Panel of Speakers Dan Foster Housing Tax Credit Program Manager New Mexico Mortgage Finance Authority Aaron Krasnow Vice President-Investment Manager RBC Capital Markets Linda Hill Senior Vice President of Originations Alliant Capital Jeff Nishita Principal Novogradac & Company LLP Philip A. Melton Senior Managing Director Hunt Mortgage Group Mike Jacobs Senior Vice President of Originations National Equity Fund, Inc.

Inside the IRS’ Audit Technique Guide Jeff Nishita Novogradac & 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 Hierarchy Internal Revenue Code Tres. Reg. Supreme Court Congress Courts Circuit Courts of Appeals District Courts IRS Primary Sources Rev. Ruling Tax Court Court of Federal Claims IRS (Non-authoritative) LIHC News- letters

Audit Technique Guide Overview Released in Draft Form on Dec. 19, 2013 Comments on Draft ATG were due March 28 th Draft ATG was reviewed by IRS Chief Counsel 20 Chapters & 10 Appendices Adobe file is 312 pages ANY Draft ATG cannot be cited as authority for ANY reason

Excess Basis

OK xxxx $10,000, % $10,000,000 9% $ 900,000 Eligible basis Applicable fraction Qualified basis Tax credit percentage Annual tax credits Actual Excess Basis Audit x$x$x$x$ $10,000, % 9,500,000 9% 855,000 Excess Basis = $1 million

Developer Fees

SourcesUses 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

SourcesUses 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

SourcesUses 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

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 Payment Must be Bona Fide Debt Interest required? Interest required? GP Contribution at prior to year 15 allowed? GP Contribution at prior to year 15 allowed? Recordation of note/deed? Recordation of note/deed?

Non-Profit Set Aside

Typical Ownership Structure with Non-Profit MGP P’ship Owner/Borrower Entity For-Profit GP Fund LP Non-Profit GP ManagingAdministrative

Non-Profit Developers/Owners GP LIHTCs $9mil 10% $900K

Typical Ownership Structure P’ship Owner Entity Non-Profit Developer/ Owner GP Fund LP For-Profit

Bond Issuance Costs

“Production Period” IRC § 263A(f)(1)(A) INDIRECT SOFT COSTS ExpensedCapitalized Bond Issuance Costs

“Production Period” IRC § 263A(f)(1)(A) ExpensedCapitalized

Capitalized to what? Pick fight with IRS? Bond Issuance Costs

Casualty Loss

Recaptureof previously claimed credits? Loss of current-year credits? Building/UnitDamage Casualty In Federally Declared Disaster Area YES NOYES NO Unit Out of Service

The Tank Aaron Krasnow Vice President-Investment Manager RBC Capital Markets Linda Hill Senior Vice President of Originations Alliant Capital Mike Jacobs Senior Vice President of Originations National Equity Fund, Inc. Philip A. Melton Senior Managing Director Hunt Mortgage Group

Scenario 1 The Majestic 12 Apartments

The Majestic 12 Apartments New construction - 60 units, 25% for families with children 18 60%, 36 50% and 6 30% 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 2 Terrace Hills Apartments

Terrace Hills Apartments Acq/rehab – 208 units, 12 buildings, 5% for Households with Special Needs %, HUD HAP contract 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?