COM 0458.003 1996-1998 - Laserfiche WebLink

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a . If the receipt~:.of the Camps is deemed to constitute verance pay, the net effect to the Occupants and Hamakua using will be dependent on the value of the Camps and the .come of the individual Occupants. At the minimum, the Camps is ;rth what was paid by Bishop Estate or approximately 5700 per :re. It is likely, however, that the Camps is worth gnificantly more than that amount because it will be subdivided :to residential lots and will have an infrastructure in place. the time of the initial conveyance, however, the value of the imps have not been maximized since the Camps have not yet been :bdivided. The other variable is the tax situation of each :cupant. If an Occupant has little or no other income, there :y not be a significant amount of tax due even if the Camps are ~emed to constitute severance pay. Due to the lack of ~mparable properties and the different tax situation of each :cupant, it is difficult to evaluate with any accuracy the <posure to Hamakua Housing. In addition to potential adverse tax consequenc~,s to ze Occupants, the transfer of the by Hamakua Housing may also ~o ar~cize~its tax-exempt. status. Code $501(c.)(3) prohibits any E- an organizaf_ionTS net earnings from inuring to the benefit of }y_ priya~~.indiyidual. Similarly, Reg. g1.501(c)(3)-1(c)(2) :ovides that an organization is not operated exclusively for tiempt purposes if its net earnings inure to the benefit of _ivate shareholders or individuals. Since_.members of Hamakua Musing's board of directors will receive Property, there is the ~tential that the transfer of the Property to the board of irector Occupants may constitute an impermissible private iurement or private benefit. - Hamakua Housing's application for tax exempt status, ~wever, has established that the ccupants are a charitable bass and that the prov_ysion o~housing.~_the_O~~upants..furthers smakua Housing's exempt.~u~po~Q. In the context of resident ~uncils operating under _the. of Low Income_Hous.ing Preservation zd Resident Homeownership Act, the IRS has__recognized..that there rio__private benefit merely because members of the resident ~uncils receive houses. In summary, there is some risk that the conveyance of Ze Camps or the Property to the Occupants could be treated as ~verance pay and that Hamakua Housing could be viewed as an ~ent_of Hamakua Sugar. ;f._this were to occur, each Occupant zuld be liable for the tax based on the fair market value of the imps or the Property. In addition, Hamakua Housing and_ its. ficers may be secondarily liable for the failure to withhold ich tax. -4- Ct~t-t'1 F111 ~-rlh-~".`ee~t