right use Form 1120-H, it must file the to use, or a timeshare ownership ● Internal Revenue Bulletins applicable income tax return, for interest in, real property of the ● Toll-free and email technical example, Form 1120. timeshare association. A timeshare support. association cannot be a condominium Automatic 12-month extension to The CD/DVD is released twice make election. If the homeowners management association. during the year. association fails to make the See Regulations section 1.528-4 ● The first release will ship the regulatory election to be treated as a for information regarding the beginning of January 2008. homeowners association, it can get an “substantially all” test for ● The final release will ship the automatic 12-month extension to condominium management beginning of March 2008. make the section 528 election, associations and residential real Purchase the CD/DVD from National provided corrective action is taken estate management associations. Technical Information Service at within 12 months of the due date To qualify as a homeowners www.irs.gov/cdorders for $35 (no (including extension) of the return. See association, the following must apply. handling fee) or call 1-877-CDFORMS Regulations section 301.9100-2 for more information. ● At least 60% of the association’s (1-877-233-6767) toll free to buy the gross income for the tax year must CD/DVD for $35 (plus a $5 handling A homeowners association should consist of exempt function income fee). Price is subject to change. compare its total tax computed on (defined later). By phone and in person. You can Form 1120-H with its total tax computed on Form 1120, U.S. ● At least 90% of the association’s order forms and publications by Corporation Income Tax Return. The expenses for the tax year must calling 1-800-TAX-FORM association may file the form that consist of expenses to acquire, (1-800-829-3676). You can also get results in the lowest tax. build, manage, maintain, or care for most forms and publications at your local IRS office. Tax rate. The taxable income of a its property, and, in the case of a homeowners association that files its timeshare association, for activities General Instructions tax return on Form 1120-H is taxed at provided to, or on behalf of, Section references are to the Internal a flat rate of 30% for condominium members of the timeshare Revenue Code unless otherwise noted. management associations and association. residential real estate associations. Form 1120-H (2007) Page 3 ● No private shareholder or individual a residential real estate management and Other Returns, to request a can profit from the association’s net association, or (c) owners of timeshare 6-month extension of time to file. earnings except by acquiring, building, rights to use, or timeshare ownership managing, or caring for association interests in, real property in the case Who Must Sign property or by a rebate of excess of a timeshare association. This The return must be signed and dated membership dues, fees, or income must come from the members by the president, vice-president, assessments. as owners, not as customers, of the treasurer, assistant treasurer, chief ● The association must file Form association’s services. accounting officer, or any other 1120-H to elect under section 528 to Assessments or fees for a common association officer (such as tax officer) be treated as a homeowners activity qualify but charges for authorized to sign. association. providing services do not qualify. If a return is filed on behalf of an Association property. Association Examples. In general, exempt function association by a receiver, trustee, or property includes real and personal income includes assessments made assignee, the fiduciary must sign the property that: to: return, instead of the association 1. Pay principal, interest, and real officer. Returns and forms signed by a 1. The association holds, estate taxes on association property. receiver or trustee in bankruptcy on 2. The association’s members hold behalf of an association must be in common, 2. Maintain association property. accompanied by a copy of the order 3. The association’s members hold 3. Clear snow from public areas and or instructions of the court authorizing privately within the association, and remove trash. signing of the return or form. 4. Is owned by a governmental unit Income that is not exempt function If an association officer completes and is used to benefit the unit’s income includes: Form 1120-H, the paid preparer’s residents. 1. Amounts that are not includible in space should remain blank. Anyone Timeshare association property the organization’s gross income other who prepares Form 1120-H but does includes property related to the than under section 528 (for example, not charge the association should not timeshare project that the association tax-exempt interest). complete that section. Generally, or its members have rights to use. 2. Payments from nonmembers. anyone who is paid to prepare the These rights must arise out of return must sign it and fill in the “Paid 3. Payments from members for Preparer’s Use Only” area. recorded easements, covenants, or special use of the organization’s other recorded instruments. The paid preparer must complete facilities, apart from the use generally the required preparer information and: For more information, see available to all members. Regulations section 1.528-3. ● Sign the return in the space 4. Interest on amounts in a sinking provided for the preparer’s signature. Taxable income. Taxable income is fund. the excess, if any, of: ● Give a copy of the return to the 5. Payments for work done on taxpayer. 1. Gross income for the tax year, nonassociation property. excluding exempt function income, Note. A paid preparer may sign 6. Members’ payments for original or amended returns by rubber over transportation. stamp, mechanical device, or 2. Allowed deductions directly For more information, see computer software program. connected with producing any gross Regulations section 1.528-9. income except exempt function Where To File income. Allowed deductions include a When To File File the association’s return at the specific $100 deduction. The following Generally, an association must file are not allowed: address listed below. Form 1120-H by the 15th day of the ● Net operating loss deduction 3rd month after the end of its tax year. If the association’s (section 172). principal business, If the due date falls on a Saturday, office, or agency is Use the following ● Deductions under part VIII of Sunday, or legal holiday, the located in: address: subchapter B (special deductions for association may file on the next Connecticut, corporations). business day. Delaware, District of If facilities are used (or personnel Private delivery services. You can Columbia, Illinois, are employed) for both exempt and use certain private delivery services Indiana, Kentucky, designated by the IRS to meet the Maine, Maryland, nonexempt purposes, see Regulations Massachusetts, section 1.528-10. “timely mailing as timely filing/paying” Michigan, New Exempt function income. Exempt rule for tax returns and payments. See Hampshire, Department of the Treasury function income consists of the instructions for Form 1120 for New Jersey, New Internal Revenue Service membership dues, fees, or details. York, North Carolina, Cincinnati, OH 45999-0012 Ohio, Pennsylvania, assessments from (a) owners of Extension. File Form 7004, Rhode Island, condominium housing units, (b) Application for Automatic 6-Month South Carolina, owners of real property in the case of Extension of Time To File Certain Vermont, Virginia, Business Income Tax, Information, West Virginia, Wisconsin Form 1120-H (2007) Page 4 Alabama, Alaska, Other Forms and Statements Rounding Off to Whole Arizona, Arkansas, That May Be Required Dollars California, Colorado, Florida, Georgia, See the Instructions for Form 1120 The association can round off cents to Hawaii, Idaho, Iowa, and Pub. 542, Corporations, for a list whole dollars on its return and Kansas, Louisiana, of other forms and statements the schedules. If the association does Minnesota, Mississippi, association may be required to file. round to whole dollars, it must round Missouri, Montana, Department of the Treasury all amounts. To round, drop amounts Nebraska, Nevada, Internal Revenue Service Assembling the Return under 50 cents and increase amounts New Mexico, North Ogden, UT 84201-0012 Dakota, Oklahoma, Attach Form 4136, Credit for Federal from 50 to 99 cents to the next dollar Oregon, South Dakota, Tax Paid on Fuels, to Form 1120-H. (for example, $1.39 becomes $1 and Tennessee, Texas, Attach schedules in alphabetical order $2.50 becomes $3). Utah, Washington, and additional forms in numerical If two or more amounts must be Wyoming added to figure the amount to enter order after Form 4136. Complete every applicable entry on a line, include cents when adding A foreign country or Internal Revenue Service U.S. possession P.O. Box 409101 space on Form 1120-H. Do not write the amounts and round off only the Ogden, UT 84409 “See Attached” instead of completing total. the entry spaces. If more space is Payment of Tax (Line 24) needed on the forms or schedules, Paid Preparer Authorization attach separate sheets using the same The association must pay any tax due If the association wants to allow the size and format as the printed forms. in full no later than the 15th day of the IRS to discuss its 2007 tax return with If there are supporting statements and 3rd month after the end of the tax the paid preparer who signed it, check attachments, arrange them in the year. Do not include the payment with the “Yes” box in the signature area of same order as the schedules or forms the tax return. This payment must be the return. This authorization applies they support and attach them last. deposited using Form 8109 or EFTPS, only to the individual whose signature Show the totals on the printed forms. as discussed below. appears in the “Paid Preparer’s Use Enter the association’s name and EIN Electronic deposit requirement. The Only” section of the return. It does not on each supporting statement or association must make electronic apply to the firm, if any, shown in that attachment. deposits of all depository taxes (such section. as employment tax, excise tax, and If the “Yes” box is checked, the Accounting Methods corporate income tax) using the association is authorizing the IRS to Figure taxable income using the Electronic Federal Tax Payment call the paid preparer to answer any method of accounting regularly used System (EFTPS) in 2008 if: questions that may arise during the in keeping the association’s books ● The total deposits of such taxes in processing of its return. The and records. In all cases, the method 2006 were more than $200,000 or association is also authorizing the paid used must clearly show taxable preparer to: income. Permissible methods include ● The association was required to use cash, accrual, or any other method EFTPS in 2007. ● Give the IRS any information that is authorized by the Internal Revenue If the association is required to use missing from the return, Code. EFTPS and fails to do so, it may be ● Call the IRS for information about subject to a 10% penalty. If the the processing of the return or the Change in accounting method. To association is not required to use status of any related refund or change its method of accounting used EFTPS, it may participate voluntarily. payment(s), and to report taxable income (for income To enroll in or get more information as a whole or for any material item) ● Respond to certain IRS notices the association must file Form 3115, about EFTPS, call 1-800-555-4477. To about math errors, offsets, and return enroll online, visit the EFTPS website Application for Change in Accounting preparation. at www.eftps.gov. Method. For more information, see The association is not authorizing Form 3115 and Pub. 538, Accounting Depositing on time. For EFTPS the paid preparer to receive any Periods and Methods. deposits to be made timely, the refund check, bind the association to association must initiate the anything (including any additional tax Change of Tax Year transaction at least 1 business day liability), or otherwise represent the Generally, an association must get the before the date the deposit is due. association before the IRS. consent of the IRS before changing its Deposits with Form 8109. If the The authorization will automatically tax year by filing Form 1128, association does not use EFTPS, end no later than the due date Application To Adopt, Change, or deposit tax payments (and estimated (excluding extension) for filing the Retain a Tax Year. However, under tax payments) with Form 8109, association’s 2008 tax return. If the certain conditions, an association can Federal Tax Deposit Coupon. If you do association wants to expand the paid change its tax year without getting the not have a preprinted Form 8109, use preparer’s authorization, see Pub. 947, consent. Form 8109-B to make deposits. You Practice Before the IRS and Power of For more information on change of can get this form by calling Attorney. tax year, see Form 1128, Regulations 1-800-829-4933 or visiting an IRS section 1.442-1, and Pub. 538. taxpayer assistance center. Have your EIN ready when you call or visit. Form 1120-H (2007) Page 5 Do not send deposits directly to an Late filing of return. In addition to If the association receives its mail in IRS office; otherwise, the association losing the right to elect to file Form care of a third party (such as an may have to pay a penalty. Mail or 1120-H, a homeowners association accountant or an attorney), enter on deliver the completed Form 8109 with that does not file its tax return by the the street address line “C/O” followed the payment to an authorized due date, including extensions, may by the third party’s name and street depositary (a commercial bank or be penalized 5% of the unpaid tax for address or P.O. box. other financial institution authorized to each month or part of a month the Employer identification number accept federal tax deposits). Make return is late, up to a maximum of (EIN). Enter the association’s EIN. If checks or money orders payable to 25% of the unpaid tax. The minimum the association does not have an EIN, the depositary. penalty for a return that is over 60 it must apply for one. An EIN may be If you prefer, you may mail the days late is the smaller of the tax due applied for: coupon and payment to: Financial or $100. The penalty will not be Agent, Federal Tax Deposit imposed if the association can show ● Online—Click on the Online EIN Processing, P.O. Box 970030, St. that the failure to file on time was due Application link at www.irs.gov. The Louis, MO 63197. Make the check or to reasonable cause. Associations that EIN is issued immediately once the money order payable to “Financial file late should attach a statement application information is validated. Agent.” explaining the reasonable cause. ● By telephone at 1-800-829-4933 Late payment of tax. An association from 7:00 a.m. to 10:00 p.m. in the To help ensure proper crediting, that does not pay the tax when due association’s local time zone. enter the association’s EIN, the tax period to which the deposit applies, generally may be penalized 1⁄ 2 of 1% ● By mailing or faxing Form SS-4, and “Form 1120-H” on the check or of the unpaid tax for each month or Application for Employer Identification money order. Darken the “1120” box part of a month the tax is not paid, up Number. under “Type of Tax” and the to a maximum of 25% of the unpaid If the association has not received appropriate “Quarter” box under “Tax tax. The penalty will not be imposed if its EIN by the time the return is due, Period” on the coupon. Records of the association can show that the write “Applied for” in the space for the these deposits will be sent to the IRS. failure to pay on time was due to EIN. For more information on deposits, see reasonable cause. Note. The online application process the instructions in the coupon booklet Other penalties. Other penalties can is not yet available for associations (Form 8109). be imposed for negligence, substantial with addresses in foreign countries or understatement of tax, reportable Puerto Rico. Estimated Tax, Alternative transaction understatements, and Minimum Tax, and Certain Final return, name change, address fraud. See sections 6662, 6662A, and change, or amended return. Tax Credits 6663. ● If the association ceases to exist, These items do not apply to homeowners associations electing to Specific Instructions file Form 1120-H and check the “Final Period covered. File the 2007 return return” box. file Form 1120-H. See the instructions for line 21, later, for a list of the tax for calendar year 2007, and fiscal ● If the association changed its name credits that do not apply. However, a years that begin in 2007 and end in since it last filed a return, check the homeowners association that does 2008. For a fiscal year return, fill in the box for “Name change”. not elect to file Form 1120-H may be tax year space at the top of the form. ● If the association has changed its required to make payments of address since it last filed a return The 2007 Form 1120-H can also be estimated tax. Because the election is (including a change to an “in care of” used if (a) the association has a tax not made until the return is filed, Form address), check the box for “Address year of less than 12 months that 1120-H provides lines for estimated change”. begins and ends in 2008 and (b) the tax payments and the crediting of ● To amend a previously filed Form 2008 Form 1120-H is not available at overpayments against estimated tax if 1120-H, file a corrected Form 1120-H the time the association is required to payments or overpayments apply. and check the “Amended return” box. file its return. Interest and Penalties The association must show its 2008 Note. If a change in address occurs Interest. Interest is charged on taxes tax year on the 2007 Form 1120-H after the return is filed, use Form paid late even if an extension of time and take into account any tax law 8822, Change of Address, to notify the to file is granted. Interest is also changes that are effective for tax IRS of the new address. charged on penalties imposed for years beginning after 2007. Item A. Type of homeowners failure to file, negligence, fraud, Name and address. Print or type the association. See Definitions on substantial valuation misstatements, association’s true name (as set forth in page 2. substantial understatements of tax, the charter or other legal document Item B. 60% gross income test. At and reportable transaction creating it), address, and EIN on the least 60% of the association’s gross understatements from the due date appropriate lines. Include the suite, income for the tax year must consist (including extensions) to the date of room, or other unit number after the of exempt function income. See payment. The interest charge is street address. If a preaddressed label Exempt function income on page 3. figured at a rate determined under is used, include this information on the section 6621. label. If the post office does not deliver mail to the street address and the association has a P.O. box, show the box number instead. Form 1120-H (2007) Page 6 Item C. 90% expenditure test. At Line 15. Other deductions. Expenses, Privacy Act and Paperwork least 90% of the association’s depreciation, and similar items must Reduction Act Notice. We ask for the expenditures for the tax year must not only qualify as items of deduction, information on this form to carry out consist of expenses to acquire, build, but must also be directly connected the Internal Revenue laws of the manage, maintain, and care for with the production of gross income to United States. You are required to property, and in the case of a be deductible in computing the give us the information. We need it to timeshare association, for activities unrelated taxable income. ensure that you are complying with provided to, or on behalf of, members these laws and to allow us to figure of the timeshare association. Include Line 21. Tax credits. The association and collect the right amount of tax. current and capital expenditures. Use may qualify for the following tax Section 6109 requires return preparers the association’s accounting method credits: to provide their identifying numbers on to figure the total. ● Foreign tax credit (Form 1118). the return. Include: ● Qualified electric vehicle credit You are not required to provide the 1. Salary for an association manager (Form 8834). information requested on a form that or secretary. ● General business credit (Form is subject to the Paperwork Reduction 3800). However, it does not include Act unless the form displays a valid 2. Expenses for gardening, paving, the investment credit. OMB control number. Books or street signs, security guards, and Enter the total amount of credits on records relating to a form or its property taxes assessed on line 21 and attach the appropriate instructions must be retained as long association property. form(s). as their contents may become material 3. Current operating and capital in the administration of any Internal expenditures for tennis courts, Line 22. If the association must Revenue law. Generally, tax returns swimming pools, recreation halls, etc. recapture any of the low-income and return information are confidential, 4. Replacement costs for common housing credit (or the qualified electric as required by section 6103. buildings, heating, air conditioning, vehicle or new markets credit), include The time needed to complete and elevators, etc. the amount of the recapture in the file this form will vary depending on total for line 22. To the right of the individual circumstances. The Do not include expenditures for entry space, write “LIH”, “QEV”, or estimated average time is: property that is not association “NMC”, “recapture”, and the amount. property. Also, do not include Recordkeeping 11 hr., 57 min. For details, see Form 8611, Recapture investments or transfers of funds held of Low-Income Housing Credit; Learning about the to meet future costs. An example Regulations section 1.30-1 (regarding law or the form 5 hr., 19 min. would be transfers to a sinking fund to the qualified electric vehicle credit); or Preparing the form 13 hr., 12 min. replace a roof, even if the roof is Form 8874, New Markets Credit. association property. Copying, assembling, Backup withholding. If the and sending the form Item D. Enter the association’s total association had income tax withheld expenditures for the tax year including to the IRS 2 hr., 9 min. from any payments it received those expenditures directly related to because, for example, it failed to give If you have comments concerning exempt function income. Use the the payer its correct EIN, include the the accuracy of these time estimates association’s accounting method to amount withheld in the total for line or suggestions for making this form figure the entry for item D. 23g. This type of withholding is called simpler, we would be happy to hear Item E. Show any tax-exempt interest backup withholding. Show the amount from you. You can write to the Internal received or accrued. Include any withheld in the blank space in the Revenue Service, Tax Products exempt-interest dividend received as a right-hand column between lines 22 Coordinating Committee, shareholder in a mutual fund or other and 23g, and write “Backup SE:W:CAR:MP:T:T:SP, 1111 regulated investment company. Withholding”. Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send the tax form to this office. Instead, see Where To File on page 3.