RE: Low-income Housing Tax Credits
February 8, 2007
Dear Applicant:
This is a letter ruling issued by the Director of Revenue pursuant to section 536.021.10, RSMo 2000 and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your correspondence dated December 13, 2006.
The facts as presented in your letter are as follows:
In August of 2000, a Missouri limited liability company as general partner, and Applicant as limited partner, formed a limited partnership (the "Fund Partnership"). In 2001 and 2002, Applicant sold its limited partnership interest to seven limited partners, including a Missouri company (the “Seller”), who were admitted to the Fund Partnership. The Fund Partnership is a limited partner in a Missouri limited partnership (the “Project Partnership”), which is the owner of a qualified Missouri project (as defined in section 135.350, RSMo) (the "Project") for which eligibility statements were issued by the Missouri Housing Development Commission and was accordingly awarded Low Income Housing (“LIH”) tax credits. Upon successful completion of the Project, 100% of the LIH tax credits issued were allocated by Project Partnership to the Fund Partnership, which further allocated them to its limited partners, including Seller. In accordance with section 135.363.2, RSMo, the annual allocation of the LIH tax credits is timely reported to the Director for each building in the project.
Specifically, Seller was allocated 11.957901% of the LIH tax credits arising out of the Project in each year of the credit period, beginning in 2001. Seller was able to claim against its tax liability, and therefore utilize, all of the 2001 and 2002 LIH tax credits that it had been allocated.
However, Seller was unable to use any of the 2003-2005 LIH tax credits that it had been allocated and has been carrying such LIH tax credits forward, pursuant to section 135.352.3, RSMo. In 2003 Seller was allocated $29,722 of LIH tax credits and claimed them on its 2003 tax return. In 2004 Seller was allocated $29,722 of LIH tax credits and claimed $26,286 on its tax return and the remaining $3,436 was carried forward. In 2005, Seller sustained a large net operating loss that wiped out all of its tax liability in 2005 and the balance of the net operating loss was carried back to 2004 and 2003, freeing back up the LIH tax credits claimed in 2003 and 2004.
Seller has entered into a contract with Applicant to sell its unused credits from 2003, 2004, and 2005 to Applicant, along with a portion of its partnership interest in the Fund Partnership and its allocation of the LIH tax credits for the balance of the credit period (the "Contract"). The Contract is contingent upon Applicant being able to resell these LIH tax credits to taxpayers who may or may not have been eligible taxpayers at the time of the allocation of the LIH tax credits to Seller, but who will be eligible taxpayers at the time of such taxpayer's purchase of the LIH tax credits from the Applicant.
Applicant requests that the Department of Revenue issue a ruling on the following issues:
1. Are the 2003 and 2004 LIH tax credits, which were previously claimed by Seller on its 2003 and 2004 tax returns and opened up by virtue of the net operating loss carry back in 2005, transferable from Seller to Applicant?
2. If Question 1 above is answered in the affirmative, can Applicant transfer/resell the 2003, 2004, and/or 2005 LIH tax credits to a person or entity who was an eligible taxpayer at the time the LIH tax credits were issued and will be an eligible taxpayer at the time of the sale contemplated herein?
3. If Question 1 above is answered in the affirmative, can Applicant transfer/resell the 2003, 2004, and/or 2005 LIH tax credits to a person or entity who was not an eligible taxpayer at the time the LIH tax credits were issued, but will be an eligible taxpayer at the time of the sale contemplated herein?
Regarding the first issue, Seller’s LIH tax credits, which have been claimed on a prior period's tax return but which were subsequently not utilized due to the carry back of a net operating loss, were freed up to be resold or carried forward.
The net operating loss deduction on the amended return for the prior tax year operated to eliminate any tax liability for tax years 2003 and 2004 against which the LIH tax credits could be applied, and therefore, these LIH tax credits are not utilized and are available to be resold or carried forward. The unutilized LIH tax credits of $29,722 and $29,722 for 2003 and 2004, respectively, were freed up to Seller for the transfer to Applicant, who was eligible under the provisions of section 135,352.1, RSMo. Section 135.352.3 and 135.363.1, RSMo.
Regarding the second and third issue, Applicant has not presented facts as required by regulation 12 CSR 10-1.020 upon which a letter ruling can be issued. Accordingly, no response is provided.
This letter ruling is binding upon the Department of Revenue with respect to Applicant for three (3) years from the date of this letter and is subject to statutory changes by the General Assembly and to changes in the interpretation of the law by the courts or administrative tribunals. If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest, and penalties, which may be imposed prospectively from the date of change. For this reason, the interpretation set forth above should be reviewed on a regular basis. Please note any change in or deviation from the facts as presented will render this ruling inapplicable.
Should additional information be needed, please contact Wood Miller, Senior Counsel, General Counsel’s Office, Post Office Box 475, Jefferson city, Missouri 65105-0475 (telephone 573-751-0961), or me.
Sincerely,
Trish Vincent