California Legislature—2015–16 Regular Session

Assembly BillNo. 781


Introduced by Assembly Member Wilk

February 25, 2015


An act to amend Section 12206 of the Revenue and Taxation Code, relating to taxation.

LEGISLATIVE COUNSEL’S DIGEST

AB 781, as introduced, Wilk. Low-income housing tax credits.

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 credits among low-income housing projects based on federal law.

This bill would make a nonsubstantive change to those provisions.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

P1    1

SECTION 1.  

Section 12206 of the Revenue and Taxation Code
2 is amended to read:

3

12206.  

(a) (1) There shall be allowed as a credit against the
4“tax” (as described by Section 12201) a state low-income housing
5tax credit in an amount equal to the amount determined in
6subdivision (c), computed inbegin delete accordanceend deletebegin insert conformityend insert with Section
742 of the Internal Revenue Code, except as otherwise provided in
8this section.

P2    1(2) “Taxpayer,” for purposes of this section, means the sole
2owner in the case of a “C” corporation, the partners in the case of
3a partnership, and the shareholders in the case of an “S”
4corporation.

5(3) “Housing sponsor,” for purposes of this section, means the
6sole owner in the case of a “C” corporation, the partnership in the
7case of a partnership, and the “S” corporation in the case of an “S”
8corporation.

9(b) (1) The amount of the credit allocated to any housing
10sponsor shall be authorized by the California Tax Credit Allocation
11Committee, or any successor thereof, based on a project’s need
12for the credit for economic feasibility in accordance with the
13requirements of this section.

14(A) Except for projects to provide farmworker housing, as
15defined in subdivision (h) of Section 50199.7 of the Health and
16Safety Code, that are allocated credits solely under the set-aside
17described in subdivision (c) of Section 50199.20 of the Health and
18Safety Code, the low-income housing project shall be located in
19California and shall meet either of the following requirements:

20(i) The project’s housing sponsor shall have been allocated by
21the California Tax Credit Allocation Committee a credit for federal
22income tax purposes under Section 42 of the Internal Revenue
23Code.

24(ii) It shall qualify for a credit under Section 42(h)(4)(B) of the
25Internal Revenue Code.

26(B) The California Tax Credit Allocation Committee shall not
27require fees for the credit under this section in addition to those
28fees required for applications for the tax credit pursuant to Section
2942 of the Internal Revenue Code. The committee may require a
30fee if the application for the credit under this section is submitted
31in a calendar year after the year the application is submitted for
32the federal tax credit.

33(C) (i) For a project that receives a preliminary reservation of
34the state low-income housing tax credit, allowed pursuant to
35subdivision (a), on or after January 1, 2009, and before January 1,
362016, the credit shall be allocated to the partners of a partnership
37owning the project in accordance with the partnership agreement,
38regardless of how the federal low-income housing tax credit with
39respect to the project is allocated to the partners, or whether the
40allocation of the credit under the terms of the agreement has
P3    1substantial economic effect, within the meaning of Section 704(b)
2of the Internal Revenue Code.

3(ii) This subparagraph shall not apply to a project that receives
4a preliminary reservation of state low-income housing tax credits
5under the set-aside described in subdivision (c) of Section 50199.20
6of the Health and Safety Code unless the project also receives a
7preliminary reservation of federal low-income housing tax credits.

8(iii) This subparagraph shall cease to be operative with respect
9to any project that receives a preliminary reservation of a credit
10on or after January 1, 2016.

11(2) (A) The California Tax Credit Allocation Committee shall
12certify to the housing sponsor the amount of tax credit under this
13section allocated to the housing sponsor for each credit period.

14(B) In the case of a partnership or an “S” corporation, the
15housing sponsor shall provide a copy of the California Tax Credit
16Allocation Committee certification to the taxpayer.

17(C) The taxpayer shall attach a copy of the certification to any
18return upon which a tax credit is claimed under this section.

19(D) In the case of a failure to attach a copy of the certification
20for the year to the return in which a tax credit is claimed under this
21section, no credit under this section shall be allowed for that year
22until a copy of that certification is provided.

23(E) All elections made by the taxpayer pursuant to Section 42
24of the Internal Revenue Code shall apply to this section.

25(F) (i) Except as described in clause (ii), for buildings located
26in designated difficult development areas (DDAs) or qualified
27census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
28Internal Revenue Code, credits may be allocated under this section
29in the amounts prescribed in subdivision (c), provided that the
30amount of credit allocated under Section 42 of the Internal Revenue
31Code is computed on 100 percent of the qualified basis of the
32building.

33(ii) Notwithstanding clause (i), the California Tax Credit
34Allocation Committee may allocate the credit for buildings located
35in DDAs or QCTs that are restricted to having 50 percent of its
36occupants be special needs households, as defined in the California
37Code of Regulations by the California Tax Credit Allocation
38Committee, even if the taxpayer receives federal credits pursuant
39to Section 42(d)(5)(B) of the Internal Revenue Code, provided
P4    1that the credit allowed under this section shall not exceed 30
2percent of the eligible basis of the building.

3(G) (i) The California Tax Credit Allocation Committee may
4allocate a credit under this section in exchange for a credit allocated
5pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in
6amounts up to 30 percent of the eligible basis of a building if the
7credits allowed under Section 42 of the Internal Revenue Code are
8reduced by an equivalent amount.

9(ii) An equivalent amount shall be determined by the California
10Tax Credit Allocation Committee based upon the relative amount
11required to produce an equivalent state tax credit to the taxpayer.

12(c) Section 42(b) of the Internal Revenue Code shall be modified
13as follows:

14(1) In the case of any qualified low-income building that receives
15an allocation after 1989 and is a new building not federally
16subsidized, the term “applicable percentage” means the following:

17(A) For each of the first three years, the percentage prescribed
18by the Secretary of the Treasury for new buildings that are not
19federally subsidized for the taxable year, determined in accordance
20with the requirements of Section 42(b)(2) of the Internal Revenue
21Code, in lieu of the percentage prescribed in Section 42(b)(1)(A)
22of the Internal Revenue Code.

23(B) For the fourth year, the difference between 30 percent and
24the sum of the applicable percentages for the first three years.

25(2) In the case of any qualified low-income building that receives
26an allocation after 1989 and that is a new building that is federally
27subsidized or that is an existing building that is “at risk of
28conversion,” the term “applicable percentage” means the following:

29(A) For each of the first three years, the percentage prescribed
30by the Secretary of the Treasury for new buildings that are federally
31subsidized for the taxable year.

32(B) For the fourth year, the difference between 13 percent and
33the sum of the applicable percentages for the first three years.

34(3) For purposes of this section, the term “at risk of conversion,”
35with respect to an existing property means a property that satisfies
36all of the following criteria:

37(A) The property is a multifamily rental housing development
38in which at least 50 percent of the units receive governmental
39assistance pursuant to any of the following:

P5    1(i) New construction, substantial rehabilitation, moderate
2rehabilitation, property disposition, and loan management set-aside
3programs, or any other program providing project-based assistance
4pursuant to Section 8 of the United States Housing Act of 1937,
5Section 1437f of Title 42 of the United States Code, as amended.

6(ii) The Below-Market-Interest-Rate Program pursuant to
7Section 221(d)(3) of the National Housing Act, Sections
81715l(d)(3) and (5) of Title 12 of the United States Code.

9(iii) Section 236 of the National Housing Act, Section 1715z-1
10of Title 12 of the United States Code.

11(iv) Programs for rent supplement assistance pursuant to Section
12101 of the Housing and Urban Development Act of 1965, Section
131701s of Title 12 of the United States Code, as amended.

14(v) Programs pursuant to Section 515 of the Housing Act of
151949, Section 1485 of Title 42 of the United States Code, as
16amended.

17(vi) The low-income housing credit program set forth in Section
1842 of the Internal Revenue Code.

19(B) The restrictions on rent and income levels will terminate or
20the federal insured mortgage on the property is eligible for
21prepayment any time within five years before or after the date of
22application to the California Tax Credit Allocation Committee.

23(C) The entity acquiring the property enters into a regulatory
24agreement that requires the property to be operated in accordance
25with the requirements of this section for a period equal to the
26greater of 55 years or the life of the property.

27(D) The property satisfies the requirements of Section 42(e) of
28the Internal Revenue Code regarding rehabilitation expenditures,
29except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
30apply.

31(d) The term “qualified low-income housing project” as defined
32in Section 42(c)(2) of the Internal Revenue Code is modified by
33adding the following requirements:

34(1) The taxpayer shall be entitled to receive a cash distribution
35from the operations of the project, after funding required reserves,
36which, at the election of the taxpayer, is equal to:

37(A) An amount not to exceed 8 percent of the lesser of:

38(i) The owner equity which shall include the amount of the
39capital contributions actually paid to the housing sponsor and shall
40not include any amounts until they are paid on an investor note.

P6    1(ii) Twenty percent of the adjusted basis of the building as of
2the close of the first taxable year of the credit period.

3(B) The amount of the cashflow from those units in the building
4that are not low-income units. For purposes of computing cashflow
5under this subparagraph, operating costs shall be allocated to the
6low-income units using the “floor space fraction,” as defined in
7Section 42 of the Internal Revenue Code.

8(C) Any amount allowed to be distributed under subparagraph
9(A) that is not available for distribution during the first five years
10of the compliance period may accumulate and be distributed any
11time during the first 15 years of the compliance period but not
12thereafter.

13(2) The limitation on return shall apply in the aggregate to the
14partners if the housing sponsor is a partnership and in the aggregate
15to the shareholders if the housing sponsor is an “S” corporation.

16(3) The housing sponsor shall apply any cash available for
17distribution in excess of the amount eligible to be distributed under
18paragraph (1) to reduce the rent on rent-restricted units or to
19increase the number of rent-restricted units subject to the tests of
20Section 42(g)(1) of the Internal Revenue Code.

21(e) The provisions of Section 42(f) of the Internal Revenue Code
22shall be modified as follows:

23(1) The term “credit period” as defined in Section 42(f)(1) of
24the Internal Revenue Code is modified by substituting “four taxable
25years” for “10 taxable years.”

26(2) The special rule for the first taxable year of the credit period
27under Section 42(f)(2) of the Internal Revenue Code shall not apply
28to the tax credit under this section.

29(3) Section 42(f)(3) of the Internal Revenue Code is modified
30to read:

31If, as of the close of any taxable year in the compliance period,
32after the first year of the credit period, the qualified basis of any
33building exceeds the qualified basis of that building as of the close
34of the first year of the credit period, the housing sponsor, to the
35extent of its tax credit allocation, shall be eligible for a credit on
36the excess in an amount equal to the applicable percentage
37determined pursuant to subdivision (c) for the four-year period
38beginning with the later of the taxable years in which the increase
39in qualified basis occurs.

P7    1(f) The provisions of Section 42(h) of the Internal Revenue
2Code shall be modified as follows:

3(1) Section 42(h)(2) of the Internal Revenue Code shall not be
4applicable and instead the following provisions shall be applicable:

5The total amount for the four-year credit period of the housing
6credit dollars allocated in a calendar year to any building shall
7 reduce the aggregate housing credit dollar amount of the California
8Tax Credit Allocation Committee for the calendar year in which
9the allocation is made.

10(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
11(7), and (8) of Section 42(h) of the Internal Revenue Code shall
12not be applicable.

13(g) The aggregate housing credit dollar amount that may be
14allocated annually by the California Tax Credit Allocation
15Committee pursuant to this section, Section 17058, and Section
1623610.5 shall be an amount equal to the sum of all the following:

17(1) Seventy million dollars ($70,000,000) for the 2001 calendar
18year, and, for the 2002 calendar year and each calendar year
19thereafter, seventy million dollars ($70,000,000) increased by the
20percentage, if any, by which the Consumer Price Index for the
21preceding calendar year exceeds the Consumer Price Index for the
222001 calendar year. For the purposes of this paragraph, the term
23“Consumer Price Index” means the last Consumer Price Index for
24All Urban Consumers published by the federal Department of
25Labor.

26(2) The unused housing credit ceiling, if any, for the preceding
27calendar years.

28(3) The amount of housing credit ceiling returned in the calendar
29year. For purposes of this paragraph, the amount of housing credit
30dollar amount returned in the calendar year equals the housing
31credit dollar amount previously allocated to any project that does
32not become a qualified low-income housing project within the
33period required by this section or to any project with respect to
34which an allocation is canceled by mutual consent of the California
35Tax Credit Allocation Committee and the allocation recipient.

36(4) Five hundred thousand dollars ($500,000) per calendar year
37for projects to provide farmworker housing, as defined in
38subdivision (h) of Section 50199.7 of the Health and Safety Code.

39(5) The amount of any unallocated or returned credits under
40former Sections 17053.14, 23608.2, and 23608.3, as those sections
P8    1read prior to January 1, 2009, until fully exhausted for projects to
2provide farmworker housing, as defined in subdivision (h) of
3Section 50199.7 of the Health and Safety Code.

4(h) The term “compliance period” as defined in Section 42(i)(1)
5of the Internal Revenue Code is modified to mean, with respect to
6any building, the period of 30 consecutive taxable years beginning
7with the first taxable year of the credit period with respect thereto.

8(i) (1) Section 42(j) of the Internal Revenue Code shall not be
9applicable and the provisions in paragraph (2) shall be substituted
10in its place.

11(2) The requirements of this section shall be set forth in a
12regulatory agreement between the California Tax Credit Allocation
13Committee and the housing sponsor, which agreement shall be
14subordinated, when required, to any lien or encumbrance of any
15banks or other institutional lenders to the project. The regulatory
16agreement entered into pursuant to subdivision (f) of Section
1750199.14 of the Health and Safety Code, shall apply, providing
18the agreement includes all of the following provisions:

19(A) A term not less than the compliance period.

20(B) A requirement that the agreement be recorded in the official
21records of the county in which the qualified low-income housing
22project is located.

23(C) A provision stating which state and local agencies can
24enforce the regulatory agreement in the event the housing sponsor
25fails to satisfy any of the requirements of this section.

26(D) A provision that the regulatory agreement shall be deemed
27a contract enforceable by tenants as third-party beneficiaries thereto
28and which allows individuals, whether prospective, present, or
29former occupants of the building, who meet the income limitation
30applicable to the building, the right to enforce the regulatory
31agreement in any state court.

32(E) A provision incorporating the requirements of Section 42
33of the Internal Revenue Code as modified by this section.

34(F) A requirement that the housing sponsor notify the California
35Tax Credit Allocation Committee or its designee and the local
36agency that can enforce the regulatory agreement if there is a
37determination by the Internal Revenue Service that the project is
38not in compliance with Section 42(g) of the Internal Revenue Code.

39(G) A requirement that the housing sponsor, as security for the
40performance of the housing sponsor’s obligations under the
P9    1regulatory agreement, assign the housing sponsor’s interest in rents
2that it receives from the project, provided that until there is a
3default under the regulatory agreement, the housing sponsor is
4entitled to collect and retain the rents.

5(H) The remedies available in the event of a default under the
6regulatory agreement that is not cured within a reasonable cure
7period, include, but are not limited to, allowing any of the parties
8designated to enforce the regulatory agreement to collect all rents
9with respect to the project; taking possession of the project and
10operating the project in accordance with the regulatory agreement
11until the enforcer determines the housing sponsor is in a position
12to operate the project in accordance with the regulatory agreement;
13applying to any court for specific performance; securing the
14appointment of a receiver to operate the project; or any other relief
15as may be appropriate.

16(j) (1) The committee shall allocate the housing credit on a
17regular basis consisting of two or more periods in each calendar
18year during which applications may be filed and considered. The
19committee shall establish application filing deadlines, the maximum
20percentage of federal and state low-income housing tax credit
21ceiling that may be allocated by the committee in that period, and
22the approximate date on which allocations shall be made. If the
23enactment of federal or state law, the adoption of rules or
24regulations, or other similar events prevent the use of two allocation
25periods, the committee may reduce the number of periods and
26adjust the filing deadlines, maximum percentage of credit allocated,
27and the allocation dates.

28(2) The committee shall adopt a qualified allocation plan, as
29provided in Section 42(m)(1) of the Internal Revenue Code. In
30adopting this plan, the committee shall comply with the provisions
31of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
32Code.

33(3) Notwithstanding Section 42(m) of the Internal Revenue
34Code, the California Tax Credit Allocation Committee shall
35allocate housing credits in accordance with the qualified allocation
36plan and regulations, which shall include the following provisions:

37(A) All housing sponsors, as defined by paragraph (3) of
38subdivision (a), shall demonstrate at the time the application is
39filed with the committee that the project meets the following
40threshold requirements:

P10   1(i) The housing sponsor shall demonstrate there is a need and
2demand for low-income housing in the community or region for
3which it is proposed.

4(ii) The project’s proposed financing, including tax credit
5proceeds, shall be sufficient to complete the project and that the
6proposed operating income shall be adequate to operate the project
7for the extended use period.

8(iii) The project shall have enforceable financing commitments,
9either construction or permanent financing, for at least 50 percent
10of the total estimated financing of the project.

11(iv) The housing sponsor shall have and maintain control of the
12site for the project.

13(v) The housing sponsor shall demonstrate that the project
14complies with all applicable local land use and zoning ordinances.

15(vi) The housing sponsor shall demonstrate that the project
16development team has the experience and the financial capacity
17to ensure project completion and operation for the extended use
18period.

19(vii) The housing sponsor shall demonstrate the amount of tax
20credit that is necessary for the financial feasibility of the project
21and its viability as a qualified low-income housing project
22throughout the extended use period, taking into account operating
23expenses, a supportable debt service, reserves, funds set aside for
24rental subsidies, and required equity, and a development fee that
25does not exceed a specified percentage of the eligible basis of the
26project prior to inclusion of the development fee in the eligible
27basis, as determined by the committee.

28(B) The committee shall give a preference to those projects
29satisfying all of the threshold requirements of subparagraph (A)
30if both of the following apply:

31(i) The project serves the lowest income tenants at rents
32affordable to those tenants.

33(ii) The project is obligated to serve qualified tenants for the
34longest period.

35(C) In addition to the provisions of subparagraphs (A) and (B),
36the committee shall use the following criteria in allocating housing
37credits:

38(i) Projects serving large families in which a substantial number,
39as defined by the committee, of all residential units is comprised
40of low-income units with three and more bedrooms.

P11   1(ii) Projects providing single-room occupancy units serving
2very low income tenants.

3(iii) Existing projects that are “at risk of conversion,” as defined
4by paragraph (3) of subdivision (c).

5(iv) Projects for which a public agency provides direct or indirect
6long-term financial support for at least 15 percent of the total
7project development costs or projects for which the owner’s equity
8constitutes at least 30 percent of the total project development
9costs.

10(v) Projects that provide tenant amenities not generally available
11to residents of low-income housing projects.

12(4) For purposes of allocating credits pursuant to this section,
13the committee shall not give preference to any project by virtue
14of the date of submission of its application except to break a tie
15when two or more of the projects have an equal rating.

16(k) Section 42(l) of the Internal Revenue Code shall be modified
17as follows:

18The term “secretary” shall be replaced by the term “California
19Franchise Tax Board.”

20(l) In the case where the state credit allowed under this section
21exceeds the “tax,” the excess may be carried over to reduce the
22“tax” in the following year, and succeeding years if necessary,
23until the credit has been exhausted.

24(m) The provisions of Section 11407(a) of Public Law 101-508,
25relating to the effective date of the extension of the low-income
26housing credit, shall apply to calendar years after 1993.

27(n) The provisions of Section 11407(c) of Public Law 101-508,
28relating to election to accelerate credit, shall not apply.

29(o) This section shall remain in effect for as long as Section 42
30of the Internal Revenue Code, relating to low-income housing
31credits, remains in effect.



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