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INTEREST ON RESERVES
QUESTION: How is interest on reserves treated? Can interest be transferred into the operating account or does it
have to stay in the reserve account?
ANSWER:
The Davis-Stirling Act does not regulate how interest is allocated. Neither do governing
documents (at least I have not seen any). However, reserve funding plans usually
allocate interest.
If the
funding plan assigns interest to the reserves, then it must stay in
reserves. If the funding plan is silent, the board may transfer accumulated
interest into the operating account.
Taxes. Interest is taxable. Some boards think that because their
association is a nonprofit corporation, they don't pay taxes or file returns. That would be a huge mistake. Depending
on how their return is prepared, associations might pay little or no taxes but
they
must still
file a return. If your association has not filed
returns, your board should immediately seek legal counsel.
RESERVING FOR
GOLF COURSE GREENS
QUESTION: A question keeps
coming up regarding replacement of golf course greens.
 Should they be
in
the reserves and therefore funded by all members or should replacement
be treated as normal maintenance and paid for by only golfers?
ANSWER:
If the greens last 12 months or
less, they are treated as maintenance and are paid for out of the
operating
account. If the greens last over a year, then
reserves
should be set aside to replace them at the end of their
useful life. All other components related to the greens, such as base for the turf, drainage systems,
and irrigation equipment are reserve items since they are not replaced annually.
*A special thanks to attorney
Rich Neuland,
who represents a number of golf course communities, and Les Weinberg of Reserve
Studies, Inc. of for their input. Contact information for Les Weinberg can be
found in the Service Directory.
Very truly yours,
Adrian Adams, Esq.
Adams Kessler PLC
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