Lakewood Associates, Robert G. Moore, Tax Matters Partner - Page 7

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                  In November 1989, the Corps also entered into a Memorandum                          
            of Agreement (MOA) with the EPA that establishes the procedures                           
            to be used by the Corps staff in reviewing section 67(a) (section                         
            404) CWA permit applications.  Specifically, the MOA articulated                          
            the policy and procedure necessary to satisfy section 404 so that                         
            the local field offices of the Corps would be using consistent                            
            standards in processing permit applications.  The MOA provided a                          
            three-step process for obtaining a section 404 permit:  (1)                               
            Avoidance, (2) minimization, and (3) compensatory mitigation.  In                         
            the first stage, avoidance, the applicant must avoid any impact                           
            on protected wetlands, for example, by developing around the                              
            wetland area or using an alternative site for development whether                         
            or not owned by the applicant.  In the minimization stage, the                            
            applicant must minimize the impact on wetlands from the proposed                          
            development and must justify the extent that the development will                         
            impact wetlands.  Third, in the compensation stage, the applicant                         
            is required to offset the impacted wetlands, for example, by                              
            creating wetlands to replace those being impacted by the                                  
            development project.                                                                      
                  The MOA did not change the substantive regulatory                                   
            requirements for obtaining a section 404 permit as the three                              
            above requirements had been a part of the regulatory scheme since                         
            at least 1984.  However, the MOA provided that the requirements                           
            must be met in the above sequence.  The effect of the MOA was to                          

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