James F. Duffy jduffy@nixonpeabody.com, 617-345-1129 Right of First Refusal Under IRC Section 42(i)(7) Institute for Professional and Executive Development, Inc. Boston, Massachusetts October 11-12, 2007 James F. Duffy jduffy@nixonpeabody.com, 617-345-1129

Right of First Refusal Under IRC Section 42(i)(7) Added to Section 42 in 1990 Provides that no Federal income tax benefit will fail to be allowable merely by reason of: A Right of First Refusal to purchase the property after the close of the Compliance Period Held by Certain Eligible Holders For a specified Minimum Purchase Price

Eligible Holders of a Right of First Refusal Under IRC Section 42(i)(7) Tenants of the project (in cooperative form or otherwise) Resident management corporation of such building Qualified nonprofit organization (as defined in Section 42(h)(5)(C), the test for the nonprofit set-aside) Government agency

Minimum ROFR Purchase Price The Minimum Purchase Price equals the sum of: (1) the principal amount of the outstanding indebtedness secured by the buildings (other than indebtedness incurred during previous 5 years), plus (2) all Federal, state and local taxes attributable to such sale

Considerations When There’s a Right of First Refusal The statutory purchase price is a minimum price. It doesn’t include accrued but unpaid amounts due to limited partners, such as Fees, Loans and Tax credit adjusters This is not an option Look to the sales proceeds waterfall in the partnership agreement to see how the proceeds are distributed The parties don’t have to use the ROFR in Year 15 10750975.2