July 24, 2019 By: Dirk Wallace, Michael Novogradac
Two bills recently introduced in Congress would retroactively alter rights of existing owners of low-income housing tax credit (LIHTC) properties: One bill changes the terms of rights of first refusal (ROFR) and the other alters qualified contract exit price calculation. Part I of this blog post reviews rights of first refusal. Part II will address qualified contracts.
Rights of First Refusal
Under current law, Section 42(i)(7)(A) specifies that “No [federal] income tax benefit shall fail to be allowable to the taxpayer with respect to any qualified low-income building merely by reason of a right of 1st refusal held by … a qualified nonprofit organization …. after the close of the [15-year] compliance period for a price which is not less than the minimum purchase price ….” The minimum purchase price is generally the outstanding debt on the property, plus all tax liability arising on the sale.
The Section 42(i)(7) right of first refusal was enacted in 1989 after a task force convened by Sens. George J. Mitchell, D-Maine, and John C. Danforth, R-Mo., recommended that the safe harbor allow for non-profits to hold a below-market purchase option. Following the task force recommendation, Mitchell and Danforth sponsored a bill in Congress in 1989 (S.980) that would have provided that “the determination of whether any qualified low-income building is owned by the taxpayer shall be made without regard to any option by a qualified nonprofit organization (as defined in subsection (h)(5)(C)) to acquire such building at less than fair market value after the close of the compliance period.”...................Read More
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