IRC § 528 is written specifically for the CIRA. A CIRA opting to be taxed under §528 files form 1120-H with the IRS.
CIRAs qualifying as a homeowner's association under §528 will be taxed at a flat 30% rate on all taxable income (32% for a timeshare association) in excess of $100. Generally, taxable income is derived from sources other than membership dues, fees and assessments.
CIRAs taxed under the guidelines of §528 are not allowed to take advantage of net operating loss rules, and cannot claim the dividends received deduction to reduce taxable income.
The advantages of qualifying for taxation under IRC §528 are varied. In general, income from member assessments are tax exempt. Under IRC §528, there is not need to segregate amounts collected in advance for replacements and deferred maintenance because all member assessments are tax exempt. However, the CIRA must allocate income and expense items between exempt function activities and non-exempt function activities. Dues and assessments are considered exempt function; all other collections are generally non-exempt.
Disadvantages of filing under IRC §528 include a flat tax rate of 30% for any taxable income in excess of $100. This means that per use fees paid by members, which would be considered non-exempt function, are generally taxable under IRC §528. For CIRAs with amenities such as swimming pools and tennis courts this could be a critical issue and it would be very important to classify income and expenses in such a way that taxable income is properly matched with expenses related to such income.