[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.528-6]

[Page 238]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.528-6  Expenditure test.

    (a) In general. An organization cannot qualify as a homeowners 
association under section 528 for a taxable year unless 90 percent or 
more of its expenditures for such taxable year are qualifying 
expenditures as defined in paragraphs (b) and (c) of this section. The 
determination of whether an organization meets the provisions of this 
section shall be made after the close of the organization's taxable 
year. Investments or transfers of funds to be held to meet future costs 
shall not be taken into account as expenditures. For example, transfers 
to a sinking fund account for the replacement of a roof would not be 
considered an expenditure for the purposes of this section even if the 
roof is association property. In addition, excess assessments which are 
either rebated to members or applied against the members' following 
year's assessments will not be considered an expenditure for the 
purposes of this section.
    (b) Qualifying expenditures. Qualifying expenditures are 
expenditures by an organization for the acquisition, construction, 
management, maintenance, and care of the organization's association 
property. They include both current operating and capital expenditures 
on association property. Qualifying expenditures include expenditures on 
association property despite the fact that such property may produce 
income which is not exempt function income. Thus expenditures on a 
swimming pool are qualifying expenditures despite the fact that fees 
from guests of members using the pool are not exempt function income. 
Where expenditures by an organization are used both for association 
property as well as other property, an allocation shall be made between 
the two uses on a reasonable basis. Only that portion of the 
expenditures which is properly allocable to the acquisition, 
construction, management, maintenance or care of association property, 
shall constitute qualifying expenditures.
    (c) Examples of qualifying expenditures. Qualifying expenditures may 
include (but are not limited to) expenditures for:
    (1) Salaries of an association manager and secretary;
    (2) Paving of streets;
    (3) Street signs;
    (4) Security personnel;
    (5) Legal fees;
    (6) Upkeep of tennis courts;
    (7) Swimming pools;
    (8) Recreation rooms and halls;
    (9) Replacement of common buildings, facilities, air conditioning, 
etc;
    (10) Insurance premiums on association property;
    (11) Accountant's fees;
    (12) Improvement of private property to the extent it is association 
property; and
    (13) Real estate and personal property taxes imposed on association 
property by a State or local government.

[T.D. 7692, 45 FR 26322, Apr. 18, 1980]