1. 11215938.1 DISPOSITIONS OF LIHTC PROPERTIES (OR LP INTERESTS THEREIN) WITHOUT RECAPTURE BONDS Allen A. Lynch, II Partner Nixon Peabody LLP 100 Summer Street Boston, MA 02110 Office.: +1 617-345-1235 Mobile: +1 617-922-0212 alynch@nixonpeabody.com alynch@nixonpeabody.com

2. Dispositions without Sec. 42 Bonds LPs are now exposed to recapture for a longer period of time for non-compliance Key questions: What is the risk of recapture? Who will pay if the credits are recaptured due to pre-transfer, or post-transfer, non-compliance? For what period of time will LPs need to be protected? LPs must look back, and look forward, to address these questions

3. LP Risk Matrix Inexperienced/ Unknown Buyers Experienced/Established Buyers Earlier (e.g., <Y14) risk (highest) risk (higher) risk influenced by Buyer experience and relationship w/ Seller Later risk (less, depending on how close to Y 15) risk (lowest)

4. Looking Back: Pre-Transfer Non-Compliance DD Re pre-transfer non-compliance risk, LPs should: –Calculate potential recapture exposure –Investigate and understand the compliance status of the property prior to, and at the time of, transfer –Evaluate adequacy of existing GP guaranty, and the guarantor, in light of the projects compliance history and present status

5. LP Protections for Pre-Transfer Non- Compliance Check PA and existing GP guaranty Upgrade guaranty if appropriate Consider re-affirmation from GP that its guaranty will survive transfer, and dissolution (if fee sale)

6. Looking Forward: Post-Transfer Non-Compliance DD Re post-transfer Non-compliance, LPs should: –Calculate potential recapture exposure –Understand state agency compliance practices –Put more emphasis on compliance experience/reputation in selecting buyers Who will manage the project? –Do what the surety bond underwriter did Underwrite the credit worthiness of guarantor, applying a net worth test (typically 3x recapture exposure, 10% of which must be cash/cash equivalents or marketable securities)

7. LP Protections for Post-Transfer Non- Compliance Compliance/Indemnity Agreement (CA) Comply Copy Continuity Cover Guaranty Performance of Buyer under the CA Payment under the CA Net Worth covenant Notice of CA Recorded to put subsequent buyers on notice Some sureties are selling optional recapture bonds

8. How does the new SOL affect LPs? 3 years after the Secretary of the Treasury is notified of non compliance (by the taxpayer!) –Places LPs at risk of recapture until …? –Means the indemnity in the CA, and thus the Guaranty, have to stay in effect until …?

9. Canceling Existing Recapture Bonds If entire premium paid in advance, most surety contracts do not provide for a refund For bonds with annual premiums, not paying future premiums sounds nice, but where does that leave an LP in terms of recourse? IRS Rev. Proc. 2008-60 (10/2/08) – how to make election to cancel recapture bond –Signer of the 8693 sends letter to IRS: taxpayer name, address, TIN statement that taxpayer reasonably expects compliance declaration that foregoing is made under penalty of perjury Copy of Form 8693

10. Allen A. Lynch, II Partner Nixon Peabody LLP 100 Summer Street Boston, MA 02110 Office.: +1 617-345-1235 Mobile: +1 617-922-0212 alynch@nixonpeabody.com alynch@nixonpeabody.com