Archive Page 2


IRS Revenue Ruling 1120 vs 1120H

With a filing of 1120 the tax rate is 15% and 30% for 1120H.
Filing as a regular corporation (1120) could expose membership dues to taxation if the exclusion does not adhere to the IRS ruling. The following are the rulings used to exclude membership dues when filing Form 1120.

Treated as an exclusion from gross income as a contribution to capital per Revenue Ruling 74-563, 75-370, and 75-371.

Either offset by prior year Exempt Function Net Loss Carryforward per Internal Revenue Code Section 277 or by deferring the recognition of the income to the following year per the Revenue Ruling 70-604.

In order to exclude from taxable income the portion of the dues collected for contribution to the reserves, an Association should comply with the following:

1. Notify the owners in advance that a specific portion of their assessments represents a contribution to the capital of the Association. (This can be made by distributing a budget to the owners that separately classifies the assessments for future major repairs and replacements.)
2. Designate funds for future major repairs and replacements for specific capital expenditures.
3. Segregate the funds for future major repairs and replacements from the operating funds. Separate bank accounts would be required for operating and reserves funds.

When preparing tax returns if the tax exposure exceeds the savings given by the 15% rate, Form 1120-H is filed to avoid exposing the membership dues to taxation.



Rules and Regulations of an Association allow the Board of Directors to make rules that are needed to assist the Board of Directors in running the HOA. Rules exist to allow the members to enjoy community living while not encroahing on the enjoyment of others. Rules cannot contradict the CC & R’s or the By-Laws.

If a rule is to be added or changed the Board of Directors must authorize the management company to send out the proposed rule addition or change. The members have a thirty day comment period. This allows the members to express their opinon on the proposed rule or change and let the Board of Directors know the thoughts of the community. The Board of Directors can review the input and then make their deciison. They can modify the proposed rule or change based on the feedback or can leave the rule or proposed change as it is.

It is important for all owners to realize that the Board of Directors are owners and they have to follow all the rules like any owner. They don’t get preferential treatment because they are on the Board.

The Board of Directors make business decisons for the community. Even if an owner disagrees with the new rule or proposed change they have to realize what is important is what is in the best interst of the communty.

You cannot please everyone you can only try.


Life in a Condo…..NOISE

What residents don’t realize is that when you live close to neighbors noise travels.
It is those little things that can ruin a quiet evening at home.
Why does a slammed door mean the door is closed?
Can’t a door be closed quietly so it doesn’t rattle the neighbors while they are enjoying their home.

When you walk in the hallways keep your voices down so you don’t disturb the neighbors by making them think there is a band in the hallway.

The same for stomping loudly in the hallways.

Windows are open and in comes the summer breezes and noise…
Voices and music can be heard throughout whether you are in your condo or on the balcony.

Enjoy your music and conversations but your neighbors might not like your type of music or might not want to be part of your conversations.

Be respectful of your neighbors and lets all have a safe and happy summer!!!!!



Help Us Stop the Astro-turf Mandate!

Assembly Bill 1793 would prohibit associations from restricting or banning the installation of artificial lawns.

The bill totally removes an association’s right to maintain a natural grass streetscape in order to preserve the ambiance and property value. It will create friction in the association and opens the door to lawsuits.

The bill imposes a State mandate on even the smallest of communities while disregarding important factors listed below in a sample letter. I am asking you to “copy and paste” the sample letter onto your letterhead and FAX it to the legislators identified below.

We need to stop the rush to judgment by some legislators who think they are simply saving water by voting for this bill, when in fact the bill creates serious problems and will cause unintended negative consequences.

We are asking you to weigh in on this bill today by faxing the committee members that will vote on it next Tuesday. Your fax NEEDS to arrive in their capitol offices no later than this Friday.

Copy and paste the letter below onto your letterhead and fax it in!

Thank you very much.


TO: Members, Senate Transportation and Housing Committee
RE: OPPOSE AB 1793 (Saldana)

I am urging you to vote NO on AB 1793.

AB 1793 would void any homeowner association rule that prohibits installing artificial grass, and would therefore permit all property owners to install it. Here are my reasons for opposing the measure:

It singles out a class of property owners in common interest developments and may violate the equal protection clause of the Constitution.

Artificial grass may ruin a community’s curb appeal and reduce owner and neighbor’s property value
Existing law already mandates local public agencies to adopt and enforce water usage by which CIDs must abide
Civil Code 1358.8 already addresses water usage and landscaping in CIDs per AB 1061 (Lieu), which just became effective in January

  • It micromanages communities and overrides local control
  • It lacks definition of “grass”… what variety, color shade, seasonal vs. perennial, length?
  • It statutorily promotes certain company products
  • It does not address possible water runoff, flammability, and toxicity issues identified in various
  • governmental studies

  • It will increase an HOA’s liability and generate lawsuits due to harm that can be caused by the toxic chemicals used in the manufacturing of the artificial lawns

AB 1793, if passed by this committee, should be referred to the Senate Environmental Quality Committee.

Thank you for considering my request. I shall be glad to relay your response to my neighbors.





Fax: 916-445-2209

Name District Party Phone Fax

Ashburn, Roy 18 R (916) 651-4018 (916) 322-3304
DeSaulnier, Mark 7 D (916) 651-4007 (916) 445-2527
Harman, Tom 35 R (916) 651-4035 (916) 445-9263
Huff, Robert (Vice Chair) 29 R (916) 651-4029 (916) 324-0922
Kehoe, Christine 39 D (916) 651-4039 (916) 327-2188
Lowenthal, Alan (Chair) 27 D (916) 651-4027 (916) 327-9113
Oropeza, Jenny 28 D (916) 651-4028 (916) 323-6056
Pavley, Fran 23 D 916 651 4023 916 324-4823
Simitian, Joe 11 D (916) 651-4011 (916) 323-4529


The Importance of Recording a Lien Correctly

If a homeowner who is behind in their dues files bankruptcy and the property goes into foreclosure, will the HOA (Homeowners Association) be able to collect the assessments owed? It depends. If the HOA has properly recorded a lien against the owner’s interest the HOA will be considered a secured creditor and will have a much better chance of collecting.

The HOA must have a written statement of the policy for collecting delinquent assessments which is distributed annually to owners. The lien can only apply to delinquent assessments and to late fees, costs of collection (including attorneys’ fees), interest on delinquent assessments, and reimbursement assessments for damage done to the common area. The lien and foreclosure process cannot be used to collect fines for rules violations or other monetary penalties.

The decision to record a lien must be made by the board of directors in an open meeting and the vote to record a lien must be mentioned in the minutes of the meeting. The decision to record a lien cannot be delegated to the managing agent or property manager. At least 30 days before a lien is recorded the owner of the separate interest must be sent notification by certified mail. The notice must contain all of the items listed in California Civil Code Section 1367.1. Among other requirements, these items include an itemized statement of charges and the right to request a meeting with the board.

Having a collection policy in place and enforcing it systematically is important to protect the HOA. If it is determined that the HOA has recorded a lien in error, the HOA must promptly reverse all late charges and fees and release the lien. The HOA would also have to pay all costs relating to dispute resolution which might include attorneys’ fees for the owner of interest.

Pan American