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California Gov. Davis Vetos LIHTC Bill

Tuesday, October 3, 2000 - 1:45AM

California Gov. Gray Davis (D) outlined his reasons for vetoing A.B. 1903, the state tax credit bifurcation bill, in a Sept. 30 veto letter to the California Assembly. "Although I am aware this bill could increase the value of the low-income housing credits by allowing the credit to be targeted to those entities that can use it, I am concerned about the possible abuses that may arise," Davis wrote. The governor argued that allowing the credit to be separated from the economic interest each involved partner would have in the profits and losses of the project could lead to allocations for tax shelter purposes.

The governor offered the following possible scenario: An investor buys rights to low-income housing tax credits through the purchase of a partnership share. The investor could then, after using all of the credits that could exceed the cost of the investment, walk away from the partnership and have a negative basis in the investment. The investor could then write off the amount of the negative basis against other income, and, in turn benefit from the use of the credit and the negative basis.

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