Panel of Speakers

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

3. Inside the IRS’ Audit Technique Guide Jeff Nishita Novogradac & Company LLP

4. Discussion Topics • Overview of the ATG – what is it? • Excess basis • Developer fees • Non-profit set aside • Bond issuance costs • Casualty loss

5. Tres. Reg. Regulatory Hierarchy Congress Internal Revenue Code Courts Supreme Court Circuit Courts of Appeals District Courts Tax Court Court of Federal Claims IRS Primary Sources Rev. Ruling IRS (Non-authoritative) LIHC News- letters

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

7. Excess Basis

8. Excess Basis Excess Basis = $1 million Audit $10,000,000 100% 9,500,000 9% 855,000 x $ x $ Eligible basis Applicable fraction Qualified basis Tax credit percentage Annual tax credits $10,000,000 100% $10,000,000 9% $900,000 $ 9,000,000 $ 810,000 x x Actual OK Maximum Allowable Credit

9. Developer Fees

10. Deferred Developer Fees Defer (IOU) Deferred Developer Fees Deferred Developer Fees Developer Fees “Soft” Loans, Grants Reserves Hard Debt Soft Costs (Architectural, interest, utilities, org. costs, marketing, etc.) Tax Credit Equity Hard Constr. Costs (Land, bricks and sticks) Uses Sources 9%Deal

11. Deferred Developer Fees Reasonableness of the fee amount “The IRS is not compelled to accept the developer fee amount allowed by the state agency and may raise issues involving the reasonableness of the fee amount if the facts and circumstances warrant doing so.” • Method of Payment • Must be Bona Fide Debt • Interest required? • GP Contribution at prior to year 15 allowed? • Recordation of note/deed?

12. Non-Profit Set Aside

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

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

15. Bond Issuance Costs

16. Bond Issuance Costs Capitalized to what? Bond Issuance Costs Loan Fees Eligible Basis Placed in service INDIRECT SOFT COSTS Capitalized Expensed “Production Period” IRC § 263A(f)(1)(A)

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

18. Casualty Loss

19. Recapture of previously claimed Loss of current - year Unit Out of Service credits? credits? Building/Unit Damage Casualty In Federally Declared YES YES Disaster Area NO YES NO NO

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

21. Scenario 1The Majestic 12 Apartments

22. New construction - 60 units, 25% for families with children • 18 units @ 60%, 36 units @ 50% and 6 units @ 30% • 10 - 1 bedroom, 30 – 2 bedrooms, 20 – 3 bedrooms • 2 blocks off of Main Street in Roswell • Land donated • $300,000 grant from the city • HOME loan The Majestic 12 Apartments

23. Scenario 2Terrace Hills Apartments

24. Acq/rehab – 208 units, 12 buildings, 5% for Households with Special Needs • 206 units @ 50%, HUD HAP contract • 182 - 2 bedrooms, 26 – 3 bedrooms • Tierra Contenta subdivision of Santa Fe • $10.3 million in TE bonds for construction • HUD 223(f) insured mortgage • HOME loan Terrace Hills Apartments

25. Questions?