Non-Profit Hunting Camp Royalties Questions

A newbie here...

My brothers and I own a small hunting Camp in Pa and have been offered a gas lease.  The hunting camp is set up as a Non-Profit corp.  I've spoken to several lawyers & tax accountants about what we should do to minimize the taxes and the fact that a non-profit is not supposed to make a profit.

They all seem to have a similar but slightly different solutions (and vastly different prices).  It appears that most recommend setting  up an  LLC with the same famitly members and have them buy the mineral rigthts from the non-profit. They all seem to differ as to how much the new LLC pays to the Non-profit for these rights.  One says a miniamal amount because we are family, others say we can sell it for the promis of ongoing upkeep and maintenance of  the camp, and other say we need a full blown appraisal.  

 

Have any others on the board her been in the same situation and how have you handled this.

 

The Gas co. says they will write the check to each of us or the new LLC...

 

Thanks for any info!

Ron G

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Replies to This Discussion

Permalink Reply by Paul Martinelli on January 14, 2011 at 4:27am

Just have checks written to each of you.....why set up the LLC?

 

If you set up the LLC....buy the rights for $1.00

 

Just my opinion......I'm no Accountant/Lawyer......

Permalink Reply by Ron Griz on January 14, 2011 at 9:50am

Also, if we transfer the mineral rights to an LLC do we have to pay a transfer tax on their value in Pa?

 

Permalink Reply by FXEF on January 14, 2011 at 3:09pm
Not sure how a non-profit hunting camp would play into this, but many families with large acreage will set up a LLC, and the O&G company will make payments to each family member. Each family member therefore is responsible for taxes on what they receive.
Permalink Reply by Charlie on January 17, 2011 at 9:37am

Ron-

 

Apologies to you in advance as I am a lawyer.......I have looked into the structure you proposed above. The sale of the rights from the club to a new LLC in exchange for a balloon payment is the most common structure being thrown out there by a lot of Real Estate lawyers right now. Lawyers I know have been arguing whether you need an appraisal before you sell the rights to the LLC. I cant advise you one way or the other, but what you are seeing out there is common.  If the mineral rights are deeded to the new entity a transfer tax will be due.

 

Check out the following excellent article written by a couple of accountants which might be of interest.

http://www.picpa.org/Content/39999.aspx

 

My firm has been developing some other ideas on how to deal with these issues, but overall nothing is set in stone right now because the law around these kind of transaction and in particular their valuation is uncertain. Good luck and feel free to contact me to discuss some more.

Permalink Reply by Curt Sommers on January 18, 2011 at 6:10am
The camp I belong to is forming a LLC. We bought the mineral rights off the camp since its a non-profit camp also. We got about 2800 acres and about 35 shares. Some members are even thinking about setting up their own LLC when the money starts flowing in.
Permalink Reply by gerard mascellino on January 19, 2011 at 12:31pm
Hi Curt,Are you in Cogan house twsp.
Permalink Reply by Curt Sommers on January 19, 2011 at 3:12pm
we are in Lewis Twp. Where is your camp?
Permalink Reply by gerard mascellino on January 20, 2011 at 12:21am
we are in cogan house twp,off rt.184
Permalink Reply by Robin Fehrenbach Scala on January 19, 2011 at 10:49am

BE CAREFUL (as you are trying to do...) because I have heard too many horror stories already about GIANT mistakes made by hunting camps during the lease process. 

 

Almost every time they HAD professional advice, legal and accountants, yet the supposed plan turned out to be more costly to the camp, using up the bonus and making future tax issues to boot. 

 

In every case the "advisor" chose a way that paid the higher legal fee to the lawfirm instead of choosing the better way for the hunting camp.

 

Keep looking, use google search to drill down to other sites on the subject, because the info is out there but I can't hand it to you.   Good luck and best wishes!

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