Amended in Senate April 5, 2016

Senate BillNo. 873


Introduced by Senator Beall

January 14, 2016


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 873, 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, beginning on or after January 1, 2016, would 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, as described, for each taxable year in which the credit is allowed for not less than 80% of the amount of the credit to be sold, and would provide for the one-time resale of that credit, as provided. The bill would require the California Tax Credit Allocation Committee to enter into an agreement with the Franchise Tax Board to pay any costs incurred by the Franchise Tax Board in administering these provisions.

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:

P2    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,” described by Section 12201, a state low-income housing
5tax credit in an amount equal to the amount determined in
6subdivision (c), computed in accordance with Section 42 of the
7Internal Revenue Code, relating to low-income housing credit,
8except as otherwise provided in this section.

9(2) “Taxpayer,” for purposes of this section, means the sole
10owner in the case of a “C” corporation, the partners in the case of
11a partnership, and the shareholders in the case of an “S”
12corporation.

13(3) “Housing sponsor,” for purposes of this section, means the
14sole owner in the case of a “C” corporation, the partnership in the
15case of a partnership, and the “S” corporation in the case of an “S”
16corporation.

17(b) (1) The amount of the credit allocated to any housing
18sponsor shall be authorized by the California Tax Credit Allocation
19Committee, or any successor thereof, based on a project’s need
20for the credit for economic feasibility in accordance with the
21requirements of this section.

22(A) Except for projects to provide farmworker housing, as
23defined in subdivision (h) of Section 50199.7 of the Health and
24Safety Code, that are allocated credits solely under the set-aside
25described in subdivision (c) of Section 50199.20 of the Health and
26Safety Code, the low-income housing project shall be located in
27California and shall meet either of the following requirements:

28(i) The project’s housing sponsor has been allocated by the
29 California Tax Credit Allocation Committee a credit for federal
30income tax purposes under Section 42 of the Internal Revenue
31Code, relating to low-income housing credit.

P3    1(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
2Internal Revenue Code, relating to special rule where 50 percent
3or more of building is financed with tax-exempt bonds subjectbegin insert toend insert
4 volume cap.

5(B) The California Tax Credit Allocation Committee shall not
6require fees for the credit under this section in addition to those
7fees required for applications for the tax credit pursuant to Section
842 of the Internal Revenue Code, relating to low-income housing
9credit. The committee may require a fee if the application for the
10credit under this section is submitted in a calendar year after the
11year the application is submitted for the federal tax credit.

12(C) (i) For a project that receives a preliminary reservation of
13the state low-income housing tax credit, allowed pursuant to
14subdivision (a), on or after January 1, 2009, the credit shall be
15allocated to the partners of a partnership owning the project in
16accordance with the partnership agreement, regardless of how the
17federal low-income housing tax credit with respect to the project
18is allocated to the partners, or whether the allocation of the credit
19under the terms of the agreement has substantial economic effect,
20within the meaning of Section 704(b) of the Internal Revenue
21Code, relating to determination of distributive share.

22(ii) This subparagraph does not apply to a project that receives
23a preliminary reservation of state low-income housing tax credits
24under the set-aside described in subdivision (c) of Section 50199.20
25of the Health and Safety Code unless the project also receives a
26preliminary reservation of federal low-income housing tax credits.

27(2) (A) The California Tax Credit Allocation Committee shall
28certify to the housing sponsor the amount of tax credit under this
29section allocated to the housing sponsor for each credit period.

30(B) In the case of a partnership or an “S” corporation, the
31housing sponsor shall provide a copy of the California Tax Credit
32Allocation Committee certification to the taxpayer.

33(C) The taxpayer shall attach a copy of the certification to any
34return upon which a tax credit is claimed under this section.

35(D) In the case of a failure to attach a copy of the certification
36for the year to the return in which a tax credit is claimed under this
37section, no credit under this section shall be allowed for that year
38until a copy of that certification is provided.

P4    1(E) All elections made by the taxpayer pursuant to Section 42
2of the Internal Revenue Code, relating to low-income housing
3credit, shall apply to this section.

4(F) (i) Except as described in clause (ii), for buildings located
5in designated difficult development areas (DDAs) or qualified
6census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
7Internal Revenue Code, relating to increase in credit for buildings
8in high-cost areas, credits may be allocated under this section in
9the amounts prescribed in subdivision (c), provided that the amount
10of credit allocated under Section 42 of the Internal Revenue Code,
11relating to low-income housing credit, is computed on 100 percent
12of the qualified basis of the building.

13(ii) Notwithstanding clause (i), the California Tax Credit
14Allocation Committee may allocate the credit for buildings located
15in DDAs or QCTs that are restricted to having 50 percent of its
16occupants be special needs households, as defined in the California
17Code of Regulations by the California Tax Credit Allocation
18Committee, even if the taxpayer receives federal credits pursuant
19to Section 42(d)(5)(B) of the Internal Revenue Code, relating to
20increase in credit for buildings in high-cost areas, provided that
21the credit allowed under this section shall not exceed 30 percent
22of the eligible basis of the building.

23(G) (i) The California Tax Credit Allocation Committee may
24allocate a credit under this section in exchange for a credit allocated
25pursuant to Section 42(d)(5)(B) of the Internal Revenue Code,
26relating to increase in credit for buildings in high-cost areas, in
27amounts up to 30 percent of the eligible basis of a building if the
28credits allowed under Section 42 of the Internal Revenue Code,
29relating to low-income housing credit, are reduced by an equivalent
30amount.

31(ii) An equivalent amount shall be determined by the California
32Tax Credit Allocation Committee based upon the relative amount
33required to produce an equivalent state tax credit to the taxpayer.

34(c) Section 42(b) of the Internal Revenue Code, relating to
35applicable percentage, shall be modified as follows:

36(1) In the case of any qualified low-income building that receives
37an allocation after 1989 and is a new building not federally
38subsidized, the term “applicable percentage” means the following:

39(A) For each of the first three years, the percentage prescribed
40by the Secretary of the Treasury for new buildings that are not
P5    1federally subsidized for the taxable year, determined in accordance
2with the requirements of Section 42(b)(2) of the Internal Revenue
3Code, relating to temporary minimum credit rate for nonfederally
4subsidized new buildings, in lieu of the percentage prescribed in
5Section 42(b)(1)(A) of the Internal Revenue Code.

6(B) For the fourth year, the difference between 30 percent and
7the sum of the applicable percentages for the first three years.

8(2) In the case of any qualified low-income building that receives
9an allocation after 1989 and that is a new building that is federally
10subsidized or that is an existing building that is “at risk of
11conversion,” the term “applicable percentage” means the following:

12(A) For each of the first three years, the percentage prescribed
13by the Secretary of the Treasury for new buildings that are federally
14subsidized for the taxable year.

15(B) For the fourth year, the difference between 13 percent and
16the sum of the applicable percentages for the first three years.

17(3) For purposes of this section, the term “at risk of conversion,”
18with respect to an existing property means a property that satisfies
19all of the following criteria:

20(A) The property is a multifamily rental housing development
21in which at least 50 percent of the units receive governmental
22assistance pursuant to any of the following:

23(i) New construction, substantial rehabilitation, moderate
24rehabilitation, property disposition, and loan management set-aside
25programs, or any other program providing project-based assistance
26pursuant to Section 8 of the United States Housing Act of 1937,
27Section 1437f of Title 42 of the United States Code, as amended.

28(ii) The Below-Market-Interest-Rate Program pursuant to
29Section 221(d)(3) of the National Housing Act, Sections
301715l(d)(3) and (5) of Title 12 of the United States Code.

31(iii) Section 236 of the National Housing Act, Section 1715z-1
32of Title 12 of the United States Code.

33(iv) Programs for rent supplement assistance pursuant to Section
34101 of the Housing and Urban Development Act of 1965, Section
351701s of Title 12 of the United States Code, as amended.

36(v) Programs pursuant to Section 515 of the Housing Act of
371949, Section 1485 of Title 42 of the United States Code, as
38amended.

P6    1(vi) The low-income housing credit program set forth in Section
242 of the Internal Revenue Code, relating to low-income housing
3credit.

4(B) The restrictions on rent and income levels will terminate or
5the federally insured mortgage on the property is eligible for
6prepayment any time within five years before or after the date of
7application to the California Tax Credit Allocation Committee.

8(C) The entity acquiring the property enters into a regulatory
9agreement that requires the property to be operated in accordance
10with the requirements of this section for a period equal to the
11greater of 55 years or the life of the property.

12(D) The property satisfies the requirements of Section 42(e) of
13the Internal Revenue Code, relating to rehabilitation expenditures
14treated as a separate new building, except that the provisions of
15Section 42(e)(3)(A)(ii)(I) shall not apply.

16(d) The term “qualified low-income housing project” as defined
17in Section 42(c)(2) of the Internal Revenue Code, relating to
18qualified low-income building, is modified by adding the following
19requirements:

20(1) The taxpayer shall be entitled to receive a cash distribution
21from the operations of the project, after funding required reserves,
22that, at the election of the taxpayer, is equal to:

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

24(i) The owner equity, which shall include the amount of the
25capital contributions actually paid to the housing sponsor and shall
26not include any amounts until they are paid on an investor note.

27(ii) Twenty percent of the adjusted basis of the building as of
28the close of the first taxable year of the credit period.

29(B) The amount of the cashflow from those units in the building
30that are not low-income units. For purposes of computing cashflow
31under this subparagraph, operating costs shall be allocated to the
32low-income units using the “floor space fraction,” as defined in
33Section 42 of the Internal Revenue Code, relating to low-income
34housing credit.

35(C) Any amount allowed to be distributed under subparagraph
36(A) that is not available for distribution during the first five years
37of the compliance period may be accumulated and distributed any
38time during the first 15 years of the compliance period but not
39thereafter.

P7    1(2) The limitation on return applies in the aggregate to the
2partners if the housing sponsor is a partnership and in the aggregate
3to the shareholders if the housing sponsor is an “S” corporation.

4(3) The housing sponsor shall apply any cash available for
5distribution in excess of the amount eligible to be distributed under
6paragraph (1) to reduce the rent on rent-restricted units or to
7increase the number of rent-restricted units subject to the tests of
8Section 42(g)(1) of the Internal Revenue Code, relating to in
9general.

10(e) The provisions of Section 42(f) of the Internal Revenue
11Code, relating to definition and special rules relating to credit
12period, shall be modified as follows:

13(1) The term “credit period” as defined in Section 42(f)(1) of
14the Internal Revenue Code, relating to credit period defined, is
15modified by substituting “four taxable years” for “10 taxable
16years.”

17(2) The special rule for the first taxable year of the credit period
18under Section 42(f)(2) of the Internal Revenue Code, relating to
19special rule for first year of credit period, shall not apply to the tax
20credit under this section.

21(3) Section 42(f)(3) of the Internal Revenue Code, relating to
22determination of applicable percentage with respect to increases
23in qualified basis after first year of credit period, is modified to
24read:

25If, as of the close of any taxable year in the compliance period,
26after the first year of the credit period, the qualified basis of any
27building exceeds the qualified basis of that building as of the close
28of the first year of the credit period, the housing sponsor, to the
29extent of its tax credit allocation, shall be eligible for a credit on
30the excess in an amount equal to the applicable percentage
31determined pursuant to subdivision (c) for the four-year period
32beginning with the later of the taxable years in which the increase
33in qualified basis occurs.

34(f) The provisions of Section 42(h) of the Internal Revenue
35Code, relating to limitation on aggregate credit allowable with
36respect to projects located in a state, shall be modified as follows:

37(1) Section 42(h)(2) of the Internal Revenue Code, relating to
38allocated credit amount to apply to all taxable years ending during
39or after credit allocation year, does not apply and instead the
40following provisions apply:

P8    1The total amount for the four-year credit period of the housing
2credit dollars allocated in a calendar year to any building shall
3reduce the aggregate housing credit dollar amount of the California
4Tax Credit Allocation Committee for the calendar year in which
5the allocation is made.

6(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
7(7), and (8) of Section 42(h) of the Internal Revenue Code, relating
8to limitation on aggregate credit allowable with respect to projects
9located in a state, do not apply to this section.

10(g) The aggregate housing credit dollar amount that may be
11allocated annually by the California Tax Credit Allocation
12Committee pursuant to this section, Section 17058, and Section
1323610.5 shall be an amount equal to the sum of all the following:

14(1) Seventy million dollars ($70,000,000) for the 2001 calendar
15year, and, for the 2002 calendar year and each calendar year
16thereafter, seventy million dollars ($70,000,000) increased by the
17percentage, if any, by which the Consumer Price Index for the
18 preceding calendar year exceeds the Consumer Price Index for the
192001 calendar year. For the purposes of this paragraph, the term
20“Consumer Price Index” means the last Consumer Price Index for
21All Urban Consumers published by the federal Department of
22Labor.

23(2) The unused housing credit ceiling, if any, for the preceding
24calendar years.

25(3) The amount of housing credit ceiling returned in the calendar
26year. For purposes of this paragraph, the amount of housing credit
27dollar amount returned in the calendar year equals the housing
28credit dollar amount previously allocated to any project that does
29not become a qualified low-income housing project within the
30period required by this section or to any project with respect to
31which an allocation is canceled by mutual consent of the California
32Tax Credit Allocation Committee and the allocation recipient.

33(4) Five hundred thousand dollars ($500,000) per calendar year
34for projects to provide farmworker housing, as defined in
35subdivision (h) of Section 50199.7 of the Health and Safety Code.

36(5) The amount of any unallocated or returned credits under
37former Sections 17053.14, 23608.2, and 23608.3, as those sections
38read prior to January 1, 2009, until fully exhausted for projects to
39provide farmworker housing, as defined in subdivision (h) of
40Section 50199.7 of the Health and Safety Code.

P9    1(h) The term “compliance period” as defined in Section 42(i)(1)
2of the Internal Revenue Code, relating to compliance period, is
3modified to mean, with respect to any building, the period of 30
4consecutive taxable years beginning with the first taxable year of
5the credit period with respect thereto.

6(i) (1) Section 42(j) of the Internal Revenue Code, relating to
7recapture of credit, shall not be applicable and the provisions in
8paragraph (2) shall be substituted in its place.

9(2) The requirements of this section shall be set forth in a
10regulatory agreement between the California Tax Credit Allocation
11Committee and the housing sponsor, and this agreement shall be
12subordinated, when required, to any lien or encumbrance of any
13banks or other institutional lenders to the project. The regulatory
14agreement entered into pursuant to subdivision (f) of Section
1550199.14 of the Health and Safety Code, shall apply, provided that
16the agreement includes all of the following provisions:

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

18(B) A requirement that the agreement be recorded in the official
19records of the county in which the qualified low-income housing
20project is located.

21(C) A provision stating which state and local agencies can
22enforce the regulatory agreement in the event the housing sponsor
23fails to satisfy any of the requirements of this section.

24(D) A provision that the regulatory agreement shall be deemed
25a contract enforceable by tenants as third-party beneficiaries thereto
26and that allows individuals, whether prospective, present, or former
27occupants of the building, who meet the income limitation
28applicable to the building, the right to enforce the regulatory
29agreement in any state court.

30(E) A provision incorporating the requirements of Section 42
31of the Internal Revenue Code, relating to low-income housing
32credit, as modified by this section.

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

39(G) A requirement that the housing sponsor, as security for the
40performance of the housing sponsor’s obligations under the
P10   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) A provision that the remedies available in the event of a
6default under the regulatory agreement that is not cured within a
7reasonable cure period include, but are not limited to, allowing
8any of the parties designated to enforce the regulatory agreement
9to collect all rents with respect to the project; taking possession of
10the project and operating the project in accordance with the
11regulatory agreement until the enforcer determines the housing
12sponsor is in a position to operate the project in accordance with
13the regulatory agreement; applying to any court for specific
14performance; securing the appointment of a receiver to operate
15the project; or any other relief as 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, relating
30to plans for allocation of credit among projects. In adopting this
31plan, the committee shall comply with the provisions of Sections
3242(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code,
33relating to qualified allocation plan and relating to certain selection
34criteria must be used, respectively.

35(3) Notwithstanding Section 42(m) of the Internal Revenue
36Code, relating to responsibilities of housing credit agencies, the
37California Tax Credit Allocation Committee shall allocate housing
38credits in accordance with the qualified allocation plan and
39regulations, which shall include the following provisions:

P11   1(A) All housing sponsors, as defined by paragraph (3) of
2subdivision (a), shall demonstrate at the time the application is
3filed with the committee that the project meets the following
4threshold requirements:

5(i) The housing sponsor shall demonstrate that there is a need
6and demand for low-income housing in the community or region
7for which it is proposed.

8(ii) The project’s proposed financing, including tax credit
9proceeds, shall be sufficient to complete the project and that the
10proposed operating income shall be adequate to operate the project
11 for the extended use period.

12(iii) The project shall have enforceable financing commitments,
13either construction or permanent financing, for at least 50 percent
14of the total estimated financing of the project.

15(iv) The housing sponsor shall have and maintain control of the
16site for the project.

17(v) The housing sponsor shall demonstrate that the project
18complies with all applicable local land use and zoning ordinances.

19(vi) The housing sponsor shall demonstrate that the project
20development team has the experience and the financial capacity
21to ensure project completion and operation for the extended use
22period.

23(vii) The housing sponsor shall demonstrate the amount of tax
24credit that is necessary for the financial feasibility of the project
25and its viability as a qualified low-income housing project
26throughout the extended use period, taking into account operating
27expenses, a supportable debt service, reserves, funds set aside for
28rental subsidies and required equity, and a development fee that
29does not exceed a specified percentage of the eligible basis of the
30project prior to inclusion of the development fee in the eligible
31basis, as determined by the committee.

32(B) The committee shall give a preference to those projects
33satisfying all of the threshold requirements of subparagraph (A)
34if both of the following apply:

35(i) The project serves the lowest income tenants at rents
36affordable to those tenants.

37(ii) The project is obligated to serve qualified tenants for the
38longest period.

P12   1(C) In addition to the provisions of subparagraphs (A) and (B),
2the committee shall use the following criteria in allocating housing
3credits:

4(i) Projects serving large families in which a substantial number,
5as defined by the committee, of all residential units are low-income
6units with three and more bedrooms.

7(ii) Projects providing single-room occupancy units serving
8very low income tenants.

9(iii) Existing projects that are “at risk of conversion,” as defined
10by paragraph (3) of subdivision (c).

11(iv) Projects for which a public agency provides direct or indirect
12long-term financial support for at least 15 percent of the total
13project development costs or projects for which the owner’s equity
14constitutes at least 30 percent of the total project development
15costs.

16(v) Projects that provide tenant amenities not generally available
17to residents of low-income housing projects.

18(4) For purposes of allocating credits pursuant to this section,
19the committee shall not give preference to any project by virtue
20of the date of submission of its application except to break a tie
21when two or more of the projects have an equal rating.

22(k) Section 42(l) of the Internal Revenue Code, relating to
23certifications and other reports to secretary, shall be modified as
24follows:

25The term “secretary” shall be replaced by the term “Franchise
26Tax Board.”

27(l) In the case in which the credit allowed under this section
28exceeds the “tax,” the excess may be carried over to reduce the
29“tax” in the following year, and succeeding years if necessary,
30until the credit has been exhausted.

31(m) The provisions of Section 11407(a) of Public Law 101-508,
32relating to the effective date of the extension of the low-income
33housing credit, apply to calendar years after 1993.

34(n) The provisions of Section 11407(c) of Public Law 101-508,
35relating to election to accelerate credit, do not apply.

36(o) (1) For a project that receives a preliminary reservation
37under this section beginning on or after January 1, 2016, a taxpayer
38may make an irrevocable election in its application to the California
39Tax Credit Allocation Committee to sell all or any portion of any
40credit allowed under this section to one or more unrelated parties
P13   1 for each taxable year in which the credit is allowed subject to both
2of the following conditions:

3(A) The credit is sold for consideration that is not less than 80
4percent of the amount of the credit.

5(B) The unrelated party or parties purchasing any or all of the
6credit pursuant to this subdivision is a taxpayer allowed the credit
7under this section for the taxable year of the purchase or any prior
8taxable year or is a taxpayer allowed the federal credit under
9Section 42 of the Internal Revenue Code, relating to low-income
10housing credit, for the taxable year of the purchase or any prior
11taxable year in connection with any project located in this state.
12For purposes of this subparagraph, “taxpayer allowed the credit
13under this section” means a taxpayer that is allowed the credit
14under this section without regard to the purchase of a credit
15pursuant to this subdivision.

16(2) (A) The taxpayer that originally received the credit shall
17report to the California Tax Credit Allocation Committee within
1810 days of the sale of the credit, in the form and manner specified
19by the California Tax Credit Allocation Committee, all required
20information regarding the purchase and sale of the credit, including
21the social security or other taxpayer identification number of the
22unrelated partybegin insert or partiesend insert to whom the credit has been sold, the
23face amount of the credit sold, and the amount of consideration
24received by the taxpayer for the sale of the credit.

25(B) The California Tax Credit Allocation Committee shall
26provide an annual listing to the Franchise Tax Board, in a form
27and manner agreed upon by the California Tax Credit Allocation
28Committee and the Franchise Tax Board, of the taxpayers that
29have sold or purchased a credit pursuant to this subdivision.

30(3) (A) A credit may be sold pursuant to this subdivision to
31more than one unrelated party.

32(B) (i) Except as provided in clause (ii), a credit shall not be
33resold by the unrelated party to another taxpayer or other party.

34(ii) All or any portion of any credit allowed under this section
35may be resold once by an original purchaser to one or more
36unrelated parties, subject to all of the requirements of this
37subdivision.

38(4) Notwithstanding any other provision of law, the taxpayer
39that originally received the credit that is sold pursuant to paragraph
40(1) shall remain solely liable for all obligations and liabilities
P14   1imposed on the taxpayer by this section with respect to the credit,
2none of which shall apply to any party to whom the credit has been
3sold or subsequently transferred. Parties who purchase credits
4pursuant to paragraph (1) shall be entitled to utilize the purchased
5credits in the same manner in which the taxpayer that originally
6received the credit could utilize them.

7(5) A taxpayer shall not sell a credit allowed by this section if
8the taxpayer was allowed the credit on any tax return of the
9taxpayer.

10(6) Notwithstanding paragraph (1), the taxpayer, with the
11 approval of the Executive Director of the California Tax Credit
12Allocation Committee, may rescind the election to sell all or any
13portion of the credit allowed under this section if the consideration
14for the credit falls below 80 percent of the amount of the credit
15after the California Tax Credit Allocation Committee reservation.

16(p) The California Tax Credit Allocation Committee may
17prescribe rules, guidelines, or procedures necessary or appropriate
18to carry out the purposes of this section, including any guidelines
19regarding the allocation of the credit allowed under this section.
20Chapter 3.5 (commencing with Section 11340) of Part 1 of Division
213 of Title 2 of the Government Code shall not apply to any rule,
22guideline, or procedure prescribed by the California Tax Credit
23Allocation Committee pursuant to this section.

24(q) This section shall remain in effect for as long as Section 42
25of the Internal Revenue Code, relating to low-income housing
26credit, remains in effect.

27

SEC. 2.  

Section 17058 of the Revenue and Taxation Code is
28amended to read:

29

17058.  

(a) (1) There shall be allowed as a credit against the
30“net “tax,” defined in Section 17039, a state low-income housing
31tax credit in an amount equal to the amount determined in
32subdivision (c), computed in accordance with Section 42 of the
33Internal Revenue Code, relating to low-income housing credit,
34except as otherwise provided in this section.

35(2) “Taxpayer,” for purposes of this section, means the sole
36owner in the case of an individual, the partners in the case of a
37partnership, and the shareholders in the case of an “S” corporation.

38(3) “Housing sponsor,” for purposes of this section, means the
39sole owner in the case of an individual, the partnership in the case
P15   1of a partnership, and the “S” corporation in the case of an “S”
2corporation.

3(b) (1) The amount of the credit allocated to any housing
4sponsor shall be authorized by the California Tax Credit Allocation
5Committee, or any successor thereof, based on a project’s need
6for the credit for economic feasibility in accordance with the
7requirements of this section.

8(A) The low-income housing project shall be located in
9California and shall meet either of the following requirements:

10(i) Except for projects to provide farmworker housing, as defined
11in subdivision (h) of Section 50199.7 of the Health and Safety
12Code, that are allocated credits solely under the set-aside described
13in subdivision (c) of Section 50199.20 of the Health and Safety
14Code, the project’s housing sponsor has been allocated by the
15 California Tax Credit Allocation Committee a credit for federal
16income tax purposes under Section 42 of the Internal Revenue
17Code, relating to low-income housing credit.

18(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
19Internal Revenue Code, relating to special rule where 50 percent
20or more of building is financed with tax-exempt bonds subject to
21volume cap.

22(B) The California Tax Credit Allocation Committee shall not
23require fees for the credit under this section in addition to those
24fees required for applications for the tax credit pursuant to Section
2542 of the Internal Revenue Code, relating to low-income housing
26credit. The committee may require a fee if the application for the
27credit under this section is submitted in a calendar year after the
28year the application is submitted for the federal tax credit.

29(C) (i) For a project that receives a preliminary reservation of
30the state low-income housing tax credit, allowed pursuant to
31subdivision (a), on or after January 1, 2009, the credit shall be
32allocated to the partners of a partnership owning the project in
33accordance with the partnership agreement, regardless of how the
34federal low-income housing tax credit with respect to the project
35is allocated to the partners, or whether the allocation of the credit
36under the terms of the agreement has substantial economic effect,
37within the meaning of Section 704(b) of the Internal Revenue
38Code, relating to determination of distributive share.

39(ii) To the extent the allocation of the credit to a partner under
40this section lacks substantial economic effect, any loss or deduction
P16   1otherwise allowable under this part that is attributable to the sale
2or other disposition of that partner’s partnership interest made prior
3to the expiration of the federal credit shall not be allowed in the
4taxable year in which the sale or other disposition occurs, but shall
5instead be deferred until and treated as if it occurred in the first
6taxable year immediately following the taxable year in which the
7federal credit period expires for the project described in clause (i).

8(iii) This subparagraph does not apply to a project that receives
9a preliminary reservation of state low-income housing tax credits
10under the set-aside described in subdivision (c) of Section 50199.20
11of the Health and Safety Code unless the project also receives a
12preliminary reservation of federal low-income housing tax credits.

13(2) (A) The California Tax Credit Allocation Committee shall
14certify to the housing sponsor the amount of tax credit under this
15section allocated to the housing sponsor for each credit period.

16(B) In the case of a partnership or an “S” corporation, the
17housing sponsor shall provide a copy of the California Tax Credit
18Allocation Committee certification to the taxpayer.

19(C) The taxpayer shall, upon request, provide a copy of the
20certification to the Franchise Tax Board.

21(D) All elections made by the taxpayer pursuant to Section 42
22of the Internal Revenue Code, relating to low-income housing
23credit, apply to this section.

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

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, relating to
40increase in credit for buildings in high-cost areas, provided that
P17   1the credit allowed under this section shall not exceed 30 percent
2of the eligible basis of the building.

3(F) (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,
6relating to increase in credit for buildings in high-cost areas, in
7amounts up to 30 percent of the eligible basis of a building if the
8credits allowed under Section 42 of the Internal Revenue Code,
9relating to low-income housing credit, are reduced by an equivalent
10amount.

11(ii) An equivalent amount shall be determined by the California
12Tax Credit Allocation Committee based upon the relative amount
13required to produce an equivalent state tax credit to the taxpayer.

14(c) Section 42(b) of the Internal Revenue Code, relating to
15applicable percentage, shall be modified as follows:

16(1) In the case of any qualified low-income building placed in
17service by the housing sponsor during 1987, the term “applicable
18percentage” means 9 percent for each of the first three years and
193 percent for the fourth year for new buildings (whether or not the
20building is federally subsidized) and for existing buildings.

21(2) In the case of any qualified low-income building that receives
22an allocation after 1989 and is a new building not federally
23subsidized, the term “applicable percentage” means the following:

24(A) For each of the first three years, the percentage prescribed
25by the Secretary of the Treasury for new buildings that are not
26federally subsidized for the taxable year, determined in accordance
27with the requirements of Section 42(b)(2) of the Internal Revenue
28Code, relating to temporary minimum credit rate for nonfederally
29subsidized new buildings, in lieu of the percentage prescribed in
30Section 42(b)(1)(A) of the Internal Revenue Code.

31(B) For the fourth year, the difference between 30 percent and
32the sum of the applicable percentages for the first three years.

33(3) In the case of any qualified low-income building that receives
34an allocation after 1989 and that is a new building that is federally
35subsidized or that is an existing building that is “at risk of
36conversion,” the term “applicable percentage” means the following:

37(A) For each of the first three years, the percentage prescribed
38by the Secretary of the Treasury for new buildings that are federally
39subsidized for the taxable year.

P18   1(B) For the fourth year, the difference between 13 percent and
2the sum of the applicable percentages for the first three years.

3(4) For purposes of this section, the term “at risk of conversion,”
4with respect to an existing property means a property that satisfies
5all of the following criteria:

6(A) The property is a multifamily rental housing development
7in which at least 50 percent of the units receive governmental
8assistance pursuant to any of the following:

9(i) New construction, substantial rehabilitation, moderate
10rehabilitation, property disposition, and loan management set-aside
11programs, or any other program providing project-based assistance
12pursuant to Section 8 of the United States Housing Act of 1937,
13Section 1437f of Title 42 of the United States Code, as amended.

14(ii) The Below-Market-Interest-Rate Program pursuant to
15Section 221(d)(3) of the National Housing Act, Sections
161715l(d)(3) and (5) of Title 12 of the United States Code.

17(iii) Section 236 of the National Housing Act, Section 1715z-1
18of Title 12 of the United States Code.

19(iv) Programs for rent supplement assistance pursuant to Section
20101 of the Housing and Urban Development Act of 1965, Section
211701s of Title 12 of the United States Code, as amended.

22(v) Programs pursuant to Section 515 of the Housing Act of
231949, Section 1485 of Title 42 of the United States Code, as
24amended.

25(vi) The low-income housing credit program set forth in Section
2642 of the Internal Revenue Code, relating to low-income housing
27credit.

28(B) The restrictions on rent and income levels will terminate or
29the federally insured mortgage on the property is eligible for
30prepayment any time within five years before or after the date of
31application to the California Tax Credit Allocation Committee.

32(C) The entity acquiring the property enters into a regulatory
33agreement that requires the property to be operated in accordance
34with the requirements of this section for a period equal to the
35greater of 55 years or the life of the property.

36(D) The property satisfies the requirements of Section 42(e) of
37the Internal Revenue Code, relating to rehabilitation expenditures
38treated as a separate new building, except that the provisions of
39Section 42(e)(3)(A)(ii)(I) shall not apply.

P19   1(d) The term “qualified low-income housing project” as defined
2in Section 42(c)(2) of the Internal Revenue Code, relating to
3qualified low-income building, is modified by adding the following
4requirements:

5(1) The taxpayer shall be entitled to receive a cash distribution
6from the operations of the project, after funding required reserves,
7that, at the election of the taxpayer, is equal to:

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

9(i) The owner equity, which shall include the amount of the
10capital contributions actually paid to the housing sponsor and shall
11not include any amounts until they are paid on an investor note.

12(ii) Twenty percent of the adjusted basis of the building as of
13the close of the first taxable year of the credit period.

14(B) The amount of the cashflow from those units in the building
15that are not low-income units. For purposes of computing cashflow
16under this subparagraph, operating costs shall be allocated to the
17low-income units using the “floor space fraction,” as defined in
18Section 42 of the Internal Revenue Code, relating to low-income
19housing credit.

20(C) Any amount allowed to be distributed under subparagraph
21(A) that is not available for distribution during the first five years
22of the compliance period may be accumulated and distributed any
23time during the first 15 years of the compliance period but not
24thereafter.

25(2) The limitation on return applies in the aggregate to the
26partners if the housing sponsor is a partnership and in the aggregate
27to the shareholders if the housing sponsor is an “S” corporation.

28(3) The housing sponsor shall apply any cash available for
29distribution in excess of the amount eligible to be distributed under
30paragraph (1) to reduce the rent on rent-restricted units or to
31increase the number of rent-restricted units subject to the tests of
32Section 42(g)(1) of the Internal Revenue Code, relating to in
33general.

34(e) The provisions of Section 42(f) of the Internal Revenue
35Code, relating to definition and special rules relating to credit
36period, shall be modified as follows:

37(1) The term “credit period” as defined in Section 42(f)(1) of
38the Internal Revenue Code, relating to credit period defined, is
39modified by substituting “four taxable years” for “10 taxable
40years.”

P20   1(2) The special rule for the first taxable year of the credit period
2under Section 42(f)(2) of the Internal Revenue Code, relating to
3special rules for first year of credit period, shall not apply to the
4tax credit under this section.

5(3) Section 42(f)(3) of the Internal Revenue Code, relating to
6determination of applicable percentage with respect to increases
7in qualified basis after first year of credit period, is modified to
8read:

9If, as of the close of any taxable year in the compliance period,
10after the first year of the credit period, the qualified basis of any
11building exceeds the qualified basis of that building as of the close
12of the first year of the credit period, the housing sponsor, to the
13extent of its tax credit allocation, shall be eligible for a credit on
14the excess in an amount equal to the applicable percentage
15determined pursuant to subdivision (c) for the four-year period
16beginning with the taxable year in which the increase in qualified
17basis occurs.

18(f) The provisions of Section 42(h) of the Internal Revenue
19Code, relating to limitation on aggregate credit allowable with
20respect to projects located in a state, shall be modified as follows:

21(1) Section 42(h)(2) of the Internal Revenue Code, relating to
22allocated credit amount to apply to all taxable years ending during
23or after credit allocation year, does not apply and instead the
24following provisions apply:

25The total amount for the four-year credit period of the housing
26credit dollars allocated in a calendar year to any building shall
27reduce the aggregate housing credit dollar amount of the California
28Tax Credit Allocation Committee for the calendar year in which
29the allocation is made.

30(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
31(7), and (8) of Section 42(h) of the Internal Revenue Code, relating
32to limitation on aggregate credit allowable with respect to projects
33located in a state, do not apply to this section.

34(g) The aggregate housing credit dollar amount that may be
35allocated annually by the California Tax Credit Allocation
36Committee pursuant to this section, Section 12206, and Section
3723610.5 shall be an amount equal to the sum of all the following:

38(1) Seventy million dollars ($70,000,000) for the 2001 calendar
39year, and, for the 2002 calendar year and each calendar year
40thereafter, seventy million dollars ($70,000,000) increased by the
P21   1percentage, if any, by which the Consumer Price Index for the
2preceding calendar year exceeds the Consumer Price Index for the
32001 calendar year. For the purposes of this paragraph, the term
4“Consumer Price Index” means the last Consumer Price Index for
5All Urban Consumers published by the federal Department of
6Labor.

7(2) The unused housing credit ceiling, if any, for the preceding
8calendar years.

9(3) The amount of housing credit ceiling returned in the calendar
10year. For purposes of this paragraph, the amount of housing credit
11dollar amount returned in the calendar year equals the housing
12credit dollar amount previously allocated to any project that does
13not become a qualified low-income housing project within the
14period required by this section or to any project with respect to
15which an allocation is canceled by mutual consent of the California
16Tax Credit Allocation Committee and the allocation recipient.

17(4) Five hundred thousand dollars ($500,000) per calendar year
18for projects to provide farmworker housing, as defined in
19subdivision (h) of Section 50199.7 of the Health and Safety Code.

20(5) The amount of any unallocated or returned credits under
21former Sections 17053.14, 23608.2, and 23608.3, as those sections
22read prior to January 1, 2009, until fully exhausted for projects to
23provide farmworker housing, as defined in subdivision (h) of
24Section 50199.7 of the Health and Safety Code.

25(h) The term “compliance period” as defined in Section 42(i)(1)
26of the Internal Revenue Code, relating to compliance period, is
27modified to mean, with respect to any building, the period of 30
28consecutive taxable years beginning with the first taxable year of
29the credit period with respect thereto.

30(i) Section 42(j) of the Internal Revenue Code, relating to
31recapture of credit, does not apply and the following requirements
32of this section shall be set forth in a regulatory agreement between
33the California Tax Credit Allocation Committee and the housing
34sponsor, and this agreement shall be subordinated, when required,
35to any lien or encumbrance of any banks or other institutional
36lenders to the project. The regulatory agreement entered into
37pursuant to subdivision (f) of Section 50199.14 of the Health and
38Safety Code shall apply, provided that the agreement includes all
39of the following provisions:

40(1) A term not less than the compliance period.

P22   1(2) A requirement that the agreement be recorded in the official
2records of the county in which the qualified low-income housing
3project is located.

4(3) A provision stating which state and local agencies can
5enforce the regulatory agreement in the event the housing sponsor
6fails to satisfy any of the requirements of this section.

7(4) A provision that the regulatory agreement shall be deemed
8a contract enforceable by tenants as third-party beneficiaries thereto
9and that allows individuals, whether prospective, present, or former
10occupants of the building, who meet the income limitation
11applicable to the building, the right to enforce the regulatory
12agreement in any state court.

13(5) A provision incorporating the requirements of Section 42
14of the Internal Revenue Code, relating to low-income housing
15credit, as modified by this section.

16(6) A requirement that the housing sponsor notify the California
17Tax Credit Allocation Committee or its designee if there is a
18determination by the Internal Revenue Service that the project is
19not in compliance with Section 42(g) of the Internal Revenue Code,
20relating to qualified low-income housing project.

21(7) A requirement that the housing sponsor, as security for the
22performance of the housing sponsor’s obligations under the
23regulatory agreement, assign the housing sponsor’s interest in rents
24that it receives from the project, provided that until there is a
25default under the regulatory agreement, the housing sponsor is
26entitled to collect and retain the rents.

27(8) A provision that the remedies available in the event of a
28default under the regulatory agreement that is not cured within a
29reasonable cure period include, but are not limited to, allowing
30any of the parties designated to enforce the regulatory agreement
31to collect all rents with respect to the project; taking possession of
32the project and operating the project in accordance with the
33regulatory agreement until the enforcer determines the housing
34sponsor is in a position to operate the project in accordance with
35the regulatory agreement; applying to any court for specific
36performance; securing the appointment of a receiver to operate
37the project; or any other relief as may be appropriate.

38(j) (1) The committee shall allocate the housing credit on a
39regular basis consisting of two or more periods in each calendar
40year during which applications may be filed and considered. The
P23   1committee shall establish application filing deadlines, the maximum
2percentage of federal and state low-income housing tax credit
3ceiling that may be allocated by the committee in that period, and
4the approximate date on which allocations shall be made. If the
5enactment of federal or state law, the adoption of rules or
6regulations, or other similar events prevent the use of two allocation
7periods, the committee may reduce the number of periods and
8adjust the filing deadlines, maximum percentage of credit allocated,
9and the allocation dates.

10(2) The committee shall adopt a qualified allocation plan, as
11provided in Section 42(m)(1) of the Internal Revenue Code, relating
12to plans for allocation of credit among projects. In adopting this
13plan, the committee shall comply with the provisions of Sections
1442(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code,
15relating to qualified allocation plan and relating to certain selection
16criteria must be used, respectively.

17(3) Notwithstanding Section 42(m) of the Internal Revenue
18Code, relating to responsibilities of housing credit agencies, the
19California Tax Credit Allocation Committee shall allocate housing
20credits in accordance with the qualified allocation plan and
21regulations, which shall include the following provisions:

22(A) All housing sponsors, as defined by paragraph (3) of
23subdivision (a), shall demonstrate at the time the application is
24filed with the committee that the project meets the following
25threshold requirements:

26(i) The housing sponsor shall demonstrate that there is a need
27and demand for low-income housing in the community or region
28for which it is proposed.

29(ii) The project’s proposed financing, including tax credit
30proceeds, shall be sufficient to complete the project and that the
31proposed operating income shall be adequate to operate the project
32for the extended use period.

33(iii) The project shall have enforceable financing commitments,
34either construction or permanent financing, for at least 50 percent
35of the total estimated financing of the project.

36(iv) The housing sponsor shall have and maintain control of the
37site for the project.

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

P24   1(vi) The housing sponsor shall demonstrate that the project
2development team has the experience and the financial capacity
3to ensure project completion and operation for the extended use
4period.

5(vii) The housing sponsor shall demonstrate the amount of tax
6credit that is necessary for the financial feasibility of the project
7and its viability as a qualified low-income housing project
8throughout the extended use period, taking into account operating
9expenses, a supportable debt service, reserves, funds set aside for
10rental subsidies and required equity, and a development fee that
11does not exceed a specified percentage of the eligible basis of the
12project prior to inclusion of the development fee in the eligible
13basis, as determined by the committee.

14(B) The committee shall give a preference to those projects
15satisfying all of the threshold requirements of subparagraph (A)
16if both of the following apply:

17(i) The project serves the lowest income tenants at rents
18affordable to those tenants.

19(ii) The project is obligated to serve qualified tenants for the
20longest period.

21(C) In addition to the provisions of subparagraphs (A) and (B),
22the committee shall use the following criteria in allocating housing
23credits:

24(i) Projects serving large families in which a substantial number,
25as defined by the committee, of all residential units are low-income
26units with three and more bedrooms.

27(ii) Projects providing single-room occupancy units serving
28very low income tenants.

29(iii) Existing projects that are “at risk of conversion,” as defined
30by paragraph (4) of subdivision (c).

31(iv) Projects for which a public agency provides direct or indirect
32long-term financial support for at least 15 percent of the total
33project development costs or projects for which the owner’s equity
34constitutes at least 30 percent of the total project development
35costs.

36(v) Projects that provide tenant amenities not generally available
37to residents of low-income housing projects.

38(4) For purposes of allocating credits pursuant to this section,
39the committee shall not give preference to any project by virtue
40of the date of submission of its application.

P25   1(k) Section 42(l) of the Internal Revenue Code, relating to
2certifications and other reports to secretary, shall be modified as
3follows:

4The term “secretary” shall be replaced by the term “Franchise
5Tax Board.”

6(l) In the case in which the credit allowed under this section
7exceeds the net tax, the excess may be carried over to reduce the
8net tax in the following year, and succeeding years, if necessary,
9until the credit has been exhausted.

10(m) A project that received an allocation of a 1989 federal
11housing credit dollar amount shall be eligible to receive an
12allocation of a 1990 state housing credit dollar amount, subject to
13all of the following conditions:

14(1) The project was not placed in service prior to 1990.

15(2) To the extent the amendments made to this section by the
16Statutes of 1990 conflict with any provisions existing in this section
17prior to those amendments, the prior provisions of law shall prevail.

18(3) Notwithstanding paragraph (2), a project applying for an
19allocation under this subdivision is subject to the requirements of
20paragraph (3) of subdivision (j).

21(n) The credit period with respect to an allocation of credit in
221989 by the California Tax Credit Allocation Committee of which
23any amount is attributable to unallocated credit from 1987 or 1988
24shall not begin until after December 31, 1989.

25(o) The provisions of Section 11407(a) of Public Law 101-508,
26relating to the effective date of the extension of the low-income
27housing credit, apply to calendar years after 1989.

28(p) The provisions of Section 11407(c) of Public Law 101-508,
29relating to election to accelerate credit, do not apply.

30(q) (1) For a project that receives a preliminary reservation
31under this section beginning on or after January 1, 2016, a taxpayer
32may make an irrevocable election in its application to the California
33Tax Credit Allocation Committee to sell all or any portion of any
34credit allowed under this section to one or more unrelated parties
35for each taxable year in which the credit is allowed subject to both
36of the following conditions:

37(A) The credit is sold for consideration that is not less than 80
38percent of the amount of the credit.

39(B) The unrelated party or parties purchasing any or all of the
40credit pursuant to this subdivision is a taxpayer allowed the credit
P26   1under this section for the taxable year of the purchase or any prior
2taxable year or is a taxpayer allowed the federal credit under
3Section 42 of the Internal Revenue Code, relating to low-income
4housing credit, for the taxable year of the purchase or any prior
5taxable year in connection with any project located in this state.
6For purposes of this subparagraph, “taxpayer allowed the credit
7under this section” means a taxpayer that is allowed the credit
8under this section without regard to the purchase of a credit
9pursuant to this subdivision.

10(2) (A) The taxpayer that originally received the credit shall
11report to the California Tax Credit Allocation Committee within
1210 days of the sale of the credit, in the form and manner specified
13by the California Tax Credit Allocation Committee, all required
14information regarding the purchase and sale of the credit, including
15the social security or other taxpayer identification number of the
16unrelated partybegin insert or partiesend insert to whom the credit has been sold, the
17face amount of the credit sold, and the amount of consideration
18received by the taxpayer for the sale of the credit.

19(B) The California Tax Credit Allocation Committee shall
20provide an annual listing to the Franchise Tax Board, in a form
21and manner agreed upon by the California Tax Credit Allocation
22Committee and the Franchise Tax Board, of the taxpayers that
23have sold or purchased a credit pursuant to this subdivision.

24(3) (A) A credit may be sold pursuant to this subdivision to
25more than one unrelated party.

26(B) (i) Except as provided in clause (ii), a credit shall not be
27resold by the unrelated party to another taxpayer or other party.

28(ii) All or any portion of any credit allowed under this section
29may be resold once by an original purchaser to one or more
30unrelated parties, subject to all of the requirements of this
31subdivision.

32(4) Notwithstanding any other provision of law, the taxpayer
33that originally received the credit that is sold pursuant to paragraph
34(1) shall remain solely liable for all obligations and liabilities
35imposed on the taxpayer by this section with respect to the credit,
36none of which shall apply to any party to whom the credit has been
37sold or subsequently transferred. Parties who purchase credits
38pursuant to paragraph (1) shall be entitled to utilize the purchased
39credits in the same manner in which the taxpayer that originally
40received the credit could utilize them.

P27   1(5) A taxpayer shall not sell a credit allowed by this section if
2the taxpayer was allowed the credit on any tax return of the
3taxpayer.

4(6) Notwithstanding paragraph (1), the taxpayer, with the
5approval of the Executive Director of the California Tax Credit
6Allocation Committee, may rescind the election to sell all or any
7portion of the credit allowed under this section if the consideration
8for the credit falls below 80 percent of the amount of the credit
9after the California Tax Credit Allocation Committee reservation.

10(r) The California Tax Credit Allocation Committee may
11prescribe rules, guidelines, or procedures necessary or appropriate
12to carry out the purposes of this section, including any guidelines
13regarding the allocation of the credit allowed under this section.
14Chapter 3.5 (commencing with Section 11340) of Part 1 of Division
153 of Title 2 of the Government Code shall not apply to any rule,
16guideline, or procedure prescribed by the California Tax Credit
17Allocation Committee pursuant to this section.

18(s) The amendments to this section made by Chapter 1222 of
19the Statutes of 1993 apply only to taxable years beginning on or
20after January 1, 1994.

21(t) This section shall remain in effect on and after December 1,
221990, for as long as Section 42 of the Internal Revenue Code,
23relating to low-income housing credit, remains in effect. Any
24unused credit may continue to be carried forward, as provided in
25subdivision (l), until the credit has been exhausted.

26

SEC. 3.  

Section 23610.5 of the Revenue and Taxation Code
27 is amended to read:

28

23610.5.  

(a) (1) There shall be allowed as a credit against the
29“tax,” defined by Section 23036, a state low-income housing tax
30credit in an amount equal to the amount determined in subdivision
31(c), computed in accordance with Section 42 of the Internal
32Revenue Code, relating to low-income housing credit, except as
33otherwise provided in this section.

34(2) “Taxpayer,” for purposes of this section, means the sole
35owner in the case of a “C” corporation, the partners in the case of
36a partnership, and the shareholders in the case of an “S”
37corporation.

38(3) “Housing sponsor,” for purposes of this section, means the
39sole owner in the case of a “C” corporation, the partnership in the
P28   1case of a partnership, and the “S” corporation in the case of an “S”
2corporation.

3(b) (1) The amount of the credit allocated to any housing
4sponsor shall be authorized by the California Tax Credit Allocation
5Committee, or any successor thereof, based on a project’s need
6for the credit for economic feasibility in accordance with the
7requirements of this section.

8(A) The low-income housing project shall be located in
9California and shall meet either of the following requirements:

10(i) Except for projects to provide farmworker housing, as defined
11in subdivision (h) of Section 50199.7 of the Health and Safety
12Code, that are allocated credits solely under the set-aside described
13in subdivision (c) of Section 50199.20 of the Health and Safety
14Code, the project’s housing sponsor has been allocated by the
15 California Tax Credit Allocation Committee a credit for federal
16income tax purposes under Section 42 of the Internal Revenue
17Code, relating to low-income housing credit.

18(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
19Internal Revenue Code, relating to special rule where 50 percent
20or more of building is financed with tax-exempt bonds subject to
21volume cap.

22(B) The California Tax Credit Allocation Committee shall not
23require fees for the credit under this section in addition to those
24fees required for applications for the tax credit pursuant to Section
2542 of the Internal Revenue Code, relating to low-income housing
26credit. The committee may require a fee if the application for the
27credit under this section is submitted in a calendar year after the
28year the application is submitted for the federal tax credit.

29(C) (i) For a project that receives a preliminary reservation of
30the state low-income housing tax credit, allowed pursuant to
31subdivision (a), on or after January 1, 2009, the credit shall be
32allocated to the partners of a partnership owning the project in
33accordance with the partnership agreement, regardless of how the
34federal low-income housing tax credit with respect to the project
35is allocated to the partners, or whether the allocation of the credit
36under the terms of the agreement has substantial economic effect,
37within the meaning of Section 704(b) of the Internal Revenue
38Code, relating to determination of distributive share.

39(ii) To the extent the allocation of the credit to a partner under
40this section lacks substantial economic effect, any loss or deduction
P29   1otherwise allowable under this part that is attributable to the sale
2or other disposition of that partner’s partnership interest made prior
3to the expiration of the federal credit shall not be allowed in the
4taxable year in which the sale or other disposition occurs, but shall
5instead be deferred until and treated as if it occurred in the first
6taxable year immediately following the taxable year in which the
7federal credit period expires for the project described in clause (i).

8(iii) This subparagraph does not apply to a project that receives
9a preliminary reservation of state low-income housing tax credits
10under the set-aside described in subdivision (c) of Section 50199.20
11of the Health and Safety Code unless the project also receives a
12preliminary reservation of federal low-income housing tax credits.

13(2) (A) The California Tax Credit Allocation Committee shall
14certify to the housing sponsor the amount of tax credit under this
15section allocated to the housing sponsor for each credit period.

16(B) In the case of a partnership or an “S” corporation, the
17housing sponsor shall provide a copy of the California Tax Credit
18Allocation Committee certification to the taxpayer.

19(C) The taxpayer shall, upon request, provide a copy of the
20certification to the Franchise Tax Board.

21(D) All elections made by the taxpayer pursuant to Section 42
22of the Internal Revenue Code, relating to low-income housing
23credit, apply to this section.

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

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, relating to
40increase in credit for buildings in high-cost areas, provided that
P30   1the credit allowed under this section shall not exceed 30 percent
2of the eligible basis of the building.

3(F) (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), relating to increase in credit for
6buildings in high-cost areas, of the Internal Revenue Code in
7amounts up to 30 percent of the eligible basis of a building if the
8credits allowed under Section 42 of the Internal Revenue Code,
9relating to low-income housing credits, are reduced by an
10equivalent amount.

11(ii) An equivalent amount shall be determined by the California
12Tax Credit Allocation Committee based upon the relative amount
13required to produce an equivalent state tax credit to the taxpayer.

14(c) Section 42(b) of the Internal Revenue Code, relating to
15applicable percentage, shall be modified as follows:

16(1) In the case of any qualified low-income building placed in
17service by the housing sponsor during 1987, the term “applicable
18percentage” means 9 percent for each of the first three years and
193 percent for the fourth year for new buildings (whether or not the
20building is federally subsidized) and for existing buildings.

21(2) In the case of any qualified low-income building that receives
22an allocation after 1989 and is a new building not federally
23subsidized, the term “applicable percentage” means the following:

24(A) For each of the first three years, the percentage prescribed
25by the Secretary of the Treasury for new buildings that are not
26federally subsidized for the taxable year, determined in accordance
27with the requirements of Section 42(b)(2) of the Internal Revenue
28Code, relating to temporary minimum credit rate for nonfederally
29subsidized new buildings, in lieu of the percentage prescribed in
30Section 42(b)(1)(A) of the Internal Revenue Code.

31(B) For the fourth year, the difference between 30 percent and
32the sum of the applicable percentages for the first three years.

33(3) In the case of any qualified low-income building that receives
34an allocation after 1989 and that is a new building that is federally
35subsidized or that is an existing building that is “at risk of
36conversion,” the term “applicable percentage” means the following:

37(A) For each of the first three years, the percentage prescribed
38by the Secretary of the Treasury for new buildings that are federally
39subsidized for the taxable year.

P31   1(B) For the fourth year, the difference between 13 percent and
2the sum of the applicable percentages for the first three years.

3(4) For purposes of this section, the term “at risk of conversion,”
4with respect to an existing property means a property that satisfies
5all of the following criteria:

6(A) The property is a multifamily rental housing development
7in which at least 50 percent of the units receive governmental
8assistance pursuant to any of the following:

9(i) New construction, substantial rehabilitation, moderate
10rehabilitation, property disposition, and loan management set-aside
11programs, or any other program providing project-based assistance
12pursuant to Section 8 of the United States Housing Act of 1937,
13Section 1437f of Title 42 of the United States Code, as amended.

14(ii) The Below-Market-Interest-Rate Program pursuant to
15Section 221(d)(3) of the National Housing Act, Sections
161715l(d)(3) and (5) of Title 12 of the United States Code.

17(iii) Section 236 of the National Housing Act, Section 1715z-1
18of Title 12 of the United States Code.

19(iv) Programs for rent supplement assistance pursuant to Section
20101 of the Housing and Urban Development Act of 1965, Section
211701s of Title 12 of the United States Code, as amended.

22(v) Programs pursuant to Section 515 of the Housing Act of
231949, Section 1485 of Title 42 of the United States Code, as
24amended.

25(vi) The low-income housing credit program set forth in Section
2642 of the Internal Revenue Code, relating to low-income housing
27credit.

28(B) The restrictions on rent and income levels will terminate or
29the federally insured mortgage on the property is eligible for
30prepayment any time within five years before or after the date of
31application to the California Tax Credit Allocation Committee.

32(C) The entity acquiring the property enters into a regulatory
33agreement that requires the property to be operated in accordance
34with the requirements of this section for a period equal to the
35greater of 55 years or the life of the property.

36(D) The property satisfies the requirements of Section 42(e) of
37the Internal Revenue Code, relating to rehabilitation expenditures
38treated as a separate new building, except that the provisions of
39Section 42(e)(3)(A)(ii)(I) shall not apply.

P32   1(d) The term “qualified low-income housing project” as defined
2in Section 42(c)(2) of the Internal Revenue Code, relating to
3qualified low-income building, is modified by adding the following
4requirements:

5(1) The taxpayer shall be entitled to receive a cash distribution
6from the operations of the project, after funding required reserves,
7that, at the election of the taxpayer, is equal to:

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

9(i) The owner equity, which shall include the amount of the
10capital contributions actually paid to the housing sponsor and shall
11not include any amounts until they are paid on an investor note.

12(ii) Twenty percent of the adjusted basis of the building as of
13the close of the first taxable year of the credit period.

14(B) The amount of the cashflow from those units in the building
15that are not low-income units. For purposes of computing cashflow
16under this subparagraph, operating costs shall be allocated to the
17low-income units using the “floor space fraction,” as defined in
18Section 42 of the Internal Revenue Code, relating to low-income
19housing credit.

20(C) Any amount allowed to be distributed under subparagraph
21(A) that is not available for distribution during the first five years
22of the compliance period may be accumulated and distributed any
23time during the first 15 years of the compliance period but not
24thereafter.

25(2) The limitation on return applies in the aggregate to the
26partners if the housing sponsor is a partnership and in the aggregate
27to the shareholders if the housing sponsor is an “S” corporation.

28(3) The housing sponsor shall apply any cash available for
29distribution in excess of the amount eligible to be distributed under
30paragraph (1) to reduce the rent on rent-restricted units or to
31increase the number of rent-restricted units subject to the tests of
32Section 42(g)(1) of the Internal Revenue Code, relating to in
33general.

34(e) The provisions of Section 42(f) of the Internal Revenue
35Code, relating to definition and special rules relating to credit
36period, shall be modified as follows:

37(1) The term “credit period” as defined in Section 42(f)(1) of
38the Internal Revenue Code, relating to credit period defined, is
39modified by substituting “four taxable years” for “10 taxable
40years.”

P33   1(2) The special rule for the first taxable year of the credit period
2under Section 42(f)(2) of the Internal Revenue Code, relating to
3special rule for first year of credit period, shall not apply to the tax
4credit under this section.

5(3) Section 42(f)(3) of the Internal Revenue Code, relating to
6determination of applicable percentage with respect to increases
7in qualified basis after first year of credit period, is modified to
8read:

9If, as of the close of any taxable year in the compliance period,
10after the first year of the credit period, the qualified basis of any
11building exceeds the qualified basis of that building as of the close
12of the first year of the credit period, the housing sponsor, to the
13extent of its tax credit allocation, shall be eligible for a credit on
14the excess in an amount equal to the applicable percentage
15determined pursuant to subdivision (c) for the four-year period
16beginning with the later of the taxable years in which the increase
17in qualified basis occurs.

18(f) The provisions of Section 42(h) of the Internal Revenue
19Code, relating to limitation on aggregate credit allowable with
20respect to projects located in a state, shall be modified as follows:

21(1) Section 42(h)(2) of the Internal Revenue Code, relating to
22allocated credit amount to apply to all taxable years ending during
23or after credit allocation year, does not apply and instead the
24following provisions apply:

25The total amount for the four-year credit period of the housing
26credit dollars allocated in a calendar year to any building shall
27reduce the aggregate housing credit dollar amount of the California
28Tax Credit Allocation Committee for the calendar year in which
29the allocation is made.

30(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
31(7), and (8) of Section 42(h) of the Internal Revenue Code, relating
32to limitation on aggregate credit allowable with respect to projects
33located in a state, do not apply to this section.

34(g) The aggregate housing credit dollar amount that may be
35allocated annually by the California Tax Credit Allocation
36Committee pursuant to this section, Section 12206, and Section
3717058 shall be an amount equal to the sum of all the following:

38(1) Seventy million dollars ($70,000,000) for the 2001 calendar
39year, and, for the 2002 calendar year and each calendar year
40thereafter, seventy million dollars ($70,000,000) increased by the
P34   1percentage, if any, by which the Consumer Price Index for the
2preceding calendar year exceeds the Consumer Price Index for the
32001 calendar year. For the purposes of this paragraph, the term
4“Consumer Price Index” means the last Consumer Price Index for
5All Urban Consumers published by the federal Department of
6Labor.

7(2) The unused housing credit ceiling, if any, for the preceding
8calendar years.

9(3) The amount of housing credit ceiling returned in the calendar
10year. For purposes of this paragraph, the amount of housing credit
11dollar amount returned in the calendar year equals the housing
12credit dollar amount previously allocated to any project that does
13not become a qualified low-income housing project within the
14period required by this section or to any project with respect to
15which an allocation is canceled by mutual consent of the California
16Tax Credit Allocation Committee and the allocation recipient.

17(4) Five hundred thousand dollars ($500,000) per calendar year
18for projects to provide farmworker housing, as defined in
19subdivision (h) of Section 50199.7 of the Health and Safety Code.

20(5) The amount of any unallocated or returned credits under
21former Sections 17053.14, 23608.2, and 23608.3, as those sections
22read prior to January 1, 2009, until fully exhausted for projects to
23provide farmworker housing, as defined in subdivision (h) of
24Section 50199.7 of the Health and Safety Code.

25(h) The term “compliance period” as defined in Section 42(i)(1)
26of the Internal Revenue Code, relating to compliance period, is
27modified to mean, with respect to any building, the period of 30
28consecutive taxable years beginning with the first taxable year of
29the credit period with respect thereto.

30(i) Section 42(j) of the Internal Revenue Code, relating to
31recapture of credit, does not apply and the following shall be
32substituted in its place:

33The requirements of this section shall be set forth in a regulatory
34agreement between the California Tax Credit Allocation Committee
35and the housing sponsor, and this agreement shall be subordinated,
36when required, to any lien or encumbrance of any banks or other
37institutional lenders to the project. The regulatory agreement
38entered into pursuant to subdivision (f) of Section 50199.14 of the
39Health and Safety Code shall apply, provided that the agreement
40includes all of the following provisions:

P35   1(1) A term not less than the compliance period.

2(2) A requirement that the agreement be recorded in the official
3records of the county in which the qualified low-income housing
4project is located.

5(3) A provision stating which state and local agencies can
6enforce the regulatory agreement in the event the housing sponsor
7fails to satisfy any of the requirements of this section.

8(4) A provision that the regulatory agreement shall be deemed
9a contract enforceable by tenants as third-party beneficiaries thereto
10and that allows individuals, whether prospective, present, or former
11occupants of the building, who meet the income limitation
12applicable to the building, the right to enforce the regulatory
13agreement in any state court.

14(5) A provision incorporating the requirements of Section 42
15of the Internal Revenue Code, relating to low-income housing
16credit, as modified by this section.

17(6) A requirement that the housing sponsor notify the California
18Tax Credit Allocation Committee or its designee if there is a
19determination by the Internal Revenue Service that the project is
20not in compliance with Section 42(g) of the Internal Revenue Code,
21relating to qualified low-income housing project.

22(7) A requirement that the housing sponsor, as security for the
23performance of the housing sponsor’s obligations under the
24regulatory agreement, assign the housing sponsor’s interest in rents
25that it receives from the project, provided that until there is a
26default under the regulatory agreement, the housing sponsor is
27entitled to collect and retain the rents.

28(8) A provision that the remedies available in the event of a
29default under the regulatory agreement that is not cured within a
30reasonable cure period include, but are not limited to, allowing
31any of the parties designated to enforce the regulatory agreement
32to collect all rents with respect to the project; taking possession of
33the project and operating the project in accordance with the
34regulatory agreement until the enforcer determines the housing
35sponsor is in a position to operate the project in accordance with
36 the regulatory agreement; applying to any court for specific
37performance; securing the appointment of a receiver to operate
38the project; or any other relief as may be appropriate.

39(j) (1) The committee shall allocate the housing credit on a
40regular basis consisting of two or more periods in each calendar
P36   1year during which applications may be filed and considered. The
2committee shall establish application filing deadlines, the maximum
3percentage of federal and state low-income housing tax credit
4ceiling that may be allocated by the committee in that period, and
5the approximate date on which allocations shall be made. If the
6enactment of federal or state law, the adoption of rules or
7regulations, or other similar events prevent the use of two allocation
8periods, the committee may reduce the number of periods and
9adjust the filing deadlines, maximum percentage of credit allocated,
10and the allocation dates.

11(2) The committee shall adopt a qualified allocation plan, as
12provided in Section 42(m)(1) of the Internal Revenue Code, relating
13to plans for allocation of credit among projects. In adopting this
14plan, the committee shall comply with the provisions of Sections
1542(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code,
16relating to qualified allocation plan and relating to certain selection
17criteria must be used, respectively.

18(3) Notwithstanding Section 42(m) of the Internal Revenue
19Code, relating to responsibilities of housing credit agencies, the
20California Tax Credit Allocation Committee shall allocate housing
21credits in accordance with the qualified allocation plan and
22regulations, which shall include the following provisions:

23(A) All housing sponsors, as defined by paragraph (3) of
24subdivision (a), shall demonstrate at the time the application is
25filed with the committee that the project meets the following
26threshold requirements:

27(i) The housing sponsor shall demonstrate that there is a need
28for low-income housing in the community or region for which it
29is proposed.

30(ii) The project’s proposed financing, including tax credit
31proceeds, shall be sufficient to complete the project and shall be
32adequate to operate the project for the extended use period.

33(iii) The project shall have enforceable financing commitments,
34either construction or permanent financing, for at least 50 percent
35of the total estimated financing of the project.

36(iv) The housing sponsor shall have and maintain control of the
37site for the project.

38(v) The housing sponsor shall demonstrate that the project
39complies with all applicable local land use and zoning ordinances.

P37   1(vi) The housing sponsor shall demonstrate that the project
2development team has the experience and the financial capacity
3to ensure project completion and operation for the extended use
4period.

5(vii) The housing sponsor shall demonstrate the amount of tax
6credit that is necessary for the financial feasibility of the project
7and its viability as a qualified low-income housing project
8throughout the extended use period, taking into account operating
9expenses, a supportable debt service, reserves, funds set aside for
10rental subsidies and required equity, and a development fee that
11does not exceed a specified percentage of the eligible basis of the
12project prior to inclusion of the development fee in the eligible
13basis, as determined by the committee.

14(B) The committee shall give a preference to those projects
15satisfying all of the threshold requirements of subparagraph (A)
16if both of the following apply:

17(i) The project serves the lowest income tenants at rents
18affordable to those tenants.

19(ii) The project is obligated to serve qualified tenants for the
20longest period.

21(C) In addition to the provisions of subparagraphs (A) and (B),
22the committee shall use the following criteria in allocating housing
23credits:

24(i) Projects serving large families in which a substantial number,
25as defined by the committee, of all residential units are low-income
26units with three and more bedrooms.

27(ii) Projects providing single-room occupancy units serving
28very low income tenants.

29(iii) Existing projects that are “at risk of conversion,” as defined
30by paragraph (4) of subdivision (c).

31(iv) Projects for which a public agency provides direct or indirect
32long-term financial support for at least 15 percent of the total
33project development costs or projects for which the owner’s equity
34constitutes at least 30 percent of the total project development
35costs.

36(v) Projects that provide tenant amenities not generally available
37to residents of low-income housing projects.

38(4) For purposes of allocating credits pursuant to this section,
39the committee shall not give preference to any project by virtue
P38   1 of the date of submission of its application except to break a tie
2when two or more of the projects have an equal rating.

3(5) Not less than 20 percent of the low-income housing tax
4credits available annually under this section, Section 12206, and
5Section 17058 shall be set aside for allocation to rural areas as
6defined in Section 50199.21 of the Health and Safety Code. Any
7amount of credit set aside for rural areas remaining on or after
8October 31 of any calendar year shall be available for allocation
9to any eligible project. No amount of credit set aside for rural areas
10shall be considered available for any eligible project so long as
11there are eligible rural applications pending on October 31.

12(k) Section 42(l) of the Internal Revenue Code, relating to
13certifications and other reports to secretary, shall be modified as
14follows:

15The term “secretary” shall be replaced by the term “Franchise
16Tax Board.”

17(l) In the case in which the credit allowed under this section
18exceeds the “tax,” the excess may be carried over to reduce the
19“tax” in the following year, and succeeding years if necessary,
20until the credit has been exhausted.

21(m) A project that received an allocation of a 1989 federal
22housing credit dollar amount shall be eligible to receive an
23allocation of a 1990 state housing credit dollar amount, subject to
24all of the following conditions:

25(1) The project was not placed in service prior to 1990.

26(2) To the extent the amendments made to this section by the
27Statutes of 1990 conflict with any provisions existing in this section
28prior to those amendments, the prior provisions of law shall prevail.

29(3) Notwithstanding paragraph (2), a project applying for an
30allocation under this subdivision is subject to the requirements of
31paragraph (3) of subdivision (j).

32(n) The credit period with respect to an allocation of credit in
331989 by the California Tax Credit Allocation Committee of which
34any amount is attributable to unallocated credit from 1987 or 1988
35shall not begin until after December 31, 1989.

36(o) The provisions of Section 11407(a) of Public Law 101-508,
37relating to the effective date of the extension of the low-income
38housing credit, apply to calendar years after 1989.

39(p) The provisions of Section 11407(c) of Public Law 101-508,
40relating to election to accelerate credit, do not apply.

P39   1(q) (1) A corporation may elect to assign any portion of any
2credit allowed under this section to one or more affiliated
3corporations for each taxable year in which the credit is allowed.
4For purposes of this subdivision, “affiliated corporation” has the
5meaning provided in subdivision (b) of Section 25110, as that
6section was amended by Chapter 881 of the Statutes of 1993, as
7of the last day of the taxable year in which the credit is allowed,
8except that “100 percent” is substituted for “more than 50 percent”
9wherever it appears in the section, as that section was amended by
10Chapter 881 of the Statutes of 1993, and “voting common stock”
11is substituted for “voting stock” wherever it appears in the section,
12as that section was amended by Chapter 881 of the Statutes of
131993.

14(2) The election provided in paragraph (1):

15(A) May be based on any method selected by the corporation
16that originally receives the credit.

17(B) Shall be irrevocable for the taxable year the credit is allowed,
18once made.

19(C) May be changed for any subsequent taxable year if the
20election to make the assignment is expressly shown on each of the
21returns of the affiliated corporations that assign and receive the
22credits.

23(r) (1) For a project that receives a preliminary reservation
24under this section beginning on or after January 1, 2016, a taxpayer
25may make an irrevocable election in its application to the California
26Tax Credit Allocation Committee to sell all or any portion of any
27credit allowed under this section to one or more unrelated parties
28for each taxable year in which the credit is allowed subject to both
29of the following conditions:

30(A) The credit is sold for consideration that is not less than 80
31percent of the amount of the credit.

32(B) (i) The unrelated party or parties purchasing any or all of
33the credit pursuant to this subdivision is a taxpayer allowed the
34credit under this section for the taxable year of the purchase or any
35prior taxable year or is a taxpayer allowed the federal credit under
36Section 42 of the Internal Revenue Code, relating to low-income
37housing credit, for the taxable year of the purchase or any prior
38taxable year in connection with any project located in this state.

39(ii) For purposes of this subparagraph, “taxpayer allowed the
40credit under this section” means a taxpayer that is allowed the
P40   1credit under this section without regard to the purchase of a credit
2pursuant to this subdivision without regard to any of the following:

3(I) The purchase of a credit under this section pursuant to this
4subdivision.

5(II) The assignment of a credit under this section pursuant to
6subdivision (q).

7(III) The assignment of a credit under this section pursuant to
8Section 23363.

9(2) (A) The taxpayer that originally received the credit shall
10report to the California Tax Credit Allocation Committee within
1110 days of the sale of the credit, in the form and manner specified
12by the California Tax Credit Allocation Committee, all required
13information regarding the purchase and sale of the credit, including
14the social security or other taxpayer identification number of the
15unrelated partybegin insert or partiesend insert to whom the credit has been sold, the
16face amount of the credit sold, and the amount of consideration
17received by the taxpayer for the sale of the credit.

18(B) The California Tax Credit Allocation Committee shall
19provide an annual listing to the Franchise Tax Board, in a form
20and manner agreed upon by the California Tax Credit Allocation
21Committee and the Franchise Tax Board, of the taxpayers that
22have sold or purchased a credit pursuant to this subdivision.

23(3) (A) A credit may be sold pursuant to this subdivision to
24more than one unrelated party.

25(B) (i) Except as provided in clause (ii), a credit shall not be
26resold by the unrelated party to another taxpayer or other party.

27(ii) All or any portion of any credit allowed under this section
28may be resold once by an original purchaser to one or more
29unrelated parties, subject to all of the requirements of this
30subdivision.

31(4) Notwithstanding any other provision of law, the taxpayer
32that originally received the credit that is sold pursuant to paragraph
33(1) shall remain solely liable for all obligations and liabilities
34imposed on the taxpayer by this section with respect to the credit,
35none of which shall apply to any party to whom the credit has been
36sold or subsequently transferred. Parties who purchase credits
37pursuant to paragraph (1) shall be entitled to utilize the purchased
38credits in the same manner in which the taxpayer that originally
39received the credit could utilize them.

P41   1(5) A taxpayer shall not sell a credit allowed by this section if
2the taxpayer was allowed the credit on any tax return of the
3taxpayer.

4(6) Notwithstanding paragraph (1), the taxpayer, with the
5approval of the Executive Director of the California Tax Credit
6Allocation Committee, may rescind the election to sell all or any
7portion of the credit allowed under this section if the consideration
8for the credit falls below 80 percent of the amount of the credit
9after the California Tax Credit Allocation Committee reservation.

10(s) The California Tax Credit Allocation Committee may
11prescribe rules, guidelines, or procedures necessary or appropriate
12to carry out the purposes of this section, including any guidelines
13regarding the allocation of the credit allowed under this section.
14Chapter 3.5 (commencing with Section 11340) of Part 1 of Division
153 of Title 2 of the Government Code shall not apply to any rule,
16guideline, or procedure prescribed by the California Tax Credit
17Allocation Committee pursuant to this section.

18(t) Any unused credit may continue to be carried forward, as
19provided in subdivision (l), until the credit has been exhausted.

20(u) This section shall remain in effect on and after December
211, 1990, for as long as Section 42 of the Internal Revenue Code,
22relating to low-income housing credit, remains in effect.

23(v) The amendments to this section made by Chapter 1222 of
24the Statutes of 1993 shall apply only to taxable years beginning
25on or after January 1, 1994, except that paragraph (1) of subdivision
26(q), as amended, shall apply to taxable years beginning on or after
27January 1, 1993.

28

SEC. 4.  

The California Tax Credit Allocation Committee shall
29enter into an agreement with the Franchise Tax Board to pay any
30costs incurred by the Franchise Tax Board in the administration
31of subdivision (o) of Section 12206, subdivision (q) of Section
3217058, and subdivision (r) of Section 23610.5 of the Revenue and
33Taxation Code.

34

SEC. 5.  

This act provides for a tax levy within the meaning of
35Article IV of the Constitution and shall go into immediate effect.



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