BILL NUMBER: SB 377 AMENDED
BILL TEXT
AMENDED IN SENATE APRIL 29, 2015
AMENDED IN SENATE APRIL 16, 2015
AMENDED IN SENATE APRIL 6, 2015
INTRODUCED BY Senator Beall
FEBRUARY 24, 2015
An act to amend Sections 12206, 17058, and 23610.5 of the Revenue
and Taxation Code, relating to taxation, to take effect immediately,
tax levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 377, as amended, Beall. Income taxes: insurance taxes: credits:
low-income housing: sale of credit.
Existing law establishes a low-income housing tax credit program
pursuant to which the California Tax Credit Allocation Committee
provides procedures and requirements for the allocation of state
insurance, income, and corporation tax credit amounts among
low-income housing projects based on federal law.
This bill would, for taxable years beginning on or after January
1, 2016 , and before January 1, 2026 , allow a taxpayer
that is allowed a low-income housing tax credit to elect to sell all
or a portion of that credit to one or more unrelated parties for each
taxable year in which the credit is allowed for not less than 80% of
the amount the credit to be sold, as provided.
Existing law, in the case of a partnership, requires the
allocation of the credits, on or after January 1, 2009, and before
January 1, 2016, to partners based upon the partnership agreement,
regardless of how the federal low-income housing tax credit, as
provided, is allocated to the partners, or whether the allocation of
the credit under the terms of the agreement has substantial economic
effect, as specified.
This bill would eliminate the January 1, 2016, date.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 12206 of the Revenue and Taxation Code is
amended to read:
12206. (a) (1) There shall be allowed as a credit against the
"tax," as described by Section 12201, a state low-income housing tax
credit in an amount equal to the amount determined in subdivision
(c), computed in accordance with Section 42 of the Internal Revenue
Code, relating to low-income housing credit, except as otherwise
provided in this section.
(2) "Taxpayer," for purposes of this section, means the sole owner
in the case of a "C" corporation, the partners in the case of a
partnership, and the shareholders in the case of an "S" corporation.
(3) "Housing sponsor," for purposes of this section, means the
sole owner in the case of a "C" corporation, the partnership in the
case of a partnership, and the "S" corporation in the case of an "S"
corporation.
(b) (1) The amount of the credit allocated to any housing sponsor
shall be authorized by the California Tax Credit Allocation
Committee, or any successor thereof, based on a project's need for
the credit for economic feasibility in accordance with the
requirements of this section.
(A) Except for projects to provide farmworker housing, as defined
in subdivision (h) of Section 50199.7 of the Health and Safety Code,
that are allocated credits solely under the set-aside described in
subdivision (c) of Section 50199.20 of the Health and Safety Code,
the low-income housing project shall be located in California and
shall meet either of the following requirements:
(i) The project's housing sponsor has been allocated by the
California Tax Credit Allocation Committee a credit for federal
income tax purposes under Section 42 of the Internal Revenue Code,
relating to low-income housing credit.
(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
Internal Revenue Code, relating to special rule where 50 percent or
more of building is financed with tax-exempt bonds subject to volume
cap.
(B) The California Tax Credit Allocation Committee shall not
require fees for the credit under this section in addition to those
fees required for applications for the tax credit pursuant to Section
42 of the Internal Revenue Code, relating to low-income housing
credit. The committee may require a fee if the application for the
credit under this section is submitted in a calendar year after the
year the application is submitted for the federal tax credit.
(C) (i) For a project that receives a preliminary reservation of
the state low-income housing tax credit, allowed pursuant to
subdivision (a), on or after January 1, 2009, the credit shall be
allocated to the partners of a partnership owning the project in
accordance with the partnership agreement, regardless of how the
federal low-income housing tax credit with respect to the project is
allocated to the partners, or whether the allocation of the credit
under the terms of the agreement has substantial economic effect,
within the meaning of Section 704(b) of the Internal Revenue Code,
relating to determination of distributive share.
(ii) This subparagraph shall not apply to a project that receives
a preliminary reservation of state low-income housing tax credits
under the set-aside described in subdivision (c) of Section 50199.20
of the Health and Safety Code unless the project also receives a
preliminary reservation of federal low-income housing tax credits.
(2) (A) The California Tax Credit Allocation Committee shall
certify to the housing sponsor the amount of tax credit under this
section allocated to the housing sponsor for each credit period.
(B) In the case of a partnership or an "S" corporation, the
housing sponsor shall provide a copy of the California Tax Credit
Allocation Committee certification to the taxpayer.
(C) The taxpayer shall attach a copy of the certification to any
return upon which a tax credit is claimed under this section.
(D) In the case of a failure to attach a copy of the certification
for the year to the return in which a tax credit is claimed under
this section, no credit under this section shall be allowed for that
year until a copy of that certification is provided.
(E) All elections made by the taxpayer pursuant to Section 42 of
the Internal Revenue Code, relating to low-income housing credit,
shall apply to this section.
(F) (i) Except as described in clause (ii), for buildings located
in designated difficult development areas (DDAs) or qualified census
tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal
Revenue Code, relating to increase in credit for buildings in
high-cost areas, credits may be allocated under this section in the
amounts prescribed in subdivision (c), provided that the amount of
credit allocated under Section 42 of the Internal Revenue Code,
relating to low-income housing credit, is computed on 100 percent of
the qualified basis of the building.
(ii) Notwithstanding clause (i), the California Tax Credit
Allocation Committee may allocate the credit for buildings located in
DDAs or QCTs that are restricted to having 50 percent of its
occupants be special needs households, as defined in the California
Code of Regulations by the California Tax Credit Allocation
Committee, even if the taxpayer receives federal credits pursuant to
Section 42(d)(5)(B) of the Internal Revenue Code, relating to
increase in credit for buildings in high-cost areas, provided that
the credit allowed under this section shall not exceed 30 percent of
the eligible basis of the building.
(G) (i) The California Tax Credit Allocation Committee may
allocate a credit under this section in exchange for a credit
allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue
Code, relating to increase in credit for buildings in high-cost
areas, in amounts up to 30 percent of the eligible basis of a
building if the credits allowed under Section 42 of the Internal
Revenue Code, relating to low-income housing credit, are reduced by
an equivalent amount.
(ii) An equivalent amount shall be determined by the California
Tax Credit Allocation Committee based upon the relative amount
required to produce an equivalent state tax credit to the taxpayer.
(c) Section 42(b) of the Internal Revenue Code, relating to
applicable percentage, shall be modified as follows:
(1) In the case of any qualified low-income building that receives
an allocation after 1989 and is a new building not federally
subsidized, the term "applicable percentage" means the following:
(A) For each of the first three years, the percentage prescribed
by the Secretary of the Treasury for new buildings that are not
federally subsidized for the taxable year, determined in accordance
with the requirements of Section 42(b)(2) of the Internal Revenue
Code, relating to temporary minimum credit rate for nonfederally
subsidized new buildings, in lieu of the percentage prescribed in
Section 42(b)(1)(A) of the Internal Revenue Code.
(B) For the fourth year, the difference between 30 percent and the
sum of the applicable percentages for the first three years.
(2) In the case of any qualified low-income building that receives
an allocation after 1989 and that is a new building that is
federally subsidized or that is an existing building that is "at risk
of conversion," the term "applicable percentage" means the
following:
(A) For each of the first three years, the percentage prescribed
by the Secretary of the Treasury for new buildings that are federally
subsidized for the taxable year.
(B) For the fourth year, the difference between 13 percent and the
sum of the applicable percentages for the first three years.
(3) For purposes of this section, the term "at risk of conversion,"
with respect to an existing property means a property that satisfies
all of the following criteria:
(A) The property is a multifamily rental housing development in
which at least 50 percent of the units receive governmental
assistance pursuant to any of the following:
(i) New construction, substantial rehabilitation, moderate
rehabilitation, property disposition, and loan management set-aside
programs, or any other program providing project-based assistance
pursuant to Section 8 of the United States Housing Act of 1937,
Section 1437f of Title 42 of the United States Code, as amended.
(ii) The Below-Market-Interest-Rate Program pursuant to Section
221(d)(3) of the National Housing Act, Sections 1715 l (d)
(3) and (5) of Title 12 of the United States Code.
(iii) Section 236 of the National Housing Act, Section 1715z-1 of
Title 12 of the United States Code.
(iv) Programs for rent supplement assistance pursuant to Section
101 of the Housing and Urban Development Act of 1965, Section 1701s
of Title 12 of the United States Code, as amended.
(v) Programs pursuant to Section 515 of the Housing Act of 1949,
Section 1485 of Title 42 of the United States Code, as amended.
(vi) The low-income housing credit program set forth in Section 42
of the Internal Revenue Code, relating to low-income housing credit.
(B) The restrictions on rent and income levels will terminate or
the federally insured mortgage on the property is eligible for
prepayment any time within five years before or after the date of
application to the California Tax Credit Allocation Committee.
(C) The entity acquiring the property enters into a regulatory
agreement that requires the property to be operated in accordance
with the requirements of this section for a period equal to the
greater of 55 years or the life of the property.
(D) The property satisfies the requirements of Section 42(e) of
the Internal Revenue Code relating to rehabilitation expenditures
treated as a separate new building, except that the provisions of
Section 42(e)(3)(A)(ii)(I) shall not apply.
(d) The term "qualified low-income housing project" as defined in
Section 42(c)(2) of the Internal Revenue Code, relating to qualified
low-income building, is modified by adding the following
requirements:
(1) The taxpayer shall be entitled to receive a cash distribution
from the operations of the project, after funding required reserves,
that, at the election of the taxpayer, is equal to:
(A) An amount not to exceed 8 percent of the lesser of:
(i) The owner equity, which shall include the amount of the
capital contributions actually paid to the housing sponsor and shall
not include any amounts until they are paid on an investor note.
(ii) Twenty percent of the adjusted basis of the building as of
the close of the first taxable year of the credit period.
(B) The amount of the cashflow from those units in the building
that are not low-income units. For purposes of computing cashflow
under this subparagraph, operating costs shall be allocated to the
low-income units using the "floor space fraction," as defined in
Section 42 of the Internal Revenue Code, relating to low-income
housing credit.
(C) Any amount allowed to be distributed under subparagraph (A)
that is not available for distribution during the first five years of
the compliance period may be accumulated and distributed any time
during the first 15 years of the compliance period but not
thereafter.
(2) The limitation on return shall apply in the aggregate to the
partners if the housing sponsor is a partnership and in the aggregate
to the shareholders if the housing sponsor is an "S" corporation.
(3) The housing sponsor shall apply any cash available for
distribution in excess of the amount eligible to be distributed under
paragraph (1) to reduce the rent on rent-restricted units or to
increase the number of rent-restricted units subject to the tests of
Section 42(g)(1) of the Internal Revenue Code, relating to in
general.
(e) The provisions of Section 42(f) of the Internal Revenue Code,
relating to definition and special rules relating to credit period,
shall be modified as follows:
(1) The term "credit period" as defined in Section 42(f)(1) of the
Internal Revenue Code, relating to credit period defined, is
modified by substituting "four taxable years" for "10 taxable years."
(2) The special rule for the first taxable year of the credit
period under Section 42(f)(2) of the Internal Revenue Code, relating
to special rule for first year of credit period, shall not apply to
the tax credit under this section.
(3) Section 42(f)(3) of the Internal Revenue Code, relating to
determination of applicable percentage with respect to increases in
qualified basis after first year of credit period, is modified to
read:
If, as of the close of any taxable year in the compliance period,
after the first year of the credit period, the qualified basis of any
building exceeds the qualified basis of that building as of the
close of the first year of the credit period, the housing sponsor, to
the extent of its tax credit allocation, shall be eligible for a
credit on the excess in an amount equal to the applicable percentage
determined pursuant to subdivision (c) for the four-year period
beginning with the later of the taxable years in which the increase
in qualified basis occurs.
(f) The provisions of Section 42(h) of the Internal Revenue Code,
relating to limitation on aggregate credit allowable with respect to
projects located in a state, shall be modified as follows:
(1) Section 42(h)(2) of the Internal Revenue Code, relating to
allocated credit amount to apply to all taxable years ending during
or after credit allocation year, shall not be applicable and instead
the following provisions shall be applicable:
The total amount for the four-year credit period of the housing
credit dollars allocated in a calendar year to any building shall
reduce the aggregate housing credit dollar amount of the California
Tax Credit Allocation Committee for the calendar year in which the
allocation is made.
(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)
(I), (7), and (8) of Section 42(h) of the Internal Revenue Code,
relating to limitation on aggregate credit allowable with respect to
projects located in a state, shall not be applicable.
(g) The aggregate housing credit dollar amount that may be
allocated annually by the California Tax Credit Allocation Committee
pursuant to this section, Section 17058, and Section 23610.5 shall be
an amount equal to the sum of all the following:
(1) Seventy million dollars ($70,000,000) for the 2001 calendar
year, and, for the 2002 calendar year and each calendar year
thereafter, seventy million dollars ($70,000,000) increased by the
percentage, if any, by which the Consumer Price Index for the
preceding calendar year exceeds the Consumer Price Index for the 2001
calendar year. For the purposes of this paragraph, the term
"Consumer Price Index" means the last Consumer Price Index for All
Urban Consumers published by the federal Department of Labor.
(2) The unused housing credit ceiling, if any, for the preceding
calendar years.
(3) The amount of housing credit ceiling returned in the calendar
year. For purposes of this paragraph, the amount of housing credit
dollar amount returned in the calendar year equals the housing credit
dollar amount previously allocated to any project that does not
become a qualified low-income housing project within the period
required by this section or to any project with respect to which an
allocation is canceled by mutual consent of the California Tax Credit
Allocation Committee and the allocation recipient.
(4) Five hundred thousand dollars ($500,000) per calendar year for
projects to provide farmworker housing, as defined in subdivision
(h) of Section 50199.7 of the Health and Safety Code.
(5) The amount of any unallocated or returned credits under former
Sections 17053.14, 23608.2, and 23608.3, as those sections read
prior to January 1, 2009, until fully exhausted for projects to
provide farmworker housing, as defined in subdivision (h) of Section
50199.7 of the Health and Safety Code.
(h) The term "compliance period" as defined in Section 42(i)(1) of
the Internal Revenue Code, relating to compliance period, is
modified to mean, with respect to any building, the period of 30
consecutive taxable years beginning with the first taxable year of
the credit period with respect thereto.
(i) (1) Section 42(j) of the Internal Revenue Code, relating to
recapture of credit, shall not be applicable and the provisions in
paragraph (2) shall be substituted in its place.
(2) The requirements of this section shall be set forth in a
regulatory agreement between the California Tax Credit Allocation
Committee and the housing sponsor, and this agreement shall be
subordinated, when required, to any lien or encumbrance of any banks
or other institutional lenders to the project. The regulatory
agreement entered into pursuant to subdivision (f) of Section
50199.14 of the Health and Safety Code, shall apply, provided that
the agreement includes all of the following provisions:
(A) A term not less than the compliance period.
(B) A requirement that the agreement be recorded in the official
records of the county in which the qualified low-income housing
project is located.
(C) A provision stating which state and local agencies can enforce
the regulatory agreement in the event the housing sponsor fails to
satisfy any of the requirements of this section.
(D) A provision that the regulatory agreement shall be deemed a
contract enforceable by tenants as third-party beneficiaries thereto
and that allows individuals, whether prospective, present, or former
occupants of the building, who meet the income limitation applicable
to the building, the right to enforce the regulatory agreement in any
state court.
(E) A provision incorporating the requirements of Section 42 of
the Internal Revenue Code, relating to low-income housing credit, as
modified by this section.
(F) A requirement that the housing sponsor notify the California
Tax Credit Allocation Committee or its designee and the local agency
that can enforce the regulatory agreement if there is a determination
by the Internal Revenue Service that the project is not in
compliance with Section 42(g) of the Internal Revenue Code, relating
to qualified low-income housing project.
(G) A requirement that the housing sponsor, as security for the
performance of the housing sponsor's obligations under the regulatory
agreement, assign the housing sponsor's interest in rents that it
receives from the project, provided that until there is a default
under the regulatory agreement, the housing sponsor is entitled to
collect and retain the rents.
(H) A provision that the remedies available in the event of a
default under the regulatory agreement that is not cured within a
reasonable cure period include, but are not limited to, allowing any
of the parties designated to enforce the regulatory agreement to
collect all rents with respect to the project; taking possession of
the project and operating the project in accordance with the
regulatory agreement until the enforcer determines the housing
sponsor is in a position to operate the project in accordance with
the regulatory agreement; applying to any court for specific
performance; securing the appointment of a receiver to operate the
project; or any other relief as may be appropriate.
(j) (1) The committee shall allocate the housing credit on a
regular basis consisting of two or more periods in each calendar year
during which applications may be filed and considered. The committee
shall establish application filing deadlines, the maximum percentage
of federal and state low-income housing tax credit ceiling that may
be allocated by the committee in that period, and the approximate
date on which allocations shall be made. If the enactment of federal
or state law, the adoption of rules or regulations, or other similar
events prevent the use of two allocation periods, the committee may
reduce the number of periods and adjust the filing deadlines, maximum
percentage of credit allocated, and the allocation dates.
(2) The committee shall adopt a qualified allocation plan, as
provided in Section 42(m)(1) of the Internal Revenue Code, relating
to plans for allocation of credit among projects. In adopting this
plan, the committee shall comply with the provisions of Sections 42
(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code, relating to
qualified allocation plan and relating to certain selection criteria
must be used, respectively.
(3) Notwithstanding Section 42(m) of the Internal Revenue Code,
relating to responsibilities of housing credit agencies, the
California Tax Credit Allocation Committee shall allocate housing
credits in accordance with the qualified allocation plan and
regulations, which shall include the following provisions:
(A) All housing sponsors, as defined by paragraph (3) of
subdivision (a), shall demonstrate at the time the application is
filed with the committee that the project meets the following
threshold requirements:
(i) The housing sponsor shall demonstrate that there is a need and
demand for low-income housing in the community or region for which
it is proposed.
(ii) The project's proposed financing, including tax credit
proceeds, shall be sufficient to complete the project and that the
proposed operating income shall be adequate to operate the project
for the extended use period.
(iii) The project shall have enforceable financing commitments,
either construction or permanent financing, for at least 50 percent
of the total estimated financing of the project.
(iv) The housing sponsor shall have and maintain control of the
site for the project.
(v) The housing sponsor shall demonstrate that the project
complies with all applicable local land use and zoning ordinances.
(vi) The housing sponsor shall demonstrate that the project
development team has the experience and the financial capacity to
ensure project completion and operation for the extended use period.
(vii) The housing sponsor shall demonstrate the amount of tax
credit that is necessary for the financial feasibility of the project
and its viability as a qualified low-income housing project
throughout the extended use period, taking into account operating
expenses, a supportable debt service, reserves, funds set aside for
rental subsidies and required equity, and a development fee that does
not exceed a specified percentage of the eligible basis of the
project prior to inclusion of the development fee in the eligible
basis, as determined by the committee.
(B) The committee shall give a preference to those projects
satisfying all of the threshold requirements of subparagraph (A) if
both of the following apply:
(i) The project serves the lowest income tenants at rents
affordable to those tenants.
(ii) The project is obligated to serve qualified tenants for the
longest period.
(C) In addition to the provisions of subparagraphs (A) and (B),
the committee shall use the following criteria in allocating housing
credits:
(i) Projects serving large families in which a substantial number,
as defined by the committee, of all residential units are low-income
units with three and more bedrooms.
(ii) Projects providing single-room occupancy units serving very
low income tenants.
(iii) Existing projects that are "at risk of conversion," as
defined by paragraph (3) of subdivision (c).
(iv) Projects for which a public agency provides direct or
indirect long-term financial support for at least 15 percent of the
total project development costs or projects for which the owner's
equity constitutes at least 30 percent of the total project
development costs.
(v) Projects that provide tenant amenities not generally available
to residents of low-income housing projects.
(4) For purposes of allocating credits pursuant to this section,
the committee shall not give preference to any project by virtue of
the date of submission of its application except to break a tie when
two or more of the projects have an equal rating.
(k) Section 42(l) of the Internal Revenue Code, relating to
certifications and other reports to secretary, shall be modified as
follows:
The term "secretary" shall be replaced by the term "Franchise Tax
Board."
( l ) In the case where the credit allowed under this
section exceeds the "tax," the excess may be carried over to reduce
the "tax" in the following year, and succeeding years if necessary,
until the credit has been exhausted.
(m) The provisions of Section 11407(a) of Public Law 101-508,
relating to the effective date of the extension of the low-income
housing credit, shall apply to calendar years after 1993.
(n) The provisions of Section 11407(c) of Public Law 101-508,
relating to election to accelerate credit, shall not apply.
(o) (1) Notwithstanding any
other law, for any credits awarded under this section for taxable
years beginning on or after January 1, 2016 , and
before January 1, 2026 , a taxpayer may make an irrevocable
election in its application to the California Tax Credit Allocation
Committee to sell all or any portion of any credit allowed under this
section to one or more unrelated parties for each taxable year in
which the credit is allowed for consideration that is not less than
80 percent of the amount of the credit. A taxpayer shall notify
the California Tax Credit Allocation Committee of this election
within ten days.
(2) (A) The sale authorized by paragraph (1) may be documented
based on any method selected by the taxpayer that originally receives
the credit.
(B) The sale authorized by paragraph (1) may be changed for any
subsequent taxable year if the sale is expressly shown on each of the
returns of both the transferor and the transferee that sell and
receive the credit.
(C) (i) The taxpayer that originally received the credit shall
report to the California Tax Credit Allocation Committee prior to the
sale of the credit, in the form and manner specified by the
California Tax Credit Allocation Committee, all required information
regarding the purchase and sale of the credit, including the social
security or other taxpayer identification number of the unrelated
party to whom the credit has been sold, the face amount of the credit
sold, and the amount of consideration received by the taxpayer for
the sale of the credit.
(ii) The California Tax Credit Allocation Committee shall provide
an annual listing to the Franchise Tax Board, in a form and manner
agreed upon by the California Tax Credit Allocation Committee and the
Franchise Tax Board, of the taxpayers that have
sold or purchased a credit pursuant to this
subdivision.
(3) A credit may be sold pursuant to this subdivision to more than
one unrelated party, and shall not be resold by the unrelated party
to another taxpayer or other party.
(4) Notwithstanding any other provision of law, the taxpayer that
originally received the credit that is sold pursuant to paragraph (1)
shall remain solely liable for all obligations and liabilities
imposed on the taxpayer by this section with respect to the credit,
none of which shall apply to any party to whom the credit has been
sold or subsequently transferred. Parties who purchase credits
pursuant to paragraph (1) shall be entitled to utilize the purchased
credits in the same manner in which the taxpayer that originally
received the credit could utilize them.
(5) A taxpayer shall not sell a credit allowed by this section if
the taxpayer was allowed the credit on any tax return of the
taxpayer.
(6) Notwithstanding paragraph (1), the taxpayer, with the approval
of the Executive Director of the California Tax Credit Allocation
Committee, may rescind the election to sell all or any portion of the
credit allowed under this section if the consideration for the
credit falls below 80% of the amount of the credit after the
California Tax Credit Allocation Committee reservation.
(p) This section shall remain in effect for as long as Section 42
of the Internal Revenue Code, relating to low-income housing credit,
remains in effect.
SEC. 2. Section 17058 of the Revenue and Taxation Code is amended
to read:
17058. (a) (1) There shall be allowed as a credit against the
"net tax," as defined in Section 17039, a state low-income housing
tax credit in an amount equal to the amount determined in subdivision
(c), computed in accordance with Section 42 of the Internal Revenue
Code, relating to low-income housing credit, except as otherwise
provided in this section.
(2) "Taxpayer," for purposes of this section, means the sole owner
in the case of an individual, the partners in the case of a
partnership, and the shareholders in the case of an "S" corporation.
(3) "Housing sponsor," for purposes of this section, means the
sole owner in the case of an individual, the partnership in the case
of a partnership, and the "S" corporation in the case of an "S"
corporation.
(b) (1) The amount of the credit allocated to any housing sponsor
shall be authorized by the California Tax Credit Allocation
Committee, or any successor thereof, based on a project's need for
the credit for economic feasibility in accordance with the
requirements of this section.
(A) The low-income housing project shall be located in California
and shall meet either of the following requirements:
(i) Except for projects to provide farmworker housing, as defined
in subdivision (h) of Section 50199.7 of the Health and Safety Code,
that are allocated credits solely under the set-aside described in
subdivision (c) of Section 50199.20 of the Health and Safety Code,
the project's housing sponsor has been allocated by the California
Tax Credit Allocation Committee a credit for federal income tax
purposes under Section 42 of the Internal Revenue Code, relating to
low-income housing credit.
(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
Internal Revenue Code, relating to special rule where 50 percent or
more of building is financed with tax-exempt bonds subject to volume
cap.
(B) The California Tax Credit Allocation Committee shall not
require fees for the credit under this section in addition to those
fees required for applications for the tax credit pursuant to Section
42 of the Internal Revenue Code, relating to low-income housing
credit. The committee may require a fee if the application for the
credit under this section is submitted in a calendar year after the
year the application is submitted for the federal tax credit.
(C) (i) For a project that receives a preliminary reservation of
the state low-income housing tax credit, allowed pursuant to
subdivision (a), on or after January 1, 2009, the credit shall be
allocated to the partners of a partnership owning the project in
accordance with the partnership agreement, regardless of how the
federal low-income housing tax credit with respect to the project is
allocated to the partners, or whether the allocation of the credit
under the terms of the agreement has substantial economic effect,
within the meaning of Section 704(b) of the Internal Revenue Code,
relating to determination of distributive share.
(ii) To the extent the allocation of the credit to a partner under
this section lacks substantial economic effect, any loss or
deduction otherwise allowable under this part that is attributable to
the sale or other disposition of that partner's partnership interest
made prior to the expiration of the federal credit shall not be
allowed in the taxable year in which the sale or other disposition
occurs, but shall instead be deferred until and treated as if it
occurred in the first taxable year immediately following the taxable
year in which the federal credit period expires for the project
described in clause (i).
(iii) This subparagraph shall not apply to a project that receives
a preliminary reservation of state low-income housing tax credits
under the set-aside described in subdivision (c) of Section 50199.20
of the Health and Safety Code unless the project also receives a
preliminary reservation of federal low-income housing tax credits.
(2) (A) The California Tax Credit Allocation Committee shall
certify to the housing sponsor the amount of tax credit under this
section allocated to the housing sponsor for each credit period.
(B) In the case of a partnership or an "S" corporation, the
housing sponsor shall provide a copy of the California Tax Credit
Allocation Committee certification to the taxpayer.
(C) The taxpayer shall, upon request, provide a copy of the
certification to the Franchise Tax Board.
(D) All elections made by the taxpayer pursuant to Section 42 of
the Internal Revenue Code, relating to low-income housing credit,
shall apply to this section.
(E) (i) Except as described in clause (ii), for buildings located
in designated difficult development areas (DDAs) or qualified census
tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal
Revenue Code, relating to increase in credit for buildings in
high-cost areas, credits may be allocated under this section in the
amounts prescribed in subdivision (c), provided that the amount of
credit allocated under Section 42 of the Internal Revenue Code,
relating to low-income housing credit, is computed on 100 percent of
the qualified basis of the building.
(ii) Notwithstanding clause (i), the California Tax Credit
Allocation Committee may allocate the credit for buildings located in
DDAs or QCTs that are restricted to having 50 percent of its
occupants be special needs households, as defined in the California
Code of Regulations by the California Tax Credit Allocation
Committee, even if the taxpayer receives federal credits pursuant to
Section 42(d)(5)(B) of the Internal Revenue Code, relating to
increase in credit for buildings in high-cost areas, provided that
the credit allowed under this section shall not exceed 30 percent of
the eligible basis of the building.
(G) (i) The California Tax Credit Allocation Committee may
allocate a credit under this section in exchange for a credit
allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue
Code, relating to increase in credit for buildings in high-cost
areas, in amounts up to 30 percent of the eligible basis of a
building if the credits allowed under Section 42 of the Internal
Revenue Code, relating to low-income housing credit, are reduced by
an equivalent amount.
(ii) An equivalent amount shall be determined by the California
Tax Credit Allocation Committee based upon the relative amount
required to produce an equivalent state tax credit to the taxpayer.
(c) Section 42(b) of the Internal Revenue Code, relating to
applicable percentage, shall be modified as follows:
(1) In the case of any qualified low-income building placed in
service by the housing sponsor during 1987, the term "applicable
percentage" means 9 percent for each of the first three years and 3
percent for the fourth year for new buildings (whether or not the
building is federally subsidized) and for existing buildings.
(2) In the case of any qualified low-income building that receives
an allocation after 1989 and is a new building not federally
subsidized, the term "applicable percentage" means the following:
(A) For each of the first three years, the percentage prescribed
by the Secretary of the Treasury for new buildings that are not
federally subsidized for the taxable year, determined in accordance
with the requirements of Section 42(b)(2) of the Internal Revenue
Code, relating to temporary minimum credit rate for nonfederally
subsidized new buildings, in lieu of the percentage prescribed in
Section 42(b)(1)(A) of the Internal Revenue Code.
(B) For the fourth year, the difference between 30 percent and the
sum of the applicable percentages for the first three years.
(3) In the case of any qualified low-income building that receives
an allocation after 1989 and that is a new building that is
federally subsidized or that is an existing building that is "at risk
of conversion," the term "applicable percentage" means the
following:
(A) For each of the first three years, the percentage prescribed
by the Secretary of the Treasury for new buildings that are federally
subsidized for the taxable year.
(B) For the fourth year, the difference between 13 percent and the
sum of the applicable percentages for the first three years.
(4) For purposes of this section, the term "at risk of conversion,"
with respect to an existing property means a property that satisfies
all of the following criteria:
(A) The property is a multifamily rental housing development in
which at least 50 percent of the units receive governmental
assistance pursuant to any of the following:
(i) New construction, substantial rehabilitation, moderate
rehabilitation, property disposition, and loan management set-aside
programs, or any other program providing project-based assistance
pursuant to Section 8 of the United States Housing Act of 1937,
Section 1437f of Title 42 of the United States Code, as amended.
(ii) The Below-Market-Interest-Rate Program pursuant to Section
221(d)(3) of the National Housing Act, Sections 1715 l (d)
(3) and (5) of Title 12 of the United States Code.
(iii) Section 236 of the National Housing Act, Section 1715z-1 of
Title 12 of the United States Code.
(iv) Programs for rent supplement assistance pursuant to Section
101 of the Housing and Urban Development Act of 1965, Section 1701s
of Title 12 of the United States Code, as amended.
(v) Programs pursuant to Section 515 of the Housing Act of 1949,
Section 1485 of Title 42 of the United States Code, as amended.
(vi) The low-income housing credit program set forth in Section 42
of the Internal Revenue Code, relating to low-income housing credit.
(B) The restrictions on rent and income levels will terminate or
the federally insured mortgage on the property is eligible for
prepayment any time within five years before or after the date of
application to the California Tax Credit Allocation Committee.
(C) The entity acquiring the property enters into a regulatory
agreement that requires the property to be operated in accordance
with the requirements of this section for a period equal to the
greater of 55 years or the life of the property.
(D) The property satisfies the requirements of Section 42(e) of
the Internal Revenue Code relating to rehabilitation expenditures
treated as a separate new building, except that the provisions of
Section 42(e)(3)(A)(ii)(I) shall not apply.
(d) The term "qualified low-income housing project" as defined in
Section 42(c)(2) of the Internal Revenue Code, relating to qualified
low-income building, is modified by adding the following
requirements:
(1) The taxpayer shall be entitled to receive a cash distribution
from the operations of the project, after funding required reserves,
that, at the election of the taxpayer, is equal to:
(A) An amount not to exceed 8 percent of the lesser of:
(i) The owner equity, which shall include the amount of the
capital contributions actually paid to the housing sponsor and shall
not include any amounts until they are paid on an investor note.
(ii) Twenty percent of the adjusted basis of the building as of
the close of the first taxable year of the credit period.
(B) The amount of the cashflow from those units in the building
that are not low-income units. For purposes of computing cashflow
under this subparagraph, operating costs shall be allocated to the
low-income units using the "floor space fraction," as defined in
Section 42 of the Internal Revenue Code, relating to low-income
housing credit.
(C) Any amount allowed to be distributed under subparagraph (A)
that is not available for distribution during the first five years of
the compliance period may be accumulated and distributed any time
during the first 15 years of the compliance period but not
thereafter.
(2) The limitation on return shall apply in the aggregate to the
partners if the housing sponsor is a partnership and in the aggregate
to the shareholders if the housing sponsor is an "S" corporation.
(3) The housing sponsor shall apply any cash available for
distribution in excess of the amount eligible to be distributed under
paragraph (1) to reduce the rent on rent-restricted units or to
increase the number of rent-restricted units subject to the tests of
Section 42(g)(1) of the Internal Revenue Code, relating to in
general.
(e) The provisions of Section 42(f) of the Internal Revenue Code,
relating to definition and special rules relating to credit period,
shall be modified as follows:
(1) The term "credit period" as defined in Section 42(f)(1) of the
Internal Revenue Code, relating to credit period defined, is
modified by substituting "four taxable years" for "10 taxable years."
(2) The special rule for the first taxable year of the credit
period under Section 42(f)(2) of the Internal Revenue Code, relating
to special rule for first year of credit period, shall not apply to
the tax credit under this section.
(3) Section 42(f)(3) of the Internal Revenue Code, relating to
determination of applicable percentage with respect to increases in
qualified basis after first year of credit period, is modified to
read:
If, as of the close of any taxable year in the compliance period,
after the first year of the credit period, the qualified basis of any
building exceeds the qualified basis of that building as of the
close of the first year of the credit period, the housing sponsor, to
the extent of its tax credit allocation, shall be eligible for a
credit on the excess in an amount equal to the applicable percentage
determined pursuant to subdivision (c) for the four-year period
beginning with the taxable year in which the increase in qualified
basis occurs.
(f) The provisions of Section 42(h) of the Internal Revenue Code,
relating to limitation on aggregate credit allowable with respect to
projects located in a state, shall be modified as follows:
(1) Section 42(h)(2) of the Internal Revenue Code, relating to
allocated credit amount to apply to all taxable years ending during
or after credit allocation year, shall not be applicable and instead
the following provisions shall be applicable:
The total amount for the four-year credit period of the housing
credit dollars allocated in a calendar year to any building shall
reduce the aggregate housing credit dollar amount of the California
Tax Credit Allocation Committee for the calendar year in which the
allocation is made.
(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)
(I), (7), and (8) of Section 42(h) of the Internal Revenue Code,
relating to limitation on aggregate credit allowable with respect to
projects located in a state, shall not be applicable.
(g) The aggregate housing credit dollar amount that may be
allocated annually by the California Tax Credit Allocation Committee
pursuant to this section, Section 12206, and Section 23610.5 shall be
an amount equal to the sum of all the following:
(1) Seventy million dollars ($70,000,000) for the 2001 calendar
year, and, for the 2002 calendar year and each calendar year
thereafter, seventy million dollars ($70,000,000) increased by the
percentage, if any, by which the Consumer Price Index for the
preceding calendar year exceeds the Consumer Price Index for the 2001
calendar year. For the purposes of this paragraph, the term
"Consumer Price Index" means the last Consumer Price Index for All
Urban Consumers published by the federal Department of Labor.
(2) The unused housing credit ceiling, if any, for the preceding
calendar years.
(3) The amount of housing credit ceiling returned in the calendar
year. For purposes of this paragraph, the amount of housing credit
dollar amount returned in the calendar year equals the housing credit
dollar amount previously allocated to any project that does not
become a qualified low-income housing project within the period
required by this section or to any project with respect to which an
allocation is canceled by mutual consent of the California Tax Credit
Allocation Committee and the allocation recipient.
(4) Five hundred thousand dollars ($500,000) per calendar year for
projects to provide farmworker housing, as defined in subdivision
(h) of Section 50199.7 of the Health and Safety Code.
(5) The amount of any unallocated or returned credits under former
Sections 17053.14, 23608.2, and 23608.3, as those sections read
prior to January 1, 2009, until fully exhausted for projects to
provide farmworker housing, as defined in subdivision (h) of Section
50199.7 of the Health and Safety Code.
(h) The term "compliance period" as defined in Section 42(i)(1) of
the Internal Revenue Code, relating to compliance period, is
modified to mean, with respect to any building, the period of 30
consecutive taxable years beginning with the first taxable year of
the credit period with respect thereto.
(i) Section 42(j) of the Internal Revenue Code, relating to
recapture of credit, shall not be applicable and the following
requirements of this section shall be set forth in a regulatory
agreement between the California Tax Credit Allocation Committee and
the housing sponsor, and this agreement shall be subordinated, when
required, to any lien or encumbrance of any banks or other
institutional lenders to the project. The regulatory agreement
entered into pursuant to subdivision (f) of Section 50199.14 of the
Health and Safety Code shall apply, provided that the agreement
includes all of the following provisions:
(1) A term not less than the compliance period.
(2) A requirement that the agreement be recorded in the official
records of the county in which the qualified low-income housing
project is located.
(3) A provision stating which state and local agencies can enforce
the regulatory agreement in the event the housing sponsor fails to
satisfy any of the requirements of this section.
(4) A provision that the regulatory agreement shall be deemed a
contract enforceable by tenants as third-party beneficiaries thereto
and that allows individuals, whether prospective, present, or former
occupants of the building, who meet the income limitation applicable
to the building, the right to enforce the regulatory agreement in any
state court.
(5) A provision incorporating the requirements of Section 42 of
the Internal Revenue Code, relating to low-income housing credit, as
modified by this section.
(6) A requirement that the housing sponsor notify the California
Tax Credit Allocation Committee or its designee if there is a
determination by the Internal Revenue Service that the project is not
in compliance with Section 42(g) of the Internal Revenue Code,
relating to qualified low-income housing project.
(7) A requirement that the housing sponsor, as security for the
performance of the housing sponsor's obligations under the regulatory
agreement, assign the housing sponsor's interest in rents that it
receives from the project, provided that until there is a default
under the regulatory agreement, the housing sponsor is entitled to
collect and retain the rents.
(8) A provision that the remedies available in the event of a
default under the regulatory agreement that is not cured within a
reasonable cure period include, but are not limited to, allowing any
of the parties designated to enforce the regulatory agreement to
collect all rents with respect to the project; taking possession of
the project and operating the project in accordance with the
regulatory agreement until the enforcer determines the housing
sponsor is in a position to operate the project in accordance with
the regulatory agreement; applying to any court for specific
performance; securing the appointment of a receiver to operate the
project; or any other relief as may be appropriate.
(j) (1) The committee shall allocate the housing credit on a
regular basis consisting of two or more periods in each calendar year
during which applications may be filed and considered. The committee
shall establish application filing deadlines, the maximum percentage
of federal and state low-income housing tax credit ceiling that may
be allocated by the committee in that period, and the approximate
date on which allocations shall be made. If the enactment of federal
or state law, the adoption of rules or regulations, or other similar
events prevent the use of two allocation periods, the committee may
reduce the number of periods and adjust the filing deadlines, maximum
percentage of credit allocated, and the allocation dates.
(2) The committee shall adopt a qualified allocation plan, as
provided in Section 42(m)(1) of the Internal Revenue Code, relating
to plans for allocation of credit among projects. In adopting this
plan, the committee shall comply with the provisions of Sections 42
(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code, relating to
qualified allocation plan and relating to certain selection criteria
must be used, respectively.
(3) Notwithstanding Section 42(m) of the Internal Revenue Code,
relating to responsibilities of housing credit agencies, the
California Tax Credit Allocation Committee shall allocate housing
credits in accordance with the qualified allocation plan and
regulations, which shall include the following provisions:
(A) All housing sponsors, as defined by paragraph (3) of
subdivision (a), shall demonstrate at the time the application is
filed with the committee that the project meets the following
threshold requirements:
(i) The housing sponsor shall demonstrate that there is a need and
demand for low-income housing in the community or region for which
it is proposed.
(ii) The project's proposed financing, including tax credit
proceeds, shall be sufficient to complete the project and that the
proposed operating income shall be adequate to operate the project
for the extended use period.
(iii) The project shall have enforceable financing commitments,
either construction or permanent financing, for at least 50 percent
of the total estimated financing of the project.
(iv) The housing sponsor shall have and maintain control of the
site for the project.
(v) The housing sponsor shall demonstrate that the project
complies with all applicable local land use and zoning ordinances.
(vi) The housing sponsor shall demonstrate that the project
development team has the experience and the financial capacity to
ensure project completion and operation for the extended use period.
(vii) The housing sponsor shall demonstrate the amount of tax
credit that is necessary for the financial feasibility of the project
and its viability as a qualified low-income housing project
throughout the extended use period, taking into account operating
expenses, a supportable debt service, reserves, funds set aside for
rental subsidies and required equity, and a development fee that does
not exceed a specified percentage of the eligible basis of the
project prior to inclusion of the development fee in the eligible
basis, as determined by the committee.
(B) The committee shall give a preference to those projects
satisfying all of the threshold requirements of subparagraph (A) if
both of the following apply:
(i) The project serves the lowest income tenants at rents
affordable to those tenants.
(ii) The project is obligated to serve qualified tenants for the
longest period.
(C) In addition to the provisions of subparagraphs (A) and (B),
the committee shall use the following criteria in allocating housing
credits:
(i) Projects serving large families in which a substantial number,
as defined by the committee, of all residential units are low-income
units with three and more bedrooms.
(ii) Projects providing single-room occupancy units serving very
low income tenants.
(iii) Existing projects that are "at risk of conversion," as
defined by paragraph (4) of subdivision (c).
(iv) Projects for which a public agency provides direct or
indirect long-term financial support for at least 15 percent of the
total project development costs or projects for which the owner's
equity constitutes at least 30 percent of the total project
development costs.
(v) Projects that provide tenant amenities not generally available
to residents of low-income housing projects.
(4) For purposes of allocating credits pursuant to this section,
the committee shall not give preference to any project by virtue of
the date of submission of its application.
(k) Section 42( l ) of the Internal Revenue Code,
relating to certifications and other reports to secretary, shall be
modified as follows:
The term "secretary" shall be replaced by the term "Franchise Tax
Board."
( l ) In the case where the credit allowed under this
section exceeds the net tax, the excess may be carried over to reduce
the net tax in the following year, and succeeding years if
necessary, until the credit has been exhausted.
(m) A project that received an allocation of a 1989 federal
housing credit dollar amount shall be eligible to receive an
allocation of a 1990 state housing credit dollar amount, subject to
all of the following
conditions:
(1) The project was not placed in service prior to 1990.
(2) To the extent the amendments made to this section by the
Statutes of 1990 conflict with any provisions existing in this
section prior to those amendments, the prior provisions of law shall
prevail.
(3) Notwithstanding paragraph (2), a project applying for an
allocation under this subdivision shall be subject to the
requirements of paragraph (3) of subdivision (j).
(n) The credit period with respect to an allocation of credit in
1989 by the California Tax Credit Allocation Committee of which any
amount is attributable to unallocated credit from 1987 or 1988 shall
not begin until after December 31, 1989.
(o) The provisions of Section 11407(a) of Public Law 101-508,
relating to the effective date of the extension of the low-income
housing credit, shall apply to calendar years after 1989.
(p) The provisions of Section 11407(c) of Public Law 101-508,
relating to election to accelerate credit, shall not apply.
(q) Any unused credit may continue to be carried forward, as
provided in subdivision ( l ), until the credit has been
exhausted.
This section shall remain in effect on and after December 1, 1990,
for as long as Section 42 of the Internal Revenue Code, relating to
low-income housing credit, remains in effect.
(r) (1) Notwithstanding any
other law, for any credits awarded under this section for taxable
years beginning on or after January 1, 2016 , and before January
1, 2026 , a taxpayer may make an irrevocable election in its
application to the California Tax Credit Allocation Committee to sell
all or any portion of any credit allowed under this section to one
or more unrelated parties for each taxable year in which the credit
is allowed for consideration that is not less than 80 percent of the
amount of the credit. A taxpayer shall notify the California Tax
Credit Allocation Committee of this election within ten days.
(2) (A) The sale authorized by paragraph (1) may be documented
based on any method selected by the taxpayer that originally receives
the credit.
(B) The sale authorized by paragraph (1) may be changed for any
subsequent taxable year if the sale is expressly shown on each of the
returns of both the transferor and the transferee that sell and
receive the credit.
(C) (i) The taxpayer that originally received the credit shall
report to the California Tax Credit Allocation Committee prior to the
sale of the credit, in the form and manner specified by the
California Tax Credit Allocation Committee, all required information
regarding the purchase and sale of the credit, including the social
security or other taxpayer identification number of the unrelated
party to whom the credit has been sold, the face amount of the credit
sold, and the amount of consideration received by the taxpayer for
the sale of the credit.
(ii) The California Tax Credit Allocation Committee shall provide
an annual listing to the Franchise Tax Board, in a form and manner
agreed upon by the California Tax Credit Allocation Committee and the
Franchise Tax Board, of the taxpayers that have sold or purchased a
credit pursuant to this subdivision.
(3) A credit may be sold pursuant to this subdivision to more than
one unrelated party, and shall not be resold by the unrelated party
to another taxpayer or other party.
(4) Notwithstanding any other provision of law, the taxpayer that
originally received the credit that is sold pursuant to paragraph (1)
shall remain solely liable for all obligations and liabilities
imposed on the taxpayer by this section with respect to the credit,
none of which shall apply to any party to whom the credit has been
sold or subsequently transferred. Parties who purchase credits
pursuant to paragraph (1) shall be entitled to utilize the purchased
credits in the same manner in which the taxpayer that originally
received the credit could utilize them.
(5) A taxpayer shall not sell a credit allowed by this section if
the taxpayer was allowed the credit on any tax return of the
taxpayer.
(6) Notwithstanding paragraph (1), the taxpayer, with the approval
of the Executive Director of the California Tax Credit Allocation
Committee, may rescind the election to sell all or any portion of the
credit allowed under this section if the consideration for the
credit falls below 80% of the amount of the credit after the
California Tax Credit Allocation Committee reservation.
(s) The amendments to this section made by Chapter 1222 of the
Statutes of 1993 shall apply only to taxable years beginning on or
after January 1, 1994.
SEC. 3. Section 23610.5 of the Revenue and Taxation Code is
amended to read:
23610.5. (a) (1) There shall be allowed as a credit against the
"tax," as defined by Section 23036, a state low-income housing tax
credit in an amount equal to the amount determined in subdivision
(c), computed in accordance with Section 42 of the Internal Revenue
Code, relating to low-income housing credit, except as otherwise
provided in this section.
(2) "Taxpayer," for purposes of this section, means the sole owner
in the case of a "C" corporation, the partners in the case of a
partnership, and the shareholders in the case of an "S" corporation.
(3) "Housing sponsor," for purposes of this section, means the
sole owner in the case of a "C" corporation, the partnership in the
case of a partnership, and the "S" corporation in the case of an "S"
corporation.
(b) (1) The amount of the credit allocated to any housing sponsor
shall be authorized by the California Tax Credit Allocation
Committee, or any successor thereof, based on a project's need for
the credit for economic feasibility in accordance with the
requirements of this section.
(A) The low-income housing project shall be located in California
and shall meet either of the following requirements:
(i) Except for projects to provide farmworker housing, as defined
in subdivision (h) of Section 50199.7 of the Health and Safety Code,
that are allocated credits solely under the set-aside described in
subdivision (c) of Section 50199.20 of the Health and Safety Code,
the project's housing sponsor has been allocated by the California
Tax Credit Allocation Committee a credit for federal income tax
purposes under Section 42 of the Internal Revenue Code, relating to
low-income housing credit.
(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
Internal Revenue Code, relating to special rule where 50 percent or
more of building is financed with tax-exempt bonds subject to volume
cap.
(B) The California Tax Credit Allocation Committee shall not
require fees for the credit under this section in addition to those
fees required for applications for the tax credit pursuant to Section
42 of the Internal Revenue Code, relating to low-income housing
credit. The committee may require a fee if the application for the
credit under this section is submitted in a calendar year after the
year the application is submitted for the federal tax credit.
(C) (i) For a project that receives a preliminary reservation of
the state low-income housing tax credit, allowed pursuant to
subdivision (a), on or after January 1, 2009, the credit shall be
allocated to the partners of a partnership owning the project in
accordance with the partnership agreement, regardless of how the
federal low-income housing tax credit with respect to the project is
allocated to the partners, or whether the allocation of the credit
under the terms of the agreement has substantial economic effect,
within the meaning of Section 704(b) of the Internal Revenue Code,
relating to determination of distributive share.
(ii) To the extent the allocation of the credit to a partner under
this section lacks substantial economic effect, any loss or
deduction otherwise allowable under this part that is attributable to
the sale or other disposition of that partner's partnership interest
made prior to the expiration of the federal credit shall not be
allowed in the taxable year in which the sale or other disposition
occurs, but shall instead be deferred until and treated as if it
occurred in the first taxable year immediately following the taxable
year in which the federal credit period expires for the project
described in clause (i).
(iii) This subparagraph shall not apply to a project that receives
a preliminary reservation of state low-income housing tax credits
under the set-aside described in subdivision (c) of Section 50199.20
of the Health and Safety Code unless the project also receives a
preliminary reservation of federal low-income housing tax credits.
(2) (A) The California Tax Credit Allocation Committee shall
certify to the housing sponsor the amount of tax credit under this
section allocated to the housing sponsor for each credit period.
(B) In the case of a partnership or an "S" corporation, the
housing sponsor shall provide a copy of the California Tax Credit
Allocation Committee certification to the taxpayer.
(C) The taxpayer shall, upon request, provide a copy of the
certification to the Franchise Tax Board.
(D) All elections made by the taxpayer pursuant to Section 42 of
the Internal Revenue Code, relating to low-income housing credit,
shall apply to this section.
(E) (i) Except as described in clause (ii), for buildings located
in designated difficult development areas (DDAs) or qualified census
tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal
Revenue Code, relating to increase in credit for buildings in
high-cost areas, credits may be allocated under this section in the
amounts prescribed in subdivision (c), provided that the amount of
credit allocated under Section 42 of the Internal Revenue Code,
relating to low-income housing credit, is computed on 100 percent of
the qualified basis of the building.
(ii) Notwithstanding clause (i), the California Tax Credit
Allocation Committee may allocate the credit for buildings located in
DDAs or QCTs that are restricted to having 50 percent of its
occupants be special needs households, as defined in the California
Code of Regulations by the California Tax Credit Allocation
Committee, even if the taxpayer receives federal credits pursuant to
Section 42(d)(5)(B) of the Internal Revenue Code, relating to
increase in credit for buildings in high-cost areas, provided that
the credit allowed under this section shall not exceed 30 percent of
the eligible basis of the building.
(G) (i) The California Tax Credit Allocation Committee may
allocate a credit under this section in exchange for a credit
allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue
Code, relating to increase in credit for buildings in high-cost
areas, in amounts up to 30 percent of the eligible basis of a
building if the credits allowed under Section 42 of the Internal
Revenue Code, relating to low-income housing credit, are reduced by
an equivalent amount.
(ii) An equivalent amount shall be determined by the California
Tax Credit Allocation Committee based upon the relative amount
required to produce an equivalent state tax credit to the taxpayer.
(c) Section 42(b) of the Internal Revenue Code, relating to
applicable percentage, shall be modified as follows:
(1) In the case of any qualified low-income building placed in
service by the housing sponsor during 1987, the term "applicable
percentage" means 9 percent for each of the first three years and 3
percent for the fourth year for new buildings (whether or not the
building is federally subsidized) and for existing buildings.
(2) In the case of any qualified low-income building that receives
an allocation after 1989 and is a new building not federally
subsidized, the term "applicable percentage" means the following:
(A) For each of the first three years, the percentage prescribed
by the Secretary of the Treasury for new buildings that are not
federally subsidized for the taxable year, determined in accordance
with the requirements of Section 42(b)(2) of the Internal Revenue
Code, relating to temporary minimum credit rate for nonfederally
subsidized new buildings, in lieu of the percentage prescribed in
Section 42(b)(1)(A) of the Internal Revenue Code.
(B) For the fourth year, the difference between 30 percent and the
sum of the applicable percentages for the first three years.
(3) In the case of any qualified low-income building that receives
an allocation after 1989 and that is a new building that is
federally subsidized or that is an existing building that is "at risk
of conversion," the term "applicable percentage" means the
following:
(A) For each of the first three years, the percentage prescribed
by the Secretary of the Treasury for new buildings that are federally
subsidized for the taxable year.
(B) For the fourth year, the difference between 13 percent and the
sum of the applicable percentages for the first three years.
(4) For purposes of this section, the term "at risk of conversion,"
with respect to an existing property means a property that satisfies
all of the following criteria:
(A) The property is a multifamily rental housing development in
which at least 50 percent of the units receive governmental
assistance pursuant to any of the following:
(i) New construction, substantial rehabilitation, moderate
rehabilitation, property disposition, and loan management set-aside
programs, or any other program providing project-based assistance
pursuant to Section 8 of the United States Housing Act of 1937,
Section 1437f of Title 42 of the United States Code, as amended.
(ii) The Below-Market-Interest-Rate Program pursuant to Section
221(d)(3) of the National Housing Act, Sections 1715 l (d)
(3) and (5) of Title 12 of the United States Code.
(iii) Section 236 of the National Housing Act, Section 1715z-1 of
Title 12 of the United States Code.
(iv) Programs for rent supplement assistance pursuant to Section
101 of the Housing and Urban Development Act of 1965, Section 1701s
of Title 12 of the United States Code, as amended.
(v) Programs pursuant to Section 515 of the Housing Act of 1949,
Section 1485 of Title 42 of the United States Code, as amended.
(vi) The low-income housing credit program set forth in Section 42
of the Internal Revenue Code, relating to low-income housing credit.
(B) The restrictions on rent and income levels will terminate or
the federally insured mortgage on the property is eligible for
prepayment any time within five years before or after the date of
application to the California Tax Credit Allocation Committee.
(C) The entity acquiring the property enters into a regulatory
agreement that requires the property to be operated in accordance
with the requirements of this section for a period equal to the
greater of 55 years or the life of the property.
(D) The property satisfies the requirements of Section 42(e) of
the Internal Revenue Code relating to rehabilitation expenditures
treated as a separate new building, except that the provisions of
Section 42(e)(3)(A)(ii)(I) shall not apply.
(d) The term "qualified low-income housing project" as defined in
Section 42(c)(2) of the Internal Revenue Code, relating to qualified
low-income building, is modified by adding the following
requirements:
(1) The taxpayer shall be entitled to receive a cash distribution
from the operations of the project, after funding required reserves,
that, at the election of the taxpayer, is equal to:
(A) An amount not to exceed 8 percent of the lesser of:
(i) The owner equity, which shall include the amount of the
capital contributions actually paid to the housing sponsor and shall
not include any amounts until they are paid on an investor note.
(ii) Twenty percent of the adjusted basis of the building as of
the close of the first taxable year of the credit period.
(B) The amount of the cashflow from those units in the building
that are not low-income units. For purposes of computing cashflow
under this subparagraph, operating costs shall be allocated to the
low-income units using the "floor space fraction," as defined in
Section 42 of the Internal Revenue Code, relating to low-income
housing credit.
(C) Any amount allowed to be distributed under subparagraph (A)
that is not available for distribution during the first five years of
the compliance period may be accumulated and distributed any time
during the first 15 years of the compliance period but not
thereafter.
(2) The limitation on return shall apply in the aggregate to the
partners if the housing sponsor is a partnership and in the aggregate
to the shareholders if the housing sponsor is an "S" corporation.
(3) The housing sponsor shall apply any cash available for
distribution in excess of the amount eligible to be distributed under
paragraph (1) to reduce the rent on rent-restricted units or to
increase the number of rent-restricted units subject to the tests of
Section 42(g)(1) of the Internal Revenue Code, relating to in
general.
(e) The provisions of Section 42(f) of the Internal Revenue Code,
relating to definition and special rules relating to credit period,
shall be modified as follows:
(1) The term "credit period" as defined in Section 42(f)(1) of the
Internal Revenue Code, relating to credit period defined, is
modified by substituting "four taxable years" for "10 taxable years."
(2) The special rule for the first taxable year of the credit
period under Section 42(f)(2) of the Internal Revenue Code, relating
to special rule for first year of credit period, shall not apply to
the tax credit under this section.
(3) Section 42(f)(3) of the Internal Revenue Code, relating to
determination of applicable percentage with respect to increases in
qualified basis after first year of credit period, is modified to
read:
If, as of the close of any taxable year in the compliance period,
after the first year of the credit period, the qualified basis of any
building exceeds the qualified basis of that building as of the
close of the first year of the credit period, the housing sponsor, to
the extent of its tax credit allocation, shall be eligible for a
credit on the excess in an amount equal to the applicable percentage
determined pursuant to subdivision (c) for the four-year period
beginning with the later of the taxable years in which the increase
in qualified basis occurs.
(f) The provisions of Section 42(h) of the Internal Revenue Code,
relating to limitation on aggregate credit allowable with respect to
projects located in a state, shall be modified as follows:
(1) Section 42(h)(2) of the Internal Revenue Code, relating to
allocated credit amount to apply to all taxable years ending during
or after credit allocation year, shall not be applicable and instead
the following provisions shall be applicable:
The total amount for the four-year credit period of the housing
credit dollars allocated in a calendar year to any building shall
reduce the aggregate housing credit dollar amount of the California
Tax Credit Allocation Committee for the calendar year in which the
allocation is made.
(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)
(I), (7), and (8) of Section 42(h) of the Internal Revenue Code,
relating to limitation on aggregate credit allowable with respect to
projects located in a state, shall not be applicable.
(g) The aggregate housing credit dollar amount that may be
allocated annually by the California Tax Credit Allocation Committee
pursuant to this section, Section 12206, and Section 17058 shall be
an amount equal to the sum of all the following:
(1) Seventy million dollars ($70,000,000) for the 2001 calendar
year, and, for the 2002 calendar year and each calendar year
thereafter, seventy million dollars ($70,000,000) increased by the
percentage, if any, by which the Consumer Price Index for the
preceding calendar year exceeds the Consumer Price Index for the 2001
calendar year. For the purposes of this paragraph, the term
"Consumer Price Index" means the last Consumer Price Index for All
Urban Consumers published by the federal Department of Labor.
(2) The unused housing credit ceiling, if any, for the preceding
calendar years.
(3) The amount of housing credit ceiling returned in the calendar
year. For purposes of this paragraph, the amount of housing credit
dollar amount returned in the calendar year equals the housing credit
dollar amount previously allocated to any project that does not
become a qualified low-income housing project within the period
required by this section or to any project with respect to which an
allocation is canceled by mutual consent of the California Tax Credit
Allocation Committee and the allocation recipient.
(4) Five hundred thousand dollars ($500,000) per calendar year for
projects to provide farmworker housing, as defined in subdivision
(h) of Section 50199.7 of the Health and Safety Code.
(5) The amount of any unallocated or returned credits under former
Sections 17053.14, 23608.2, and 23608.3, as those sections read
prior to January 1, 2009, until fully exhausted for projects to
provide farmworker housing, as defined in subdivision (h) of Section
50199.7 of the Health and Safety Code.
(h) The term "compliance period" as defined in Section 42(i)(1) of
the Internal Revenue Code, relating to compliance period, is
modified to mean, with respect to any building, the period of 30
consecutive taxable years beginning with the first taxable year of
the credit period with respect thereto.
(i) Section 42(j) of the Internal Revenue Code, relating to
recapture of credit, shall not be applicable and the following shall
be substituted in its place:
The requirements of this section shall be set forth in a
regulatory agreement between the California Tax Credit Allocation
Committee and the housing sponsor, and this agreement shall be
subordinated, when required, to any lien or encumbrance of any banks
or other institutional lenders to the project. The regulatory
agreement entered into pursuant to subdivision (f) of Section
50199.14 of the Health and Safety Code shall apply, provided that the
agreement includes all of the following provisions:
(1) A term not less than the compliance period.
(2) A requirement that the agreement be recorded in the official
records of the county in which the qualified low-income housing
project is located.
(3) A provision stating which state and local agencies can enforce
the regulatory agreement in the event the housing sponsor fails to
satisfy any of the requirements of this section.
(4) A provision that the regulatory agreement shall be deemed a
contract enforceable by tenants as third-party beneficiaries thereto
and that allows individuals, whether prospective, present, or former
occupants of the building, who meet the income limitation applicable
to the building, the right to enforce the regulatory agreement in any
state court.
(5) A provision incorporating the requirements of Section 42 of
the Internal Revenue Code, relating to low-income housing credit, as
modified by this section.
(6) A requirement that the housing sponsor notify the California
Tax Credit Allocation Committee or its designee if there is a
determination by the Internal Revenue Service that the project is not
in compliance with Section 42(g) of the Internal Revenue Code,
relating to qualified low-income housing project.
(7) A requirement that the housing sponsor, as security for the
performance of the housing sponsor's obligations under the regulatory
agreement, assign the housing sponsor's interest in rents that it
receives from the project, provided that until there is a default
under the regulatory agreement, the housing sponsor is entitled to
collect and retain the rents.
(8) A provision that the remedies available in the event of a
default under the regulatory agreement that is not cured within a
reasonable cure period include, but are not limited to, allowing any
of the parties designated to enforce the regulatory agreement to
collect all rents with respect to the project; taking possession of
the project and operating the project in accordance with the
regulatory agreement until the enforcer determines the housing
sponsor is in a position to operate the project in accordance with
the regulatory agreement; applying to any court for specific
performance; securing the appointment of a receiver to operate the
project; or any other relief as may be appropriate.
(j) (1) The committee shall allocate the housing credit on a
regular basis consisting of two or more periods in each calendar year
during which applications may be filed and considered. The committee
shall establish application filing deadlines, the maximum percentage
of federal and state low-income housing tax credit ceiling that may
be allocated by the committee in that period, and the approximate
date on which allocations shall be made. If the enactment of federal
or state law, the adoption of rules or regulations, or other similar
events prevent the use of two allocation periods, the committee may
reduce the number of periods and adjust the filing deadlines, maximum
percentage of credit allocated, and the allocation dates.
(2) The committee shall adopt a qualified allocation plan, as
provided in Section 42(m)(1) of the Internal Revenue Code, relating
to plans for allocation of credit among projects. In adopting this
plan, the committee shall comply with the provisions of Sections 42
(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code, relating to
qualified allocation plan and relating to certain selection criteria
must be used, respectively.
(3) Notwithstanding Section 42(m) of the Internal Revenue Code,
relating to responsibilities of housing credit agencies, the
California Tax Credit Allocation Committee shall allocate housing
credits in accordance with the qualified allocation plan and
regulations, which shall include the following provisions:
(A) All housing sponsors, as defined by paragraph (3) of
subdivision (a), shall demonstrate at the time the application is
filed with the committee that the project meets the following
threshold requirements:
(i) The housing sponsor shall demonstrate that there is a need for
low-income housing in the community or region for which it is
proposed.
(ii) The project's proposed financing, including tax credit
proceeds, shall be sufficient to complete the project and shall be
adequate to operate the project for the extended use period.
(iii) The project shall have enforceable financing commitments,
either construction or permanent financing, for at least 50 percent
of the total estimated financing of the project.
(iv) The housing sponsor shall have and maintain control of the
site for the project.
(v) The housing sponsor shall demonstrate that the project
complies with all applicable local land use and zoning ordinances.
(vi) The housing sponsor shall demonstrate that the project
development team has the experience and the financial capacity to
ensure project completion and operation for the extended use period.
(vii) The housing sponsor shall demonstrate the amount of tax
credit that is necessary for the financial feasibility of the project
and its viability as a qualified low-income housing project
throughout the extended use period, taking into account operating
expenses, a supportable debt service, reserves, funds set aside for
rental subsidies and required equity, and a development fee that does
not exceed a specified percentage of the eligible basis of the
project prior to inclusion of the development fee in the eligible
basis, as determined by the committee.
(B) The committee shall give a preference to those projects
satisfying all of the threshold requirements of subparagraph (A) if
both of the following apply:
(i) The project serves the lowest income tenants at rents
affordable to those tenants.
(ii) The project is obligated to serve qualified tenants for the
longest period.
(C) In addition to the provisions of subparagraphs (A) and (B),
the committee shall use the following criteria in allocating housing
credits:
(i) Projects serving large families in which a substantial number,
as defined by the committee, of all residential units are low-income
units with three and more bedrooms.
(ii) Projects providing single-room occupancy units serving very
low income tenants.
(iii) Existing projects that are "at risk of conversion," as
defined by paragraph (4) of subdivision (c).
(iv) Projects for which a public agency provides direct or
indirect long-term financial support for at least 15 percent of the
total project development costs or projects for which the owner's
equity constitutes at least 30 percent of the total project
development costs.
(v) Projects that provide tenant amenities not generally available
to residents of low-income housing projects.
(4) For purposes of allocating credits pursuant to this section,
the committee shall not give preference to any project by virtue of
the date of submission of its application except to break a tie when
two or more of the projects have an equal rating.
(5) Not less than 20 percent of the low-income housing tax credits
available annually under this section, Section 12206, and Section
17058 shall be set aside for allocation to rural areas as defined in
Section 50199.21 of the Health and Safety Code. Any amount of credit
set aside for rural areas remaining on or after October 31 of any
calendar year shall be available for allocation to any eligible
project. No amount of credit set aside for rural areas shall be
considered available for any eligible project so long as there are
eligible rural applications pending on October 31.
(k) Section 42( l ) of the Internal Revenue Code,
relating to certifications and other reports to secretary, shall be
modified as follows:
The term "secretary" shall be replaced by the term "Franchise Tax
Board."
( l ) In the case where the credit allowed under this
section exceeds the "tax," the excess may be carried over to reduce
the "tax" in the following year, and succeeding years if necessary,
until the credit has been exhausted.
(m) A project that received an allocation of a 1989 federal
housing credit dollar amount shall be eligible to receive an
allocation of a 1990 state housing credit dollar amount, subject to
all of the following conditions:
(1) The project was not placed in service prior to 1990.
(2) To the extent the amendments made to this section by the
Statutes of 1990 conflict with any provisions existing in this
section prior to those amendments, the prior provisions of law shall
prevail.
(3) Notwithstanding paragraph (2), a project applying for an
allocation under this subdivision shall be subject to the
requirements of paragraph (3) of subdivision (j).
(n) The credit period with respect to an allocation of credit in
1989 by the California Tax Credit Allocation Committee of which any
amount is attributable to unallocated credit from 1987 or 1988 shall
not begin until after December 31, 1989.
(o) The provisions of Section 11407(a) of Public Law 101-508,
relating to the effective date of the extension of the low-income
housing credit, shall apply to calendar years after 1989.
(p) The provisions of Section 11407(c) of Public Law 101-508,
relating to election to accelerate credit, shall not apply.
(q) (1) A corporation may elect to assign any portion of any
credit allowed under this section to one or more affiliated
corporations for each taxable year in which the credit is allowed.
For purposes of this subdivision, "affiliated corporation" has the
meaning provided in subdivision (b) of Section 25110, as that section
was amended by Chapter 881 of the Statutes of 1993, as of the last
day of the taxable year in which the credit is allowed, except that
"100 percent" is substituted for "more than 50 percent" wherever it
appears in the section, as that section was amended by Chapter 881 of
the Statutes of 1993, and "voting common stock" is substituted for
"voting stock" wherever it appears in the section, as that section
was amended by Chapter 881 of the Statutes of 1993.
(2) The election provided in paragraph (1):
(A) May be based on any method selected by the corporation that
originally receives the credit.
(B) Shall be irrevocable for the taxable year the credit is
allowed, once made.
(C) May be changed for any subsequent taxable year if the election
to make the assignment is expressly shown on each of the returns of
the affiliated corporations that assign and receive the credits.
(r) Any unused credit may continue to be carried forward, as
provided in subdivision ( l ), until the credit has been
exhausted.
This section shall remain in effect on and after December 1, 1990,
for as long as Section 42 of the Internal Revenue Code, relating to
low-income housing credit, remains in effect.
(s) (1) Notwithstanding any
other law, for any credits awarded under this section for taxable
years beginning on or after January 1, 2016 , and before January
1, 2026 , a taxpayer may make an irrevocable election in its
application to the California Tax Credit Allocation Committee to sell
all or any portion of any credit allowed under this section to one
or more unrelated parties for each taxable year in which the credit
is allowed for consideration that is not less than 80 percent of the
amount of the credit. A taxpayer shall notify the California Tax
Credit Allocation Committee of this election within ten
days.
(2) (A) The sale authorized by paragraph (1) may be documented
based on any method selected by the taxpayer that originally receives
the credit.
(B) The sale authorized by paragraph (1) may be changed for any
subsequent taxable year if the sale is expressly shown on each of the
returns of both the transferor and the transferee that sell and
receive the credit.
(C) (i) The taxpayer that originally received the credit shall
report to the California Tax Credit Allocation Committee prior to the
sale of the credit, in the form and manner specified by the
California Tax Credit Allocation Committee, all required information
regarding the purchase and sale of the credit, including the social
security or other taxpayer identification number of the unrelated
party to whom the credit has been sold, the face amount of the credit
sold, and the amount of consideration received by the taxpayer for
the sale of the credit.
(ii) The California Tax Credit Allocation Committee shall provide
an annual listing to the Franchise Tax Board, in a form and manner
agreed upon by the California Tax Credit Allocation Committee and the
Franchise Tax Board, of the taxpayers that have sold or purchased a
credit pursuant to this subdivision.
(3) A credit may be sold pursuant to this subdivision to more than
one unrelated party, and shall not be resold by the unrelated party
to another taxpayer or other party.
(4) Notwithstanding any other provision of law, the taxpayer that
originally received the credit that is sold pursuant to paragraph (1)
shall remain solely liable for all obligations and liabilities
imposed on the taxpayer by this section with respect to the credit,
none of which shall apply to any party to whom the credit has been
sold or subsequently transferred. Parties who purchase credits
pursuant to paragraph (1) shall be entitled to utilize the purchased
credits in the same manner in which the taxpayer that originally
received the credit could utilize them.
(5) A taxpayer shall not sell a credit allowed by this section if
the taxpayer was allowed the credit on any tax return of the
taxpayer.
(6) Notwithstanding paragraph (1), the taxpayer, with the approval
of the Executive Director of the California Tax Credit Allocation
Committee, may rescind the election to sell all or any portion of the
credit allowed under this section if the consideration for the
credit falls bellow 80% of the amount of the credit after the
California Tax Credit Allocation Committee reservation.
(t) The amendments to this section made by Chapter 1222 of the
Statutes of 1993 shall apply only to taxable years beginning on or
after January 1, 1994, except that paragraph (1) of subdivision (q),
as amended, shall apply to taxable years beginning on or after
January 1, 1993.
SEC. 4. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.