[Extensions of Remarks]
[Pages E683-E687]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

HOMEOWNERS ASSOCIATION CLARIFICATION ACT

______

HON. E. CLAY SHAW, JR.

of florida

in the house of representatives

Wednesday, April 16, 1997

Mr. SHAW. Mr. Speaker, today, I am introducing legislation that
addresses a problem developing in the resort and vacation industry, an
industry of great importance to my home State of Florida and many other
States in this country. Without corrective legislation, I fear the 1.7
million timeshare owners in the United States will ultimately bear an
unfair Federal tax burden on their timeshare homeowners associations,
simply because these associations complied with State law and sound
business practices.
The issue involves the Federal income tax treatment of timeshare
homeowners associations. Since the 1970's, timeshare homeowners
associations have applied the same tax principles used by condominium
associations that do not elect or do not qualify for tax-exempt status
under section 528 of the Internal Revenue Code. An IRS Technical Advice
Memorandum (TAM 9539001), however, has concluded that a timeshare
homeowners association cannot use the same tax treatment relied on by
condominium associations in determining taxable income.
As a result, it appears the IRS is poised to adopt burdensome
standards for timeshare associations that could result in the inclusion
of all regular member assessments in income,

[[Page E684]]

even assessments intended for capital reserve expenditures that are
held in trust for future use. Many States, including my State of
Florida, require timeshare homeowners associations to maintain capital
reserves. I believe it is entirely appropriate for States to require
timeshare associations to maintain capital reserves in preparation for
future expenditures, such as repairing or replacing a roof or repaving
a parking lot. In addition to complying with State law, the timeshare
homeowners association practice of maintaining capital reserves
represents a sound business practice, one we should encourage, not
discourage through punitive Federal tax treatment.
The legislation I am introducing today will permit timeshare
homeowners associations to elect section 528 of the Internal Revenue
Code. Currently, timeshare associations are effectively prohibited from
electing section 528 as a result of a residency requirement of that
section of the Code. Specifically, Treasury regulations under section
528 require that at least one-half of the units of a housing
development must be occupied by the same owner for at least 30 days of
the year. Timeshare associations by their very nature, where occupants
tend to hold unit ownership for 1 or 2 weeks per year, are unable to
meet this residency standard. As a result, timeshare homeowners
associations, which are comprised of timeshare owners, are not
permitted to elect section 528.
Under my proposal, most timeshare homeowners association that elect
section 528 would pay higher taxes on their nonexempt income (i.e.,
investment income) but appropriately would not be taxed on their exempt
income (i.e., membership assessments that are expended to maintain and
operate property commonly owned and used by members). I believe this is
an exceedingly reasonable solution to the current problem and would
hope that many of my colleagues would join in cosponsoring this
legislation.
Mr. Speaker, the timeshare industry has done an outstanding job
polishing the professionalism of the industry over the past 10 years
and providing a high quality vacation product for Americans across the
country. In fact, the industry has developed to a level of popularity
and sophistication where 1.7 million Americans now own timeshares in
the United States, and nearly 120,000 new buyers purchase a timeshare
each year. Further, an impressive $6 billion is spent annually by
timeshare owners while vacationing at timeshare resorts in the United
States. This level of spending and the continued growth of the industry
is creating a broad variety of jobs in affected communities and adding
significantly to local tax bases.
Mr. Speaker, let my colleagues understand that the strong and
sustained growth of the timeshare industry is not a phenomenon
indigenous to my State of Florida. The growth of the timeshare
industry, measured at 16 percent annually over the past 8 years, is
also being enjoyed in many regions across the country, particularly in
the States of California, Colorado, North Carolina, Texas, and Arizona.
In addition, with 1.7 million timeshare owners, we can rest assured
that we all have constituents who will be adversely and unfairly
affected by this IRS policy development. To provide Members a sense of
the growth of the industry throughout our country, I have included a
chart from the publication ``Timeshare Purchasers: Who They Are, Why
They Buy, 1995''. This chart links the number of households who own
timeshares by State, as well as the penetration rate within each State.
It is clear, however, that without corrective legislation, many
timeshare homeowners associations will incur Federal tax liabilities
simply for complying with State law and following sound business
practice. Common sense tells us that timeshare homeowners associations
will have little choice but to pass this unfair tax increase on to
their timeshare owners in the form of higher assessments.
With these thoughts and concerns in mind, I am introducing the
Homeowners Association Clarification Act, that will correct this
problem and permit timeshare associations to continue to comply with
State law on capital reserves and follow sound business practice
without incurring Federal tax liabilities on these funds. I urge my
colleagues to join me in cosponsoring this legislation.

Homeowners Association Clarification Act of 1997

In March 1997, U.S. Representative E. Clay Shaw introduced
the ``Homeowners Association Clarification Act of 1997''. The
legislation is intended to resolve an ongoing controversy
between the I.R.S. and timeshare homeowners associations,
comprising the nation's 1.7 million timeshare owners.
Since the early 1970's, timeshare homeowners associations
(HOAs) have applied the same tax principles used by
condominium associations. Under these long established
principles, timeshare HOAs applied annual assessments paid by
timeshare owners in excess of annual expenses to offset
assessments for future years (so-called ``excess
assessments''). Second, assessments allocated to various
repair and replacement reserve accounts were considered tax
exempt. Reserve funds are dedicated to future capital
improvements such as roof repair or replacement and parking
lot repavement. The interest earned from reserve accounts
have always been considered taxable income.
In 1995, the I.R.S. issued a Technical Advise memorandum
(TAM) with respect to one timeshare HOA. The TAM took the
position that the Revenue ruling relied upon with respect to
excess assessments is not applicable to timeshare HOAs. The
TAM concluded that timeshare HOAs provide different level of
services to their owners (than condominium HOAs) and that
owners were not given the option to have the excess
assessment returned. In addition, current I.R.S. positions
place in great doubt the tax status of additions to capital
reserve accounts.
While the TAM is directed only to the HOA under audit, the
I.R.S. has both maintained and intensified the positions
taken in the TAM toward the industry as a whole. Subsequent
formal guidance provided by the I.R.S. constructs a costly
and burdensome administrative scheme for timeshare HOAs to
comply.
The Shaw Bill would permit qualifying timeshare HOAs to
elect to be treated as tax exempt entities under Section 528
of the Internal Revenue Code.
In order to elect Section 528, a timeshare HOA would be
required to derive 60% of its income from members and 90% of
the revenue of the HOA would be required to be spent to
maintain association property. Under Section 528, prepaid and
excess assessments and capital reserve accounts would be tax
exempt. However, Investment income would not only continue to
be taxed, but at higher rates for the overwhelming majority
of timeshare HOAs.

HOUSEHOLDS OWNING RESORT TIMESHARE, BY STATE AND INCOME CATEGORY
----------------------------------------------------------------------------------------------------------------
Income of households Penetration rate for:
Total owning timeshare -----------------------------------------
households ---------------------------- Households with incomes:
State owning All ---------------------------
resort Over $35,000 Over $50,000 households Over $45,000 Over $50,000
timeshare (percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
Alabama..................... 12,000 10,700 8,400 0.76 1.68 2.32
Alaska...................... 3,900 3,500 2,700 1.88 2.58 2.70
Arizona..................... 37,900 33,700 26,400 2.52 5.36 7.68
Arkansas.................... 3,100 2,800 2,200 0.34 0.80 1.18
California.................. 243,900 216,800 169,700 2.24 3.57 4.25
Colorado.................... 29,700 26,400 20,600 2.09 3.74 4.83
Connecticut................. 30,500 27,100 21,200 2.49 3.40 3.70
Delaware.................... 5,600 5,000 3,900 2.10 3.40 4.33
Florida..................... 116,900 103,900 81,400 2.13 4.30 5.87
Georgia..................... 49,400 43,900 34,400 1.93 3.71 4.95
Hawaii...................... 3,700 3,300 2,600 0.97 1.33 1.47
Idaho....................... 5,800 5,200 4,100 1.45 2.98 4.40
Illinois.................... 60,100 53,400 41,800 1.40 2.21 2.60
Indiana..................... 26,100 23,200 18,100 1.22 2.25 3.08
Iowa........................ 9,400 8,300 6,500 0.86 1.67 2.40
Kansas...................... 9,200 8,200 6,400 0.94 1.80 2.40
Kentucky.................... 14,900 13,200 10,300 1.04 2.28 3.10
Louisiana................... 11,900 10,600 8,300 0.77 1.66 2.18
Maine....................... 10,600 9,400 7,400 2.24 4.30 6.32
Maryland.................... 49,800 44,300 34,700 2.72 4.02 4.78
Massachusetts............... 72,900 64,800 50,700 3.23 4.85 5.55
Michigan.................... 42,700 38,000 29,700 1.22 2.10 2.63
Minnesota................... 25,900 23,100 18,000 1.51 2.62 3.49
Mississippi................. 4,700 4,200 3,300 0.50 1.27 1.90
Missouri.................... 25,700 22,900 17,900 1.27 2.49 3.38
Montana..................... 5,000 4,500 3,500 1.50 3.23 4.55
Nebraska.................... 3,300 2,900 2,300 0.53 1.01 1.41
Nevada...................... 9,400 8,300 6,500 1.71 3.02 4.05
New Hampshire............... 13,200 11,800 9,200 3.16 4.62 5.49

[[Page E685]]

New Jersey.................. 75,800 67,400 52,800 2.66 3.52 3.68
New Mexico.................. 7,200 6,400 5,000 1.23 2.71 3.80
New York.................... 126,000 112,000 87,700 1.88 3.05 3.54
North Carolina.............. 51,400 45,700 35,800 1.92 3.91 5.59
North Dakota................ 1,800 1,600 1,200 0.72 1.51 2.10
Ohio........................ 49,400 43,900 34,400 1.17 2.18 2.95
Oklahoma.................... 7,900 7,100 5,500 0.64 1.58 2.42
Oregon...................... 18,400 16,400 12,800 1.55 3.09 4.44
Pennsylvania................ 68,200 60,700 47,500 1.49 2.65 3.44
Rhode Island................ 12,200 10,800 8,500 3.20 5.82 7.99
South Carolina.............. 27,800 24,700 19,300 2.09 4.49 6.40
South Dakota................ 1,600 1,400 1,100 0.59 1.11 1.48
Tennessee................... 25,700 22,800 17,900 1.31 2.72 3.71
Texas....................... 67,600 60,100 47,000 1.04 1.95 2.44
Utah........................ 9,500 8,500 6,600 1.64 2.88 4.03
Vermont..................... 3,700 3,300 2,500 1.68 3.16 4.40
Virginia.................... 69,900 62,100 48,600 2.89 4.76 5.87
Washington.................. 45,000 40,000 31,300 2.21 3.71 4.71
West Virginia............... 5,800 5,200 4,000 0.83 2.11 3.21
Wisconsin................... 30,500 27,100 21,200 1.61 2.78 3.72
Wyoming..................... 1,800 1,600 1,200 1.00 1.77 2.31
District of Columbia........ 3,800 3,300 2,600 1.59 2.74 3.19
-----------------------------------------------------------------------------------
Tota/Average.......... 1,648,200 1,465,500 1,146,700 1.72 3.05 3.80
----------------------------------------------------------------------------------------------------------------
Source: Unpublished information obtained from Interval International and Resort Condominiums International; The
Resort Timeshare Industry in the United States: 1995; and Sales and Marketing Management: ``1994 Survey of
Buying Power.''

____________________
SENATE COMMITTEE MEETINGS

Title IV of Senate Resolution 4, agreed to by the Senate on February
4, 1977, calls for establishment of a system for a computerized
schedule of all meetings and hearings of Senate committees,
subcommittees, joint committees, and committees of conference. This
title requires all such committees to notify the Office of the Senate
Daily Digest--designated by the Rules Committee--of the time, place,
and purpose of the meetings, when scheduled, and any cancellations or
changes in the meetings as they occur.
As an additional procedure along with the computerization of this
information, the Office of the Senate Daily Digest will prepare this
information for printing in the Extensions of Remarks section of the
Congressional Record on Monday and Wednesday of each week.
Meetings scheduled for Thursday, April 17, 1997, may be found in the
Daily Digest of today's Record.

MEETINGS SCHEDULED

APRIL 18
9:30 a.m.
Labor and Human Resources
To hold hearings to examine proposals to improve the
health status of children.
SD-430
10:00 a.m.
Foreign Relations
To hold hearings on the nomination of Thomas R.
Pickering, of New Jersey, to be Under Secretary of
State for Political Affairs.
SD-419

APRIL 22
9:30 a.m.
Appropriations
VA, HUD, and Independent Agencies Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the National Science Foundation and the
Office of Science and Technology Policy.
SD-192
Appropriations
Energy and Water Development Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the Environmental Management Program of
the Department of Energy.
SD-124
Indian Affairs
To hold hearings on S. 459, to authorize funds for and
extend the Native American Programs Act of 1974.
SR-485
10:00 a.m.
Appropriations
Agriculture, Rural Development, and Related Agencies
Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the Agricultural Research Service, the
Cooperative State Research, Education, and Extension
Service, the Economic Research Service, and the
National Agricultural Statistics Service, all of the
Department of Agriculture.
SD-138
2:00 p.m.
Judiciary
Antitrust, Business Rights, and Competition Subcommittee
To hold hearings to examine the antitrust implications of
the British Airways and American Airlines Alliance.
SD-226

APRIL 23
9:30 a.m.
Labor and Human Resources
To resume hearings on proposed legislation authorizing
funds for programs of the Higher Education Act.
SD-430
10:00 a.m.
Appropriations
Defense Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the Department of Defense, focusing on
medical programs.
SD-192
Appropriations
District of Columbia Subcommittee
To hold hearings on an additional funding request for
fiscal year 1997 by the District of Columbia Financial
Responsibility and Management Assistance Authority for
capital improvements to D.C. public schools and for
public safety agencies.
SD-138
Armed Services
To hold hearings on the Administration's proposal on NATO
enlargement.
SH-216
Commerce, Science, and Transportation
Manufacturing and Competitiveness Subcommittee
To hold hearings to examine the current state of
manufacturing in the United States.
SR-253

APRIL 24
9:00 a.m.
Agriculture, Nutrition, and Forestry
To hold hearings on U.S. agricultural export issues.
SR-332
9:30 a.m.
Appropriations
Interior Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the National Endowment for the Arts/
National Endowment for the Humanities.
SD-192
Appropriations
Energy and Water Development Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the Corp of Engineers and the Bureau of
Reclamation, Department of the Interior.
SD-124
Rules and Administration
To hold hearings to discuss revisions to Title 44,
relating to the operations of the Government Printing
Office.
SR-301
Small Business
To hold hearings to review the Small Business
Administration's non-credit programs.
SR-428A
10:00 a.m.
Labor and Human Resources
To hold hearings to examine issues relating to vocational
education.
SD-430

APRIL 29
9:30 a.m.
Appropriations
VA, HUD, and Independent Agencies Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the Department of Veterans Affairs.
SD-138
Energy and Natural Resources
To hold oversight hearings to review a GAO evaluation of
the development of the Draft Tongass Land Management
Plan.
SD-366
Indian Affairs
Business meeting, to mark up S. 459, to authorize funds
for and extend the Native American Programs Act of
1974; to be followed by an oversight hearing on the
implementation of the San Carlos Water Rights
Settlement Act of 1991 (P.L. 102-575).
SR-485
Special on Aging
To hold hearings to examine the chronic health care
delivery system.
SH-216
10:00 a.m.
Appropriations
Agriculture, Rural Development, and Related Agencies
Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the Commodity Futures Trading Commission,
and the Food and Drug Administration, Department of
Health and Human Resources.
SD-124
Labor and Human Resources
To hold hearings on proposed legislation authorizing
funds for programs of the National Endowment for the
Arts and the Humanities.
SD-430

APRIL 30
9:30 a.m.
Rules and Administration
To resume hearings to discuss revisions to Title 44,
relating to the operations of the Government Printing
Office.
SR-301
10:00 a.m.
Appropriations
Defense Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the Department of Defense, focusing on
the structure and modernization of the National Guard.
SD-192
MAY 1
9:00 a.m.
Appropriations
Interior Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the Department of the Interior.
SD-192
9:30 a.m.
Energy and Natural Resources
National Parks, Historic Preservation, and Recreation
Subcommittee
To hold hearings on S. 357, to authorize the Bureau of
Land Management to manage the Grand Staircase-Escalante
National Monument.
SD-366
Labor and Human Resources
Public Health and Safety Subcommittee
To hold hearings to examine biomedical research
priorities.
SD-430

[[Page E687]]

Small Business
To hold hearings on the Small Business Administration's
finance programs.
SR-428A

MAY 5
2:30 p.m.
Energy and Natural Resources
To hold hearings on S. 430, to amend the Act of June 20,
1910, to protect the permanent trust funds of the State
of New Mexico from erosion due to inflation and modify
the basis on which distributions are made from those
funds.
SD-366

MAY 6
9:30 a.m.
Appropriations
VA, HUD, and Independent Agencies Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the National Aeronautics and Space
Administration.
SD-138

MAY 7
10:00 a.m.
Appropriations
Defense Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the Department of Defense.
SD-192
Appropriations
Transportation Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the Department of Transportation,
focusing on transportation infrastructure financing
issues.
SD-124

MAY 8
9:30 a.m.
Energy and Natural Resources
To hold a workshop to examine competitive change in the
electric power industry, focusing on the effects of
competition on fuel use and types of generation.
SH-216

MAY 14
10:00 a.m.
Appropriations
Defense Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the Department of Defense, focusing on
environmental programs.
SD-192

MAY 21
10:00 a.m.
Appropriations
Defense Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the Department of Defense, focusing on
Air Force programs.
SD-192

MAY 22
9:30 a.m.
Energy and Natural Resources
To resume a workshop to examine competitive change in the
electric power industry, focusing on the financial
implications of restructuring.
SH-216

JUNE 4
10:00 a.m.
Appropriations
Defense Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the Department of Defense.
SD-192

JUNE 11
10:00 a.m.
Appropriations
Defense Subcommittee
To hold hearings on proposed budget estimates for fiscal
year 1998 for the Department of Defense.
SD-192

JUNE 12
9:30 a.m.
Energy and Natural Resources
To resume a workshop to examine competitive change in the
electric power industry, focusing on the benefits and
risks of restructuring to consumers and communities.
SH-216

CANCELLATIONS

APRIL 17
10:00 a.m.
Commerce, Science, and Transportation
Oceans and Fisheries Subcommittee
To hold hearings on S. 39, to revise the Marine Mammal
Protection Act of 1972 to support the International
Dolphin Conservation Program in the eastern tropical
Pacific Ocean.
SR-253