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Taxing issues

I am prompted to write to you as a result of a letter to the Editors published in the Vail Daily on Aug. 28, which complains of the “outrageous” conduct of the Board of Directors of the Singletree Property Owners Association in the making of a $25,000 payment allegedly intended for funding, in part, of the pending acquisition of the Bair Ranch conservation easement.

Oliver Wendell Holmes once wrote, in an old Supreme Court opinion, that “men must turn square corners with they deal with the government.” The Board of Directors of the Singletree Property Owners Association should be admonished to heed Mr. Justice Holmes’ standard of behavior. Here’s why: That $25,000 payment is the subject of a brewing controversy at Singletree, which I will not address in this letter. What is addressed here, however, are some serious consequences of the payment.

The payment was made in secrecy and under the cover of darkness, and in that darkness the board failed to see the plain words of Internal Revenue Code section 528 (which is the provision by which the Singletree Property Owners Association derives a generally tax-exempt status).

There are a number of strict requirements that must be met in order to qualify for the tax exemption granted by section 528. One of them is that, “90 percent or more of the expenditures of (a property owners association) for the taxable year are expenditures for the acquisition, construction, management, maintenance, and care of [homeowners’ association] property…” RC sec. 528(c)(1)(C)

The term “property” as used in the above provision is very narrowly and specially defined in another part of section 528. Most assuredly, “property,” for purposes of section 528 does not include expansive and remote benefits, such as the lame and defensive excuses for the subject payment offered by the Singletree board at the recent Singletree annual meeting.

If this $25,000 payment has in fact caused the failure of the just-noted statutory 90 percent test, then Singletree has lost the benefits of section 528 for the taxable year in which the funds were disbursed.

The board was evasive about the actual date of the payment, for some unknown reason. As a result, Singletree must pay tax at full corporate rates on all of its income, computed without any deductions for this “Bair Ranch payment” or any amounts transferred to reserve accounts or most of its other expenditures.

Next, if the Bair Ranch payment has in fact caused a loss of tax exemption, then the resultant additional federal corporate tax is not reflected in the present Singletree budget. Accordingly, there is a need to revisit this budget, which as submitted to the membership makes no mention of the subject payment.

Finally, there is the issue of the liability of each Singletree director who voted for, or otherwise caused, the subject payment. The board might be well advised to notify its insurance carrier of these issues at the earliest possible moment.

Such liability, at the very least, would be for the additional resultant federal taxes and, perhaps, for the subject $25,000 expenditure (which is very much out of the ordinary course of affairs of Singletree), if such amount cannot be recalled from the Bair Ranch fund.

David M. Stern


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