Consolidating partnerships with corporations
In a typical and simple LIHTC program initiated by an NFP, the parties involved include: the NFP organization (Sponsor); a housing subsidiary of the sponsor (a housing development fund company, or HDFC); a for-profit subsidiary of the HDFC (General Partner); an investor; an organization that facilitates the tax credit deal (syndicator) and an investment fund or an organization representing the tax credit investor (Limited Partner).
The assets-up form requires the terminated partnership to distribute all of its assets to the members, such that the members will be treated under the laws of the applicable jurisdiction as the owners of the assets, in liquidation of the members’ interests in the partnership; immediately thereafter, the members in the terminated partnership contribute the distributed assets to the resulting partnership in exchange for interests in the resulting partnership.Among the various models of affordable housing programs available, the most common one is the Low-Income Housing Tax Credit (LIHTC) program, created by the Tax Credit Reform Act of 1986.The LIHTC program regulations are under Section 42 of the Internal Revenue Code.When determining which form to use for a partnership merger, many factors should be considered.
The tax results vary drastically depending on which form the transaction takes.
In some cases, there are multiple general partners and limited partners.