December 21, 2012 But How Can a Non Profit Developer Use Tax Credits?
Non-profit developers like HBI use historic tax credits regularly for rehabilitation projects, which seems unlikely since we don?t pay taxes. HBI Legal fellow Matt Welch answers Tax Credit Question #2 in this blog post
Because non-profit developers like HBI have no federal income tax liability to which they can apply the credit, they collaborate with private-sector investors who can utilize the credit. In this type of situation, the developer/owner of the property typically forms an operating agreement with the investor, which, for tax purposes, often requires a complex multi-tier structure comprised of multiple entities. The agreement terms differ from deal to deal based on the size of the project, the risk involved, and other factors. Nevertheless, the basic transaction entails the investor making a capital contribution to the project and the developer/owner passing the tax credit through the ownership structure to the investor. The significance of this development strategy should not be understated: it can be a crucial piece of financing for a non-profit developer that allows them to obtain capital for historic rehabilitation projects that the private sector otherwise would not undertake?exactly what Congress intended when it created the tax credit.