Revenue Ruling 70-604 

Basic Provisions: Revenue Ruling 70-604 allows an association to remove any excess membership income, meaning bottom line or net income in most cases, from taxable income by effectively refunding the excess membership income to the members or applying the excess income to the following year’s assessments. This revenue ruling is only used for Association’s which file using form 1120 or the long form and have excess income over expenses in a given year. 

Those responsible for making this election need to keep in mind that an IRS revenue ruling is not tax code it is an official interpretation by the IRS of the internal revenue law, there are no rules that have been set by the IRS on how to properly make the election. There are no set compliance standards for using this election. What we use in determining how the election should be made are previous tax court cases, private letter rulings, and audit findings. All of those point to the fact that Revenue Ruling 70-604 must be made as a resolution adopted by the membership. The form the resolution takes is a choice that must be made by the association’s board members, managers, or other responsible parties.