Published: Summer 1998
277 CHALLENGE UPDATE: TEST
CASE IN PROGRESS
For more than a dozen years, the Internal Revenue Service has audited housing
cooperatives throughout the country and has invoked Section 277 of the Internal
Revenue Code to claim taxes on so-called non-member income. The cooperative
community maintains that this section of the Code does not apply to housing
cooperatives. Court battles have upheld this interpretation, but the IRS
has still not acquiesced.
CNYC continues to work through the National Association of Housing Cooperatives
(NAHC) for federal legislation to settle this issue, but the groups decided
in 1997 to try a new tactic, as well.
In the wake of IRS's refusal to acquiesce in the matter of the Thwaites
Terrace Owners v. Commissioner of Internal Revenue (where it was clearly
affirmed that Section 277 does not apply to housing cooperatives, even
those where owners vote by shares rather than on a one-unit, one-vote
basis), CNYC took the lead in amassing support (and funding) for a test
case aimed at finally resolving this issue.
Tax attorney Joel E. Miller agreed to handle the test case. Mr. Miller
has instituted an action on behalf of Rutherford Tenants Corp. and has
received a response from the attorneys representing the IRS. They have
met with the trial judge and set a schedule for hearing the case beginning
in October. CNYC is optimistic that Mr. Miller will prevail.
Through conversations with the IRS, Mr. Miller has also established an
informal agreement that this will be considered a test. He had further
requested that the IRS not pursue any 277 cases until this matter is resolved.
It was a core group of eight accounting firms that first joined CNYC,
NAHC and the Federation of New York Housing Cooperatives to fund this
project. Member cooperatives, and other professionals in the cooperative
housing field soon rallied to the cause, so that the 277 Challenge letterhead
is now filled with names of supporters. When successful, this 277 Challenge
will finally relieve all housing cooperatives of the threat of 277 assessments.
If your cooperative has not yet contributed to the 277 Challenge and
would like to do so, your check to CNYC annotated 277 Challenge
will be very much appreciated. Unless we are advised to the contrary,
we will add the name of your cooperative to the 277 Challenge letterhead
upon receiving your contribution. Suggested contribution is $250.
COMPARATIVE STUDY OF 1997
If your cooperative or condominium has not yet sent CNYC its 1997 financial
statements, now is the time to do it so that your data can be included
in the Comparative Study of 1997 Operating Costs. By studying the various
costs of operating a building, this annual analysis provides a framework
to help you decide if your own building is operating economically and
efficiently. Code numbers are used to identify the participants, preserving
the anonymity of individual cooperatives and condominiums.
The Comparative Study breaks down all data on a per-room basis. It looks
at assessment and mortgage figures, and also shows maintenance costs.
It then lists amounts spent per room on wages, fuel, utilities, repairs
and maintenance, insurance, management costs, administrative costs, water
and sewer fees, property tax and debt service. When possible, elevator
maintenance and legal and accounting costs are each listed separately.
The Study also presents summary statistics, calculating the averages and
medians for each item, and the average portion of total operating budget
devoted to each category.
CNYC will close the 1997 Comparative Study in mid-September, and plans
to have it in the hands of members and subscribers for use in preparing
their 1999 budgets.
YOUR 1997 financial statement is important to the Comparative Study.
Please forward your building's annual financial statement and a room count
to CNYC before September 15th so that it can be included. When the Study
is mailed, member buildings that have contributed will be advised of their
code numbers so that they can find their own statistics. Each member building
will receive its own copy of the Comparative Study. Additional copies
can be purchased from CNYC for $5.
WATER RATES RISE 4%
New York City water and sewer rates increased by 4% for the July 1998
billings, bringing the cost of 100 cubic feet (about 748 gallons) of New
York water to $3.24. This falls in the upper mid range of water costs
in major cities across the country.
Water quality and use are under the jurisdiction of the NYC Department
of Environmental Protection (DEP). To measure water use and promote conservation,
DEP is gradually bringing water meters to every building in the city.
Multiple dwellings have continuing options to choose between meters and
frontage charges for at least a year after their meters are installed.
For questions on water bills contact DEP at (718) 595-7000.