Amended in Assembly June 27, 2016

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,begin delete 2016,end deletebegin insert 2017, and before January 1, 2020,end insert 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 wouldbegin delete eliminateend deletebegin insert extendend insert the January 1, 2016,begin delete date.end deletebegin insert date to January 1, 2020.end insert

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:

P3    1(i) The project’s housing sponsor has been allocated by the
2 California Tax Credit Allocation Committee a credit for federal
3income tax purposes under Section 42 of the Internal Revenue
4Code, relating to low-income housing credit.

5(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
6Internal Revenue Code, relating to special rule where 50 percent
7or more of building is financed with tax-exempt bonds subject to
8volume cap.

9(B) The California Tax Credit Allocation Committee shall not
10require fees for the credit under this section in addition to those
11fees required for applications for the tax credit pursuant to Section
1242 of the Internal Revenue Code, relating to low-income housing
13credit. The committee may require a fee if the application for the
14credit under this section is submitted in a calendar year after the
15year the application is submitted for the federal tax credit.

16(C) (i) For a project that receives a preliminary reservation of
17the state low-income housing tax credit, allowed pursuant to
18subdivision (a), on or after January 1, 2009,begin insert and before January
191, 2020, including preliminary reservations received in 2016,end insert
the
20credit shall be allocated to the partners of a partnership owning
21the project in accordance with the partnership agreement, regardless
22of how the federal low-income housing tax credit with respect to
23the project is allocated to the partners, or whether the allocation
24of the credit under the terms of the agreement has substantial
25economic effect, within the meaning of Section 704(b) of the
26Internal Revenue Code, relating to determination of distributive
27share.

28(ii) This subparagraph does not apply to a project that receives
29a preliminary reservation of state low-income housing tax credits
30under the set-aside described in subdivision (c) of Section 50199.20
31of the Health and Safety Code unless the project also receives a
32preliminary reservation of federal low-income housing tax credits.

33(2) (A) The California Tax Credit Allocation Committee shall
34certify to the housing sponsor the amount of tax credit under this
35section allocated to the housing sponsor for each credit period.

36(B) In the case of a partnership or an “S” corporation, the
37housing sponsor shall provide a copy of the California Tax Credit
38Allocation Committee certification to the taxpayer.

39(C) The taxpayer shall attach a copy of the certification to any
40return upon which a tax credit is claimed under this section.

P4    1(D) In the case of a failure to attach a copy of the certification
2for the year to the return in which a tax credit is claimed under this
3section, no credit under this section shall be allowed for that year
4until a copy of that certification is provided.

5(E) All elections made by the taxpayer pursuant to Section 42
6of the Internal Revenue Code, relating to low-income housing
7credit, shall apply to this section.

8(F) (i) Except as described in clause (ii), for buildings located
9in designated difficult development areas (DDAs) or qualified
10census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
11Internal Revenue Code, relating to increase in credit for buildings
12in high-cost areas, credits may be allocated under this section in
13the amounts prescribed in subdivision (c), provided that the amount
14of credit allocated under Section 42 of the Internal Revenue Code,
15relating to low-income housing credit, is computed on 100 percent
16of the qualified basis of the building.

17(ii) Notwithstanding clause (i), the California Tax Credit
18Allocation Committee may allocate the credit for buildings located
19in DDAs or QCTs that are restricted to having 50 percent of its
20occupants be special needs households, as defined in the California
21Code of Regulations by the California Tax Credit Allocation
22Committee, even if the taxpayer receives federal credits pursuant
23to Section 42(d)(5)(B) of the Internal Revenue Code, relating to
24increase in credit for buildings in high-cost areas, provided that
25the credit allowed under this section shall not exceed 30 percent
26of the eligible basis of the building.

27(G) (i) The California Tax Credit Allocation Committee may
28allocate a credit under this section in exchange for a credit allocated
29pursuant to Section 42(d)(5)(B) of the Internal Revenue Code,
30relating to increase in credit for buildings in high-cost areas, in
31amounts up to 30 percent of the eligible basis of a building if the
32credits allowed under Section 42 of the Internal Revenue Code,
33relating to low-income housing credit, are reduced by an equivalent
34amount.

35(ii) An equivalent amount shall be determined by the California
36Tax Credit Allocation Committee based upon the relative amount
37required to produce an equivalent state tax credit to the taxpayer.

38(c) Section 42(b) of the Internal Revenue Code, relating to
39applicable percentage, shall be modified as follows:

P5    1(1) In the case of any qualified low-income building that receives
2an allocation after 1989 and is a new building not federally
3subsidized, the term “applicable percentage” means the following:

4(A) For each of the first three years, the percentage prescribed
5by the Secretary of the Treasury for new buildings that are not
6federally subsidized for the taxable year, determined in accordance
7with the requirements of Section 42(b)(2) of the Internal Revenue
8Code, relating to temporary minimum credit rate for nonfederally
9subsidized new buildings, in lieu of the percentage prescribed in
10Section 42(b)(1)(A) of the Internal Revenue Code.

11(B) For the fourth year, the difference between 30 percent and
12the sum of the applicable percentages for the first three years.

13(2) In the case of any qualified low-income building that receives
14an allocation after 1989 and that is a new building that is federally
15subsidized or that is an existing building that is “at risk of
16conversion,” the term “applicable percentage” means the following:

17(A) For each of the first three years, the percentage prescribed
18by the Secretary of the Treasury for new buildings that are federally
19subsidized for the taxable year.

20(B) For the fourth year, the difference between 13 percent and
21the sum of the applicable percentages for the first three years.

22(3) For purposes of this section, the term “at risk of conversion,”
23with respect to an existing property means a property that satisfies
24all of the following criteria:

25(A) The property is a multifamily rental housing development
26in which at least 50 percent of the units receive governmental
27assistance pursuant to any of the following:

28(i) New construction, substantial rehabilitation, moderate
29rehabilitation, property disposition, and loan management set-aside
30programs, or any other program providing project-based assistance
31pursuant to Section 8 of the United States Housing Act of 1937,
32Section 1437f of Title 42 of the United States Code, as amended.

33(ii) The Below-Market-Interest-Rate Program pursuant to
34Section 221(d)(3) of the National Housing Act, Sections
351715l(d)(3) and (5) of Title 12 of the United States Code.

36(iii) Section 236 of the National Housing Act, Section 1715z-1
37of Title 12 of the United States Code.

38(iv) Programs for rent supplement assistance pursuant to Section
39101 of the Housing and Urban Development Act of 1965, Section
401701s of Title 12 of the United States Code, as amended.

P6    1(v) Programs pursuant to Section 515 of the Housing Act of
21949, Section 1485 of Title 42 of the United States Code, as
3amended.

4(vi) The low-income housing credit program set forth in Section
542 of the Internal Revenue Code, relating to low-income housing
6credit.

7(B) The restrictions on rent and income levels will terminate or
8the federally insured mortgage on the property is eligible for
9prepayment any time within five years before or after the date of
10application to the California Tax Credit Allocation Committee.

11(C) The entity acquiring the property enters into a regulatory
12agreement that requires the property to be operated in accordance
13with the requirements of this section for a period equal to the
14greater of 55 years or the life of the property.

15(D) The property satisfies the requirements of Section 42(e) of
16the Internal Revenue Code, relating to rehabilitation expenditures
17treated as a separate new building, except that the provisions of
18Section 42(e)(3)(A)(ii)(I) shall not apply.

19(d) The term “qualified low-income housing project” as defined
20in Section 42(c)(2) of the Internal Revenue Code, relating to
21qualified low-income building, is modified by adding the following
22requirements:

23(1) The taxpayer shall be entitled to receive a cash distribution
24from the operations of the project, after funding required reserves,
25that, at the election of the taxpayer, is equal to:

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

27(i) The owner equity, which shall include the amount of the
28capital contributions actually paid to the housing sponsor and shall
29not include any amounts until they are paid on an investor note.

30(ii) Twenty percent of the adjusted basis of the building as of
31the close of the first taxable year of the credit period.

32(B) The amount of the cashflow from those units in the building
33that are not low-income units. For purposes of computing cashflow
34under this subparagraph, operating costs shall be allocated to the
35low-income units using the “floor space fraction,” as defined in
36Section 42 of the Internal Revenue Code, relating to low-income
37housing credit.

38(C) Any amount allowed to be distributed under subparagraph
39(A) that is not available for distribution during the first five years
40of the compliance period may be accumulated and distributed any
P7    1time during the first 15 years of the compliance period but not
2thereafter.

3(2) The limitation on return applies in the aggregate to the
4partners if the housing sponsor is a partnership and in the aggregate
5to the shareholders if the housing sponsor is an “S” corporation.

6(3) The housing sponsor shall apply any cash available for
7distribution in excess of the amount eligible to be distributed under
8paragraph (1) to reduce the rent on rent-restricted units or to
9increase the number of rent-restricted units subject to the tests of
10Section 42(g)(1) of the Internal Revenue Code, relating to in
11general.

12(e) The provisions of Section 42(f) of the Internal Revenue
13Code, relating to definition and special rules relating to credit
14period, shall be modified as follows:

15(1) The term “credit period” as defined in Section 42(f)(1) of
16the Internal Revenue Code, relating to credit period defined, is
17modified by substituting “four taxable years” for “10 taxable
18years.”

19(2) The special rule for the first taxable year of the credit period
20under Section 42(f)(2) of the Internal Revenue Code, relating to
21special rule for first year of credit period, shall not apply to the tax
22credit under this section.

23(3) Section 42(f)(3) of the Internal Revenue Code, relating to
24determination of applicable percentage with respect to increases
25in qualified basis after first year of credit period, is modified to
26read:

27If, as of the close of any taxable year in the compliance period,
28after the first year of the credit period, the qualified basis of any
29building exceeds the qualified basis of that building as of the close
30of the first year of the credit period, the housing sponsor, to the
31extent of its tax credit allocation, shall be eligible for a credit on
32the excess in an amount equal to the applicable percentage
33determined pursuant to subdivision (c) for the four-year period
34beginning with the later of the taxable years in which the increase
35in qualified basis occurs.

36(f) The provisions of Section 42(h) of the Internal Revenue
37Code, relating to limitation on aggregate credit allowable with
38respect to projects located in a state, shall be modified as follows:

39(1) Section 42(h)(2) of the Internal Revenue Code, relating to
40allocated credit amount to apply to all taxable years ending during
P8    1or after credit allocation year, does not apply and instead the
2following provisions apply:

3The total amount for the four-year credit period of the housing
4credit dollars allocated in a calendar year to any building shall
5reduce the aggregate housing credit dollar amount of the California
6Tax Credit Allocation Committee for the calendar year in which
7the allocation is made.

8(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
9(7), and (8) of Section 42(h) of the Internal Revenue Code, relating
10to limitation on aggregate credit allowable with respect to projects
11located in a state, do not apply to this section.

12(g) The aggregate housing credit dollar amount that may be
13allocated annually by the California Tax Credit Allocation
14Committee pursuant to this section, Section 17058, and Section
1523610.5 shall be an amount equal to the sum of all the following:

16(1) Seventy million dollars ($70,000,000) for the 2001 calendar
17year, and, for the 2002 calendar year and each calendar year
18thereafter, seventy million dollars ($70,000,000) increased by the
19percentage, if any, by which the Consumer Price Index for the
20 preceding calendar year exceeds the Consumer Price Index for the
212001 calendar year. For the purposes of this paragraph, the term
22“Consumer Price Index” means the last Consumer Price Index for
23All Urban Consumers published by the federal Department of
24Labor.

25(2) The unused housing credit ceiling, if any, for the preceding
26calendar years.

27(3) The amount of housing credit ceiling returned in the calendar
28year. For purposes of this paragraph, the amount of housing credit
29dollar amount returned in the calendar year equals the housing
30credit dollar amount previously allocated to any project that does
31not become a qualified low-income housing project within the
32period required by this section or to any project with respect to
33which an allocation is canceled by mutual consent of the California
34Tax Credit Allocation Committee and the allocation recipient.

35(4) Five hundred thousand dollars ($500,000) per calendar year
36for projects to provide farmworker housing, as defined in
37subdivision (h) of Section 50199.7 of the Health and Safety Code.

38(5) The amount of any unallocated or returned credits under
39former Sections 17053.14, 23608.2, and 23608.3, as those sections
40read prior to January 1, 2009, until fully exhausted for projects to
P9    1provide farmworker housing, as defined in subdivision (h) of
2Section 50199.7 of the Health and Safety Code.

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

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

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

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

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

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

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

32(E) A provision incorporating the requirements of Section 42
33of the Internal Revenue Code, relating to low-income housing
34credit, as modified by this section.

35(F) A requirement that the housing sponsor notify the California
36Tax Credit Allocation Committee or its designee and the local
37agency that can enforce the regulatory agreement if there is a
38determination by the Internal Revenue Service that the project is
39not in compliance with Section 42(g) of the Internal Revenue Code,
40relating to qualified low-income housing project.

P10   1(G) A requirement that the housing sponsor, as security for the
2performance of the housing sponsor’s obligations under the
3regulatory agreement, assign the housing sponsor’s interest in rents
4that it receives from the project, provided that until there is a
5default under the regulatory agreement, the housing sponsor is
6entitled to collect and retain the rents.

7(H) A provision that the remedies available in the event of a
8default under the regulatory agreement that is not cured within a
9reasonable cure period include, but are not limited to, allowing
10any of the parties designated to enforce the regulatory agreement
11to collect all rents with respect to the project; taking possession of
12the project and operating the project in accordance with the
13regulatory agreement until the enforcer determines the housing
14sponsor is in a position to operate the project in accordance with
15the regulatory agreement; applying to any court for specific
16performance; securing the appointment of a receiver to operate
17the project; or any other relief as may be appropriate.

18(j) (1) The committee shall allocate the housing credit on a
19regular basis consisting of two or more periods in each calendar
20year during which applications may be filed and considered. The
21committee shall establish application filing deadlines, the maximum
22percentage of federal and state low-income housing tax credit
23ceiling that may be allocated by the committee in that period, and
24the approximate date on which allocations shall be made. If the
25enactment of federal or state law, the adoption of rules or
26regulations, or other similar events prevent the use of two allocation
27periods, the committee may reduce the number of periods and
28adjust the filing deadlines, maximum percentage of credit allocated,
29and the allocation dates.

30(2) The committee shall adopt a qualified allocation plan, as
31provided in Section 42(m)(1) of the Internal Revenue Code, relating
32to plans for allocation of credit among projects. In adopting this
33plan, the committee shall comply with the provisions of Sections
3442(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code,
35relating to qualified allocation plan and relating to certain selection
36criteria must be used, respectively.

37(3) Notwithstanding Section 42(m) of the Internal Revenue
38Code, relating to responsibilities of housing credit agencies, the
39California Tax Credit Allocation Committee shall allocate housing
P11   1credits in accordance with the qualified allocation plan and
2regulations, which shall include the following provisions:

3(A) All housing sponsors, as defined by paragraph (3) of
4subdivision (a), shall demonstrate at the time the application is
5filed with the committee that the project meets the following
6threshold requirements:

7(i) The housing sponsor shall demonstrate that there is a need
8and demand for low-income housing in the community or region
9for which it is proposed.

10(ii) The project’s proposed financing, including tax credit
11proceeds, shall be sufficient to complete the project and that the
12proposed operating income shall be adequate to operate the project
13 for the extended use period.

14(iii) The project shall have enforceable financing commitments,
15either construction or permanent financing, for at least 50 percent
16of the total estimated financing of the project.

17(iv) The housing sponsor shall have and maintain control of the
18site for the project.

19(v) The housing sponsor shall demonstrate that the project
20complies with all applicable local land use and zoning ordinances.

21(vi) The housing sponsor shall demonstrate that the project
22development team has the experience and the financial capacity
23to ensure project completion and operation for the extended use
24period.

25(vii) The housing sponsor shall demonstrate the amount of tax
26credit that is necessary for the financial feasibility of the project
27and its viability as a qualified low-income housing project
28throughout the extended use period, taking into account operating
29expenses, a supportable debt service, reserves, funds set aside for
30rental subsidies and required equity, and a development fee that
31does not exceed a specified percentage of the eligible basis of the
32project prior to inclusion of the development fee in the eligible
33basis, as determined by the committee.

34(B) The committee shall give a preference to those projects
35satisfying all of the threshold requirements of subparagraph (A)
36if both of the following apply:

37(i) The project serves the lowest income tenants at rents
38affordable to those tenants.

39(ii) The project is obligated to serve qualified tenants for the
40longest 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,begin delete 2016,end deletebegin insert 2017,
38and before January 1, 2020,end insert
a taxpayer may make an irrevocable
39election in its application to the California Tax Credit Allocation
40Committee to sell all or any portion of any credit allowed under
P13   1this section to one or more unrelated parties for each taxable year
2in which the credit is allowed subject to both of the following
3conditions:

4(A) The credit is sold for consideration that is not less than 80
5percent of the amount of the credit.

6(B) The unrelated party or parties purchasing any or all of the
7credit pursuant to this subdivision is a taxpayer allowed the credit
8under this section for the taxable year of the purchase or any prior
9taxable year or is a taxpayer allowed the federal credit under
10Section 42 of the Internal Revenue Code, relating to low-income
11housing credit, for the taxable year of the purchase or any prior
12taxable year in connection with any project located in this state.
13For purposes of this subparagraph, “taxpayer allowed the credit
14under this section” means a taxpayer that is allowed the credit
15 under this section without regard to the purchase of a credit
16pursuant to this subdivision.

17(2) (A) The taxpayer that originally received the credit shall
18report to the California Tax Credit Allocation Committee within
1910 days of the sale of the credit, in the form and manner specified
20by the California Tax Credit Allocation Committee, all required
21information regarding the purchase and sale of the credit, including
22the social security or other taxpayer identification number of the
23unrelated party or parties to whom the credit has been sold, the
24face amount of the credit sold, and the amount of consideration
25received by the taxpayer for the sale of the credit.

26(B) The California Tax Credit Allocation Committee shall
27provide an annual listing to the Franchise Tax Board, in a form
28and manner agreed upon by the California Tax Credit Allocation
29Committee and the Franchise Tax Board, of the taxpayers that
30have sold or purchased a credit pursuant to this subdivision.

31(3) (A) A credit may be sold pursuant to this subdivision to
32more than one unrelated party.

33(B) (i) Except as provided in clause (ii), a credit shall not be
34resold by the unrelated party to another taxpayer or other party.

35(ii) All or any portion of any credit allowed under this section
36may be resold once by an original purchaser to one or more
37unrelated parties, subject to all of the requirements of this
38subdivision.

39(4) Notwithstanding any other provision of law, the taxpayer
40that originally received the credit that is sold pursuant to paragraph
P14   1(1) shall remain solely liable for all obligations and liabilities
2imposed on the taxpayer by this section with respect to the credit,
3none of which shall apply to any party to whom the credit has been
4sold or subsequently transferred. Parties who purchase credits
5pursuant to paragraph (1) shall be entitled to utilize the purchased
6credits in the same manner in which the taxpayer that originally
7received the credit could utilize them.

7 8(5) A taxpayer shall not sell a credit allowed by this section if
9the taxpayer was allowed the credit on any tax return of the
10taxpayer.

10 11(6) Notwithstanding paragraph (1), the taxpayer, with the
12 approval of the Executive Director of the California Tax Credit
13Allocation Committee, may rescind the election to sell all or any
14portion of the credit allowed under this section if the consideration
15for the credit falls below 80 percent of the amount of the credit
16after the California Tax Credit Allocation Committee reservation.

17(p) The California Tax Credit Allocation Committee may
18prescribe rules, guidelines, or procedures necessary or appropriate
19to carry out the purposes of this section, including any guidelines
20regarding the allocation of the credit allowed under this section.
21Chapter 3.5 (commencing with Section 11340) of Part 1 of Division
223 of Title 2 of the Government Code shall not apply to any rule,
23guideline, or procedure prescribed by the California Tax Credit
24Allocation Committee pursuant to this section.

25(q) This section shall remain in effect for as long as Section 42
26of the Internal Revenue Code, relating to low-income housing
27credit, remains in effect.

28

SEC. 2.  

Section 17058 of the Revenue and Taxation Code is
29amended to read:

30

17058.  

(a) (1) There shall be allowed as a credit against the
31“net “tax,” defined in Section 17039, a state low-income housing
32tax credit in an amount equal to the amount determined in
33subdivision (c), computed in accordance with Section 42 of the
34Internal Revenue Code, relating to low-income housing credit,
35except as otherwise provided in this section.

36(2) “Taxpayer,” for purposes of this section, means the sole
37owner in the case of an individual, the partners in the case of a
38partnership, and the shareholders in the case of an “S” corporation.

39(3) “Housing sponsor,” for purposes of this section, means the
40sole 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,begin insert and before January
321, 2020, including preliminary reservations received in 2016,end insert
the
33credit shall be allocated to the partners of a partnership owning
34the project in accordance with the partnership agreement, regardless
35of how the federal low-income housing tax credit with respect to
36the project is allocated to the partners, or whether the allocation
37of the credit under the terms of the agreement has substantial
38economic effect, within the meaning of Section 704(b) of the
39Internal Revenue Code, relating to determination of distributive
40share.

P16   1(ii) To the extent the allocation of the credit to a partner under
2this section lacks substantial economic effect, any loss or deduction
3otherwise allowable under this part that is attributable to the sale
4or other disposition of that partner’s partnership interest made prior
5to the expiration of the federal credit shall not be allowed in the
6taxable year in which the sale or other disposition occurs, but shall
7instead be deferred until and treated as if it occurred in the first
8taxable year immediately following the taxable year in which the
9federal credit period expires for the project described in clause (i).

10(iii) This subparagraph does not apply to a project that receives
11a preliminary reservation of state low-income housing tax credits
12under the set-aside described in subdivision (c) of Section 50199.20
13of the Health and Safety Code unless the project also receives a
14preliminary reservation of federal low-income housing tax credits.

15(2) (A) The California Tax Credit Allocation Committee shall
16certify to the housing sponsor the amount of tax credit under this
17section allocated to the housing sponsor for each credit period.

18(B) In the case of a partnership or an “S” corporation, the
19housing sponsor shall provide a copy of the California Tax Credit
20Allocation Committee certification to the taxpayer.

21(C) The taxpayer shall, upon request, provide a copy of the
22certification to the Franchise Tax Board.

23(D) All elections made by the taxpayer pursuant to Section 42
24of the Internal Revenue Code, relating to low-income housing
25credit, apply to this section.

26(E) (i) Except as described in clause (ii), for buildings located
27in designated difficult development areas (DDAs) or qualified
28census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
29Internal Revenue Code, relating to increase in credit for buildings
30in high-cost areas, credits may be allocated under this section in
31the amounts prescribed in subdivision (c), provided that the amount
32of credit allocated under Section 42 of the Internal Revenue Code,
33relating to low-income housing credit, is computed on 100 percent
34of the qualified basis of the building.

35(ii) Notwithstanding clause (i), the California Tax Credit
36Allocation Committee may allocate the credit for buildings located
37in DDAs or QCTs that are restricted to having 50 percent of its
38occupants be special needs households, as defined in the California
39Code of Regulations by the California Tax Credit Allocation
40Committee, even if the taxpayer receives federal credits pursuant
P17   1to Section 42(d)(5)(B) of the Internal Revenue Code, relating to
2increase in credit for buildings in high-cost areas, provided that
3the credit allowed under this section shall not exceed 30 percent
4of the eligible basis of the building.

5(F) (i) The California Tax Credit Allocation Committee may
6allocate a credit under this section in exchange for a credit allocated
7pursuant to Section 42(d)(5)(B) of the Internal Revenue Code,
8relating to increase in credit for buildings in high-cost areas, in
9amounts up to 30 percent of the eligible basis of a building if the
10credits allowed under Section 42 of the Internal Revenue Code,
11relating to low-income housing credit, are reduced by an equivalent
12amount.

13(ii) An equivalent amount shall be determined by the California
14Tax Credit Allocation Committee based upon the relative amount
15required to produce an equivalent state tax credit to the taxpayer.

16(c) Section 42(b) of the Internal Revenue Code, relating to
17applicable percentage, shall be modified as follows:

18(1) In the case of any qualified low-income building placed in
19service by the housing sponsor during 1987, the term “applicable
20percentage” means 9 percent for each of the first three years and
213 percent for the fourth year for new buildings (whether or not the
22building is federally subsidized) and for existing buildings.

23(2) In the case of any qualified low-income building that receives
24an allocation after 1989 and is a new building not federally
25subsidized, the term “applicable percentage” means the following:

26(A) For each of the first three years, the percentage prescribed
27by the Secretary of the Treasury for new buildings that are not
28federally subsidized for the taxable year, determined in accordance
29with the requirements of Section 42(b)(2) of the Internal Revenue
30Code, relating to temporary minimum credit rate for nonfederally
31subsidized new buildings, in lieu of the percentage prescribed in
32Section 42(b)(1)(A) of the Internal Revenue Code.

33(B) For the fourth year, the difference between 30 percent and
34the sum of the applicable percentages for the first three years.

35(3) In the case of any qualified low-income building that receives
36an allocation after 1989 and that is a new building that is federally
37subsidized or that is an existing building that is “at risk of
38conversion,” the term “applicable percentage” means the following:

P18   1(A) For each of the first three years, the percentage prescribed
2by the Secretary of the Treasury for new buildings that are federally
3subsidized for the taxable year.

4(B) For the fourth year, the difference between 13 percent and
5the sum of the applicable percentages for the first three years.

6(4) For purposes of this section, the term “at risk of conversion,”
7with respect to an existing property means a property that satisfies
8all of the following criteria:

9(A) The property is a multifamily rental housing development
10in which at least 50 percent of the units receive governmental
11assistance pursuant to any of the following:

12(i) New construction, substantial rehabilitation, moderate
13rehabilitation, property disposition, and loan management set-aside
14programs, or any other program providing project-based assistance
15pursuant to Section 8 of the United States Housing Act of 1937,
16Section 1437f of Title 42 of the United States Code, as amended.

17(ii) The Below-Market-Interest-Rate Program pursuant to
18Section 221(d)(3) of the National Housing Act, Sections
191715l(d)(3) and (5) of Title 12 of the United States Code.

20(iii) Section 236 of the National Housing Act, Section 1715z-1
21of Title 12 of the United States Code.

22(iv) Programs for rent supplement assistance pursuant to Section
23101 of the Housing and Urban Development Act of 1965, Section
241701s of Title 12 of the United States Code, as amended.

25(v) Programs pursuant to Section 515 of the Housing Act of
261949, Section 1485 of Title 42 of the United States Code, as
27amended.

28(vi) The low-income housing credit program set forth in Section
2942 of the Internal Revenue Code, relating to low-income housing
30credit.

31(B) The restrictions on rent and income levels will terminate or
32the federally insured mortgage on the property is eligible for
33prepayment any time within five years before or after the date of
34application to the California Tax Credit Allocation Committee.

35(C) The entity acquiring the property enters into a regulatory
36agreement that requires the property to be operated in accordance
37with the requirements of this section for a period equal to the
38greater of 55 years or the life of the property.

39(D) The property satisfies the requirements of Section 42(e) of
40the Internal Revenue Code, relating to rehabilitation expenditures
P19   1treated as a separate new building, except that the provisions of
2Section 42(e)(3)(A)(ii)(I) shall not apply.

3(d) The term “qualified low-income housing project” as defined
4in Section 42(c)(2) of the Internal Revenue Code, relating to
5qualified low-income building, is modified by adding the following
6requirements:

7(1) The taxpayer shall be entitled to receive a cash distribution
8from the operations of the project, after funding required reserves,
9that, at the election of the taxpayer, is equal to:

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

11(i) The owner equity, which shall include the amount of the
12capital contributions actually paid to the housing sponsor and shall
13not include any amounts until they are paid on an investor note.

14(ii) Twenty percent of the adjusted basis of the building as of
15the close of the first taxable year of the credit period.

16(B) The amount of the cashflow from those units in the building
17that are not low-income units. For purposes of computing cashflow
18under this subparagraph, operating costs shall be allocated to the
19low-income units using the “floor space fraction,” as defined in
20Section 42 of the Internal Revenue Code, relating to low-income
21housing credit.

22(C) Any amount allowed to be distributed under subparagraph
23(A) that is not available for distribution during the first five years
24of the compliance period may be accumulated and distributed any
25time during the first 15 years of the compliance period but not
26thereafter.

27(2) The limitation on return applies in the aggregate to the
28partners if the housing sponsor is a partnership and in the aggregate
29to the shareholders if the housing sponsor is an “S” corporation.

30(3) The housing sponsor shall apply any cash available for
31distribution in excess of the amount eligible to be distributed under
32paragraph (1) to reduce the rent on rent-restricted units or to
33increase the number of rent-restricted units subject to the tests of
34Section 42(g)(1) of the Internal Revenue Code, relating to in
35general.

36(e) The provisions of Section 42(f) of the Internal Revenue
37Code, relating to definition and special rules relating to credit
38period, shall be modified as follows:

39(1) The term “credit period” as defined in Section 42(f)(1) of
40the Internal Revenue Code, relating to credit period defined, is
P20   1modified by substituting “four taxable years” for “10 taxable
2years.”

3(2) The special rule for the first taxable year of the credit period
4under Section 42(f)(2) of the Internal Revenue Code, relating to
5special rules for first year of credit period, shall not apply to the
6tax credit under this section.

7(3) Section 42(f)(3) of the Internal Revenue Code, relating to
8determination of applicable percentage with respect to increases
9in qualified basis after first year of credit period, is modified to
10read:

11If, as of the close of any taxable year in the compliance period,
12after the first year of the credit period, the qualified basis of any
13building exceeds the qualified basis of that building as of the close
14of the first year of the credit period, the housing sponsor, to the
15extent of its tax credit allocation, shall be eligible for a credit on
16the excess in an amount equal to the applicable percentage
17determined pursuant to subdivision (c) for the four-year period
18beginning with the taxable year in which the increase in qualified
19basis occurs.

20(f) The provisions of Section 42(h) of the Internal Revenue
21Code, relating to limitation on aggregate credit allowable with
22respect to projects located in a state, shall be modified as follows:

23(1) Section 42(h)(2) of the Internal Revenue Code, relating to
24allocated credit amount to apply to all taxable years ending during
25or after credit allocation year, does not apply and instead the
26following provisions apply:

27The total amount for the four-year credit period of the housing
28credit dollars allocated in a calendar year to any building shall
29reduce the aggregate housing credit dollar amount of the California
30Tax Credit Allocation Committee for the calendar year in which
31the allocation is made.

32(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
33(7), and (8) of Section 42(h) of the Internal Revenue Code, relating
34to limitation on aggregate credit allowable with respect to projects
35located in a state, do not apply to this section.

36(g) The aggregate housing credit dollar amount that may be
37allocated annually by the California Tax Credit Allocation
38Committee pursuant to this section, Section 12206, and Section
3923610.5 shall be an amount equal to the sum of all the following:

P21   1(1) Seventy million dollars ($70,000,000) for the 2001 calendar
2year, and, for the 2002 calendar year and each calendar year
3thereafter, seventy million dollars ($70,000,000) increased by the
4percentage, if any, by which the Consumer Price Index for the
5preceding calendar year exceeds the Consumer Price Index for the
62001 calendar year. For the purposes of this paragraph, the term
7“Consumer Price Index” means the last Consumer Price Index for
8All Urban Consumers published by the federal Department of
9Labor.

10(2) The unused housing credit ceiling, if any, for the preceding
11calendar years.

12(3) The amount of housing credit ceiling returned in the calendar
13year. For purposes of this paragraph, the amount of housing credit
14dollar amount returned in the calendar year equals the housing
15credit dollar amount previously allocated to any project that does
16not become a qualified low-income housing project within the
17period required by this section or to any project with respect to
18which an allocation is canceled by mutual consent of the California
19Tax Credit Allocation Committee and the allocation recipient.

20(4) Five hundred thousand dollars ($500,000) per calendar year
21for projects to provide farmworker housing, as defined in
22subdivision (h) of Section 50199.7 of the Health and Safety Code.

23(5) The amount of any unallocated or returned credits under
24former Sections 17053.14, 23608.2, and 23608.3, as those sections
25read prior to January 1, 2009, until fully exhausted for projects to
26provide farmworker housing, as defined in subdivision (h) of
27Section 50199.7 of the Health and Safety Code.

28(h) The term “compliance period” as defined in Section 42(i)(1)
29of the Internal Revenue Code, relating to compliance period, is
30modified to mean, with respect to any building, the period of 30
31consecutive taxable years beginning with the first taxable year of
32the credit period with respect thereto.

33(i) Section 42(j) of the Internal Revenue Code, relating to
34recapture of credit, does not apply and the following requirements
35of this section shall be set forth in a regulatory agreement between
36the California Tax Credit Allocation Committee and the housing
37sponsor, and this agreement shall be subordinated, when required,
38to any lien or encumbrance of any banks or other institutional
39lenders to the project. The regulatory agreement entered into
40pursuant to subdivision (f) of Section 50199.14 of the Health and
P22   1Safety Code shall apply, provided that the agreement includes all
2of the following provisions:

3(1) A term not less than the compliance period.

4(2) A requirement that the agreement be recorded in the official
5records of the county in which the qualified low-income housing
6project is located.

7(3) A provision stating which state and local agencies can
8enforce the regulatory agreement in the event the housing sponsor
9fails to satisfy any of the requirements of this section.

10(4) A provision that the regulatory agreement shall be deemed
11a contract enforceable by tenants as third-party beneficiaries thereto
12and that allows individuals, whether prospective, present, or former
13occupants of the building, who meet the income limitation
14applicable to the building, the right to enforce the regulatory
15agreement in any state court.

16(5) A provision incorporating the requirements of Section 42
17of the Internal Revenue Code, relating to low-income housing
18credit, as modified by this section.

19(6) A requirement that the housing sponsor notify the California
20Tax Credit Allocation Committee or its designee if there is a
21determination by the Internal Revenue Service that the project is
22not in compliance with Section 42(g) of the Internal Revenue Code,
23relating to qualified low-income housing project.

24(7) A requirement that the housing sponsor, as security for the
25performance of the housing sponsor’s obligations under the
26regulatory agreement, assign the housing sponsor’s interest in rents
27that it receives from the project, provided that until there is a
28default under the regulatory agreement, the housing sponsor is
29entitled to collect and retain the rents.

30(8) A provision that the remedies available in the event of a
31default under the regulatory agreement that is not cured within a
32reasonable cure period include, but are not limited to, allowing
33any of the parties designated to enforce the regulatory agreement
34to collect all rents with respect to the project; taking possession of
35the project and operating the project in accordance with the
36regulatory agreement until the enforcer determines the housing
37sponsor is in a position to operate the project in accordance with
38the regulatory agreement; applying to any court for specific
39performance; securing the appointment of a receiver to operate
40the project; or any other relief as may be appropriate.

P23   1(j) (1) The committee shall allocate the housing credit on a
2regular basis consisting of two or more periods in each calendar
3year during which applications may be filed and considered. The
4committee shall establish application filing deadlines, the maximum
5percentage of federal and state low-income housing tax credit
6ceiling that may be allocated by the committee in that period, and
7the approximate date on which allocations shall be made. If the
8enactment of federal or state law, the adoption of rules or
9regulations, or other similar events prevent the use of two allocation
10periods, the committee may reduce the number of periods and
11adjust the filing deadlines, maximum percentage of credit allocated,
12and the allocation dates.

13(2) The committee shall adopt a qualified allocation plan, as
14provided in Section 42(m)(1) of the Internal Revenue Code, relating
15to plans for allocation of credit among projects. In adopting this
16plan, the committee shall comply with the provisions of Sections
1742(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code,
18relating to qualified allocation plan and relating to certain selection
19criteria must be used, respectively.

20(3) Notwithstanding Section 42(m) of the Internal Revenue
21Code, relating to responsibilities of housing credit agencies, the
22California Tax Credit Allocation Committee shall allocate housing
23credits in accordance with the qualified allocation plan and
24regulations, which shall include the following provisions:

25(A) All housing sponsors, as defined by paragraph (3) of
26subdivision (a), shall demonstrate at the time the application is
27filed with the committee that the project meets the following
28threshold requirements:

29(i) The housing sponsor shall demonstrate that there is a need
30and demand for low-income housing in the community or region
31for which it is proposed.

32(ii) The project’s proposed financing, including tax credit
33proceeds, shall be sufficient to complete the project and that the
34proposed operating income shall be adequate to operate the project
35for the extended use period.

36(iii) The project shall have enforceable financing commitments,
37either construction or permanent financing, for at least 50 percent
38of the total estimated financing of the project.

39(iv) The housing sponsor shall have and maintain control of the
40site for the project.

P24   1(v) The housing sponsor shall demonstrate that the project
2 complies with all applicable local land use and zoning ordinances.

3(vi) The housing sponsor shall demonstrate that the project
4development team has the experience and the financial capacity
5to ensure project completion and operation for the extended use
6period.

7(vii) The housing sponsor shall demonstrate the amount of tax
8credit that is necessary for the financial feasibility of the project
9and its viability as a qualified low-income housing project
10throughout the extended use period, taking into account operating
11expenses, a supportable debt service, reserves, funds set aside for
12rental subsidies and required equity, and a development fee that
13does not exceed a specified percentage of the eligible basis of the
14project prior to inclusion of the development fee in the eligible
15basis, as determined by the committee.

16(B) The committee shall give a preference to those projects
17satisfying all of the threshold requirements of subparagraph (A)
18if both of the following apply:

19(i) The project serves the lowest income tenants at rents
20affordable to those tenants.

21(ii) The project is obligated to serve qualified tenants for the
22longest period.

23(C) In addition to the provisions of subparagraphs (A) and (B),
24the committee shall use the following criteria in allocating housing
25credits:

26(i) Projects serving large families in which a substantial number,
27as defined by the committee, of all residential units are low-income
28units with three and more bedrooms.

29(ii) Projects providing single-room occupancy units serving
30very low income tenants.

31(iii) Existing projects that are “at risk of conversion,” as defined
32by paragraph (4) of subdivision (c).

33(iv) Projects for which a public agency provides direct or indirect
34long-term financial support for at least 15 percent of the total
35project development costs or projects for which the owner’s equity
36constitutes at least 30 percent of the total project development
37costs.

38(v) Projects that provide tenant amenities not generally available
39to residents of low-income housing projects.

P25   1(4) For purposes of allocating credits pursuant to this section,
2the committee shall not give preference to any project by virtue
3of the date of submission of its application.

4(k) Section 42(l) of the Internal Revenue Code, relating to
5certifications and other reports to secretary, shall be modified as
6follows:

7The term “secretary” shall be replaced by the term “Franchise
8Tax Board.”

9(l) In the case in which the credit allowed under this section
10exceeds the net tax, the excess may be carried over to reduce the
11net tax in the following year, and succeeding years, if necessary,
12until the credit has been exhausted.

13(m) A project that received an allocation of a 1989 federal
14housing credit dollar amount shall be eligible to receive an
15allocation of a 1990 state housing credit dollar amount, subject to
16all of the following conditions:

17(1) The project was not placed in service prior to 1990.

18(2) To the extent the amendments made to this section by the
19Statutes of 1990 conflict with any provisions existing in this section
20prior to those amendments, the prior provisions of law shall prevail.

21(3) Notwithstanding paragraph (2), a project applying for an
22allocation under this subdivision is subject to the requirements of
23paragraph (3) of subdivision (j).

24(n) The credit period with respect to an allocation of credit in
251989 by the California Tax Credit Allocation Committee of which
26any amount is attributable to unallocated credit from 1987 or 1988
27shall not begin until after December 31, 1989.

28(o) The provisions of Section 11407(a) of Public Law 101-508,
29relating to the effective date of the extension of the low-income
30housing credit, apply to calendar years after 1989.

31(p) The provisions of Section 11407(c) of Public Law 101-508,
32relating to election to accelerate credit, do not apply.

33(q) (1) For a project that receives a preliminary reservation
34under this section beginning on or after January 1,begin delete 2016,end deletebegin insert 2017,
35and before January 1, 2020,end insert
a taxpayer may make an irrevocable
36election in its application to the California Tax Credit Allocation
37Committee to sell all or any portion of any credit allowed under
38this section to one or more unrelated parties for each taxable year
39in which the credit is allowed subject to both of the following
40conditions:

P26   1(A) The credit is sold for consideration that is not less than 80
2percent of the amount of the credit.

3(B) The unrelated party or parties purchasing any or all of the
4credit pursuant to this subdivision is a taxpayer allowed the credit
5under this section for the taxable year of the purchase or any prior
6taxable year or is a taxpayer allowed the federal credit under
7Section 42 of the Internal Revenue Code, relating to low-income
8housing credit, for the taxable year of the purchase or any prior
9taxable year in connection with any project located in this state.
10For purposes of this subparagraph, “taxpayer allowed the credit
11under this section” means a taxpayer that is allowed the credit
12under this section without regard to the purchase of a credit
13pursuant to this subdivision.

14(2) (A) The taxpayer that originally received the credit shall
15report to the California Tax Credit Allocation Committee within
1610 days of the sale of the credit, in the form and manner specified
17by the California Tax Credit Allocation Committee, all required
18information regarding the purchase and sale of the credit, including
19the social security or other taxpayer identification number of the
20unrelated party or parties to whom the credit has been sold, the
21face amount of the credit sold, and the amount of consideration
22received by the taxpayer for the sale of the credit.

23(B) The California Tax Credit Allocation Committee shall
24provide an annual listing to the Franchise Tax Board, in a form
25and manner agreed upon by the California Tax Credit Allocation
26Committee and the Franchise Tax Board, of the taxpayers that
27have sold or purchased a credit pursuant to this subdivision.

28(3) (A) A credit may be sold pursuant to this subdivision to
29more than one unrelated party.

30(B) (i) Except as provided in clause (ii), a credit shall not be
31resold by the unrelated party to another taxpayer or other party.

32(ii) All or any portion of any credit allowed under this section
33may be resold once by an original purchaser to one or more
34unrelated parties, subject to all of the requirements of this
35subdivision.

36(4) Notwithstanding any other provision of law, the taxpayer
37that originally received the credit that is sold pursuant to paragraph
38(1) shall remain solely liable for all obligations and liabilities
39imposed on the taxpayer by this section with respect to the credit,
40none of which shall apply to any party to whom the credit has been
P27   1sold or subsequently transferred. Parties who purchase credits
2pursuant to paragraph (1) shall be entitled to utilize the purchased
3credits in the same manner in which the taxpayer that originally
4received the credit could utilize them.

P27 1 5(5) A taxpayer shall not sell a credit allowed by this section if
6the taxpayer was allowed the credit on any tax return of the
7taxpayer.

4 8(6) Notwithstanding paragraph (1), the taxpayer, with the
9approval of the Executive Director of the California Tax Credit
10Allocation Committee, may rescind the election to sell all or any
11portion of the credit allowed under this section if the consideration
12for the credit falls below 80 percent of the amount of the credit
13after the California Tax Credit Allocation Committee reservation.

14(r) The California Tax Credit Allocation Committee may
15prescribe rules, guidelines, or procedures necessary or appropriate
16to carry out the purposes of this section, including any guidelines
17regarding the allocation of the credit allowed under this section.
18Chapter 3.5 (commencing with Section 11340) of Part 1 of Division
193 of Title 2 of the Government Code shall not apply to any rule,
20guideline, or procedure prescribed by the California Tax Credit
21Allocation Committee pursuant to this section.

22(s) The amendments to this section made by Chapter 1222 of
23the Statutes of 1993 apply only to taxable years beginning on or
24after January 1, 1994.

25(t) This section shall remain in effect on and after December 1,
261990, for as long as Section 42 of the Internal Revenue Code,
27relating to low-income housing credit, remains in effect. Any
28unused credit may continue to be carried forward, as provided in
29subdivision (l), until the credit has been exhausted.

30

SEC. 3.  

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

32

23610.5.  

(a) (1) There shall be allowed as a credit against the
33“tax,” defined by Section 23036, a state low-income housing tax
34credit in an amount equal to the amount determined in subdivision
35(c), computed in accordance with Section 42 of the Internal
36Revenue Code, relating to low-income housing credit, except as
37otherwise provided in this section.

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

3(3) “Housing sponsor,” for purposes of this section, means the
4sole owner in the case of a “C” corporation, the partnership in the
5case of a partnership, and the “S” corporation in the case of an “S”
6corporation.

7(b) (1) The amount of the credit allocated to any housing
8sponsor shall be authorized by the California Tax Credit Allocation
9Committee, or any successor thereof, based on a project’s need
10for the credit for economic feasibility in accordance with the
11requirements of this section.

12(A) The low-income housing project shall be located in
13California and shall meet either of the following requirements:

14(i) Except for projects to provide farmworker housing, as defined
15in subdivision (h) of Section 50199.7 of the Health and Safety
16Code, that are allocated credits solely under the set-aside described
17in subdivision (c) of Section 50199.20 of the Health and Safety
18Code, the project’s housing sponsor has been allocated by the
19 California Tax Credit Allocation Committee a credit for federal
20income tax purposes under Section 42 of the Internal Revenue
21Code, relating to low-income housing credit.

22(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
23Internal Revenue Code, relating to special rule where 50 percent
24or more of building is financed with tax-exempt bonds subject to
25volume cap.

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

33(C) (i) For a project that receives a preliminary reservation of
34the state low-income housing tax credit, allowed pursuant to
35subdivision (a), on or after January 1, 2009,begin insert and before January
361, 2020, including preliminary reservations received in 2016,end insert
the
37credit shall be allocated to the partners of a partnership owning
38the project in accordance with the partnership agreement, regardless
39of how the federal low-income housing tax credit with respect to
40the project is allocated to the partners, or whether the allocation
P29   1of the credit under the terms of the agreement has substantial
2economic effect, within the meaning of Section 704(b) of the
3Internal Revenue Code, relating to determination of distributive
4share.

5(ii) To the extent the allocation of the credit to a partner under
6this section lacks substantial economic effect, any loss or deduction
7otherwise allowable under this part that is attributable to the sale
8or other disposition of that partner’s partnership interest made prior
9to the expiration of the federal credit shall not be allowed in the
10taxable year in which the sale or other disposition occurs, but shall
11instead be deferred until and treated as if it occurred in the first
12taxable year immediately following the taxable year in which the
13federal credit period expires for the project described in clause (i).

14(iii) This subparagraph does not apply to a project that receives
15a preliminary reservation of state low-income housing tax credits
16under the set-aside described in subdivision (c) of Section 50199.20
17of the Health and Safety Code unless the project also receives a
18preliminary reservation of federal low-income housing tax credits.

19(2) (A) The California Tax Credit Allocation Committee shall
20certify to the housing sponsor the amount of tax credit under this
21section allocated to the housing sponsor for each credit period.

22(B) In the case of a partnership or an “S” corporation, the
23housing sponsor shall provide a copy of the California Tax Credit
24Allocation Committee certification to the taxpayer.

25(C) The taxpayer shall, upon request, provide a copy of the
26certification to the Franchise Tax Board.

27(D) All elections made by the taxpayer pursuant to Section 42
28of the Internal Revenue Code, relating to low-income housing
29credit, apply to this section.

30(E) (i) Except as described in clause (ii), for buildings located
31in designated difficult development areas (DDAs) or qualified
32census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
33Internal Revenue Code, relating to increase in credit for buildings
34in high-cost areas, credits may be allocated under this section in
35the amounts prescribed in subdivision (c), provided that the amount
36of credit allocated under Section 42 of the Internal Revenue Code,
37relating to low-income housing credit, is computed on 100 percent
38of the qualified basis of the building.

39(ii) Notwithstanding clause (i), the California Tax Credit
40Allocation Committee may allocate the credit for buildings located
P30   1in DDAs or QCTs that are restricted to having 50 percent of its
2occupants be special needs households, as defined in the California
3Code of Regulations by the California Tax Credit Allocation
4Committee, even if the taxpayer receives federal credits pursuant
5to Section 42(d)(5)(B) of the Internal Revenue Code, relating to
6increase in credit for buildings in high-cost areas, provided that
7the credit allowed under this section shall not exceed 30 percent
8of the eligible basis of the building.

9(F) (i) The California Tax Credit Allocation Committee may
10allocate a credit under this section in exchange for a credit allocated
11pursuant to Section 42(d)(5)(B), relating to increase in credit for
12buildings in high-cost areas, of the Internal Revenue Code in
13amounts up to 30 percent of the eligible basis of a building if the
14credits allowed under Section 42 of the Internal Revenue Code,
15relating to low-income housing credits, are reduced by an
16equivalent amount.

17(ii) An equivalent amount shall be determined by the California
18Tax Credit Allocation Committee based upon the relative amount
19required to produce an equivalent state tax credit to the taxpayer.

20(c) Section 42(b) of the Internal Revenue Code, relating to
21applicable percentage, shall be modified as follows:

22(1) In the case of any qualified low-income building placed in
23service by the housing sponsor during 1987, the term “applicable
24percentage” means 9 percent for each of the first three years and
253 percent for the fourth year for new buildings (whether or not the
26building is federally subsidized) and for existing buildings.

27(2) In the case of any qualified low-income building that receives
28an allocation after 1989 and is a new building not federally
29subsidized, the term “applicable percentage” means the following:

30(A) For each of the first three years, the percentage prescribed
31by the Secretary of the Treasury for new buildings that are not
32federally subsidized for the taxable year, determined in accordance
33with the requirements of Section 42(b)(2) of the Internal Revenue
34Code, relating to temporary minimum credit rate for nonfederally
35subsidized new buildings, in lieu of the percentage prescribed in
36Section 42(b)(1)(A) of the Internal Revenue Code.

37(B) For the fourth year, the difference between 30 percent and
38the sum of the applicable percentages for the first three years.

39(3) In the case of any qualified low-income building that receives
40an allocation after 1989 and that is a new building that is federally
P31   1subsidized or that is an existing building that is “at risk of
2conversion,” the term “applicable percentage” means the following:

3(A) For each of the first three years, the percentage prescribed
4by the Secretary of the Treasury for new buildings that are federally
5subsidized for the taxable year.

6(B) For the fourth year, the difference between 13 percent and
7the sum of the applicable percentages for the first three years.

8(4) For purposes of this section, the term “at risk of conversion,”
9with respect to an existing property means a property that satisfies
10all of the following criteria:

11(A) The property is a multifamily rental housing development
12in which at least 50 percent of the units receive governmental
13assistance pursuant to any of the following:

14(i) New construction, substantial rehabilitation, moderate
15rehabilitation, property disposition, and loan management set-aside
16programs, or any other program providing project-based assistance
17pursuant to Section 8 of the United States Housing Act of 1937,
18Section 1437f of Title 42 of the United States Code, as amended.

19(ii) The Below-Market-Interest-Rate Program pursuant to
20Section 221(d)(3) of the National Housing Act, Sections
211715l(d)(3) and (5) of Title 12 of the United States Code.

22(iii) Section 236 of the National Housing Act, Section 1715z-1
23of Title 12 of the United States Code.

24(iv) Programs for rent supplement assistance pursuant to Section
25101 of the Housing and Urban Development Act of 1965, Section
261701s of Title 12 of the United States Code, as amended.

27(v) Programs pursuant to Section 515 of the Housing Act of
281949, Section 1485 of Title 42 of the United States Code, as
29amended.

30(vi) The low-income housing credit program set forth in Section
3142 of the Internal Revenue Code, relating to low-income housing
32credit.

33(B) The restrictions on rent and income levels will terminate or
34the federally insured mortgage on the property is eligible for
35prepayment any time within five years before or after the date of
36application to the California Tax Credit Allocation Committee.

37(C) The entity acquiring the property enters into a regulatory
38agreement that requires the property to be operated in accordance
39with the requirements of this section for a period equal to the
40greater of 55 years or the life of the property.

P32   1(D) The property satisfies the requirements of Section 42(e) of
2the Internal Revenue Code, relating to rehabilitation expenditures
3treated as a separate new building, except that the provisions of
4Section 42(e)(3)(A)(ii)(I) shall not apply.

5(d) The term “qualified low-income housing project” as defined
6in Section 42(c)(2) of the Internal Revenue Code, relating to
7qualified low-income building, is modified by adding the following
8requirements:

9(1) The taxpayer shall be entitled to receive a cash distribution
10from the operations of the project, after funding required reserves,
11that, at the election of the taxpayer, is equal to:

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

13(i) The owner equity, which shall include the amount of the
14capital contributions actually paid to the housing sponsor and shall
15not include any amounts until they are paid on an investor note.

16(ii) Twenty percent of the adjusted basis of the building as of
17the close of the first taxable year of the credit period.

18(B) The amount of the cashflow from those units in the building
19that are not low-income units. For purposes of computing cashflow
20under this subparagraph, operating costs shall be allocated to the
21low-income units using the “floor space fraction,” as defined in
22Section 42 of the Internal Revenue Code, relating to low-income
23housing credit.

24(C) Any amount allowed to be distributed under subparagraph
25(A) that is not available for distribution during the first five years
26of the compliance period may be accumulated and distributed any
27time during the first 15 years of the compliance period but not
28thereafter.

29(2) The limitation on return applies in the aggregate to the
30partners if the housing sponsor is a partnership and in the aggregate
31to the shareholders if the housing sponsor is an “S” corporation.

32(3) The housing sponsor shall apply any cash available for
33distribution in excess of the amount eligible to be distributed under
34paragraph (1) to reduce the rent on rent-restricted units or to
35increase the number of rent-restricted units subject to the tests of
36Section 42(g)(1) of the Internal Revenue Code, relating to in
37general.

38(e) The provisions of Section 42(f) of the Internal Revenue
39Code, relating to definition and special rules relating to credit
40period, shall be modified as follows:

P33   1(1) The term “credit period” as defined in Section 42(f)(1) of
2the Internal Revenue Code, relating to credit period defined, is
3modified by substituting “four taxable years” for “10 taxable
4years.”

5(2) The special rule for the first taxable year of the credit period
6under Section 42(f)(2) of the Internal Revenue Code, relating to
7special rule for first year of credit period, shall not apply to the tax
8credit under this section.

9(3) Section 42(f)(3) of the Internal Revenue Code, relating to
10determination of applicable percentage with respect to increases
11in qualified basis after first year of credit period, is modified to
12read:

13If, as of the close of any taxable year in the compliance period,
14after the first year of the credit period, the qualified basis of any
15building exceeds the qualified basis of that building as of the close
16of the first year of the credit period, the housing sponsor, to the
17extent of its tax credit allocation, shall be eligible for a credit on
18the excess in an amount equal to the applicable percentage
19determined pursuant to subdivision (c) for the four-year period
20beginning with the later of the taxable years in which the increase
21in qualified basis occurs.

22(f) The provisions of Section 42(h) of the Internal Revenue
23Code, relating to limitation on aggregate credit allowable with
24respect to projects located in a state, shall be modified as follows:

25(1) Section 42(h)(2) of the Internal Revenue Code, relating to
26allocated credit amount to apply to all taxable years ending during
27or after credit allocation year, does not apply and instead the
28following provisions apply:

29The total amount for the four-year credit period of the housing
30credit dollars allocated in a calendar year to any building shall
31reduce the aggregate housing credit dollar amount of the California
32Tax Credit Allocation Committee for the calendar year in which
33the allocation is made.

34(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
35(7), and (8) of Section 42(h) of the Internal Revenue Code, relating
36to limitation on aggregate credit allowable with respect to projects
37located in a state, do not apply to this section.

38(g) The aggregate housing credit dollar amount that may be
39allocated annually by the California Tax Credit Allocation
P34   1Committee pursuant to this section, Section 12206, and Section
217058 shall be an amount equal to the sum of all the following:

3(1) Seventy million dollars ($70,000,000) for the 2001 calendar
4year, and, for the 2002 calendar year and each calendar year
5thereafter, seventy million dollars ($70,000,000) increased by the
6percentage, if any, by which the Consumer Price Index for the
7preceding calendar year exceeds the Consumer Price Index for the
82001 calendar year. For the purposes of this paragraph, the term
9“Consumer Price Index” means the last Consumer Price Index for
10All Urban Consumers published by the federal Department of
11Labor.

12(2) The unused housing credit ceiling, if any, for the preceding
13calendar years.

14(3) The amount of housing credit ceiling returned in the calendar
15year. For purposes of this paragraph, the amount of housing credit
16dollar amount returned in the calendar year equals the housing
17credit dollar amount previously allocated to any project that does
18not become a qualified low-income housing project within the
19period required by this section or to any project with respect to
20which an allocation is canceled by mutual consent of the California
21Tax Credit Allocation Committee and the allocation recipient.

22(4) Five hundred thousand dollars ($500,000) per calendar year
23for projects to provide farmworker housing, as defined in
24subdivision (h) of Section 50199.7 of the Health and Safety Code.

25(5) The amount of any unallocated or returned credits under
26former Sections 17053.14, 23608.2, and 23608.3, as those sections
27read prior to January 1, 2009, until fully exhausted for projects to
28provide farmworker housing, as defined in subdivision (h) of
29Section 50199.7 of the Health and Safety Code.

30(h) The term “compliance period” as defined in Section 42(i)(1)
31of the Internal Revenue Code, relating to compliance period, is
32modified to mean, with respect to any building, the period of 30
33consecutive taxable years beginning with the first taxable year of
34the credit period with respect thereto.

35(i) Section 42(j) of the Internal Revenue Code, relating to
36recapture of credit, does not apply and the following shall be
37substituted in its place:

38The requirements of this section shall be set forth in a regulatory
39agreement between the California Tax Credit Allocation Committee
40and the housing sponsor, and this agreement shall be subordinated,
P35   1when required, to any lien or encumbrance of any banks or other
2institutional lenders to the project. The regulatory agreement
3entered into pursuant to subdivision (f) of Section 50199.14 of the
4Health and Safety Code shall apply, provided that the agreement
5includes all of the following provisions:

6(1) A term not less than the compliance period.

7(2) A requirement that the agreement be recorded in the official
8records of the county in which the qualified low-income housing
9project is located.

10(3) A provision stating which state and local agencies can
11enforce the regulatory agreement in the event the housing sponsor
12fails to satisfy any of the requirements of this section.

13(4) A provision that the regulatory agreement shall be deemed
14a contract enforceable by tenants as third-party beneficiaries thereto
15and that allows individuals, whether prospective, present, or former
16occupants of the building, who meet the income limitation
17applicable to the building, the right to enforce the regulatory
18agreement in any state court.

19(5) A provision incorporating the requirements of Section 42
20of the Internal Revenue Code, relating to low-income housing
21credit, as modified by this section.

22(6) A requirement that the housing sponsor notify the California
23Tax Credit Allocation Committee or its designee if there is a
24determination by the Internal Revenue Service that the project is
25not in compliance with Section 42(g) of the Internal Revenue Code,
26relating to qualified low-income housing project.

27(7) A requirement that the housing sponsor, as security for the
28performance of the housing sponsor’s obligations under the
29regulatory agreement, assign the housing sponsor’s interest in rents
30that it receives from the project, provided that until there is a
31default under the regulatory agreement, the housing sponsor is
32entitled to collect and retain the rents.

33(8) A provision that the remedies available in the event of a
34default under the regulatory agreement that is not cured within a
35reasonable cure period include, but are not limited to, allowing
36any of the parties designated to enforce the regulatory agreement
37to collect all rents with respect to the project; taking possession of
38the project and operating the project in accordance with the
39regulatory agreement until the enforcer determines the housing
40sponsor is in a position to operate the project in accordance with
P36   1 the regulatory agreement; applying to any court for specific
2performance; securing the appointment of a receiver to operate
3the project; or any other relief as may be appropriate.

4(j) (1) The committee shall allocate the housing credit on a
5regular basis consisting of two or more periods in each calendar
6year during which applications may be filed and considered. The
7committee shall establish application filing deadlines, the maximum
8percentage of federal and state low-income housing tax credit
9ceiling that may be allocated by the committee in that period, and
10the approximate date on which allocations shall be made. If the
11enactment of federal or state law, the adoption of rules or
12regulations, or other similar events prevent the use of two allocation
13periods, the committee may reduce the number of periods and
14adjust the filing deadlines, maximum percentage of credit allocated,
15and the allocation dates.

16(2) The committee shall adopt a qualified allocation plan, as
17provided in Section 42(m)(1) of the Internal Revenue Code, relating
18to plans for allocation of credit among projects. In adopting this
19plan, the committee shall comply with the provisions of Sections
2042(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code,
21relating to qualified allocation plan and relating to certain selection
22criteria must be used, respectively.

23(3) Notwithstanding Section 42(m) of the Internal Revenue
24Code, relating to responsibilities of housing credit agencies, the
25California Tax Credit Allocation Committee shall allocate housing
26credits in accordance with the qualified allocation plan and
27regulations, which shall include the following provisions:

28(A) All housing sponsors, as defined by paragraph (3) of
29subdivision (a), shall demonstrate at the time the application is
30filed with the committee that the project meets the following
31threshold requirements:

32(i) The housing sponsor shall demonstrate that there is a need
33for low-income housing in the community or region for which it
34is proposed.

35(ii) The project’s proposed financing, including tax credit
36proceeds, shall be sufficient to complete the project and shall be
37adequate to operate the project for the extended use period.

38(iii) The project shall have enforceable financing commitments,
39either construction or permanent financing, for at least 50 percent
40of the total estimated financing of the project.

P37   1(iv) The housing sponsor shall have and maintain control of the
2site for the project.

3(v) The housing sponsor shall demonstrate that the project
4complies with all applicable local land use and zoning ordinances.

5(vi) The housing sponsor shall demonstrate that the project
6development team has the experience and the financial capacity
7to ensure project completion and operation for the extended use
8period.

9(vii) The housing sponsor shall demonstrate the amount of tax
10credit that is necessary for the financial feasibility of the project
11and its viability as a qualified low-income housing project
12throughout the extended use period, taking into account operating
13expenses, a supportable debt service, reserves, funds set aside for
14rental subsidies and required equity, and a development fee that
15does not exceed a specified percentage of the eligible basis of the
16project prior to inclusion of the development fee in the eligible
17basis, as determined by the committee.

18(B) The committee shall give a preference to those projects
19satisfying all of the threshold requirements of subparagraph (A)
20if both of the following apply:

21(i) The project serves the lowest income tenants at rents
22affordable to those tenants.

23(ii) The project is obligated to serve qualified tenants for the
24longest period.

25(C) In addition to the provisions of subparagraphs (A) and (B),
26the committee shall use the following criteria in allocating housing
27credits:

28(i) Projects serving large families in which a substantial number,
29as defined by the committee, of all residential units are low-income
30units with three and more bedrooms.

31(ii) Projects providing single-room occupancy units serving
32very low income tenants.

33(iii) Existing projects that are “at risk of conversion,” as defined
34by paragraph (4) of subdivision (c).

35(iv) Projects for which a public agency provides direct or indirect
36long-term financial support for at least 15 percent of the total
37project development costs or projects for which the owner’s equity
38constitutes at least 30 percent of the total project development
39costs.

P38   1(v) Projects that provide tenant amenities not generally available
2to residents of low-income housing projects.

3(4) For purposes of allocating credits pursuant to this section,
4the committee shall not give preference to any project by virtue
5 of the date of submission of its application except to break a tie
6when two or more of the projects have an equal rating.

7(5) Not less than 20 percent of the low-income housing tax
8credits available annually under this section, Section 12206, and
9Section 17058 shall be set aside for allocation to rural areas as
10defined in Section 50199.21 of the Health and Safety Code. Any
11amount of credit set aside for rural areas remaining on or after
12October 31 of any calendar year shall be available for allocation
13to any eligible project. No amount of credit set aside for rural areas
14shall be considered available for any eligible project so long as
15there are eligible rural applications pending on October 31.

16(k) Section 42(l) of the Internal Revenue Code, relating to
17certifications and other reports to secretary, shall be modified as
18follows:

19The term “secretary” shall be replaced by the term “Franchise
20Tax Board.”

21(l) In the case in which the credit allowed under this section
22exceeds the “tax,” the excess may be carried over to reduce the
23“tax” in the following year, and succeeding years if necessary,
24until the credit has been exhausted.

25(m) A project that received an allocation of a 1989 federal
26housing credit dollar amount shall be eligible to receive an
27allocation of a 1990 state housing credit dollar amount, subject to
28all of the following conditions:

29(1) The project was not placed in service prior to 1990.

30(2) To the extent the amendments made to this section by the
31Statutes of 1990 conflict with any provisions existing in this section
32prior to those amendments, the prior provisions of law shall prevail.

33(3) Notwithstanding paragraph (2), a project applying for an
34allocation under this subdivision is subject to the requirements of
35paragraph (3) of subdivision (j).

36(n) The credit period with respect to an allocation of credit in
371989 by the California Tax Credit Allocation Committee of which
38any amount is attributable to unallocated credit from 1987 or 1988
39shall not begin until after December 31, 1989.

P39   1(o) The provisions of Section 11407(a) of Public Law 101-508,
2relating to the effective date of the extension of the low-income
3housing credit, apply to calendar years after 1989.

4(p) The provisions of Section 11407(c) of Public Law 101-508,
5relating to election to accelerate credit, do not apply.

6(q) (1) A corporation may elect to assign any portion of any
7credit allowed under this section to one or more affiliated
8corporations for each taxable year in which the credit is allowed.
9For purposes of this subdivision, “affiliated corporation” has the
10meaning provided in subdivision (b) of Section 25110, as that
11section was amended by Chapter 881 of the Statutes of 1993, as
12of the last day of the taxable year in which the credit is allowed,
13except that “100 percent” is substituted for “more than 50 percent”
14wherever it appears in the section, as that section was amended by
15Chapter 881 of the Statutes of 1993, and “voting common stock”
16is substituted for “voting stock” wherever it appears in the section,
17as that section was amended by Chapter 881 of the Statutes of
181993.

19(2) The election provided in paragraph (1):

20(A) May be based on any method selected by the corporation
21that originally receives the credit.

22(B) Shall be irrevocable for the taxable year the credit is allowed,
23once made.

24(C) May be changed for any subsequent taxable year if the
25election to make the assignment is expressly shown on each of the
26returns of the affiliated corporations that assign and receive the
27credits.

28(r) (1) For a project that receives a preliminary reservation
29under this section beginning on or after January 1,begin delete 2016,end deletebegin insert 2017,
30and before January 1, 2020,end insert
a taxpayer may make an irrevocable
31election in its application to the California Tax Credit Allocation
32Committee to sell all or any portion of any credit allowed under
33this section to one or more unrelated parties for each taxable year
34in which the credit is allowed subject to both of the following
35conditions:

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

38(B) (i) The unrelated party or parties purchasing any or all of
39the credit pursuant to this subdivision is a taxpayer allowed the
40credit under this section for the taxable year of the purchase or any
P40   1prior taxable year or is a taxpayer allowed the federal credit under
2Section 42 of the Internal Revenue Code, relating to low-income
3housing credit, for the taxable year of the purchase or any prior
4taxable year in connection with any project located in this state.

5(ii) For purposes of this subparagraph, “taxpayer allowed the
6credit under this section” means a taxpayer that is allowed the
7credit under this section without regard to the purchase of a credit
8pursuant to this subdivision without regard to any of the following:

9(I) The purchase of a credit under this section pursuant to this
10subdivision.

11(II) The assignment of a credit under this section pursuant to
12subdivision (q).

13(III) The assignment of a credit under this section pursuant to
14Section 23363.

15(2) (A) The taxpayer that originally received the credit shall
16report to the California Tax Credit Allocation Committee within
1710 days of the sale of the credit, in the form and manner specified
18by the California Tax Credit Allocation Committee, all required
19information regarding the purchase and sale of the credit, including
20the social security or other taxpayer identification number of the
21unrelated party or parties to whom the credit has been sold, the
22face amount of the credit sold, and the amount of consideration
23received by the taxpayer for the sale of the credit.

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

29(3) (A) A credit may be sold pursuant to this subdivision to
30more than one unrelated party.

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

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

37(4) Notwithstanding any other provision of law, the taxpayer
38that originally received the credit that is sold pursuant to paragraph
39(1) shall remain solely liable for all obligations and liabilities
40imposed on the taxpayer by this section with respect to the credit,
P41   1none of which shall apply to any party to whom the credit has been
2sold or subsequently transferred. Parties who purchase credits
3pursuant to paragraph (1) shall be entitled to utilize the purchased
4credits in the same manner in which the taxpayer that originally
5received the credit could utilize them.

P41 1 6(5) A taxpayer shall not sell a credit allowed by this section if
7the taxpayer was allowed the credit on any tax return of the
8taxpayer.

4 9(6) Notwithstanding paragraph (1), the taxpayer, with the
10approval of the Executive Director of the California Tax Credit
11Allocation Committee, may rescind the election to sell all or any
12portion of the credit allowed under this section if the consideration
13for the credit falls below 80 percent of the amount of the credit
14after the California Tax Credit Allocation Committee reservation.

15(s) The California Tax Credit Allocation Committee may
16prescribe rules, guidelines, or procedures necessary or appropriate
17to carry out the purposes of this section, including any guidelines
18regarding the allocation of the credit allowed under this section.
19Chapter 3.5 (commencing with Section 11340) of Part 1 of Division
203 of Title 2 of the Government Code shall not apply to any rule,
21guideline, or procedure prescribed by the California Tax Credit
22Allocation Committee pursuant to this section.

23(t) Any unused credit may continue to be carried forward, as
24provided in subdivision (l), until the credit has been exhausted.

25(u) This section shall remain in effect on and after December
261, 1990, for as long as Section 42 of the Internal Revenue Code,
27relating to low-income housing credit, remains in effect.

28(v) The amendments to this section made by Chapter 1222 of
29the Statutes of 1993 shall apply only to taxable years beginning
30on or after January 1, 1994, except that paragraph (1) of subdivision
31(q), as amended, shall apply to taxable years beginning on or after
32January 1, 1993.

33

SEC. 4.  

The California Tax Credit Allocation Committee shall
34enter into an agreement with the Franchise Tax Board to pay any
35costs incurred by the Franchise Tax Board in the administration
36of subdivision (o) of Section 12206, subdivision (q) of Section
3717058, and subdivision (r) of Section 23610.5 of the Revenue and
38Taxation Code.

P42   1

SEC. 5.  

This act provides for a tax levy within the meaning of
2Article IV of the Constitution and shall go into immediate effect.



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