||| FROM ELISABETH BRITT |||


Introduction
A 501(c)(12) organization, as defined by the Internal Revenue Code (I.R.C.) includes benevolent life insurance associations, mutual ditch or irrigation companies, mutual or cooperative telephone companies, electric companies, or similar organizations. These cooperatives are designed to provide essential services to their members at the lowest possible cost. To maintain their tax-exempt status, these organizations must derive at least 85% of their income from members, collected solely to cover losses and expenses.

Selling a 501(c)12) mutual ditch or irrigation cooperative like EWUA, involves several critical steps and considerations. RCW 23.86. outlines the process a cooperative must follow to ensure a smooth and compliant transaction. It includes a requirement that two-thirds of the board of directors and two-thirds of the members consent to the sale.

  1. Board Approval and Member Consent
    • Board Approval: The board of directors must first approve the sale, typically requiring a majority vote.
    • Member Consent: As the owners, members must also approve the sale, usually through a vote at a special or annual meeting.
  2. Valuation
    • Professional Appraisal: Hire a professional appraiser to determine the fair market value of the cooperative’s assets.
    • Financial Statements: Prepare detailed financial statements to present to potential buyers, ensuring transparency and accuracy.
  3. Legal and Regulatory Compliance
    • IRS Requirements: Ensure compliance with IRS regulations for 50(c)(12) organizations, including the 85%-member income test.
    • State Laws: Adhere to state-specific laws governing cooperatives and mutual ditch companies.
  4.  Finding a Buyer
    • Potential Buyers: Identify potential buyers, which may include other cooperatives, private companies, or municipalities.
    • Marketing: Market the cooperative through industry networks, brokers, or public listings to attract interested buyers.
  5.  Negotiation and Sale Agreement
    • Negotiation: Negotiate the sale, including price, payment terms, and any conditions.
    • Sale Agreement: Draft a sale agreement outlining all terms and conditions, and have it reviewed by legal counsel.
  6. Distribution of Proceeds
    • Member Distribution: Distribute the proceeds to members based on their patronage or ownership share.
    • Debt Settlement: Ensure all debts and liabilities of the cooperative are settled before distributing proceeds.
  7. Dissolution
    • Formal Dissolution: Follow the legal process for dissolving the cooperative, which may include filing dissolution documents with the state. 
    • Final Tax Filings: Complete any final tax filings required by the IRS and state tax authorities.

Conclusion
Despite the flurry of scandalous articles and emails being circulated by EWUA claiming otherwise, selling a 501(c)(12) mutual ditch and irrigation cooperative like EWUA is a complex process that requires careful planning and strict adherence to legal and regulatory requirements. Hence, a sale of Eastsound Water Users Association cannot be accomplished under a shroud of
secrecy.


 

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