1. DEFERRED DEVELOPMENT FEES
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2. DEVELOPMENT FEES A fee to the developer for developing the property
Not a contractor’s fee

3. DEVELOPMENT FEES
Amount of fee often restricted by state qualified allocation plans
Development Services spelled out in a Development Agreement between the property owner and the developer
Eligible Basis concerns
Timing of payment (benchmarks)

4. DEFERRED DEVELOPMENT FEES
When Uses exceed Sources on the Source and Use of Funds, some or all of the Development Fee is deferred for later payment
Generally, the Developer is a cash basis taxpayer, so it takes the Development Fee into income as it is paid

5. DEFERRED DEVELOPMENT FEES
The Development Fee is generally included in Eligible Basis even if its payment is deferred
There must be an obligation to pay the Deferred Development Fee at some point (15 years?)

6. DEFERRED DEVELOPMENT FEES
The financial projection demonstrates that the Deferred Development Fee will be paid
The Deferred Development Fee can bear interest

7. DEFERRED DEVELOPMENT FEES
Tax ramifications of having to fund the pay off of a Deferred Development Fee at its outside payment date
A paper transaction, but taxable income generated

8. POST CLOSING DEFERRED DEVELOPMENT FEE ISSUES
Reallocation of Losses and Credits
A. When capital accounts hit zero Deferred Development Fees can cause a reallocation of losses and credits
Renegotiation of Deferred Development Fees
A. Actual Cancellation of Debt Income
B. Deemed Cancellation of Debt Income

9. DEFERRED DEVELOPMENT FEES AND REALLOCATION OF LOSSES AND CREDITS
Once the Capital Account of Limited Partner hits zero, losses and credits are allocated based on the lowest priority debt which is usually Deferred Development Fee
If Development Fee obligation is recourse or the Developer is related to a General Partner (80% test) losses and credits attributable to it will have to be allocated to the General Partner

10. DEFERRED DEVELOPMENT FEES AND REALLOCATION OF LOSSES AND CREDITS
Solutions
Refinancing the Development Fee obligation with third party non-recourse debt will fix problem
If Developer owns the General Partner, it can transfer 21% of interest to a third party. In doing this, the Developer is no longer related to the General Partner
If Development Fee obligation is non-recourse, the Developer can transfer the Development Fee Note to unrelated person

11. RENEGOTIATION OF DEFERRED DEVELOPMENT FEES AND CANCELLATION OF DEBT INCOME
If payment of fee is forgiven, there will be a cancellation of debt income (CODI).
If terms of the Development Fee are changed, it can cause CODI.

12. FORGIVENESS OF DEFERRED DEVELOPMENT FEES AND CANCELLATION OF DEBT INCOME
If the debt is forgiven there will be cancellation of debt income equal to the unpaid balance of fee plus any accrued interest.
Investors do not want income. They want losses and credits.

13. RESTRUCTURING OF DEVELOPMENT FEES CAN CAUSE CANCELLATION OF DEBT INCOME
Restructuring the terms of a Development Fee can cause CODI if it impacts the Interest Rate, Maturity Date, Collateral, or Guarantee.

14. RENEGOTIATING A DEVELOPMENT FEE AND ELIGIBLE BASIS
If the Development Fee was reasonably likely to be paid at the end of the first year of the credit period, a renegotiation of the fee in a later year should not impact Eligible Basis.
If the situation that resulted in the restructuring of the fee existed in the first year of the credit period, then it is possible that the restructuring would call into question whether the fee was reasonably likely to be paid from the onset.