Contents TABLE OF CONTENTS

Transcription

1 Contents CHAPTER 1 Low-Income Housing Tax Credits and Year Introduction Overview of the LIHTC Program 18 [1] Land Use Restriction Agreement (LURA) 20 [2] Extended-Use Period Number of LIHTC Properties Reaching Year Year 15 Trends Key Points for Year [1] Know Your Deal 26 [2] Know the Key Players 27 [3] Know Your Documents 29 [4] Know When You Can Exit 30 [5] Know Your Exit Strategy Options 31 CHAPTER 2 Market Analysis: An Aid to Making Year 15 Decisions Overview Legal Considerations Market Considerations Repositioning in the Market 35 CHAPTER 3 Exit Strategy Options Overview Sale of the Property Continued Compliance Qualified Contracts 37 [1] Qualified contract 38 [2] Qualified contract price 39 [3] Qualified Contract Example Sale of a Partnership Interest 42 [1] General Partner Option to Purchase 42 [2] Nonprofit General Partner Right of First Refusal 43 [3] Investor put option 44 10

2 [4] Historic Boardwalk Hall Case s Applicability to LIHTC Exits Resyndication 46 [1] Closing the Financing Gap 48 [2] Compliance Issues Foreclosure Bargain Sale (Donation) to a Nonprofit Like-Kind Exchange Section Tenants Right of First Refusal 54 [1] Lease Purchase Conversion to Owned Units 54 CHAPTER 4 Potential Tax Consequences at Year Overview Sale of Property Sale of Partnership Interest Exit Taxes 58 [1] How to Calculate Exit Taxes 59 [2] How to Mitigate Exit Taxes Transfer Taxes 60 CHAPTER 5 General Partner s Year 15 Concerns and Options Overview General Partner s Goals General Partner s Concerns General Partner Call/Buyout Right 63 [1] General Partner Call/Buyout Example 63 [2] General Partner Purchase Option Sample Provision Early Buyout of the Limited Partner Nonprofit General Partner s Right of First Refusal 66 [1] Nonprofit Right of First Refusal Sample Provision 67 CHAPTER 6 Limited Partner s Year 15 Concerns and Options Overview Limited Partner s Goals and Concerns Limited Partner Put Option Limited Partner Exit Prior to Year Post-2008 Early Exits No Bond Posting Requirement 71 11

3 CHAPTER 7 Syndicator s Year 15 Concerns and Options Overview Forms of Syndication Syndicator s Goals and Concerns Syndicator s Loss of Investment to Foreclosure 75 [1] Pre-Year 11 Foreclosure 75 [2] Post-Year 10, Pre-Year 15 Foreclosure 75 [3] Post-Year 15 Foreclosure Tax Issues 76 [1] Tax Credit Recapture 76 [2] Income or Loss on Disposition of Partnership Interest 76 [3] Puts, Calls and Abandonments of a Partnership Interest Unpaid Fees and Costs of Disposition 78 [1] Unpaid Acquisition and Asset Management Fees 78 [2] Loans Made to the Operating Partnership Removal of General Partner 78 [1] Removal for Cause 78 [2] Fees Payable to the General Partner 79 CHAPTER 8 Housing Finance Agency s Year 15 Concerns and Options Overview Housing Finance Agency s Goals and Concerns Qualified Allocation Plans Tools and Solutions 82 [1] Tax Exempt Bonds 83 [2] Resyndication with Additional LIHTCs 84 [3] Debt Forgiveness 84 [4] Bargain Sale 84 [5] Reduced Use Restrictions 84 [6] Qualified Contract Procedures 85 [7] Conversion to Owned Units 86 [8] IRC 501(c)(3) Bonds 87 12

4 CHAPTER 9 LIHTC Compliance Issues for Year Overview Recapture of Credits 88 [1] How Recapture is Calculated 88 [2] How Recapture is Triggered 91 [3] Allocation of LIHTC Recapture Between Buyer and Seller Prior to Year [4] Reporting the Recapture Year Hold Period and Resyndication Rent and Income Limits 99 [1] Resyndicated LIHTC Properties Not Held Harmless 99 [2] Over-Income Tenants 100 [3] Existing LURA Remains in Place Allocation of LIHTCs Between Buyer and Seller in Year CHAPTER 10 Debt Issues at Year Overview Refinance 104 [1] Lender s Concerns 105 [2] Original Issue Discount and Cancellation of Debt Concerns 106 [3] U.S. Department of Housing and Urban Development Refinancing Options Foreclosure 110 [1] General 110 [2] Recapture of Debtor s Credits 110 [3] Creditor s Ability to Take Unused Credits 111 [4] Housing Finance Agency Reporting Requirements Forgiveness of Debt 112 [1] COD Income 112 [2] Conversion of Related Party Debt to Equity 113 [3] Basis Reduction and Other Potential Problems 113 [4] Bona Fide Debt Character of the Income or Loss Generated by a Debt Restructuring 116 [1] Debt Forgiveness 116 [2] Foreclosure

5 CHAPTER 11 Unpaid Deferred Development Fees at Year Overview Why It s an Issue 118 [1] Eligible Basis 118 [2] Deferred Depreciation Expense 120 [3] Reallocation of Losses and Credits Modification of Terms or Transfer of the Developer Fee Note 122 CHAPTER 12 Valuation of Partnership Interests at Year Overview Market Value 125 [1] Restricted or Unrestricted Cash Flow 125 [2] Additional Subsidy 125 [3] Real Estate Tax Abatements Income Capitalization 126 [1] Discounted Cash Flow 126 [2] Direct Capitalization Net Operating Income 126 [1] Revenue Projections 127 [2] Operating Expense Projections Determination of Underlying Real Estate Value Partnership Net Proceeds 127 [1] Non-Operating Expenses 127 [2] Calculation of Liabilities 128 [3] Other Assets Partnership Waterfall 128 CHAPTER 13 GAAP Accounting for Property Transactions at Year Overview Sale of the Property 130 [1] Record the Sale and Revenue Recognition 130 [2] Allocation of Profits and Losses to Partners Sale of a Partnership Interest Bargain Sales

6 13.05 Resyndication Revenue Recognition Decision Tree 134 APPENDICES APPENDIX A IRS Guidance 139 IRC 42 Low-income housing credit ( ) 140 IRC 108 Income from discharge of indebtedness 175 IRC 708 Continuation of partnership 180 APPENDIX B Treasury Regulations 186 Treas. Reg Treas. Reg APPENDIX C Revenue Rulings 200 Rev. Rul. 99-6, CB 432, 1/15/1999, IRC 708, Continuation of partnership sale of partnership interests. 201 APPENDIX D Revenue Procedures 207 Revenue Procedure , I.R.B 415., Safe Harbor for Partnership Allocations 208 APPENDIX E Private Letter Rulings 225 PLR , Condominium conversion; Tenant s Right of First Refusal under 42(i)(7). 226 PLR , 04/07/2006, LIHC eligible basis existing buildings; 10-year Hold Rule. 234 APPENDIX F Technical Advice Memorandum 243 TAM , 11/06/2000, IRC 42, 168: Developer fees includable in eligible basis. 244 APPENDIX G Chief Council Advice 254 CCA , Termination of extended-use period upon foreclosure doesn t result in automatic recapture. 255 APPENDIX H Excerpts from the IRS Audit Technic Guide, IRC Chapter 5, Extended Use Agreement

7 Chapter 7, No Longer Participating in the IRC 42 Program 266 Chapter 16, Tax Credit Recapture 270 Chapter 19, Auditing Partners 285 Appendix A, Glossary of Terms 299 APPENDIX I IRS LIHC Newsletters 310 Grace Roberts, IRS, Dispositions in the 11th Year of the 15-Year Compliance Period: Allocating the Credit Between the Buyer and Seller, LIHC Newsletter #48 (March 2012): pp Grace Roberts, IRS, Foreclosures, LIHC Newsletter, Issue #55, April 2014, page Grace Roberts, IRS, Developer Fees, LIHC Newsletter #53 (October 2013). 314 Grace Roberts, IRS, Multiple Allocations of Credit. LIHC Newsletter #39 (April 2010), pp APPENDIX J Novogradac Journal of Tax Credits and Precursors Article List