Cohousing-L Mailing List: Re: CoHo Partnerships and taxes

[Jim Snyder-Grant (Jim_Snyder-Grant.LOTUS]

(Disclaimers here about how I am not a lawyer or an accountant: I just have to 
talk to them as part of my role on the New View legal & steering committees).

More on Mass taxes: There is still a minimum corporate tax of $456 (it's 
technically the minimum sales tax.). My understanding is that this will apply 
to Cornerstone if they become a corporation (filed as for-profit or nonprofit). 
They could avoid it if they were also granted tax-exempt status by the IRS, but 
we looked into if we could qualify, and our lawyer didn't see a reasonable 
strategy for this. (Profit Vs nonprofit status in Mass is mostly a matter of 
filing requirements & filing fees, plus a modicum of protection against the 
maximum amount you can be sued for in certain cases: 'Nonprofit' doesn't imply 
'tax-exempt'. tax-exempt is harder to get.).

New View treats the dues & assessments as income for tax purposes, and tries to 
be careful about spending down to near 0 by the end of the tax year. We have 
had specific payments by members in to a land fund, backed by promissory notes 
of the corporation, that are treated as loans. The interest is due when the 
loan is paid back - for most people this will be at house-closing time - and 
our accountant assures us that in this case the tax won't be due on that 
interest until the interest is paid.

The assessments -- which ran near an average of $1500/month during the heavy 
months before our construction loan & land closing -- are in effect loans, 
since we will be giving house discounts to match assessments plus interest, but 
are apparently not quite treatable as loans for tax purposes. I'm not sure why 
our accountant pursued this more conservative route. It could be because the 
interest is contingent: if people leave the group, they eventually get their 
money back, but no interest. There is no formal promissory note for 
assessments: instead, the interest arrangement, including the contingencies, is 
laid out in the corporate papers. 

In the earlier days, we also collected $1000/person for an earnest fund, with 
the theory that we would wave the money at bankers and impress them, or some 
such, and that people would be 'more committed' if they had money in. It turned 
out that banks didn't care, and that by the time we got into the serious stage 
where commitment was financially critical, the assessments & minimum land fund 
payments were soon dwarfing the earnest money fund.

Our $40 quarterly dues are treated as pure income.

We decided not to be a partnership, but instead be a corporation, so as to 
develop some degree of legal protection for members for any potential stupid 
but not fraudulent acts of the corporation. (Corporate status doesn't protect 
against fraud). We didn't do this right away: we did this as preparation for 
signing scary-looking contracts with consultants, builders, etc. These are all 
signed in the corporate name.

-Jim_Snyder-Grant [at] lotus.crd.com