Discussion of Ballot Issue – IRS Revenue Ruling 70-604

“YES” vote approves the election under Revenue Ruling 70-604 to “roll over” any excess “Member Income” (as defined by the IRS) from the current tax year to the next year.  This is an important tax planning tool for the Association that requires approval by the membership to avoid possible disputes with the IRS in the event of a tax audit.  Approval of this election by the members provides the Association with protection from negative tax results and possibly saves the Association money that would otherwise be paid in taxes.  At the advice of our CPA firm, there are no negative consequences to approving this election, but there is the possibility of negative consequences if it is not approved.

Your Board of Directors makes every attempt to budget assessments to cover only necessary Association costs and expenses.  However, due to the timing of transactions and estimates made during the budget process, occasionally, there is a minor “excess membership income” at year-end.  This is a necessary business planning matter, as the Association needs to have sufficient working capital to pay its bills timely.  Consequently, it is fairly normal to have excess membership income.  This excess is automatically “rolled over” as part of the budget process, meaning that the Board considers this amount in calculating next year’s budget.

This is necessitated because the excess income from the gas and oil payments has made the use of IRS form 1120 much more attractive than our old form 1120H, reducing our tax tare from 30% to about 21%.  As in the past, all excess membership income rolled over, will be deposited into the Association Capital Reserve Account.  As an example, this process saved the Association about $3,725 in taxes for the year 2019.

This tax election under Revenue Ruling 70-604 is the tax equivalent of the normal budget process, but it does require approval and documentation to comply with IRS rules.





Excess income applied to the following year’s assessments under IRS revenue ruling 70-604.

WHEREAS Freedom Crossing Northeast Condominium Association is a Pennsylvania condominium association duly organized and existing under the laws of the Commonwealth of Pennsylvania, and WHEREAS, the members desire that the corporation shall act in full accordance with the rulings and regulations of the Internal Revenue Service: RESOLVED, that any excess of membership income over membership expenses for the years ending December 31, 2021, and 2022, shall be applied against the subsequent tax year member assessments as provided by IRS Revenue Ruling 70-604.

————————————————————————————————————-This will allow us to move excess funds to the 2022 operating fund and in turn, on the books, increase the amount we each pay to reserves by 1/840th of the surplus total per month.

As an example:  If we had a $7,000 surplus this year, we would move that to operations for 2022 but instead of $60 of your dues going to Capital Reserves,

$60 + $7,000/840 or $60 + $8.33 for a total of $68.33 each month would go to Reserves so, by the end of the year we will have put $57,400 into reserves, a $7,000 increase over the normal $50,400.

This is what we have to do to avoid paying income tax on the surplus moved to Reserves.  Please complete the ballot by Friday, November 19, 2021.  If you have any questions, you may present them for the Annual Meeting on November 16th.


Only ONE (1) vote per household is permitted


Please fill out this form to submit your vote.
  • MM slash DD slash YYYY
    If you pick the wrong date the form will not be sent. Today's date will be highlighted. Receipt of the vote is required before November 19.
    This Checkbox hereby serves as my electronic signature. I understand I can only vote one time. By checking this box I also accept the terms as stated above regarding my signature.
  • This field is for validation purposes and should be left unchanged.