I am working on form 1120-H for an HOA. All of our income is from fees but we settled a lien and we received some interest. Is that interest tax exempt?

[Anonymous_ · Accepted solution]

"Is that interest tax exempt?"

No, that interest would not be tax-exempt unless it were paid on a state or local government debt obligation (e.g., a municipal bond).

It is also not exempt function income. See Treas. Reg. §1.528-9

[user11141950]

Is the late fees recovered from the lien taxable as well?

[Anonymous_]

Such fees would likely have to be included in gross income (as "other income"), not exempt function income.