Can Associations With a Rental Unit, or Limited Commercial Activity, Use Revenue Ruling 70-604?

Answer- If an association rents out a Manager’s Unit, can the association still elect Revenue Ruling 70-604 or does this “commercial rental activity” taint the election? With regards to tax law there is little absolute knowledge out there. It is our opinion, and the opinion of other experienced practitioners, that RR 70-604 can be used by residential associations where commercial activities are not the main purpose of the association. Many associations (especially high rise type of buildings) have some commercial activity that is not a significant part of their income.

The IRS states on their website that “Condominium associations that engage in commercial activity are generally not eligible” to use RR 70-604 (emphasis added). This does not negate all commercial activity. Quite frankly, tax law is not clear in this matter and the IRS does not have a consistent viewpoint. So, we believe that the area that is unclear in tax law deals with commercial condominium complexes, not residential complexes where there is minimal commercial activity.