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Year-End Audit and Tax Planning Tips for Low-Income Housing Tax Credit Partnerships

CalculatorAudit and tax season for calendar year-end entities is here.  Being proactive in preparation for financial statement audits and tax return preparation is important in achieving a seamless and efficient audit process. 

The following is a list of items that owners and managers of low-income housing tax credit projects can perform to help ensure reporting deadlines are met and to minimize the disruption by auditors and tax preparers to your day to day operations. 

Audit/Accounting
• Be sure that all of the adjusting journal entries from the prior year audit have been made.
• Pay special attention to updating balance sheet accounts that might not have monthly activity during the year.  For example: prepaid rent, related party advances, interest payable, developer fee payable, fixed assets, and accumulated depreciation accounts.
• Reconcile all bank accounts.
• Scrutinize any repairs made to property or equipment during the year to ensure the amount was properly capitalized or expensed.
• Create a list of fixed assets that were disposed of during the year including the date of disposal and any proceeds received.
• If there is any unpaid developer fee amounts outstanding, review the agreements for any requirements that may need to be met for final payment to be made.
• If there are related party payables, create and maintain a list of what makes up these amounts.
• Be sure that your audit firm has the most up to date copies of any agreements and any amendments to agreements.

Development Stage Audits
• Record all equity payments received. Review all requirements for future equity payments and develop a plan that will help in meeting those requirements as quickly as possible.
• If there is a tax credit adjuster written into your partnership agreement, talk to your tax preparer about analyzing the effect of the adjusters.
• If there was a cost certification performed during the current year be sure to reconcile the cost certification amount to your books. 
• If development and operating transactions are being accounted for in separate general ledgers, be sure to combine the ledgers into one trial balance for year end.

Tax Preparation
• Report any change in ownership to your tax preparer. Check into step-up considerations for partner death or transfers.
• For a property receiving any IRS Forms 8609 during the year, properly complete Part II and provide to your tax preparer for their review prior to filing with the IRS clearinghouse and state housing finance agency.
• For partnerships with low or negative capital accounts, work with your tax preparer to ensure that there will not be any credits reallocated away from the investor. Complete minimum gain worksheet if applicable.
• At the end of the tax year, did any entity or individual have, directly or indirectly, an ownership interest of 50% or more in the partnership? If so, details will need to be provided to your tax preparer.
• At the end of the tax year, did the partnership own 20% or more directly of the stock of a corporation or interest in another partnership; or did the partnership own 50% or more, directly or indirectly, of the stock of a corporation or interest in another partnership? If so, details will need to be provided to your tax preparer.

For additional information on the above, please contact affordablehousing@macpas.com.

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