James E Martin
3200 N. Forest Park Dr
Oklahoma City, OK 73121
405/919-6941
james_e_martin@yahoo.com

August 5, 1999

Hello,

 

Well, by my calculations Sunflower added $ 3,579 to its surplus in 1998. That's a bit up from the surplus in 1997 - which actually showed a higher income (see Statement of Surplus from Current Operations) though higher expenses as well, which makes it even out. Most of the savings this year were in maintenance, however, and that's not necessarily a good thing. The vacancy fund was also down. Cash was higher at the end of '98, largely because of the NCB distribution and because property taxes weren't paid until January '99. Basically, while the news is good, it isn't necessarily that good.

Of the surplus, you will have to make patronage refunds of $ 486.32. I devised a list of who gets what, to wit:

Patronage

Portion of

Refund

Member

Paid in

Portion

Surplus

(20% of surplus)

Chappell, David

$997.38

2.5%

$ 61.18

$ 12.24

Clayton, Rob

$2,047.51

5.2%

$ 125.59

$ 25.12

Ellington, Laurie

$5,327.43

13.4%

$ 326.77

$ 65.35

Holte, Amy

$4,793.14

12.1%

$ 294.00

$ 58.80

Jaeckel, Jenny

$5,043.97

12.7%

$ 309.38

$ 61.88

Madera, Oscar

$2,402.53

6.1%

$ 147.36

$ 29.47

Marashi, Carol

$5,357.28

13.5%

$ 328.60

$ 65.72

Morris, Brett

$5,065.66

12.8%

$ 310.71

$ 62.14

Nedunvri, Srinivas

$442.00

1.1%

$ 27.11

$ 5.42

O'Connor, Chris

$4,177.57

10.5%

$ 256.24

$ 51.25

Rey, Samit

$196.93

0.5%

$ 12.08

$ 2.42

Stevenson, Robert

$3,791.67

9.6%

$ 232.57

$ 46.51

Total

$39,643.07

100.0%

$ 2,431.58

$ 486.32

Note that the total for Portion of Surplus is not the same as the surplus figure given above. This is the taxable surplus which is the basis of distribution. Everybody gets their portion based on their percentage of total rent paid in '98.

As for members cashing their checks or leaving them in the co-operative, it is safer for members to cash their checks and donate it back if they want rather than let the checks expire. This is because of the tax code and particularly what is called the ''qualified written notice of allocation''.

"Just what is a qualified written notice of allocation'?," you are asking. I'll try to explain. Basically, the IRS says a co-operative is owned and operated by and for its members. This being so, any surplus should be distributed back to the members who contributed; otherwise the co-op becomes a separate entity and should be taxed as such. Moreover, this surplus should be distributed in its entirety. However, the IRS makes the exception that it may distribute part of this surplus as cash and part as a "qualified written notice of allocation." A written notice of allocation specifies the total surplus to be distributed to the member. Of this total distribution, the member may demand that he or she be paid its face value (i.e., its entirety) or, as it is done at Sunflower, at no less than 20% of its face value. Once the member is either paid the total amount, or consents to take the percentage amount, the written notice of allocation becomes qualified, i.e., copacetic.

That is to say, to avoid paying the full amount of surplus ($2,431 this year, as opposed to $486) back to the members, the co-operative must get its members consent. With regard to indicating consent, the IRS allows 3 methods: (a) making consent in writing; (b) obtaining or retaining membership after the co-operative adopted a by-law providing that membership constitutes such consent and receives a written notification and copy of such bylaw, or; (c) endorsing and cashing a check paid as part of such written notice of allocation. (c) just seems a lot simpler than (a) or (b), but any one will do.

Those are the rules. Now as I recall, Sunflower elected to adopt these rules and also stipulated that membership in the co-operative did indicate consent to a 20% surplus dividend at a house-meeting in '86 or '87. These minutes form the by-law; but I doubt current members are aware of it. Therefore, I propose the following wording - or some words to the effect - be added to a membership agreement signed by every new member, stating:

Sunflower Co-operative is a democratically-controlled organization existing solely for and by its membership. As an ongoing organization, however, it must respect all members equally: former, present and future. To maintain this mutual respect, the current membership must operate responsibly: maintaining its physical structure, furnishings and equipment, as well as a suitable supply of funds. Such supply of funds is necessary for replacement and maintenance of its physical assets, meeting its legal obligations and ensuring against periods of operating loss. Therefore every household should budget to meet its own operation expenses. At the end of each year of operations, twenty-percent (20%) of any current surplus will be returned the members based on the patronage for each in that year. The remaining eighty-percent (80%) of surplus will remain in the co-operative as a fund reserve.

 

As stated in rule (b) above, the new member should receive a copy of this form. This is not so much as to satisfy the membership who, I am sure, is already comfortable with the way it is; rather it is to satisfy the IRS and generally keep things, as I say, copacetic.

You should also bring this up to the current membership at a house-meeting so that each is aware of the rule. For the '98 distribution, write the total allocation (Portion of Surplus given above) for each member on the memo line of the check and the Refund figure to be paid. Then ask him or her to cash the check as a form of consent, or sign the new membership agreement or any other document indicating consent to this amount. You may also accept the checks as rent payment. That's a good idea.

If you have any other questions you can call, or find someone who send email.

 

The bill for current services is $300.

Thanks