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Novogradac Journal of Tax Credits Volume 4 Issue 8

The August 2013 issue of the Novogradac Journal of Tax Credits

Journal cover August 2013

Articles

Michael J. Novogradac

Thursday, August 1, 2013

The “blank-slate” approach proposed by Senate Finance Committee Chairman Max Baucus, D-Mont., and Ranking Member Orrin Hatch, R-Utah, as a legislative starting point for tax reform is a bold step in the years-long effort to rewrite the tax code. This proposal puts all tax provisions on even footing, at least in theory, as lawmakers consider which tax expenditures and other provisions should be added back to a reformed tax code.

Rebecca Darling and Cyle Reissig

Thursday, August 1, 2013

H.R. 1 (the 2017 tax legislation) made only a few changes to the Internal Revenue Code (IRC) that could directly affect renewable energy, but one was the addition of a new minimum tax, the Base Erosion Anti-Abuse Tax, or BEAT. The BEAT only applies to certain large, international taxpayers, but some of these also invest in tax credit projects. This month, we’ll consider how the BEAT might affect investment in renewables.Overview Some American taxpayers lower their U.S. tax liability by incurring deductible expenditures to their affiliates in low-tax jurisdictions. The BEAT discourages this practice by requiring the American corporation to reverse those deductions (and add back gross income directed toward foreign affiliates) and then applies a minimum tax rate to this recomputed income.Unfortunately, the BEAT also imposes adverse treatment on some tax credits, including (but not limited to) the renewable energy production tax credit (PTC) and investment tax credit (ITC; together, RETC), and this can affect their value.In the interest of keeping this discussion manageable, what follows is a simplified overview of how the BEAT is computed and why it can be an issue for tax credit transactions.Some TerminologyFirst, you need to know a few terms added by H.R. 1.Applicable Taxpayers. The BEAT only applies to corporations which (i) are not regulated investment companies, real estate investment trusts (REITS) or S corporations, and (ii) have average annual gross receipts of at

Jason Korb

Thursday, August 1, 2013

Some key concepts related to the first year of the low-income housing tax credit (LIHTC) compliance period are commonly misunderstood. Because the first year can make or break a project, it’s paramount to discuss the fundamentals! Part I of this column will discuss compliance timelines and the minimum set-aside requirements. Part II will appear in the June Novogradac Journal of Tax Credits and will compare general credit calculations and first-year credit calculations. TimelinesTerms like credit period, compliance period and extended-use period are commonly used without truly understanding what each one means. The credit period, or tax credit period, is Years 1-10. This is the time frame in which a credit is generally claimed against a taxpayer’s federal income tax. The benefit of this tax credit is that it provides a dollar-for-dollar reduction in a taxpayer’s federal income tax; whereas, a tax deduction only provides a reduction in taxable income. The compliance period is Years 1-15 and represents the total period over which noncompliance could result in disallowance or recapture of credits. It is during this period that the allocating agency reports noncompliance to the Internal Revenue Service (IRS) on Form 8823. For any allocation of credit under Internal Revenue Code (IRC) Section 42 made in/after 1990, there is a minimum 30-year extended use period. The trick to all of these different timelines is that they commence Jan. 1 of the first year of the credit period and

Tony Grappone, Novogradac & Company LLP RETC Working Group

Thursday, August 1, 2013

Question: Which renewable energy tax credit transaction structure better allocates tax benefits to tax credit equity investors in exchange for the capital invested?Answer: Common sense suggests the standard partnership flip would do a better job of raising tax equity in exchange for delivering tax benefits. However, when it comes to tax credit investments, common sense may not always apply and the devil is in the details.


News Briefs

Thursday, August 1, 2013

The National Center for Healthy Housing (NCHH) accepted comments from health and housing practitioners, advocates and other stakeholders in healthy housing on a new National Healthy Housing Standard...

Thursday, August 1, 2013

The Department of Housing and Urban Development (HUD) released revised instructions for the Rental Assistance Demonstration (RAD) program on July 2, including eligibility and selection criteria...

Thursday, August 1, 2013

Texas lawmakers on June 14 passed H.B. 500, which created a state historic tax credit (HTC) program. To qualify for the state HTC, rehabilitation of a property must exceed $5,000 in eligible costs and expenses and be placed in service on or after Sept. 1, 2013...

Thursday, August 1, 2013

Enterprise Community Partners Inc. announced the launch of a seven-year study on the effects of green building practices in affordable housing on resident health...

Thursday, August 1, 2013

The Louisiana New Markets Jobs Tax Credit program was signed into law on June 13. Rep. Walt Leger, who sponsored H. B. 726, predicted the program...

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