Panel of SpeakersDan Foster

Housing Tax Credit Program Manager New Mexico

Mortgage Finance Authority

Aaron KrasnowVice President-Investment

ManagerRBC Capital Markets

Linda HillSenior Vice President of

OriginationsAlliant Capital

Jeff NishitaPrincipal

Novogradac & Company LLP

Philip A. MeltonSenior Managing Director

Hunt Mortgage Group

Mike JacobsSenior Vice President of

OriginationsNational Equity Fund, Inc.

Inside the IRS’ Audit Technique Guide

Jeff NishitaNovogradac & Company LLP

Discussion Topics

• Overview of the ATG – what is it?• Excess basis • Developer fees• Non-profit set aside• Bond issuance costs• Casualty loss

Regulatory HierarchyInternal

Revenue Code Tres.

Reg.

Supreme Court

Congress

CourtsCircuit Courts

of Appeals District

Courts

IRS Primary Sources Rev.Ruling

TaxCourt

Court of Federal Claims

IRS (Non-authoritative) LIHCNews-letters

Audit Technique Guide Overview

• Released in Draft Form on Dec. 19, 2013

• Comments on Draft ATG were due March 28th

• Draft ATG was reviewed by IRS Chief Counsel

• 20 Chapters & 10 Appendices

• Adobe file is 312 pages

• Draft ATG cannot be cited as authority for ANY reason

Excess Basis

OK

x

x

$10,000,000

100%

$10,000,000

9%

$ 900,000

Eligible basis

Applicable fraction

Qualified basis

Tax credit percentage

Annual tax credits

Actual

$ 9,000,000

$ 810,000

Excess Basis

Audit

x

$

x

$

$10,000,000

100%

9,500,000

9%

855,000

Maximum Allowable Credit

Excess Basis = $1 million

Developer Fees

Deferred Developer Fees

Sources

Uses

Defer (IOU)

Tax Credit Equity

Hard Debt

“Soft” Loans, Grants

Deferred Developer Fees

Hard Constr. Costs(Land, bricks and sticks)

Soft Costs(Architectural, interest, utilities, org.

costs, marketing, etc.)

Reserves

Developer Fees

9% Deal

Deferred Developer Fees

Deferred Developer Fees

Reasonableness of the fee amount

“The IRS is not compelled to accept the developer fee amount allowed by the state agency and may raise issues involving the reasonableness of the fee amount if the facts and circumstances warrant doing so.”

Method of PaymentMust be Bona Fide Debt• Interest required?• GP Contribution at prior to year

15 allowed?• Recordation of note/deed?

Non-Profit Set Aside

Non-Profit Developers/Owners

GPLIHTCs

$9mil 10% $900K

Typical Ownership Structure

P’ship

Owner Entity

Non-Profit Developer/

Owner

GPFund LP

For-Profit

Bond Issuance Costs

Placed in service

“Production Period”

IRC § 263A(f)(1)(A)

INDIRECT SOFT COSTSExpe

nsed

Capit

alize

d

Loan FeesBond Issuance

Costs

Eligible Basis

Capitalized to what?

Bond Issuance Costs

Capitalized to what?

Pick fight with IRS?

Bond Issuance Costs

Casualty Loss

Recapture of previously claimed credits?

Loss of current-yearcredits?

Building/Unit Damage

Casualty

In Federally Declared Disaster Area

YES YES

NO YES

NO NO

Unit Out of Service

The Tank

Aaron KrasnowVice President-Investment

ManagerRBC Capital Markets

Linda HillSenior Vice President of

OriginationsAlliant Capital

Mike JacobsSenior Vice President of

OriginationsNational Equity Fund, Inc.

Philip A. MeltonSenior Managing Director

Hunt Mortgage Group

Scenario 1The Majestic 12

Apartments

The Majestic 12 Apartments• New construction - 60 units, 25% for

families with children• 18 units @ 60%, 36 units @ 50% and

6 units @ 30%• 10 - 1 bedroom, 30 – 2 bedrooms, 20

– 3 bedrooms• 2 blocks off of Main Street in Roswell• Land donated• $300,000 grant from the city• HOME loan

Scenario 2Terrace Hills Apartments

Terrace Hills Apartments• Acq/rehab – 208 units, 12 buildings,

5% for Households with Special Needs• 206 units @ 50%, HUD HAP contract• 182 - 2 bedrooms, 26 – 3 bedrooms• Tierra Contenta subdivision of Santa

Fe• $10.3 million in TE bonds for

construction • HUD 223(f) insured mortgage • HOME loan

Questions?