Our HOA is currently making this election (which apparently has to be done each year). I’ve read that there’s no downside risk whether you vote to have the excess membership applied to next years assessment or to have the funds refunded.
But the real problem or concern should be what happens to the HOA’s reserves and its ability to make improvements and repairs to property that doesn’t need annual repairs but on a longer term basis, i.e. pool repairs, fences, painting, if they either refund the excess membership income or apply the excess to next years assessments. That may reduce the reserves for future repairs. I’m not familiar with all the HOA requirements and how they accounted for the assets in the beginning. Also, your HOA can file Form 1120H rather than the 1120, but haven’t determined the difference yet, still researching.
There is the 3rd option to pay the tax and keep the funds in the HOA.
