[Congressional Record Volume 143, Number 45 (Wednesday, April 16, 1997)]
[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