Is the “70-604” Election to Carryover Excess Membership Income to the Next Year on Its Tax Returns for the Past Year or the Upcoming Tax Year?

Is the “70-604” Election to Carryover Excess Membership Income to the Next Year on Its Tax Returns for the Past Year or the Upcoming Tax Year?

Answer- As is the case with much of homeowners’ association tax law, we do not have an absolute answer from the Internal Revenue Service on this matter. However, based on other tax law we can draw some conclusions.

Tax elections must be made before the tax returns are filed. This generally includes through the date of the tax extension, if any. Thus, it appears that the 70-604 election could be made for the prior year if the tax returns had not been filed yet.

Since 70-604 is a tax planning tool, however, it is reasonable that the election could be made in advance of the year end. Thus, the tax election would be made for the upcoming year end. This allows the CPA to know, in advance, whether or not the membership has approved the election and whether it is an option when preparing the tax returns.

Some additional thought with regards to Revenue Ruling 70-604 elections:

As with any tax question, consult with your Association’s accountant. There is still a diversity of interpretation of tax law, and there may be extenuating circumstances in your Association, which would allow a different answer from the above discussion.