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<br />. <br /> <br />. <br /> <br />Our contracts presently call for semi-annual payments of <br />$18,250.00. We would propose to continue making those payments <br />until the loan is paid in full and that each payment would first <br />apply to accrued interest and balance upon principal. Depending <br />upon the exact amount of the loan, that would payout in roughly <br />ten years. <br /> <br />The Association has a marvelous record of meeting its obligations. <br />So far as I know or the staff now operating the Association knows, <br />there has never been a delinquency on any obligation to the united <br />States. To the extent you may want a loan agreement which provides <br />that the directors will make such assessment against its members <br />as may be necessary to make the contracted payments I suspect <br />that they would be willing to do so. However, in all candor, I am <br />not positive that one Board of Directors can bind another in that <br />fashion. I can only recommend that you seek the advise of the <br />Attorney General in that regard. <br /> <br />Another reason why you did not hear from me more promptly <br />was because we were addressing the income tax questions. If the <br />Board is to lend the Association the desired money I presume the <br />Board is also interested as to the tax consequence, if any. As <br />you may have understood from talking with other organizations, <br />the general rule is that if you discount a debt the discounted <br />portion becomes income to the taxpayer. <br /> <br />The Association is a private corporation and is subject to <br />the Internal Revenue code. It enjoys an exemption because at <br />least eighty-five percent of its gross income arises from assessments <br />against the members. If that were not the case, it would be a <br />taxable entity. <br /> <br />Approximately fifteen years ago the Association underwent <br />an audit by the IRS. Initially the IRS took the position that <br />because of money coming into the Association other than assessments <br />against members that the tax exemption had been lost. That was <br />appealed through IRS and resulted in a conference in Washington, D.C. <br />The result of that conference was that the tax exemption was preserved <br />even though we had more that fifteen percent of our gross income <br />coming from a source(s) other than assessment against members. <br />The result was achieved for the simple reason that we do not own <br />our system. If in fact we owned our irrigation system a different <br />result could be expected but we do not. <br /> <br />I look forward to hearing from you and cooperating with you <br />in regard to this matter. <br /> <br />Yours very truly, <br />WILLIAMS, TURNER & HOLMES, <br /> <br />#/./2--:, <br /> <br />. WILLIAMS, <br /> <br />P.C. <br /> <br /> <br />~ <br /> <br />AWW/hew <br />Enclosures <br />xc: G. W. Klapwyk <br />