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c(MPY May 22, 1989 Mr. Donald Raleigh President State Bank of Lake Elmo 3549 Lake Elmo Blvd., Box 857 Lake Elmo, MN 55042-0457 Dear Don: CERTIFIED PUBLIC ACCOUNTANTS You have requested an outline of your options relative to the disposition of the Bank's current building. To understand the options available, I will first outline the understanding that the Bank has with the Office of the Commissioner of Commerce concerning the building. The Commissioner's office wanted to be assured that the disposition of the building would not lower the Bank's capital. In order to abide by that limitation, the Bank will have to recover the remaining basis in the current building in the form of sale proceeds or tax savings. We have also been working under the assumption that the building would be either gifted or sold to Washington,County for use as a branch library. If the library was to be gifted to the County,'there are logistical problems caused by the Federal and State tax laws which limit the amount that a corporation can deduct as a charitable contribution in any one year. In the case of the Federal tax law, the limit is 10% of the net taxable income before contributions are deducted. The Federal law does allow for a carry over of unused charitable contributions for a period of five years. The Minnesota tax law is similar in that it limits corporate charitable contributions to 15% of the net Minnesota taxable income before contributions are deducted. The Minnesota statutes do not allow for any carry forward of contributions, however. To meet the Commissioner's limitation the gift would have to be made piecemeal. In other words, the Bank would gift an undivided partial interest in the building annually to the County. It should be noted that it would take up to 10 years to complete the gift. While it is possible for the entire gift to be completed in 10 years, there are a number of problems.associated with the proposal, such as: 1, The need to have a lease covering the portion of the building not yet gifted to the County. 650 INTERNATIONAL CENTRE, 920 SECOND AVENUE SOUTH MINNEAPOLIS, MN 55402 (612) 337-7000 TELECOPIER (612) 337-7023 MEMBER OF SUMMIT INTERNATIONAL ASSOCIATES. INC.