|Organization:||Massachusetts Department of Revenue|
|Referenced Sources:||Massachusetts General Laws|
Personal Income Tax
Facts: Property Associates is a condominium association formed by the unit owners of a condominium housing project located in Massachusetts. Property Associates is an unincorporated association, organized without transferable shares, formed to manage and maintain the common areas and facilities of the housing project. For federal tax purposes, Property Associates qualifies and elects to be treated as a homeowners association pursuant to section 528 of the Internal Revenue Code.
Property Associates collects assessments and membership dues from each unit owner which qualify as exempt function income under section 528 of the Code. This exempt function income is not included in Property Associates' gross income on its federal return.
The association deposits the exempt function income in an interest-bearing account and earns $200 in interest for the taxable year. The specific $100 deduction provided in section 528 in taken against this amount on Property Associates' federal return. Property Associates has no other income.
Issue 1: Is the exempt function income of Property Associates, an unincorporated homeowners association, included in its Massachusetts gross income?
Issue 2: Is the specific $100 deduction taken on the association's federal return permitted under Massachusetts law?
Discussion: An unincorporated association is taxed according to chapter 62 of the General Laws. Every association whose federal gross income exceeds $100 must file a Massachusetts income tax return. G.L. c. 62C, § 6. An unincorporated association not engaged in business for profit must file a Form 3M if organized without transferable shares.
For purposes of chapter 62, Massachusetts gross income is federal gross income with certain modifications. G.L. c. 62, § 2(a). The exempt function income of a homeowners association that qualifies and elects to be treated as a homeowners association under section 528 of the Code is excluded from its federal gross income. I.R.C. § 528(d)(1)(A). Consequently, the Massachusetts gross income of a homeowners association does not include its exempt function income.
A homeowners association which qualifies under section 528 is allowed a specific $100 deduction on its federal return. I.R.C. § 528(d)(2)(A). This specific $100 deduction is not allowed for purposes of chapter 62.
Directive 1: Property Associates, an unincorporated homeowners association, must file a Massachusetts Form 3M and report the $200 of interest received. Its exempt function income is not included in its Massachusetts gross income.
Directive 2: The specific $100 deduction taken on the association's federal return is not permitted under Massachusetts law.
Reference: G.L. c. 62, § 2(a); G.L. c. 62C, § 6; I.R.C. § 528(d)(1)(A), (2)(A).
/s/Ira A. Jackson
Ira A. Jackson
Commissioner of Revenue
12 June 1986
This Directive represents the official position of the Department of Revenue on the application of the law to the facts as stated. The Department and its personnel will follow this Directive, and taxpayers may rely upon it, unless it is revoked or modified pursuant to 830 CMR § 62C.01(5)(e). In applying this Directive, however, the effect of subsequent legislation, regulations, court decisions, Directives, and TIRs must be considered, and Department personnel and taxpayers may rely upon this Directive only if the facts, circumstances and issues presented in other cases are substantially the same as those set forth in this Directive.