Louisiana Department of Revenue SEATA 2017 As stated by Alyson Saunders, this Program began in ____. For the many years, after the State Division of Historic Preservation completed their review of the Projects, a form titled Part 3 was issued disclosing the total amount of approved QREs on which the 25% state tax credit was based on. The Program began to take off after Hurricane Katrina. There are a number of buildings in this area that have utilized this credit. Long about 2011 and 2012, LDR noticed that there appeared to be a duplication of credits being taken by taxpayers. A small number of brokers had sold the credits more than once. Commercial State Historic Rehabilitation Tax Credit Program

Recent Changes Act 418 of the 2013 Legislative Session established a Credit Registry within the Louisiana Department of Revenue (LDR). This was done to assist with tracking the amount and type of credits that had been issued. This registry applied to all transferrable credits.

Recent Changes (cont.) For all Projects approved by the Division of Historic Preservation (DHP) beginning 1/1/2014, LDR would issued certifications that taxpayers would use when filing their tax returns to claim these credits.

Recent Changes (cont.) Along about this same time, it was discovered that an entity filing for a different type of tax credit (motion picture) had overstated the expenditures in order to obtain a larger tax credit. As with the Historic Program, the tax credit is based on a percentage of eligible expenditures. In fact, the parties to this credit also submitted a Historic Project for approval.

Recent Changes (cont.) Representatives of LDR and the DHP met to decide how the certification process would be conducted. It was determined that LDR would audit the expenses associated with these Projects and would establish what other documentation was required. Representatives of LDR and the DHP met to decide how the certification process would be conducted. We also needed to determine who would conduct the audits on the Project expenditures to reduce the possibility of fraudulent claims. Being that LDR had more experience with auditing the records of taxpayers, and that LDR could cross verify other tax filings, it was decided that LDR would conduct the audits and establish what additional documentation was required for review. In addition to the Part 3 that was already issued by the DHP, a new form (R-6121B) was developed. While the entity requesting the credit prepares the Part 3, the DHP prepares the R-6121B. The bottom portion of the form is utilized to compute the allowable credit prior to the issuance of the credit certifications (Form R-6135).

RIB 14-007 On February 26, 2014, LDR issued Revenue Information Bulletin # 14-007, which outlined the information and documentation LDR required to review the Project expenditures and issue the credit certifications. In order to give direction on how this new procedure would operate, LDR issued RIB 14-007.

RIB 14-007 (Cont.) Required certified audit report or examined cost certification prepared by an independent auditor with the following requirements: CPA must be independent third party and licensed in Louisiana; Auditor’s opinion must be addressed to the party which has engaged the auditor, but may expressly permit others to rely on the same; Include name of firm, address, and telephone numbers’

RIB 14-007 (cont.) Opinion dated no earlier than completion of field work; Must be performed in accordance with auditing standards set forth by the AICPA and sufficient knowledge of accounting principles and Secretary of Interior’s Standards for Rehabilitation; Period during which qualified rehabilitation costs were incurred must be noted;

RIB 14-007 (cont.) Breakdown of related party transactions with: Name of related party; Nature of relationship; Nature of transaction; and Amount of transaction. Report should be accompanied by cost report of QREs, notes to the cost report, and a completed CPA Certification Form.

LDR Review Procedures Once the DHP finalizes their approval, a copy of the Approved Part 3 and a new form developed by LDR titled R-6121B are forwarded to LDR. Send Audit Letter to Entity/Person Earning the Credit along with appropriate Revenue Information Bulletin outlining required documentation to be submitted for review.

Projects Sample of letter issued. March 17, 2016 Company Attn: Street   Company Attn: Street City, State, ZIP Project #: 0000 Project Name/Address Project/Lake Road Gentlemen: Louisiana Department of Revenue has received an approved “Part 3 – Request for Project Certification” and an executed Section 1 of Form R-6121B from SHPO for SHPO Project Number 0730.  Per Revenue Information Bulletin No. 14-007, once the applicant receives the approved “Part 3 – Request for Project Certification” and an executed Section 1 of Form R-6121B from SHPO, the applicant will need to submit the certified audit report along with a copy of the approved “Part 3 – Request for Project Certification” to LDR. This should be submitted to: Louisiana Department of Revenue Taxpayer Compliance Division – SSEW Attn: Economic Development Unit P.O. Box 66362 Baton Rouge, LA 70896-6362 After all supporting documentation is received, reviewed and approved; LDR shall complete and provide the applicant an executed Section 2 of Form R-6121B, confirming the certified amount of the tax credit earned by the Applicant.  A copy will also be provided to the Tax Credit Registry at which point the credit will be recorded in the Tax Credit Registry and a “Credit Registration Form” (R-6135) will be issued to the applicant. The “Credit Registration Form” (R-6135) will be used as proof of registration of the tax credit (Revenue Information Bulletin No. 14-005). Sincerely, Allyson Wilson Taxpayer Compliance Division - SSEW TaxCredit.Registry@la.gov (225)219-2270 Sample of letter issued.

RIB 14-007-A Applicant must submit an Itemized Listing of all QRE and Non-QRE expenses, detailing their eligibility. Schedule to include: Category of work; Method of Payment; Date Paid; Designation if Related Party; Description of work; QRE; and Non-QRE. Once we began requiring an Audit Report, many entities/individuals who had smaller Projects complained that they now had a new cost that they had not anticipated and that it was unfair to add this requirement after they had completed their Projects. In order to offer some consideration, LDR issued RIB 14-007-A, as an alternative for Projects with a total costs <$500,000. They can still obtain an audit if desired.

RIB 14-007-A (cont.) Copy of each invoice for any expenditure >$2,500; Notarized statement attesting that the expenditures were incurred in correction with the rehabilitation of a “certified historic structure” that is properly chargeable to a capital account; and Related Party Information (Financial Accounting Standards No. 57).

Projects <$500,000 Projects <$500,000 April 12, 2016 Company   Company Attn: Street Address City, State, ZIP Project #: 0000 Project Name/Address: Project/River Road Gentlemen: Louisiana Department of Revenue has received an approved “Part 3 – Request for Project Certification” and an executed Section 1 of Form R-6121B from SHPO for SHPO Project Number 0000.  Being that your total project costs is less than $500,000, per Revenue Information Bulletin (RIB) No. 14-007-A (copy attached), once the applicant receives the approved “Part 3 – Request for Project Certification” and an executed Section 1 of Form R-6121B from SHPO, the applicant will need to submit either a certified audit report and other documentation as outlined in RIB 14-007, or the documentation outlined in RIB 14-007-A to LDR. In either case a copy of the approved “Part 3 – Request for Project Certification” should be submitted. Kindly forward to: Louisiana Department of Revenue Taxpayer Compliance Division – SSEW Attn: Economic Development Unit P.O. Box 66362 Baton Rouge, LA 70896-6362 After all supporting documentation is received, reviewed and approved; LDR shall complete and provide the applicant an executed Section 2 of Form R-6121B, confirming the certified amount of the tax credit earned by the Applicant.  A copy will also be provided to the Tax Credit Registry at which point the credit will be recorded in the Tax Credit Registry and a “Credit Registration Form” (R-6135) will be issued to the applicant. The “Credit Registration Form” (R-6135) will be used as proof of registration of the tax credit (Revenue Information Bulletin No. 14-005). Sincerely, Allyson Wilson Taxpayer Compliance Division - SSEW TaxCredit.Registry@la.gov (225)219-2270 Projects <$500,000

Address Louisiana Department of Revenue Taxpayer Compliance Division - SSEW Attn: Economic Development Unit P.O. Box 66362 Baton Rouge, LA 70896-6362

E-Mail Address Allyson Wilson Taxpayer Compliance Division - SSEW TaxCredit.Registry@la.gov (225)219-2270

Small Project Sample Sample of Schedule. Louisiana Department of Revenue Expense Form List of Itemized Project Costs TP ID Number   Placed in Service Date Name of Structure Category of Work Method of Payment (Include Check # Date Paid Related Party (Y/N) Payee/Contractor Description of Expenditure Total Amount of Expenditure Non- Qualified Expenditures Qualified Rehabilitation Expenditures Sample of Schedule.

Review Process From the time we receive the Audit Report or Required Documentation, review is usually 30-60 Days. If Documentation incomplete or lacking, time could be extended.

Observations Check Start/Beginning Dates & Ending/Placed in Service Dates. Check QREs on Part 3 and R-6121B with QREs in Audit Report or Schedule of Expenditures. Identify and explain any Related Party Transactions. Provide copy of Reasonableness Opinion. Review dates and obtain explanation if different. Check QRE amounts. Many times QREs on Part 3 are greater than schedule of QRE. If Part 3 amount is less than schedule, revised Part 3 will have to be requested for consideration of larger amount. Identify and explain related party transactions. These are usually noted in the audit report. Provide copy of Reasonableness Opinion.

Tips (cont.) Provide copies of any Agreements with any Related Parties Provide notarized statement attesting expenditures were incurred in conjunction with a certified historic structure and properly chargeable to a capital account for Projects <$500,000.

Additional Information >$500,000 The federal & state identification numbers and addresses of related parties for payments greater than $10,000. For payments of $100,000 or more, LDR may request the name; address; federal & state identification numbers; any state and/or local license numbers (i.e. Contractor’s License); and total amount paid. While not currently part of our RIBs, we have begun to ask for additional information. We have observed that some of the related parties identified in the audit reports are either not registered and/or filing Louisiana income tax return, or have outstanding tax balances due. For payments >$100,000, we are requesting the name, address, federal & state ID numbers; any state and /or local license numbers; and total amounts paid. As with the related parties, we have discovered that some of the contractors and other work entities are not registered and paying taxes, and some are not registered with our contractors’ licensing board.

Related Part Schedule SHPO Project Number Name of Entity/Person Earning Credit Address of Property FEIN or SSN or LaTax ID No. Schedule of Related Party Transactions Name of Related Party Nature of Relationship Nature of Transaction Amount of the Transaction   Name, Nature of Relationship, Nature of Transactions, and Amount.

Payments >$100,000 Schedule SHPO Project Number Name of Entity/Person Earning Credit Address of Property FEIN or SSN or LaTax ID No. Schedule of Payments $100,000 or Greater Payee Name Address Federal Tax ID State Tax ID State License Number Local License Number Total Amount Paid   Payee, Address, Fed ID, State ID, State license #, Local license #, and Amount.

Additional Information <$500,000 If a Project is “Phased”, if the total costs of all phases will be >$500,000, guidelines in RIB # 14-007 must be utilized. For total payments of $100,000 or more, we will request the payee federal & state tax numbers and any state and/or local license numbers.

Additional information <$500,000 (Cont.) For Related Party Transactions >$10,000, we will request the federal and state tax numbers and a comparison on how the amount charged compares to what an independent party would have charged.

Additional Information - General We do review the tax filing history of the entities/individuals who are requesting the credit. For flow-through entities, we request the names and tax numbers of the entity and/or individual who reports the income. Missing returns and/or outstanding tax liabilities may result in a delay in the issuance of any tax credit. Company operating hotel and delinquent if sales tax filings. Company audited for sales and income taxes currently in litigation. Individual who has not filed since 2010. Other individuals who have not filed for periods prior to the Placed in Service Date of the Project.

Additional Information - General Purchases of tangible personal property to be utilized in these Projects are subject to Louisiana and local sales taxes unless specifically exempted by law. Contractors not registered, sales/use tax paid on purchases, etc. Have observed invoices of purchases from out of state vendors that did not include sales tax and no tax was paid. Contractor names have been referred to our audit division for possible audit.

507 Total Credits issued since 1/1/2014. $291,774,626.80 credits certified. $4,030,604.72 credits disallowed. As of 6/14/17.

Act 108 of 2015 Session Reduced credit from 25% to 20% effective January 1, 2018. No credit on State or Federal Funds. Fee collected by LDR. Sunsets January 1, 2022.

Effective 1/1/18 Residential Credit Current Sunset Date is 12/31/2017. Part A – Must be received by the Division of Historic Preservation no later than 12/31/17. Part B – Strongly encourage filing with DHP on later than 12/31/17. Part C – Must be received by DHP no later than 12/31/18. No expenditures occurring after 12/31/17 will be allowed as QREs.

Residential (Cont.) No Placed in Service Date after 12/31/17. Must spend the minimum expenditure required ($10,000) by 12/31/17. Since the credit is spread out over five years, the 2017 tax period will be the latest period that the first year of this credit may be taken. No credits will be allowed after the 2021 tax year.

Commercial Credit Qualifying expenditures that are incurred prior to 1/1/18 will receive a tax credit of 25%. Qualifying expenditures that are incurred after 12/31/17 will receive a tax credit of 20%. If the expenditure is incurred prior to 1/1/18, but not paid until after 12/31/17, credit will be given at the rate of 25%. Documentation will have to be presented verifying the expenditure took place prior to 1/1/18 in order to receive the 25% credit.

Commercial (Cont.) Projects having expenditures after 12/31/17 will have to separate the expenditures prior to submitting for review. Any submission that does not include the required separation of expenditures will only be considered for approval at the 20% rate.

Act 23 of 2016 First Special Session A credit cannot be claimed on a tax return or utilized as a payment prior to the effective date of transfer. To claim a credit on a tax return, the effective date of transfer must be on or before the due date of the return, without regard to the granting of any extension. May be utilized as a payment if after due date of return.

Act 661 of 2016 Regular Session This Act provides that a taxpayer may only claim a tax credit on a tax return by performing one of two actions on or before the due date of the return, without regard to the granting of any extension.

RIB 17-008 Purchase tax credits with an effective date of transfer on or before the due date of the return without regard to the granting of any extension; or

RIB 17-008 (Cont.) Execute Form R-6111, which evidences a binding agreement to transfer a tax credit, on or before the due date of the return, without regard to the granting of any extension.

RIB 17-008 (Cont.) Failure to perform either of the referenced actions on or before the due date of the return, without regard to the granting of any extension, will result in the credit being disallowed as a claim on the return.

RIB 17-008 (Cont.) In such instances, the credit may still be used as a payment of any allowable tax, penalties and interest which has accrued from the due date of the return, without regard to the granting of any extension.

Future Request Set up contacts with SEATA States to discuss their Programs and review expenditures that are approved.

Contact Information Kent LaPlace (225) 219-5513 Kent.laplace@la.gov