1. SECTION 42 QUALIFIED CONTRACTS More Questions Than Answers RICHARD S. GOLDSTEIN April 27, 2007 IPEDAfter the Closing

2. Background Added to Code in 1989 Intended to balance preservation with incentive for investors to have back end possibility Effective for tax credit allocations and bonds issued in 1990 Allows the owner to terminate the 30 year Extended Use Period after the 15 th year if the State cannot Present a Qualified Contract to purchase the building and maintain it as a qualified low-income building within 1 year after the owner submits a written request to the Agency to find a buyer,

3. Defining a Qualified Contract A Bona Fide Contract to purchase Within a reasonable period after the contract is entered into The non-low income portion for fair market value And the low-income portion for the applicable fraction of the sum of:

4. The outstanding indebtedness secured by or with respect to the building, plus The adjusted investor equity in the building, plus Other Capital Contributions, less Cash distributions from (or available for distribution from) the project

5. Adjusted Investor Equity Cash taxpayers invested with respect to the project increased by the CPI (up to 5% per year) But only to the extent there was an obligation to invest such amount as of the beginning of the credit period and to the extent such amount is reflected in the adjusted basis of the project

6. Open Issues Check to see if your State Agency has published guidelines or procedures (either in QAP or separately) What information must be contained in the written request (this triggers the 1-year period for finding buyer)? Some states require substantial detailed information for due diligence purposes

7. Presenting a Bona Fide Contract What is a bona fide contract? Is it sufficient that the State only present the contract? What if the buyer cant close? What if the owner refuses to accept the terms of the contract presented? What is a reasonable period to close? How to resolve contractual impasses? Present to binding arbitration

8. Calculating the Qualified Contract Price What debt counts? Do partner loans count if not secured with a mortgage? Is the investor equity the gross or net amount? (Probably the net because of need to be reflected in basis) How to determine if reflected in basis Calculating cash distributionswhat documents are available. Is an Agreed Upon Procedures Report acceptable? Where in the waterfall is this calculated? – Development Fees? – Incentive Management Fees? – Partner Loan Repayments?

9. Next Steps IRS expected to issue guidance by June 30 th AHTCC comments to IRS and NCSHA