Amended in Senate September 10, 2015

Amended in Senate September 3, 2015

Amended in Assembly May 20, 2015

Amended in Assembly April 16, 2015

Amended in Assembly April 6, 2015

Amended in Assembly March 2, 2015

California Legislature—2015–16 Regular Session

Assembly BillNo. 35


Introduced by Assembly Members Chiu and Atkins

(Principal coauthor: Assembly Member Wilk)

(Coauthors: Assembly Members Chau and Steinorth)

December 1, 2014


An act to amend Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 35, as amended, Chiu. Income taxes: credits: low-income housing: allocation increase.

Existing law establishes a low-income housing tax credit program pursuant to which the California Tax Credit Allocation Committee provides procedures and requirements for the allocation of state insurance, personal income, and corporation income tax credit amounts among low-income housing projects based on federal law. Existing law, in modified conformity to federal income tax law, allows the credit based upon the applicable percentage, as defined, of the qualified basis of each qualified low-income building. Existing law limits the total annual amount of the credit that the committee may allocate to $70 million per year, as specified.

This bill, for calendar yearsbegin delete beginning in 2016,end deletebegin insert 2016 through 2021, inclusive,end insert would increase the aggregate housing credit dollar amount that may be allocated among low-income housing projects bybegin delete $300,000,000,end deletebegin insert $100,000,000,end insert as specified. The bill, under the insurance taxation law, the Personal Income Tax Law, and the Corporation Tax Law, would modify the definition of applicable percentage relating to qualified low-income buildings that meet specified criteria.begin delete The bill would require the Treasurer to submit a report to the Legislature on or before January 1, 2020, regarding the increase in use, if any, of the credit on and after the effective date of this bill.end delete

This bill would incorporate additional changes to Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code proposed by SB 377 that would become operative if this bill and SB 377 are chaptered and this bill is chaptered last.

This bill would take effect immediately as a tax levy.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

Section 12206 of the Revenue and Taxation Code
2 is amended to read:

3

12206.  

(a) (1) There shall be allowed as a credit against the
4“tax,” as described by Section 12201, a state low-income housing
5tax credit in an amount equal to the amount determined in
6subdivision (c), computed in accordance with Section 42 of the
7Internal Revenue Code except as otherwise provided in this section.

8(2) “Taxpayer,” for purposes of this section, means the sole
9owner in the case of a “C” corporation, the partners in the case of
10a partnership, members in the case of a limited liability company,
11and the shareholders in the case of an “S” corporation.

12(3) “Housing sponsor,” for purposes of this section, means the
13sole owner in the case of a “C” corporation, the partnership in the
14case of a partnership, the limited liability company in the case of
15a limited liability company, and the “S” corporation in the case of
16an “S” corporation.

P3    1(4) “Extremely low-income” has the same meaning as in Section
250053 of the Health and Safety Code.

3(5) “Very low-income” has the same meaning as in Section
450053 of the Health and Safety Code.

5(b) (1) The amount of the credit allocated to any housing
6sponsor shall be authorized by the California Tax Credit Allocation
7Committee, or any successor thereof, based on a project’s need
8for the credit for economic feasibility in accordance with the
9requirements of this section.

10(A) Except for projects to provide farmworker housing, as
11defined in subdivision (h) of Section 50199.7 of the Health and
12Safety Code, that are allocated credits solely under the set-aside
13described in subdivision (c) of Section 50199.20 of the Health and
14Safety Code, the low-income housing project shall be located in
15California and shall meet either of the following requirements:

16(i) The project’s housing sponsor has been allocated by the
17California Tax Credit Allocation Committee a credit for federal
18income tax purposes under Section 42 of the Internal Revenue
19 Code.

20(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
21Internal Revenue Code.

22(B) The California Tax Credit Allocation Committee shall not
23require fees for the credit under this section in addition to those
24fees required for applications for the tax credit pursuant to Section
2542 of the Internal Revenue Code. The committee may require a
26fee if the application for the credit under this section is submitted
27in a calendar year after the year the application is submitted for
28the federal tax credit.

29(C) (i) For a project that receives a preliminary reservation of
30the state low-income housing tax credit, allowed pursuant to
31subdivision (a), on or after January 1, 2009, and before January 1,
322016, the credit shall be allocated to the partners of a partnership
33owning the project in accordance with the partnership agreement,
34regardless of how the federal low-income housing tax credit with
35respect to the project is allocated to the partners, or whether the
36allocation of the credit under the terms of the agreement has
37substantial economic effect, within the meaning of Section 704(b)
38of the Internal Revenue Code.

39(ii) This subparagraph shall not apply to a project that receives
40a preliminary reservation of state low-income housing tax credits
P4    1under the set-aside described in subdivision (c) of Section 50199.20
2of the Health and Safety Code unless the project also receives a
3preliminary reservation of federal low-income housing tax credits.

4(iii) This subparagraph shall cease to be operative with respect
5to any project that receives a preliminary reservation of a credit
6on or after January 1, 2016.

7(2) (A) The California Tax Credit Allocation Committee shall
8certify to the housing sponsor the amount of tax credit under this
9section allocated to the housing sponsor for each credit period.

10(B) In the case of a partnership or an “S” corporation, the
11housing sponsor shall provide a copy of the California Tax Credit
12Allocation Committee certification to the taxpayer.

13(C) The taxpayer shall attach a copy of the certification to any
14return upon which a tax credit is claimed under this section.

15(D) In the case of a failure to attach a copy of the certification
16for the year to the return in which a tax credit is claimed under this
17section, no credit under this section shall be allowed for that year
18until a copy of that certification is provided.

19(E) All elections made by the taxpayer pursuant to Section 42
20of the Internal Revenue Code shall apply to this section.

21(F) (i) The California Tax Credit Allocation Committee may
22allocate a credit under this section in exchange for a credit allocated
23pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in
24amounts up to 30 percent of the eligible basis of a building if the
25credits allowed under Section 42 of the Internal Revenue Code are
26reduced by an equivalent amount.

27(ii) An equivalent amount shall be determined by the California
28Tax Credit Allocation Committee based upon the relative amount
29required to produce an equivalent state tax credit to the taxpayer.

30(c) Section 42(b) of the Internal Revenue Code shall be modified
31as follows:

32(1) In the case of any qualified low-income building that is a
33new building, as defined in Section 42 of the Internal Revenue
34Code and the regulations promulgated thereunder, and not federally
35subsidized, the term “applicable percentage” means the following:

36(A) For each of the first three years, the percentage prescribed
37by the Secretary of the Treasury for new buildings that are not
38federally subsidized for the taxable year, determined in accordance
39with the requirements of Section 42(b)(1) of the Internal Revenue
40Code.

P5    1(B) For the fourth year, the difference between 30 percent and
2the sum of the applicable percentages for the first three years.

3(2) In the case of any qualified low-income building that (i) is
4a new building, as defined in Section 42 of the Internal Revenue
5Code and the regulations promulgated thereunder, (ii) not located
6in designated difficult development areas (DDAs) or qualified
7census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
8Internal Revenue Code, and (iii) is federally subsidized, the term
9“applicable percentage” means for the first three years, 15 percent
10of the qualified basis of the building, and for the fourth year, 5
11percent of the qualified basis of the building.

12(3) In the case of any qualified low-income building that is (i)
13an existing building, as defined in Section 42 of the Internal
14Revenue Code and the regulations promulgated thereunder, (ii)
15not located in designated difficult development areas (DDAs) or
16qualified census tracts (QCTs), as defined in Section 42(d)(5)(B)
17of the Internal Revenue Code, and (iii) is federally subsidized, the
18term applicable percentage means the following:

19(A) For each of the first three years, the percentage prescribed
20by the Secretary of the Treasury for new buildings that are federally
21subsidized for the taxable year.

22(B) For the fourth year, the difference between 13 percent and
23the sum of the applicable percentages for the first three years.

24(4) In the case of any qualified low-income building that is (i)
25a new or an existing building, (ii) located in designated difficult
26development areas (DDAs) or qualified census tracts (QCTs) as
27defined in Section 42(d)(5)(B) of the Internal Revenue Code, and
28(iii) federally subsidized, the California Tax Credit Allocation
29Committee shall reduce the amount of California credit to be
30allocated under paragraph (2) and (3) by taking into account the
31increased federal credit received due to the basis boost provided
32under Section 42(d)(5)(B) of the Internal Revenue Code.

33(5) In the case of any qualified low-income building that meets
34all of the requirements of subparagraphs (A) through (D), inclusive,
35the term “applicable percentage” means 30 percent for each of the
36first three years and 5 percent for the fourth year. A qualified
37low-income building receiving an allocation under this paragraph
38is ineligible to also receive an allocation under paragraph (3).

39(A) The qualified low-income building is at least 15 years old.

P6    1(B) The qualified low-income building is serving households
2of very low-income or extremely low-income such that the average
3maximum household income as restricted, pursuant to an existing
4regulatory agreement with a federal, state, county, local, or other
5governmental agency, is not more than 45 percent of the area
6median gross income, as determined under Section 42 of the
7Internal Revenue Code, adjusted by household size, and a tax credit
8regulatory agreement is entered into for a period of not less than
955 years restricting the average targeted household income to no
10more than 45 percent of the area median income.

11(C) The qualified low-income building would have insufficient
12credits under paragraphs (2) and (3) to complete substantial
13rehabilitation due to a low appraised value.

14(D) The qualified low-income building will complete the
15substantial rehabilitation in connection with the credit allocation
16herein.

17(d) The term “qualified low-income housing project” as defined
18in Section 42(c)(2) of the Internal Revenue Code is modified by
19adding the following requirements:

20(1) The taxpayer shall be entitled to receive a cash distribution
21from the operations of the project, after funding required reserves,
22that, at the election of the taxpayer, is equal to:

23(A) An amount not to exceed 8 percent of the lesser of:

24(i) The owner equity that shall include the amount of the capital
25contributions actually paid to the housing sponsor and shall not
26include any amounts until they are paid on an investor note.

27(ii) Twenty percent of the adjusted basis of the building as of
28the close of the first taxable year of the credit period.

29(B) The amount of the cashflow from those units in the building
30that are not low-income units. For purposes of computing cashflow
31under this subparagraph, operating costs shall be allocated to the
32low-income units using the “floor space fraction,” as defined in
33Section 42 of the Internal Revenue Code.

34(C) Any amount allowed to be distributed under subparagraph
35(A) that is not available for distribution during the first five years
36of the compliance period may be accumulated and distributed any
37time during the first 15 years of the compliance period but not
38thereafter.

P7    1(2) The limitation on return shall apply in the aggregate to the
2partners if the housing sponsor is a partnership and in the aggregate
3to the shareholders if the housing sponsor is an “S” corporation.

4(3) The housing sponsor shall apply any cash available for
5distribution in excess of the amount eligible to be distributed under
6paragraph (1) to reduce the rent on rent-restricted units or to
7increase the number of rent-restricted units subject to the tests of
8Section 42(g)(1) of the Internal Revenue Code.

9(e) The provisions of Section 42(f) of the Internal Revenue Code
10shall be modified as follows:

11(1) The term “credit period” as defined in Section 42(f)(1) of
12the Internal Revenue Code is modified by substituting “four taxable
13years” for “10 taxable years.”

14(2) The special rule for the first taxable year of the credit period
15under Section 42(f)(2) of the Internal Revenue Code shall not apply
16to the tax credit under this section.

17(3) Section 42(f)(3) of the Internal Revenue Code is modified
18to read:

19If, as of the close of any taxable year in the compliance period,
20after the first year of the credit period, the qualified basis of any
21building exceeds the qualified basis of that building as of the close
22of the first year of the credit period, the housing sponsor, to the
23extent of its tax credit allocation, shall be eligible for a credit on
24the excess in an amount equal to the applicable percentage
25determined pursuant to subdivision (c) for the four-year period
26beginning with the taxable year in which the increase in qualified
27basis occurs.

28(f) The provisions of Section 42(h) of the Internal Revenue
29 Code shall be modified as follows:

30(1) Section 42(h)(2) of the Internal Revenue Code shall not be
31applicable and instead the following provisions shall be applicable:

32The total amount for the four-year credit period of the housing
33credit dollars allocated in a calendar year to any building shall
34reduce the aggregate housing credit dollar amount of the California
35Tax Credit Allocation Committee for the calendar year in which
36the allocation is made.

37(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
38(7), and (8) of Section 42(h) of the Internal Revenue Code shall
39not be applicable.

P8    1(g) The aggregate housing credit dollar amount that may be
2allocated annually by the California Tax Credit Allocation
3Committee pursuant to this section, Section 17058, and Section
423610.5 shall be an amount equal to the sum of all the following:

5(1) (A) Seventy million dollars ($70,000,000) for the 2001
6calendar year, and, for the 2002 calendar year and each calendar
7year thereafter, seventy million dollars ($70,000,000) increased
8by the percentage, if any, by which the Consumer Price Index for
9the preceding calendar year exceeds the Consumer Price Index for
10the 2001 calendar year. For the purposes of this paragraph, the
11term “Consumer Price Index” means the last Consumer Price Index
12for All Urban Consumers published by the federal Department of
13Labor.

14(B) begin deleteAn end deletebegin insertFor calendar years 2016 through 2021, inclusive, an end insert
15additionalbegin delete threeend deletebegin insert oneend insert hundred million dollarsbegin delete ($300,000,000)end delete
16begin insert ($100,000,000)end insert for the 2016 calendar year, and, for thebegin delete 2017
17calendar year and each calendar year thereafter, three hundred
18million dollars ($300,000,000)end delete
begin insert 2017 through 2021 calendar years,
19one hundred million dollars ($100,000,000)end insert
increased by the
20percentage, if any, by which the Consumer Price Index for the
21preceding calendar year exceeds the Consumer Price Index for the
222016 calendar year. For the purposes of this paragraph, the term
23“Consumer Price Index” means the last Consumer Price Index for
24All Urban Consumers published by the federal Department of
25Labor. A housing sponsor receiving an allocation under paragraph
26(1) of subdivision (c) shall not be eligible for receipt of the housing
27credit allocated from the increased amount under this subparagraph.
28A housing sponsor receiving an allocation under paragraph (1) of
29subdivision (c) shall remain eligible for receipt of the housing
30credit allocated from the credit ceiling amount under subparagraph
31(A).

32(2) The unused housing credit ceiling, if any, for the preceding
33calendar years.

34(3) The amount of housing credit ceiling returned in the calendar
35year. For purposes of this paragraph, the amount of housing credit
36dollar amount returned in the calendar year equals the housing
37credit dollar amount previously allocated to any project that does
38not become a qualified low-income housing project within the
39period required by this section or to any project with respect to
P9    1which an allocation is canceled by mutual consent of the California
2Tax Credit Allocation Committee and the allocation recipient.

3(4) Five hundred thousand dollars ($500,000) per calendar year
4for projects to provide farmworker housing, as defined in
5subdivision (h) of Section 50199.7 of the Health and Safety Code.

6(5) The amount of any unallocated or returned credits under
7former Sections 17053.14, 23608.2, and 23608.3, as those sections
8read prior to January 1, 2009, until fully exhausted for projects to
9provide farmworker housing, as defined in subdivision (h) of
10Section 50199.7 of the Health and Safety Code.

11(h) The term “compliance period” as defined in Section 42(i)(1)
12of the Internal Revenue Code is modified to mean, with respect to
13any building, the period of 30 consecutive taxable years beginning
14with the first taxable year of the credit period with respect thereto.

15(i) (1) Section 42(j) of the Internal Revenue Code shall not be
16applicable and the provisions in paragraph (2) shall be substituted
17in its place.

18(2) The requirements of this section shall be set forth in a
19regulatory agreement between the California Tax Credit Allocation
20Committee and the housing sponsor, and the regulatory agreement
21shall be subordinated, when required, to any lien or encumbrance
22of any banks or other institutional lenders to the project. The
23regulatory agreement entered into pursuant to subdivision (f) of
24Section 50199.14 of the Health and Safety Code, shall apply,
25provided that the agreement includes all of the following
26provisions:

27(A) A term not less than the compliance period.

28(B) A requirement that the agreement be recorded in the official
29records of the county in which the qualified low-income housing
30project is located.

31(C) A provision stating which state and local agencies can
32enforce the regulatory agreement in the event the housing sponsor
33fails to satisfy any of the requirements of this section.

34(D) A provision that the regulatory agreement shall be deemed
35a contract enforceable by tenants as third-party beneficiaries thereto
36and that allows individuals, whether prospective, present, or former
37occupants of the building, who meet the income limitation
38applicable to the building, the right to enforce the regulatory
39agreement in any state court.

P10   1(E) A provision incorporating the requirements of Section 42
2of the Internal Revenue Code as modified by this section.

3(F) A requirement that the housing sponsor notify the California
4Tax Credit Allocation Committee or its designee and the local
5agency that can enforce the regulatory agreement if there is a
6determination by the Internal Revenue Service that the project is
7not in compliance with Section 42(g) of the Internal Revenue Code.

8(G) A requirement that the housing sponsor, as security for the
9performance of the housing sponsor’s obligations under the
10regulatory agreement, assign the housing sponsor’s interest in rents
11that it receives from the project, provided that until there is a
12default under the regulatory agreement, the housing sponsor is
13entitled to collect and retain the rents.

14(H) The remedies available in the event of a default under the
15regulatory agreement that is not cured within a reasonable cure
16period, include, but are not limited to, allowing any of the parties
17designated to enforce the regulatory agreement to collect all rents
18with respect to the project; taking possession of the project and
19operating the project in accordance with the regulatory agreement
20until the enforcer determines the housing sponsor is in a position
21to operate the project in accordance with the regulatory agreement;
22applying to any court for specific performance; securing the
23appointment of a receiver to operate the project; or any other relief
24as may be appropriate.

25(j) (1) The committee shall allocate the housing credit on a
26regular basis consisting of two or more periods in each calendar
27year during which applications may be filed and considered. The
28committee shall establish application filing deadlines, the maximum
29percentage of federal and state low-income housing tax credit
30ceiling that may be allocated by the committee in that period, and
31the approximate date on which allocations shall be made. If the
32enactment of federal or state law, the adoption of rules or
33regulations, or other similar events prevent the use of two allocation
34periods, the committee may reduce the number of periods and
35adjust the filing deadlines, maximum percentage of credit allocated,
36and allocation dates.

37(2) The committee shall adopt a qualified allocation plan, as
38provided in Section 42(m)(1) of the Internal Revenue Code. In
39adopting this plan, the committee shall comply with the provisions
P11   1of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
2Code, respectively.

3(3) Notwithstanding Section 42(m) of the Internal Revenue
4Code the California Tax Credit Allocation Committee shall allocate
5housing credits in accordance with the qualified allocation plan
6and regulations, which shall include the following provisions:

7(A) All housing sponsors, as defined by paragraph (3) of
8subdivision (a), shall demonstrate at the time the application is
9filed with the committee that the project meets the following
10threshold requirements:

11(i) The housing sponsor shall demonstrate there is a need and
12demand for low-income housing in the community or region for
13which it is proposed.

14(ii) The project’s proposed financing, including tax credit
15proceeds, shall be sufficient to complete the project and that the
16proposed operating income shall be adequate to operate the project
17for the extended use period.

18(iii) The project shall have enforceable financing commitments,
19either construction or permanent financing, for at least 50 percent
20of the total estimated financing of the project.

21(iv) The housing sponsor shall have and maintain control of the
22site for the project.

23(v) The housing sponsor shall demonstrate that the project
24complies with all applicable local land use and zoning ordinances.

25(vi) The housing sponsor shall demonstrate that the project
26development team has the experience and the financial capacity
27to ensure project completion and operation for the extended use
28period.

29(vii) The housing sponsor shall demonstrate the amount of tax
30credit that is necessary for the financial feasibility of the project
31and its viability as a qualified low-income housing project
32throughout the extended use period, taking into account operating
33expenses, a supportable debt service, reserves, funds set aside for
34rental subsidies, and required equity, and a development fee that
35does not exceed a specified percentage of the eligible basis of the
36project prior to inclusion of the development fee in the eligible
37basis, as determined by the committee.

38(B) The committee shall give a preference to those projects
39satisfying all of the threshold requirements of subparagraph (A)
40if both of the following apply:

P12   1(i) The project serves the lowest income tenants at rents
2affordable to those tenants.

3(ii) The project is obligated to serve qualified tenants for the
4longest period.

5(C) In addition to the provisions of subparagraphs (A) and (B),
6the committee shall use the following criteria in allocating housing
7credits:

8(i) Projects serving large families in which a substantial number,
9as defined by the committee, of all residential units are low-income
10units with three or more bedrooms.

11(ii) Projects providing single-room occupancy units serving
12very low income tenants.

13(iii) (I) Existing projects that are “at risk of conversion.”

14(II) For purposes of this section, the term “at risk of conversion,”
15with respect to an existing property means a property that satisfies
16all of the following criteria:

17(ia) The property is a multifamily rental housing development
18in which at least 50 percent of the units receive governmental
19assistance pursuant to any of the following:

20(Ia) New construction, substantial rehabilitation, moderate
21rehabilitation, property disposition, and loan management set-aside
22programs, or any other program providing project-based assistance
23pursuant to Section 8 of the United States Housing Act of 1937,
24Section 1437f of Title 42 of the United States Code, as amended.

25(Ib) The Below-Market-Interest-Rate Program pursuant to
26Section 221(d)(3) of the National Housing Act, Sections
271715l(d)(3) and (5) of Title 12 of the United States Code.

28(Ic) Section 236 of the National Housing Act, Section 1715z-1
29of Title 12 of the United States Code.

30(Id) Programs for rent supplement assistance pursuant to Section
3118 101 of the Housing and Urban Development Act of 1965,
32Section 1701s of Title 12 of the United States Code, as amended.

33(Ie) Programs pursuant to Section 515 of the Housing Act of
341949, Section 1485 of Title 42 of the United States Code, as
35 amended.

36(If) The low-income housing credit program set forth in Section
3742 of the Internal Revenue Code.

38(ib) The restrictions on rent and income levels will terminate
39or the federal insured mortgage on the property is eligible for
P13   1prepayment any time within five years before or after the date of
2application to the California Tax Credit Allocation Committee.

3(ic) The entity acquiring the property enters into a regulatory
4agreement that requires the property to be operated in accordance
5with the requirements of this section for a period equal to the
6greater of 55 years or the life of the property.

7(id) The property satisfies the requirements of Section 42(e) of
8the Internal Revenue Code, regarding rehabilitation expenditures
9except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
10apply.

11(iv) Projects for which a public agency provides direct or indirect
12long-term financial support for at least 15 percent of the total
13project development costs or projects for which the owner’s equity
14constitutes at least 30 percent of the total project development
15costs.

16(v) Projects that provide tenant amenities not generally available
17to residents of low-income housing projects.

18(4) For purposes of allocating credits pursuant to this section,
19the committee shall not give preference to any project by virtue
20of the date of submission of its application except to break a tie
21when two or more of the projects have an equal rating.

22(k) Section 42(l) of the Internal Revenue Code shall be modified
23as follows:

24The term “secretary” shall be replaced by the term “California
25Franchise Tax Board.”

26(l) In the case where the credit allowed under this section
27exceeds the “tax,” the excess may be carried over to reduce the
28“tax” in the following year, and succeeding years if necessary,
29until the credit has been exhausted.

30(m) The provisions of Section 11407(a) of Public Law 101-508,
31relating to the effective date of the extension of the low-income
32housing credit, shall apply to calendar years after 1993.

33(n) The provisions of Section 11407(c) of Public Law 101-508,
34relating to election to accelerate credit, shall not apply.

35(o) This section shall remain in effect for as long as Section 42
36of the Internal Revenue Code, relating to low-income housing
37 credit, remains in effect.

38

SEC. 1.5.  

Section 12206 of the Revenue and Taxation Code
39 is amended to read:

P14   1

12206.  

(a) (1) There shall be allowed as a credit against the
2“tax,” as described by Section 12201, a state low-income housing
3tax credit in an amount equal to the amount determined in
4subdivision (c), computed in accordance with Section 42 of the
5Internal Revenue Code, relating to low-income housing credit,
6except as otherwise provided in this section.

7(2) “Taxpayer,” for purposes of this section, means the sole
8owner in the case of a “C” corporation, the partners in the case of
9a partnership, members in the case of a limited liability company,
10and the shareholders in the case of an “S” corporation.

11(3) “Housing sponsor,” for purposes of this section, means the
12sole owner in the case of a “C” corporation, the partnership in the
13case of a partnership, the limited liability company in case of a
14limited liability company, and the “S” corporation in the case of
15an “S” corporation.

16(4) “Extremely low-income” has the same meaning as in Section
1750053 of the Health and Safety Code.

18(5) “Very low-income” has the same meaning as in Section
1950053 of the Health and Safety Code.

20(b) (1) The amount of the credit allocated to any housing
21sponsor shall be authorized by the California Tax Credit Allocation
22Committee, or any successor thereof, based on a project’s need
23for the credit for economic feasibility in accordance with the
24requirements of this section.

25(A) Except for projects to provide farmworker housing, as
26defined in subdivision (h) of Section 50199.7 of the Health and
27Safety Code, that are allocated credits solely under the set-aside
28described in subdivision (c) of Section 50199.20 of the Health and
29Safety Code, the low-income housing project shall be located in
30California and shall meet either of the following requirements:

31(i) The project’s housing sponsor has been allocated by the
32California Tax Credit Allocation Committee a credit for federal
33income tax purposes under Section 42 of the Internal Revenue
34Code, relating to low-income housing credit.

35(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
36Internal Revenue Code, relating to special rule where 50 percent
37or more of building is financed with tax-exempt bonds subject to
38volume cap.

39(B) The California Tax Credit Allocation Committee shall not
40require fees for the credit under this section in addition to those
P15   1fees required for applications for the tax credit pursuant to Section
242 of the Internal Revenue Code, relating to low-income housing
3credit. The committee may require a fee if the application for the
4credit under this section is submitted in a calendar year after the
5year the application is submitted for the federal tax credit.

6(C) (i) For a project that receives a preliminary reservation of
7the state low-income housing tax credit, allowed pursuant to
8subdivision (a), on or after January 1, 2009, the credit shall be
9allocated to the partners of a partnership owning the project in
10accordance with the partnership agreement, regardless of how the
11federal low-income housing tax credit with respect to the project
12is allocated to the partners, or whether the allocation of the credit
13under the terms of the agreement has substantial economic effect,
14within the meaning of Section 704(b) of the Internal Revenue
15Code, relating to determination of distributive share.

16(ii) This subparagraph shall not apply to a project that receives
17a preliminary reservation of state low-income housing tax credits
18under the set-aside described in subdivision (c) of Section 50199.20
19of the Health and Safety Code unless the project also receives a
20preliminary reservation of federal low-income housing tax credits.

21(2) (A) The California Tax Credit Allocation Committee shall
22certify to the housing sponsor the amount of tax credit under this
23section allocated to the housing sponsor for each credit period.

24(B) In the case of a partnership or an “S” corporation, the
25housing sponsor shall provide a copy of the California Tax Credit
26Allocation Committee certification to the taxpayer.

27(C) The taxpayer shall attach a copy of the certification to any
28return upon which a tax credit is claimed under this section.

29(D) In the case of a failure to attach a copy of the certification
30for the year to the return in which a tax credit is claimed under this
31section, no credit under this section shall be allowed for that year
32until a copy of that certification is provided.

33(E) All elections made by the taxpayer pursuant to Section 42
34of the Internal Revenue Code, relating to low-income housing
35credit, shall apply to this section.

36(F) (i) The California Tax Credit Allocation Committee may
37allocate a credit under this section in exchange for a credit allocated
38pursuant to Section 42(d)(5)(B) of the Internal Revenue Code,
39relating to increase in credit for buildings in high-cost areas, in
40amounts up to 30 percent of the eligible basis of a building if the
P16   1credits allowed under Section 42 of the Internal Revenue Code,
2relating to low-income housing credit, are reduced by an equivalent
3amount.

4(ii) An equivalent amount shall be determined by the California
5Tax Credit Allocation Committee based upon the relative amount
6required to produce an equivalent state tax credit to the taxpayer.

7(c) Section 42(b) of the Internal Revenue Code, relating to
8applicable percentage, shall be modified as follows:

9(1) In the case of any qualified low-income building that is a
10new building, as defined in Section 42 of the Internal Revenue
11Code and the regulations promulgated thereunder, and not federally
12subsidized, the term “applicable percentage” means the following:

13(A) For each of the first three years, the percentage prescribed
14by the Secretary of the Treasury for new buildings that are not
15federally subsidized for the taxable year, determined in accordance
16with the requirements of Section 42(b)(1) of the Internal Revenue
17Code.

18(B) For the fourth year, the difference between 30 percent and
19the sum of the applicable percentages for the first three years.

20(2) In the case of any qualified low-income building that (i) is
21a new building, as defined in Section 42 of the Internal Revenue
22Code and the regulations promulgated thereunder, (ii) not located
23in designated difficult development areas (DDAs) or qualified
24census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
25Internal Revenue Code, and (iii) is federally subsidized, the term
26“applicable percentage” means for the first three years, 15 percent
27of the qualified basis of the building, and for the fourth year, 5
28percent of the qualified basis of the building.

29(3) In the case of any qualified low-income building that is (i)
30an existing building, as defined in Section 42 of the Internal
31Revenue Code and the regulations promulgated thereunder, (ii)
32not located in designated difficult development areas (DDAs) or
33qualified census tracts (QCTs), as defined in Section 42(d)(5)(B)
34of the Internal Revenue Code, and (iii) is federally subsidized, the
35term applicable percentage means the following:

36(A) For each of the first three years, the percentage prescribed
37by the Secretary of the Treasury for new buildings that are federally
38subsidized for the taxable year.

39(B) For the fourth year, the difference between 13 percent and
40the sum of the applicable percentages for the first three years.

P17   1(4) In the case of any qualified low-income building that is (i)
2a new or an existing building, (ii) located in designated difficult
3development areas (DDAs) or qualified census tracts (QCTs) as
4defined in Section 42(d)(5)(B) of the Internal Revenue Code, and
5(iii) federally subsidized, the California Tax Credit Allocation
6 Committee shall reduce the amount of California credit to be
7allocated under paragraph (2) and (3) by taking into account the
8increased federal credit received due to the basis boost provided
9under Section 42(d)(5)(B) of the Internal Revenue Code.

10(5) In the case of any qualified low-income building that meets
11all of the requirements of subparagraphs (A) through (D), inclusive,
12the term “applicable percentage” means 30 percent for each of the
13first three years and 5 percent for the fourth year. A qualified
14low-income building receiving an allocation under this paragraph
15is ineligible to also receive an allocation under paragraph (3).

16(A) The qualified low-income building is at least 15 years old.

17(B) The qualified low-income building is serving households
18of very low-income or extremely low-income such that the average
19maximum household income as restricted, pursuant to an existing
20regulatory agreement with a federal, state, county, local, or other
21governmental agency, is not more than 45 percent of the area
22median gross income, as determined under Section 42 of the
23Internal Revenue Code, adjusted by household size, and a tax credit
24regulatory agreement is entered into for a period of not less than
2555 years restricting the average targeted household income to no
26more than 45 percent of the area median income.

27(C) The qualified low-income building would have insufficient
28credits under paragraphs (2) and (3) to complete substantial
29rehabilitation due to a low appraised value.

30(D) The qualified low-income building will complete the
31substantial rehabilitation in connection with the credit allocation
32herein.

33(d) The term “qualified low-income housing project” as defined
34in Section 42(c)(2) of the Internal Revenue Code, relating to
35qualified low-income building, is modified by adding the following
36requirements:

37(1) The taxpayer shall be entitled to receive a cash distribution
38from the operations of the project, after funding required reserves,
39 that, at the election of the taxpayer, is equal to:

40(A) An amount not to exceed 8 percent of the lesser of:

P18   1(i) The owner equity, which shall include the amount of the
2capital contributions actually paid to the housing sponsor and shall
3not include any amounts until they are paid on an investor note.

4(ii) Twenty percent of the adjusted basis of the building as of
5the close of the first taxable year of the credit period.

6(B) The amount of the cashflow from those units in the building
7that are not low-income units. For purposes of computing cashflow
8under this subparagraph, operating costs shall be allocated to the
9low-income units using the “floor space fraction,” as defined in
10Section 42 of the Internal Revenue Code, relating to low-income
11housing credit.

12(C) Any amount allowed to be distributed under subparagraph
13(A) that is not available for distribution during the first five years
14of the compliance period may be accumulated and distributed any
15time during the first 15 years of the compliance period but not
16thereafter.

17(2) The limitation on return shall apply in the aggregate to the
18partners if the housing sponsor is a partnership and in the aggregate
19to the shareholders if the housing sponsor is an “S” corporation.

20(3) The housing sponsor shall apply any cash available for
21 distribution in excess of the amount eligible to be distributed under
22paragraph (1) to reduce the rent on rent-restricted units or to
23increase the number of rent-restricted units subject to the tests of
24Section 42(g)(1) of the Internal Revenue Code, relating to in
25general.

26(e) The provisions of Section 42(f) of the Internal Revenue
27Code, relating to definition and special rules relating to credit
28period, shall be modified as follows:

29(1) The term “credit period” as defined in Section 42(f)(1) of
30the Internal Revenue Code, relating to credit period defined, is
31modified by substituting “four taxable years” for “10 taxable
32years.”

33(2) The special rule for the first taxable year of the credit period
34under Section 42(f)(2) of the Internal Revenue Code, relating to
35special rule for first year of credit period, shall not apply to the tax
36credit under this section.

37(3) Section 42(f)(3) of the Internal Revenue Code, relating to
38determination of applicable percentage with respect to increases
39in qualified basis after first year of credit period, is modified to
40read:

P19   1If, as of the close of any taxable year in the compliance period,
2after the first year of the credit period, the qualified basis of any
3building exceeds the qualified basis of that building as of the close
4of the first year of the credit period, the housing sponsor, to the
5extent of its tax credit allocation, shall be eligible for a credit on
6the excess in an amount equal to the applicable percentage
7determined pursuant to subdivision (c) for the four-year period
8beginning with the taxable year in which the increase in qualified
9basis occurs.

10(f) The provisions of Section 42(h) of the Internal Revenue
11 Code, relating to limitation on aggregate credit allowable with
12respect to projects located in a state, shall be modified as follows:

13(1) Section 42(h)(2) of the Internal Revenue Code, relating to
14allocated credit amount to apply to all taxable years ending during
15or after credit allocation year, shall not be applicable and instead
16the following provisions shall be applicable:

17The total amount for the four-year credit period of the housing
18credit dollars allocated in a calendar year to any building shall
19reduce the aggregate housing credit dollar amount of the California
20Tax Credit Allocation Committee for the calendar year in which
21the allocation is made.

22(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
23(7), and (8) of Section 42(h) of the Internal Revenue Code, relating
24to limitation on aggregate credit allowable with respect to projects
25located in a state, shall not be applicable.

26(g) The aggregate housing credit dollar amount that may be
27allocated annually by the California Tax Credit Allocation
28Committee pursuant to this section, Section 17058, and Section
2923610.5 shall be an amount equal to the sum of all the following:

30(1) (A) Seventy million dollars ($70,000,000) for the 2001
31calendar year, and, for the 2002 calendar year and each calendar
32year thereafter, seventy million dollars ($70,000,000) increased
33by the percentage, if any, by which the Consumer Price Index for
34the preceding calendar year exceeds the Consumer Price Index for
35the 2001 calendar year. For the purposes of this paragraph, the
36term “Consumer Price Index” means the last Consumer Price Index
37for All Urban Consumers published by the federal Department of
38Labor.

39(B) begin deleteAn end deletebegin insertFor calendar years 2016 through 2021, inclusive, an end insert
40additionalbegin delete threeend deletebegin insert oneend insert hundred million dollarsbegin delete ($300,000,000)end delete
P20   1begin insert ($100,000,000)end insert for the 2016 calendar year, and, for thebegin delete 2017
2calendar year and each calendar year thereafter, three hundred
3million dollars ($300,000,000)end delete
begin insert 2017 through 2021 calendar years,
4one hundred million dollars ($100,000,000)end insert
increased by the
5percentage, if any, by which the Consumer Price Index for the
6preceding calendar year exceeds the Consumer Price Index for the
72016 calendar year. For the purposes of this paragraph, the term
8“Consumer Price Index” means the last Consumer Price Index for
9All Urban Consumers published by the federal Department of
10Labor. A housing sponsor receiving an allocation under paragraph
11(1) of subdivision (c) shall not be eligible for receipt of the housing
12credit allocated from the increased amount under this subparagraph.
13A housing sponsor receiving an allocation under paragraph (1) of
14subdivision (c) shall remain eligible for receipt of the housing
15credit allocated from the credit ceiling amount under subparagraph
16(A).

17(2) The unused housing credit ceiling, if any, for the preceding
18calendar years.

19(3) The amount of housing credit ceiling returned in the calendar
20year. For purposes of this paragraph, the amount of housing credit
21 dollar amount returned in the calendar year equals the housing
22credit dollar amount previously allocated to any project that does
23not become a qualified low-income housing project within the
24period required by this section or to any project with respect to
25which an allocation is canceled by mutual consent of the California
26Tax Credit Allocation Committee and the allocation recipient.

27(4) Five hundred thousand dollars ($500,000) per calendar year
28for projects to provide farmworker housing, as defined in
29subdivision (h) of Section 50199.7 of the Health and Safety Code.

30(5) The amount of any unallocated or returned credits under
31former Sections 17053.14, 23608.2, and 23608.3, as those sections
32read prior to January 1, 2009, until fully exhausted for projects to
33provide farmworker housing, as defined in subdivision (h) of
34Section 50199.7 of the Health and Safety Code.

35(h) The term “compliance period” as defined in Section 42(i)(1)
36of the Internal Revenue Code, relating to compliance period, is
37modified to mean, with respect to any building, the period of 30
38consecutive taxable years beginning with the first taxable year of
39the credit period with respect thereto.

P21   1(i) (1) Section 42(j) of the Internal Revenue Code, relating to
2recapture of credit, shall not be applicable and the provisions in
3paragraph (2) shall be substituted in its place.

4(2) The requirements of this section shall be set forth in a
5regulatory agreement between the California Tax Credit Allocation
6Committee and the housing sponsor, and the regulatory agreement
7shall be subordinated, when required, to any lien or encumbrance
8of any banks or other institutional lenders to the project. The
9regulatory agreement entered into pursuant to subdivision (f) of
10Section 50199.14 of the Health and Safety Code, shall apply,
11provided that the agreement includes all of the following
12provisions:

13(A) A term not less than the compliance period.

14(B) A requirement that the agreement be recorded in the official
15records of the county in which the qualified low-income housing
16project is located.

17(C) A provision stating which state and local agencies can
18enforce the regulatory agreement in the event the housing sponsor
19fails to satisfy any of the requirements of this section.

20(D) A provision that the regulatory agreement shall be deemed
21a contract enforceable by tenants as third-party beneficiaries thereto
22and that allows individuals, whether prospective, present, or former
23occupants of the building, who meet the income limitation
24applicable to the building, the right to enforce the regulatory
25agreement in any state court.

26(E) A provision incorporating the requirements of Section 42
27of the Internal Revenue Code, relating to low-income housing
28credit, as modified by this section.

29(F) A requirement that the housing sponsor notify the California
30Tax Credit Allocation Committee or its designee and the local
31agency that can enforce the regulatory agreement if there is a
32determination by the Internal Revenue Service that the project is
33not in compliance with Section 42(g) of the Internal Revenue Code,
34relating to qualified low-income housing project.

35(G) A requirement that the housing sponsor, as security for the
36performance of the housing sponsor’s obligations under the
37regulatory agreement, assign the housing sponsor’s interest in rents
38that it receives from the project, provided that until there is a
39default under the regulatory agreement, the housing sponsor is
40entitled to collect and retain the rents.

P22   1(H) A provision that the remedies available in the event of a
2default under the regulatory agreement that is not cured within a
3reasonable cure period include, but are not limited to, allowing
4any of the parties designated to enforce the regulatory agreement
5to collect all rents with respect to the project; taking possession of
6the project and operating the project in accordance with the
7regulatory agreement until the enforcer determines the housing
8sponsor is in a position to operate the project in accordance with
9the regulatory agreement; applying to any court for specific
10performance; securing the appointment of a receiver to operate
11the project; or any other relief as may be appropriate.

12(j) (1) The committee shall allocate the housing credit on a
13regular basis consisting of two or more periods in each calendar
14year during which applications may be filed and considered. The
15committee shall establish application filing deadlines, the maximum
16percentage of federal and state low-income housing tax credit
17ceiling that may be allocated by the committee in that period, and
18the approximate date on which allocations shall be made. If the
19enactment of federal or state law, the adoption of rules or
20regulations, or other similar events prevent the use of two allocation
21periods, the committee may reduce the number of periods and
22adjust the filing deadlines, maximum percentage of credit allocated,
23and allocation dates.

24(2) The committee shall adopt a qualified allocation plan, as
25provided in Section 42(m)(1) of the Internal Revenue Code, relating
26to plans for allocation of credit among projects. In adopting this
27plan, the committee shall comply with the provisions of Sections
2842(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code,
29relating to qualified allocation plan and relating to certain selection
30criteria must be used, respectively.

31(3) Notwithstanding Section 42(m) of the Internal Revenue
32Code, relating to responsibilities of housing credit agencies, the
33California Tax Credit Allocation Committee shall allocate housing
34credits in accordance with the qualified allocation plan and
35regulations, which shall include the following provisions:

36(A) All housing sponsors, as defined by paragraph (3) of
37subdivision (a), shall demonstrate at the time the application is
38filed with the committee that the project meets the following
39threshold requirements:

P23   1(i) The housing sponsor shall demonstrate that there is a need
2and demand for low-income housing in the community or region
3for which it is proposed.

4(ii) The project’s proposed financing, including tax credit
5proceeds, shall be sufficient to complete the project and that the
6proposed operating income shall be adequate to operate the project
7for the extended use period.

8(iii) The project shall have enforceable financing commitments,
9either construction or permanent financing, for at least 50 percent
10of the total estimated financing of the project.

11(iv) The housing sponsor shall have and maintain control of the
12site for the project.

13(v) The housing sponsor shall demonstrate that the project
14complies with all applicable local land use and zoning ordinances.

15(vi) The housing sponsor shall demonstrate that the project
16development team has the experience and the financial capacity
17to ensure project completion and operation for the extended use
18period.

19(vii) The housing sponsor shall demonstrate the amount of tax
20credit that is necessary for the financial feasibility of the project
21and its viability as a qualified low-income housing project
22throughout the extended use period, taking into account operating
23expenses, a supportable debt service, reserves, funds set aside for
24rental subsidies and required equity, and a development fee that
25does not exceed a specified percentage of the eligible basis of the
26project prior to inclusion of the development fee in the eligible
27basis, as determined by the committee.

28(B) The committee shall give a preference to those projects
29satisfying all of the threshold requirements of subparagraph (A)
30if both of the following apply:

31(i) The project serves the lowest income tenants at rents
32affordable to those tenants.

33(ii) The project is obligated to serve qualified tenants for the
34longest period.

35(C) In addition to the provisions of subparagraphs (A) and (B),
36the committee shall use the following criteria in allocating housing
37credits:

38(i) Projects serving large families in which a substantial number,
39as defined by the committee, of all residential units are low-income
40units with three or more bedrooms.

P24   1(ii) Projects providing single-room occupancy units serving
2very low income tenants.

3(iii)(I)  Existing projects that are “at risk of conversion.”

4(II) For purposes of this section, the term “at risk of conversion,”
5with respect to an existing property means a property that satisfies
6all of the following criteria:

7(ia) The property is a multifamily rental housing development
8in which at least 50 percent of the units receive governmental
9assistance pursuant to any of the following:

10(Ia) New construction, substantial rehabilitation, moderate
11rehabilitation, property disposition, and loan management set-aside
12programs, or any other program providing project-based assistance
13pursuant to Section 8 of the United States Housing Act of 1937,
14Section 1437f of Title 42 of the United States Code, as amended.

15(Ib) The Below-Market-Interest-Rate Program pursuant to
16Section 221(d)(3) of the National Housing Act, Sections
171715l(d)(3) and (5) of Title 12 of the United States Code.

18(Ic) Section 236 of the National Housing Act, Section 1715z-1
19of Title 12 of the United States Code.

20(Id) Programs for rent supplement assistance pursuant to Section
2118 101 of the Housing and Urban Development Act of 1965,
22Section 1701s of Title 12 of the United States Code, as amended.

23(Ie) Programs pursuant to Section 515 of the Housing Act of
241949, Section 1485 of Title 42 of the United States Code, as
25amended.

26(If) The low-income housing credit program set forth in Section
2742 of the Internal Revenue Code.

28(ib) The restrictions on rent and income levels will terminate
29or the federal insured mortgage on the property is eligible for
30prepayment any time within five years before or after the date of
31application to the California Tax Credit Allocation Committee.

32(ic) The entity acquiring the property enters into a regulatory
33agreement that requires the property to be operated in accordance
34with the requirements of this section for a period equal to the
35 greater of 55 years or the life of the property.

36(id) The property satisfies the requirements of Section 42(e) of
37the Internal Revenue Code, regarding rehabilitation expenditures
38except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
39apply.

P25   1(iv) Projects for which a public agency provides direct or indirect
2long-term financial support for at least 15 percent of the total
3project development costs or projects for which the owner’s equity
4constitutes at least 30 percent of the total project development
5costs.

6(v) Projects that provide tenant amenities not generally available
7to residents of low-income housing projects.

8(4) For purposes of allocating credits pursuant to this section,
9the committee shall not give preference to any project by virtue
10of the date of submission of its application except to break a tie
11when two or more of the projects have an equal rating.

12(k) Section 42(l) of the Internal Revenue Code, relating to
13certifications and other reports to the secretary, shall be modified
14as follows:

15The term “secretary” shall be replaced by the term “Franchise
16Tax Board.”

17(l) In the case where the credit allowed under this section
18exceeds the “tax,” the excess may be carried over to reduce the
19“tax” in the following year, and succeeding years if necessary,
20until the credit has been exhausted.

21(m) The provisions of Section 11407(a) of Public Law 101-508,
22relating to the effective date of the extension of the low-income
23housing credit, shall apply to calendar years after 1993.

24(n) The provisions of Section 11407(c) of Public Law 101-508,
25relating to election to accelerate credit, shall not apply.

26(o) (1) For a project that receives a preliminary reservation
27under this section beginning on or after January 1, 2016, a taxpayer
28may make an irrevocable election in its application to the California
29Tax Credit Allocation Committee to sell all or any portion of any
30credit allowed under this section to one or more unrelated parties
31for each taxable year in which the credit is allowed subject to both
32of the following conditions:

33(A) The credit is sold for consideration that is not less than 80
34percent of the amount of the credit.

35(B) The unrelated party or parties purchasing any or all of the
36credit pursuant to this subdivision is a taxpayer allowed the credit
37under this section for the taxable year of the purchase or any prior
38taxable year or is a taxpayer allowed the federal credit under
39Section 42 of the Internal Revenue Code, relating to low-income
40housing credit, for the taxable year of the purchase or any prior
P26   1taxable year in connection with any project located in this state.
2For purposes of this subparagraph, “taxpayer allowed the credit
3under this section” means a taxpayer that is allowed the credit
4under this section without regard to the purchase of a credit
5pursuant to this subdivision.

6(2) (A) The taxpayer that originally received the credit shall
7report to the California Tax Credit Allocation Committee within
810 days of the sale of the credit, in the form and manner specified
9by the California Tax Credit Allocation Committee, all required
10information regarding the purchase and sale of the credit, including
11the social security or other taxpayer identification number of the
12 unrelated party to whom the credit has been sold, the face amount
13of the credit sold, and the amount of consideration received by the
14taxpayer for the sale of the credit.

15(B) The California Tax Credit Allocation Committee shall
16provide an annual listing to the Franchise Tax Board, in a form
17and manner agreed upon by the California Tax Credit Allocation
18Committee and the Franchise Tax Board, of the taxpayers that
19have sold or purchased a credit pursuant to this subdivision.

20(3) (A) A credit may be sold pursuant to this subdivision to
21more than one unrelated party.

22(B) (i) Except as provided in clause (ii), a credit shall not be
23resold by the unrelated party to another taxpayer or other party.

24(ii) All or any portion of any credit allowed under this section
25may be resold once by an original purchaser to one or more
26unrelated parties, subject to all of the requirements of this
27subdivision.

28(4) Notwithstanding any other provision of law, the taxpayer
29that originally received the credit that is sold pursuant to paragraph
30(1) shall remain solely liable for all obligations and liabilities
31imposed on the taxpayer by this section with respect to the credit,
32none of which shall apply to any party to whom the credit has been
33sold or subsequently transferred. Parties who purchase credits
34pursuant to paragraph (1) shall be entitled to utilize the purchased
35credits in the same manner in which the taxpayer that originally
36received the credit could utilize them.

37(5) A taxpayer shall not sell a credit allowed by this section if
38the taxpayer was allowed the credit on any tax return of the
39taxpayer.

P27   1(6) Notwithstanding paragraph (1), the taxpayer, with the
2approval of the Executive Director of the California Tax Credit
3Allocation Committee, may rescind the election to sell all or any
4portion of the credit allowed under this section if the consideration
5for the credit falls below 80 percent of the amount of the credit
6after the California Tax Credit Allocation Committee reservation.

7(p) The California Tax Credit Allocation Committee may
8prescribe rules, guidelines, or procedures necessary or appropriate
9to carry out the purposes of this section, including any guidelines
10regarding the allocation of the credit allowed under this section.
11Chapter 3.5 (commencing with Section 11340) of Part 1 of Division
123 of Title 2 of the Government Code shall not apply to any rule,
13guideline, or procedure prescribed by the California Tax Credit
14Allocation Committee pursuant to this section.

15(q) This section shall remain in effect for as long as Section 42
16of the Internal Revenue Code, relating to low-income housing
17credit, remains in effect.

18

SEC. 2.  

Section 17058 of the Revenue and Taxation Code is
19amended to read:

20

17058.  

(a) (1) There shall be allowed as a credit against the
21“net tax,” as defined in Section 17039, a state low-income housing
22tax credit in an amount equal to the amount determined in
23subdivision (c), computed in accordance with Section 42 of the
24Internal Revenue Code except as otherwise provided in this section.

25(2) “Taxpayer” for purposes of this section means the sole owner
26in the case of an individual, the partners in the case of a partnership,
27members in the case of a limited liability company, and the
28shareholders in the case of an “S” corporation.

29(3) “Housing sponsor” for purposes of this section means the
30sole owner in the case of an individual, the partnership in the case
31 of a partnership, the limited liability company in the case of a
32limited liability company, and the “S” corporation in the case of
33an “S” corporation.

34(4) “Extremely low-income” has the same meaning as in Section
3550053 of the Health and Safety Code.

36(5) “Very low-income” has the same meaning as in Section
3750053 of the Health and Safety Code.

38(b) (1) The amount of the credit allocated to any housing
39sponsor shall be authorized by the California Tax Credit Allocation
40Committee, or any successor thereof, based on a project’s need
P28   1for the credit for economic feasibility in accordance with the
2requirements of this section.

3(A) The low-income housing project shall be located in
4California and shall meet either of the following requirements:

5(i) Except for projects to provide farmworker housing, as defined
6in subdivision (h) of Section 50199.7 of the Health and Safety
7Code, that are allocated credits solely under the set-aside described
8in subdivision (c) of Section 50199.20 of the Health and Safety
9Code, the project’s housing sponsor has been allocated by the
10California Tax Credit Allocation Committee a credit for federal
11income tax purposes under Section 42 of the Internal Revenue
12Code.

13(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
14Internal Revenue Code.

15(B) The California Tax Credit Allocation Committee shall not
16require fees for the credit under this section in addition to those
17fees required for applications for the tax credit pursuant to Section
1842 of the Internal Revenue Code. The committee may require a
19fee if the application for the credit under this section is submitted
20in a calendar year after the year the application is submitted for
21the federal tax credit.

22(C) (i) For a project that receives a preliminary reservation of
23the state low-income housing tax credit, allowed pursuant to
24subdivision (a), on or after January 1, 2009, and before January 1,
252016, the credit shall be allocated to the partners of a partnership
26owning the project in accordance with the partnership agreement,
27regardless of how the federal low-income housing tax credit with
28respect to the project is allocated to the partners, or whether the
29allocation of the credit under the terms of the agreement has
30substantial economic effect, within the meaning of Section 704(b)
31of the Internal Revenue Code.

32(ii) To the extent the allocation of the credit to a partner under
33this section lacks substantial economic effect, any loss or deduction
34otherwise allowable under this part that is attributable to the sale
35or other disposition of that partner’s partnership interest made prior
36to the expiration of the federal credit shall not be allowed in the
37taxable year in which the sale or other disposition occurs, but shall
38instead be deferred until and treated as if it occurred in the first
39taxable year immediately following the taxable year in which the
40federal credit period expires for the project described in clause (i).

P29   1(iii) This subparagraph shall not apply to a project that receives
2a preliminary reservation of state low-income housing tax credits
3under the set-aside described in subdivision (c) of Section 50199.20
4of the Health and Safety Code unless the project also receives a
5preliminary reservation of federal low-income housing tax credits.

6(iv) This subparagraph shall cease to be operative with respect
7to any project that receives a preliminary reservation of a credit
8on or after January 1, 2016.

9(2) (A) The California Tax Credit Allocation Committee shall
10certify to the housing sponsor the amount of tax credit under this
11section allocated to the housing sponsor for each credit period.

12(B) In the case of a partnership, limited liability company, or
13an “S” corporation, the housing sponsor shall provide a copy of
14the California Tax Credit Allocation Committee certification to
15the taxpayer.

16(C) The taxpayer shall, upon request, provide a copy of the
17certification to the Franchise Tax Board.

18(D) All elections made by the taxpayer pursuant to Section 42
19of the Internal Revenue Code shall apply to this section.

20(E) (i) The California Tax Credit Allocation Committee may
21allocate a credit under this section in exchange for a credit allocated
22pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in
23amounts up to 30 percent of the eligible basis of a building if the
24credits allowed under Section 42 of the Internal Revenue Code are
25reduced by an equivalent amount.

26(ii) An equivalent amount shall be determined by the California
27Tax Credit Allocation Committee based upon the relative amount
28required to produce an equivalent state tax credit to the taxpayer.

29(c) Section 42(b) of the Internal Revenue Code shall be modified
30as follows:

31(1) In the case of any qualified low-income building that is a
32new building, as defined in Section 42 of the Internal Revenue
33Code and the regulations promulgated thereunder, and not federally
34subsidized, the term “applicable percentage” means the following:

35(A) For each of the first three years, the percentage prescribed
36by the Secretary of the Treasury for new buildings that are not
37federally subsidized for the taxable year, determined in accordance
38with the requirements of Section 42(b)(1) of the Internal Revenue
39Code.

P30   1(B) For the fourth year, the difference between 30 percent and
2the sum of the applicable percentages for the first three years.

3(2) In the case of any qualified low-income building that (i) is
4a new building, as defined in Section 42 of the Internal Revenue
5Code and the regulations promulgated thereunder, (ii) not located
6in designated difficult development areas (DDAs) or qualified
7census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
8Internal Revenue Code, and (iii) is federally subsidized, the term
9“applicable percentage” means for the first three years, 15 percent
10of the qualified basis of the building, and for the fourth year, 5
11percent of the qualified basis of the building.

12(3) In the case of any qualified low-income building that is (i)
13an existing building, as defined in Section 42 of the Internal
14Revenue Code and the regulations promulgated thereunder, (ii)
15not located in designated difficult development areas (DDAs) or
16qualified census tracts (QCTs), as defined in Section 42(d)(5)(B)
17of the Internal Revenue Code, and (iii) is federally subsidized, the
18term applicable percentage means the following:

19(A) For each of the first three years, the percentage prescribed
20by the Secretary of the Treasury for new buildings that are federally
21subsidized for the taxable year.

22(B) For the fourth year, the difference between 13 percent and
23the sum of the applicable percentages for the first three years.

24(4) In the case of any qualified low-income building that is (i)
25a new or an existing building, (ii) located in designated difficult
26development areas (DDAs) or qualified census tracts (QCTs) as
27defined in Section 42(d)(5)(B) of the Internal Revenue Code, and
28(iii) federally subsidized, the California Tax Credit Allocation
29Committee shall reduce the amount of California credit to be
30allocated under subparagraph (2) and (3) by taking into account
31the increased federal credit received due to the basis boost provided
32under Section 42(d)(5)(B) of the Internal Revenue Code.

33(5) In the case of any qualified low-income building that meets
34all of the requirements of subparagraphs (A) through (D), inclusive,
35the term “applicable percentage” means 30 percent for each of the
36first three years and 5 percent for the fourth year. A qualified
37low-income building receiving an allocation under this paragraph
38is ineligible to also receive an allocation under paragraph (3).

39(A) The qualified low-income building is at least 15 years old.

P31   1(B) The qualified low-income building is serving households
2of very low-income or extremely low-income such that the average
3maximum household income as restricted, pursuant to an existing
4regulatory agreement with a federal, state, county, local, or other
5governmental agency, is not more than 45 percent of the area
6median gross income, as determined under Section 42 of the
7Internal Revenue Code, adjusted by household size, and a tax credit
8regulatory agreement is entered into for a period of not less than
955 years restricting the average targeted household income to no
10more than 45 percent of the area median income.

11(C) The qualified low-income building would have insufficient
12credits under paragraphs (2) and (3) to complete substantial
13rehabilitation due to a low appraised value.

14(D) The qualified low-income building will complete the
15substantial rehabilitation in connection with the credit allocation
16herein.

17(d) The term “qualified low-income housing project” as defined
18in Section 42(c)(2) of the Internal Revenue Code is modified by
19 adding the following requirements:

20(1) The taxpayer shall be entitled to receive a cash distribution
21from the operations of the project, after funding required reserves,
22that, at the election of the taxpayer, is equal to:

23(A) An amount not to exceed 8 percent of the lesser of:

24(i) The owner equity that shall include the amount of the capital
25contributions actually paid to the housing sponsor and shall not
26include any amounts until they are paid on an investor note.

27(ii) Twenty percent of the adjusted basis of the building as of
28the close of the first taxable year of the credit period.

29(B) The amount of the cashflow from those units in the building
30that are not low-income units. For purposes of computing cashflow
31under this subparagraph, operating costs shall be allocated to the
32low-income units using the “floor space fraction,” as defined in
33Section 42 of the Internal Revenue Code.

34(C) Any amount allowed to be distributed under subparagraph
35(A) that is not available for distribution during the first five years
36of the compliance period may be accumulated and distributed any
37time during the first 15 years of the compliance period but not
38 thereafter.

P32   1(2) The limitation on return shall apply in the aggregate to the
2partners if the housing sponsor is a partnership and in the aggregate
3to the shareholders if the housing sponsor is an “S” corporation.

4(3) The housing sponsor shall apply any cash available for
5distribution in excess of the amount eligible to be distributed under
6paragraph (1) to reduce the rent on rent-restricted units or to
7increase the number of rent-restricted units subject to the tests of
8Section 42(g)(1) of the Internal Revenue Code.

9(e) The provisions of Section 42(f) of the Internal Revenue Code
10shall be modified as follows:

11(1) The term “credit period” as defined in Section 42(f)(1) of
12the Internal Revenue Code is modified by substituting “four taxable
13years” for “10 taxable years.”

14(2) The special rule for the first taxable year of the credit period
15under Section 42(f)(2) of the Internal Revenue Code shall not apply
16to the tax credit under this section.

17(3) Section 42(f)(3) of the Internal Revenue Code is modified
18to read:

19If, as of the close of any taxable year in the compliance period,
20 after the first year of the credit period, the qualified basis of any
21building exceeds the qualified basis of that building as of the close
22of the first year of the credit period, the housing sponsor, to the
23extent of its tax credit allocation, shall be eligible for a credit on
24the excess in an amount equal to the applicable percentage
25determined pursuant to subdivision (c) for the four-year period
26beginning with the taxable year in which the increase in qualified
27basis occurs.

28(f) The provisions of Section 42(h) of the Internal Revenue
29Code shall be modified as follows:

30(1) Section 42(h)(2) of the Internal Revenue Code shall not be
31applicable and instead the following provisions shall be applicable:

32The total amount for the four-year credit period of the housing
33credit dollars allocated in a calendar year to any building shall
34reduce the aggregate housing credit dollar amount of the California
35Tax Credit Allocation Committee for the calendar year in which
36the allocation is made.

37(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
38(7), and (8) of Section 42(h) of the Internal Revenue Code shall
39not be applicable.

P33   1(g) The aggregate housing credit dollar amount that may be
2allocated annually by the California Tax Credit Allocation
3Committee pursuant to this section, Section 12206, and Section
423610.5 shall be an amount equal to the sum of all the following:

5(1) (A) Seventy million dollars ($70,000,000) for the 2001
6calendar year, and, for the 2002 calendar year and each calendar
7year thereafter, seventy million dollars ($70,000,000) increased
8by the percentage, if any, by which the Consumer Price Index for
9the preceding calendar year exceeds the Consumer Price Index for
10the 2001 calendar year. For the purposes of this paragraph, the
11term “Consumer Price Index” means the last Consumer Price Index
12for All Urban Consumers published by the federal Department of
13Labor.

14(B) begin deleteAn end deletebegin insertFor calendar years 2016 through 2021, inclusive, an end insert
15additionalbegin delete threeend deletebegin insert oneend insert hundred million dollarsbegin delete ($300,000,000)end delete
16begin insert ($100,000,000)end insert for the 2016 calendar year, and, for thebegin delete 2017
17calendar year and each calendar year thereafter, three hundred
18million dollars ($300,000,000)end delete
begin insert 2017 through 2021 calendar years,
19one hundred million dollars ($100,000,000)end insert
increased by the
20percentage, if any, by which the Consumer Price Index for the
21preceding calendar year exceeds the Consumer Price Index for the
222016 calendar year. For the purposes of this paragraph, the term
23“Consumer Price Index” means the last Consumer Price Index for
24All Urban Consumers published by the federal Department of
25Labor. A housing sponsor receiving an allocation under paragraph
26(1) of subdivision (c) shall not be eligible for receipt of the housing
27credit allocated from the increased amount under this subparagraph.
28A housing sponsor receiving an allocation under paragraph (1) of
29subdivision (c) shall remain eligible for receipt of the housing
30credit allocated from the credit ceiling amount under subparagraph
31(A).

32(2) The unused housing credit ceiling, if any, for the preceding
33calendar years.

34(3) The amount of housing credit ceiling returned in the calendar
35year. For purposes of this paragraph, the amount of housing credit
36dollar amount returned in the calendar year equals the housing
37credit dollar amount previously allocated to any project that does
38not become a qualified low-income housing project within the
39period required by this section or to any project with respect to
P34   1which an allocation is canceled by mutual consent of the California
2Tax Credit Allocation Committee and the allocation recipient.

3(4) Five hundred thousand dollars ($500,000) per calendar year
4for projects to provide farmworker housing, as defined in
5subdivision (h) of Section 50199.7 of the Health and Safety Code.

6(5) The amount of any unallocated or returned credits under
7former Sections 17053.14, 23608.2, and 23608.3, as those sections
8read prior to January 1, 2009, until fully exhausted for projects to
9provide farmworker housing, as defined in subdivision (h) of
10Section 50199.7 of the Health and Safety Code.

11(h) The term “compliance period” as defined in Section 42(i)(1)
12of the Internal Revenue Code is modified to mean, with respect to
13any building, the period of 30 consecutive taxable years beginning
14with the first taxable year of the credit period with respect thereto.

15(i) Section 42(j) of the Internal Revenue Code shall not be
16applicable and the following requirements of this section shall be
17set forth in a regulatory agreement between the California Tax
18Credit Allocation Committee and the housing sponsor, and the
19regulatory agreement shall be subordinated, when required, to any
20lien or encumbrance of any banks or other institutional lenders to
21the project. The regulatory agreement entered into pursuant to
22subdivision (f) of Section 50199.14 of the Health and Safety Code
23shall apply, provided that the agreement includes all of the
24following provisions:

25(1) A term not less than the compliance period.

26(2) A requirement that the agreement be recorded in the official
27records of the county in which the qualified low-income housing
28project is located.

29(3) A provision stating which state and local agencies can
30enforce the regulatory agreement in the event the housing sponsor
31fails to satisfy any of the requirements of this section.

32(4) A provision that the regulatory agreement shall be deemed
33a contract enforceable by tenants as third-party beneficiaries thereto
34and that allows individuals, whether prospective, present, or former
35occupants of the building, who meet the income limitation
36applicable to the building, the right to enforce the regulatory
37agreement in any state court.

38(5) A provision incorporating the requirements of Section 42
39of the Internal Revenue Code as modified by this section.

P35   1(6) A requirement that the housing sponsor notify the California
2Tax Credit Allocation Committee or its designee if there is a
3determination by the Internal Revenue Service that the project is
4not in compliance with Section 42(g) of the Internal Revenue Code.

5(7) A requirement that the housing sponsor, as security for the
6performance of the housing sponsor’s obligations under the
7regulatory agreement, assign the housing sponsor’s interest in rents
8that it receives from the project, provided that until there is a
9default under the regulatory agreement, the housing sponsor is
10entitled to collect and retain the rents.

11(8) The remedies available in the event of a default under the
12regulatory agreement that is not cured within a reasonable cure
13period, include, but are not limited to, allowing any of the parties
14designated to enforce the regulatory agreement to collect all rents
15 with respect to the project; taking possession of the project and
16operating the project in accordance with the regulatory agreement
17until the enforcer determines the housing sponsor is in a position
18to operate the project in accordance with the regulatory agreement;
19 applying to any court for specific performance; securing the
20appointment of a receiver to operate the project; or any other relief
21as may be appropriate.

22(j) (1) The committee shall allocate the housing credit on a
23regular basis consisting of two or more periods in each calendar
24year during which applications may be filed and considered. The
25committee shall establish application filing deadlines, the maximum
26percentage of federal and state low-income housing tax credit
27ceiling that may be allocated by the committee in that period, and
28the approximate date on which allocations shall be made. If the
29enactment of federal or state law, the adoption of rules or
30regulations, or other similar events prevent the use of two allocation
31periods, the committee may reduce the number of periods and
32adjust the filing deadlines, maximum percentage of credit allocated,
33and allocation dates.

34(2) The committee shall adopt a qualified allocation plan, as
35provided in Section 42(m)(1) of the Internal Revenue Code. In
36adopting this plan, the committee shall comply with the provisions
37of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
38Code, respectively.

39(3) Notwithstanding Section 42(m) of the Internal Revenue
40Code the California Tax Credit Allocation Committee shall allocate
P36   1housing credits in accordance with the qualified allocation plan
2and regulations, which shall include the following provisions:

3(A) All housing sponsors, as defined by paragraph (3) of
4subdivision (a), shall demonstrate at the time the application is
5filed with the committee that the project meets the following
6threshold requirements:

7(i) The housing sponsor shall demonstrate there is a need and
8demand for low-income housing in the community or region for
9which it is proposed.

10(ii) The project’s proposed financing, including tax credit
11proceeds, shall be sufficient to complete the project and that the
12proposed operating income shall be adequate to operate the project
13for the extended use period.

14(iii) The project shall have enforceable financing commitments,
15either construction or permanent financing, for at least 50 percent
16of the total estimated financing of the project.

17(iv) The housing sponsor shall have and maintain control of the
18site for the project.

19(v) The housing sponsor shall demonstrate that the project
20complies with all applicable local land use and zoning ordinances.

21(vi) The housing sponsor shall demonstrate that the project
22development team has the experience and the financial capacity
23to ensure project completion and operation for the extended use
24period.

25(vii) The housing sponsor shall demonstrate the amount of tax
26credit that is necessary for the financial feasibility of the project
27and its viability as a qualified low-income housing project
28throughout the extended use period, taking into account operating
29expenses, a supportable debt service, reserves, funds set aside for
30rental subsidies and required equity, and a development fee that
31does not exceed a specified percentage of the eligible basis of the
32project prior to inclusion of the development fee in the eligible
33basis, as determined by the committee.

34(B) The committee shall give a preference to those projects
35satisfying all of the threshold requirements of subparagraph (A)
36if both of the following apply:

37(i) The project serves the lowest income tenants at rents
38affordable to those tenants.

39(ii) The project is obligated to serve qualified tenants for the
40longest period.

P37   1(C) In addition to the provisions of subparagraphs (A) and (B),
2the committee shall use the following criteria in allocating housing
3credits:

4(i) Projects serving large families in which a substantial number,
5as defined by the committee, of all residential units are low-income
6units with three or more bedrooms.

7(ii) Projects providing single-room occupancy units serving
8very low income tenants.

9(iii) (I) Existing projects that are “at risk of conversion.”

10(II) For purposes of this section, the term “at risk of conversion,”
11with respect to an existing property means a property that satisfies
12all of the following criteria:

13(ia) The property is a multifamily rental housing development
14in which at least 50 percent of the units receive governmental
15assistance pursuant to any of the following:

16(Ia) New construction, substantial rehabilitation, moderate
17rehabilitation, property disposition, and loan management set-aside
18programs, or any other program providing project-based assistance
19pursuant to Section 8 of the United States Housing Act of 1937,
20Section 1437f of Title 42 of the United States Code, as amended.

21(Ib) The Below-Market-Interest-Rate Program pursuant to
22Section 221(d)(3) of the National Housing Act, Sections
231715l(d)(3) and (5) of Title 12 of the United States Code.

24(Ic) Section 236 of the National Housing Act, Section 1715z-1
25of Title 12 of the United States Code.

26(Id) Programs for rent supplement assistance pursuant to Section
2718 101 of the Housing and Urban Development Act of 1965,
28Section 1701s of Title 12 of the United States Code, as amended.

29(Ie) Programs pursuant to Section 515 of the Housing Act of
301949, Section 1485 of Title 42 of the United States Code, as
31amended.

32(If) The low-income housing credit program set forth in Section
3342 of the Internal Revenue Code.

34(ib) The restrictions on rent and income levels will terminate
35or the federal insured mortgage on the property is eligible for
36prepayment any time within five years before or after the date of
37application to the California Tax Credit Allocation Committee.

38(ic) The entity acquiring the property enters into a regulatory
39agreement that requires the property to be operated in accordance
P38   1with the requirements of this section for a period equal to the
2greater of 55 years or the life of the property.

3(id) The property satisfies the requirements of Section 42(e) of
4the Internal Revenue Code, regarding rehabilitation expenditures
5except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
6apply.

7(iv) Projects for which a public agency provides direct or indirect
8long-term financial support for at least 15 percent of the total
9project development costs or projects for which the owner’s equity
10constitutes at least 30 percent of the total project development
11costs.

12(v) Projects that provide tenant amenities not generally available
13to residents of low-income housing projects.

14(4) For purposes of allocating credits pursuant to this section,
15the committee shall not give preference to any project by virtue
16of the date of submission of its application.

17(k) Section 42(l) of the Internal Revenue Code shall be modified
18as follows:

19The term “secretary” shall be replaced by the term “California
20Franchise Tax Board.”

21(l) In the case where the credit allowed under this section
22exceeds the net tax, the excess may be carried over to reduce the
23net tax in the following year, and succeeding taxable years, if
24necessary, until the credit has been exhausted.

25(m) A project that received an allocation of a 1989 federal
26housing credit dollar amount shall be eligible to receive an
27allocation of a 1990 state housing credit dollar amount, subject to
28all of the following conditions:

29(1) The project was not placed in service prior to 1990.

30(2) To the extent the amendments made to this section by the
31 Statutes of 1990 conflict with any provisions existing in this section
32prior to those amendments, the prior provisions of law shall prevail.

33(3) Notwithstanding paragraph (2), a project applying for an
34allocation under this subdivision shall be subject to the
35requirements of paragraph (3) of subdivision (j).

36(n) The credit period with respect to an allocation of credit in
371989 by the California Tax Credit Allocation Committee of which
38any amount is attributable to unallocated credit from 1987 or 1988
39shall not begin until after December 31, 1989.

P39   1(o) The provisions of Section 11407(a) of Public Law 101-508,
2relating to the effective date of the extension of the low-income
3housing credit, shall apply to calendar years after 1989.

4(p) The provisions of Section 11407(c) of Public Law 101-508,
5relating to election to accelerate credit, shall not apply.

6(q) Any unused credit may continue to be carried forward, as
7provided in subdivision (l), until the credit has been exhausted.

8(r) This section shall remain in effect on and after December 1,
91990, for as long as Section 42 of the Internal Revenue Code,
10relating to low-income housing credit, remains in effect.

11(s) The amendments to this section made by Chapter 1222 of
12the Statutes of 1993 shall apply only to taxable years beginning
13on or after January 1, 1994.

14

SEC. 2.5.  

Section 17058 of the Revenue and Taxation Code
15 is amended to read:

16

17058.  

(a) (1) There shall be allowed as a credit against the
17“net tax,” as defined by Section 17039, a state low-income housing
18tax credit in an amount equal to the amount determined in
19subdivision (c), computed in accordance with Section 42 of the
20Internal Revenue Code, relating to low-income housing credit,
21except as otherwise provided in this section.

22(2) “Taxpayer,” for purposes of this section, means the sole
23owner in the case of an individual, the partners in the case of a
24partnership, members in the case of a limited liability company,
25and the shareholders in the case of an “S” corporation.

26(3) “Housing sponsor, for purposes of this section, means the
27sole owner in the case of an individual, the partnership in the case
28of a partnership, the limited liability company in the case of a
29limited liability company, and the “S” corporation in the case of
30an “S” corporation.

31(4) “Extremely low-income” has the same meaning as in Section
3250053 of the Health and Safety Code.

33(5)  “Very low-income” has the same meaning as in Section
3450053 of the Health and Safety Code.

35(b) (1) The amount of the credit allocated to any housing
36sponsor shall be authorized by the California Tax Credit Allocation
37Committee, or any successor thereof, based on a project’s need
38for the credit for economic feasibility in accordance with the
39requirements of this section.

P40   1(A) The low-income housing project shall be located in
2California and shall meet either of the following requirements:

3(i) Except for projects to provide farmworker housing, as defined
4in subdivision (h) of Section 50199.7 of the Health and Safety
5Code, that are allocated credits solely under the set-aside described
6in subdivision (c) of Section 50199.20 of the Health and Safety
7Code, the project’s housing sponsor has been allocated by the
8California Tax Credit Allocation Committee a credit for federal
9income tax purposes under Section 42 of the Internal Revenue
10Code, relating to low-income housing credit.

11(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
12Internal Revenue Code, relating to special rule where 50 percent
13or more of building is financed with tax-exempt bonds subject to
14volume cap.

15(B) The California Tax Credit Allocation Committee shall not
16require fees for the credit under this section in addition to those
17fees required for applications for the tax credit pursuant to Section
1842 of the Internal Revenue Code, relating to low-income housing
19credit. The committee may require a fee if the application for the
20credit under this section is submitted in a calendar year after the
21year the application is submitted for the federal tax credit.

22(C) (i) For a project that receives a preliminary reservation of
23the state low-income housing tax credit, allowed pursuant to
24subdivision (a), on or after January 1, 2009, the credit shall be
25allocated to the partners of a partnership owning the project in
26accordance with the partnership agreement, regardless of how the
27federal low-income housing tax credit with respect to the project
28is allocated to the partners, or whether the allocation of the credit
29under the terms of the agreement has substantial economic effect,
30within the meaning of Section 704(b) of the Internal Revenue
31Code, relating to determination of distributive share.

32(ii) To the extent the allocation of the credit to a partner under
33this section lacks substantial economic effect, any loss or deduction
34otherwise allowable under this part that is attributable to the sale
35or other disposition of that partner’s partnership interest made prior
36to the expiration of the federal credit shall not be allowed in the
37taxable year in which the sale or other disposition occurs, but shall
38instead be deferred until and treated as if it occurred in the first
39taxable year immediately following the taxable year in which the
40federal credit period expires for the project described in clause (i).

P41   1(iii) This subparagraph shall not apply to a project that receives
2a preliminary reservation of state low-income housing tax credits
3under the set-aside described in subdivision (c) of Section 50199.20
4of the Health and Safety Code unless the project also receives a
5preliminary reservation of federal low-income housing tax credits.

6(2) (A) The California Tax Credit Allocation Committee shall
7certify to the housing sponsor the amount of tax credit under this
8section allocated to the housing sponsor for each credit period.

9(B) In the case of a partnership, limited liability company, or
10an “S” corporation, the housing sponsor shall provide a copy of
11the California Tax Credit Allocation Committee certification to
12the taxpayer.

13(C) The taxpayer shall, upon request, provide a copy of the
14certification to the Franchise Tax Board.

15(D) All elections made by the taxpayer pursuant to Section 42
16of the Internal Revenue Code, relating to low-income housing
17credit, shall apply to this section.

18(E) (i) The California Tax Credit Allocation Committee may
19allocate a credit under this section in exchange for a credit allocated
20pursuant to Section 42(d)(5)(B) of the Internal Revenue Code,
21relating to increase in credit for buildings in high-cost areas, in
22amounts up to 30 percent of the eligible basis of a building if the
23credits allowed under Section 42 of the Internal Revenue Code,
24relating to low-income housing credit, are reduced by an equivalent
25amount.

26(ii) An equivalent amount shall be determined by the California
27Tax Credit Allocation Committee based upon the relative amount
28required to produce an equivalent state tax credit to the taxpayer.

29(c) Section 42(b) of the Internal Revenue Code, relating to
30applicable percentage, shall be modified as follows:

31(1) In the case of any qualified low-income building that is a
32new building, as defined in Section 42 of the Internal Revenue
33Code and the regulations promulgated thereunder, and not federally
34subsidized, the term “applicable percentage” means the following:

35(A) For each of the first three years, the percentage prescribed
36by the Secretary of the Treasury for new buildings that are not
37federally subsidized for the taxable year, determined in accordance
38with the requirements of Section 42(b)(1) of the Internal Revenue
39 Code.

P42   1(B) For the fourth year, the difference between 30 percent and
2the sum of the applicable percentages for the first three years.

3(2) In the case of any qualified low-income building that (i) is
4a new building, as defined in Section 42 of the Internal Revenue
5Code and the regulations promulgated thereunder, (ii) not located
6in designated difficult development areas (DDAs) or qualified
7census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
8Internal Revenue Code, and (iii) is federally subsidized, the term
9“applicable percentage” means for the first three years, 15 percent
10of the qualified basis of the building, and for the fourth year, 5
11percent of the qualified basis of the building.

12(3) In the case of any qualified low-income building that is (i)
13an existing building, as defined in Section 42 of the Internal
14Revenue Code and the regulations promulgated thereunder, (ii)
15not located in designated difficult development areas (DDAs) or
16qualified census tracts (QCTs), as defined in Section 42(d)(5)(B)
17of the Internal Revenue Code, and (iii) is federally subsidized, the
18term applicable percentage means the following:

19(A) For each of the first three years, the percentage prescribed
20by the Secretary of the Treasury for new buildings that are federally
21subsidized for the taxable year.

22(B) For the fourth year, the difference between 13 percent and
23the sum of the applicable percentages for the first three years.

24(4) In the case of any qualified low-income building that is (i)
25a new or an existing building, (ii) located in designated difficult
26development areas (DDAs) or qualified census tracts (QCTs) as
27defined in Section 42(d)(5)(B) of the Internal Revenue Code, and
28(iii) federally subsidized, the California Tax Credit Allocation
29Committee shall reduce the amount of California credit to be
30allocated under paragraphs (2) and (3) by taking into account the
31increased federal credit received due to the basis boost provided
32under Section 42(d)(5)(B) of the Internal Revenue Code.

33(5) In the case of any qualified low-income building that meets
34all of the requirements of subparagraphs (A) through (D), inclusive,
35the term “applicable percentage” means 30 percent for each of the
36first three years and 5 percent for the fourth year. A qualified
37low-income building receiving an allocation under this paragraph
38is ineligible to also receive an allocation under paragraph (3).

39(A) The qualified low-income building is at least 15 years old.

P43   1(B) The qualified low-income building is serving households
2of very low-income or extremely low-income such that the average
3maximum household income as restricted, pursuant to an existing
4regulatory agreement with a federal, state, county, local, or other
5governmental agency, is not more than 45 percent of the area
6median gross income, as determined under Section 42 of the
7Internal Revenue Code, adjusted by household size, and a tax credit
8regulatory agreement is entered into for a period of not less than
955 years restricting the average targeted household income to no
10more than 45 percent of the area median income.

11(C) The qualified low-income building would have insufficient
12credits under paragraphs (2) and (3) to complete substantial
13rehabilitation due to a low appraised value.

14(D) The qualified low-income building will complete the
15substantial rehabilitation in connection with the credit allocation
16herein.

17(d) The term “qualified low-income housing project” as defined
18in Section 42(c)(2) of the Internal Revenue Code, relating to
19qualified low-income building, is modified by adding the following
20 requirements:

21(1) The taxpayer shall be entitled to receive a cash distribution
22from the operations of the project, after funding required reserves,
23that, at the election of the taxpayer, is equal to:

24(A) An amount not to exceed 8 percent of the lesser of:

25(i) The owner equity, which shall include the amount of the
26capital contributions actually paid to the housing sponsor and shall
27not include any amounts until they are paid on an investor note.

28(ii) Twenty percent of the adjusted basis of the building as of
29the close of the first taxable year of the credit period.

30(B) The amount of the cashflow from those units in the building
31that are not low-income units. For purposes of computing cashflow
32under this subparagraph, operating costs shall be allocated to the
33low-income units using the “floor space fraction,” as defined in
34Section 42 of the Internal Revenue Code, relating to low-income
35housing credit.

36(C) Any amount allowed to be distributed under subparagraph
37(A) that is not available for distribution during the first five years
38of the compliance period may be accumulated and distributed any
39time during the first 15 years of the compliance period but not
40thereafter.

P44   1(2) The limitation on return shall apply in the aggregate to the
2partners if the housing sponsor is a partnership and in the aggregate
3to the shareholders if the housing sponsor is an “S” corporation.

4(3) The housing sponsor shall apply any cash available for
5distribution in excess of the amount eligible to be distributed under
6paragraph (1) to reduce the rent on rent-restricted units or to
7increase the number of rent-restricted units subject to the tests of
8 Section 42(g)(1) of the Internal Revenue Code, relating to in
9general.

10(e) The provisions of Section 42(f) of the Internal Revenue
11Code, relating to definition and special rules relating to credit
12period, shall be modified as follows:

13(1) The term “credit period” as defined in Section 42(f)(1) of
14the Internal Revenue Code, relating to credit period defined, is
15modified by substituting “four taxable years” for “10 taxable
16years.”

17(2) The special rule for the first taxable year of the credit period
18under Section 42(f)(2) of the Internal Revenue Code, relating to
19special rule for first year of credit period, shall not apply to the tax
20credit under this section.

21(3) Section 42(f)(3) of the Internal Revenue Code, relating to
22determination of applicable percentage with respect to increases
23in qualified basis after first year of credit period, is modified to
24read:

25If, as of the close of any taxable year in the compliance period,
26after the first year of the credit period, the qualified basis of any
27building exceeds the qualified basis of that building as of the close
28of the first year of the credit period, the housing sponsor, to the
29extent of its tax credit allocation, shall be eligible for a credit on
30the excess in an amount equal to the applicable percentage
31determined pursuant to subdivision (c) for the four-year period
32beginning with the taxable year in which the increase in qualified
33basis occurs.

34(f) The provisions of Section 42(h) of the Internal Revenue
35Code, relating to limitation on aggregate credit allowable with
36respect to projects located in a state, shall be modified as follows:

37(1) Section 42(h)(2) of the Internal Revenue Code, relating to
38allocated credit amount to apply to all taxable years ending during
39or after credit allocation year, shall not be applicable and instead
40the following provisions shall be applicable:

P45   1The total amount for the four-year credit period of the housing
2credit dollars allocated in a calendar year to any building shall
3reduce the aggregate housing credit dollar amount of the California
4Tax Credit Allocation Committee for the calendar year in which
5the allocation is made.

6(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
7(7), and (8) of Section 42(h) of the Internal Revenue Code, relating
8to limitation on aggregate credit allowable with respect to projects
9located in a state, shall not be applicable.

10(g) The aggregate housing credit dollar amount that may be
11allocated annually by the California Tax Credit Allocation
12Committee pursuant to this section, Section 12206, and Section
1323610.5 shall be an amount equal to the sum of all the following:

14(1) (A) Seventy million dollars ($70,000,000) for the 2001
15calendar year, and, for the 2002 calendar year and each calendar
16year thereafter, seventy million dollars ($70,000,000) increased
17by the percentage, if any, by which the Consumer Price Index for
18the preceding calendar year exceeds the Consumer Price Index for
19the 2001 calendar year. For the purposes of this paragraph, the
20term “Consumer Price Index” means the last Consumer Price Index
21for All Urban Consumers published by the federal Department of
22Labor.

23(B) begin deleteAn end deletebegin insertFor calendar years 2016 through 2021, inclusive, an end insert
24additionalbegin delete threeend deletebegin insert oneend insert hundred million dollarsbegin delete ($300,000,000)end delete
25begin insert ($100,000,000)end insert for the 2016 calendar year, and, for thebegin delete 2017
26calendar year and each calendar year thereafter, three hundred
27million dollars ($300,000,000)end delete
begin insert 2017 through 2021 calendar years,
28one hundred million dollars ($100,000,000)end insert
increased by the
29percentage, if any, by which the Consumer Price Index for the
30preceding calendar year exceeds the Consumer Price Index for the
312016 calendar year. For the purposes of this paragraph, the term
32“Consumer Price Index” means the last Consumer Price Index for
33All Urban Consumers published by the federal Department of
34Labor. A housing sponsor receiving an allocation under paragraph
35(1) of subdivision (c) shall not be eligible for receipt of the housing
36credit allocated from the increased amount under this subparagraph.
37A housing sponsor receiving an allocation under paragraph (1) of
38subdivision (c) shall remain eligible for receipt of the housing
39credit allocated from the credit ceiling amount under subparagraph
40(A).

P46   1(2) The unused housing credit ceiling, if any, for the preceding
2calendar years.

3(3) The amount of housing credit ceiling returned in the calendar
4year. For purposes of this paragraph, the amount of housing credit
5dollar amount returned in the calendar year equals the housing
6credit dollar amount previously allocated to any project that does
7not become a qualified low-income housing project within the
8period required by this section or to any project with respect to
9which an allocation is canceled by mutual consent of the California
10Tax Credit Allocation Committee and the allocation recipient.

11(4) Five hundred thousand dollars ($500,000) per calendar year
12for projects to provide farmworker housing, as defined in
13subdivision (h) of Section 50199.7 of the Health and Safety Code.

14(5) The amount of any unallocated or returned credits under
15former Sections 17053.14, 23608.2, and 23608.3, as those sections
16read prior to January 1, 2009, until fully exhausted for projects to
17provide farmworker housing, as defined in subdivision (h) of
18Section 50199.7 of the Health and Safety Code.

19(h) The term “compliance period” as defined in Section 42(i)(1)
20of the Internal Revenue Code, relating to compliance period, is
21modified to mean, with respect to any building, the period of 30
22consecutive taxable years beginning with the first taxable year of
23the credit period with respect thereto.

24(i) Section 42(j) of the Internal Revenue Code, relating to
25recapture of credit, shall not be applicable and the following
26requirements of this section shall be set forth in a regulatory
27agreement between the California Tax Credit Allocation Committee
28and the housing sponsor, and the regulatory agreement shall be
29subordinated, when required, to any lien or encumbrance of any
30banks or other institutional lenders to the project. The regulatory
31agreement entered into pursuant to subdivision (f) of Section
3250199.14 of the Health and Safety Code shall apply, provided that
33the agreement includes all of the following provisions:

34(1) A term not less than the compliance period.

35(2) A requirement that the agreement be recorded in the official
36records of the county in which the qualified low-income housing
37project is located.

38(3) A provision stating which state and local agencies can
39enforce the regulatory agreement in the event the housing sponsor
40fails to satisfy any of the requirements of this section.

P47   1(4) A provision that the regulatory agreement shall be deemed
2a contract enforceable by tenants as third-party beneficiaries thereto
3and that allows individuals, whether prospective, present, or former
4occupants of the building, who meet the income limitation
5applicable to the building, the right to enforce the regulatory
6agreement in any state court.

7(5) A provision incorporating the requirements of Section 42
8of the Internal Revenue Code, relating to low-income housing
9credit, as modified by this section.

10(6) A requirement that the housing sponsor notify the California
11Tax Credit Allocation Committee or its designee if there is a
12determination by the Internal Revenue Service that the project is
13not in compliance with Section 42(g) of the Internal Revenue Code,
14relating to qualified low-income housing project.

15(7) A requirement that the housing sponsor, as security for the
16performance of the housing sponsor’s obligations under the
17regulatory agreement, assign the housing sponsor’s interest in rents
18that it receives from the project, provided that until there is a
19default under the regulatory agreement, the housing sponsor is
20entitled to collect and retain the rents.

21(8) A provision that the remedies available in the event of a
22default under the regulatory agreement that is not cured within a
23reasonable cure period include, but are not limited to, allowing
24any of the parties designated to enforce the regulatory agreement
25to collect all rents with respect to the project; taking possession of
26the project and operating the project in accordance with the
27regulatory agreement until the enforcer determines the housing
28sponsor is in a position to operate the project in accordance with
29the regulatory agreement; applying to any court for specific
30performance; securing the appointment of a receiver to operate
31the project; or any other relief as may be appropriate.

32(j) (1) The committee shall allocate the housing credit on a
33regular basis consisting of two or more periods in each calendar
34year during which applications may be filed and considered. The
35committee shall establish application filing deadlines, the maximum
36percentage of federal and state low-income housing tax credit
37ceiling that may be allocated by the committee in that period, and
38the approximate date on which allocations shall be made. If the
39enactment of federal or state law, the adoption of rules or
40regulations, or other similar events prevent the use of two allocation
P48   1periods, the committee may reduce the number of periods and
2adjust the filing deadlines, maximum percentage of credit allocated,
3and allocation dates.

4(2) The committee shall adopt a qualified allocation plan, as
5provided in Section 42(m)(1) of the Internal Revenue Code, relating
6to plans for allocation of credit among projects. In adopting this
7plan, the committee shall comply with the provisions of Sections
842(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code,
9relating to qualified allocation plan and relating to certain selection
10criteria must be used, respectively.

11(3) Notwithstanding Section 42(m) of the Internal Revenue
12Code, relating to responsibilities of housing credit agencies, the
13California Tax Credit Allocation Committee shall allocate housing
14credits in accordance with the qualified allocation plan and
15regulations, which shall include the following provisions:

16(A) All housing sponsors, as defined by paragraph (3) of
17subdivision (a), shall demonstrate at the time the application is
18filed with the committee that the project meets the following
19threshold requirements:

20(i) The housing sponsor shall demonstrate that there is a need
21and demand for low-income housing in the community or region
22for which it is proposed.

23(ii) The project’s proposed financing, including tax credit
24proceeds, shall be sufficient to complete the project and that the
25proposed operating income shall be adequate to operate the project
26for the extended use period.

27(iii) The project shall have enforceable financing commitments,
28either construction or permanent financing, for at least 50 percent
29of the total estimated financing of the project.

30(iv) The housing sponsor shall have and maintain control of the
31site for the project.

32(v) The housing sponsor shall demonstrate that the project
33complies with all applicable local land use and zoning ordinances.

34(vi) The housing sponsor shall demonstrate that the project
35development team has the experience and the financial capacity
36to ensure project completion and operation for the extended use
37period.

38(vii) The housing sponsor shall demonstrate the amount of tax
39credit that is necessary for the financial feasibility of the project
40and its viability as a qualified low-income housing project
P49   1throughout the extended use period, taking into account operating
2expenses, a supportable debt service, reserves, funds set aside for
3rental subsidies and required equity, and a development fee that
4does not exceed a specified percentage of the eligible basis of the
5project prior to inclusion of the development fee in the eligible
6basis, as determined by the committee.

7(B) The committee shall give a preference to those projects
8satisfying all of the threshold requirements of subparagraph (A)
9if both of the following apply:

10(i) The project serves the lowest income tenants at rents
11affordable to those tenants.

12(ii) The project is obligated to serve qualified tenants for the
13longest period.

14(C) In addition to the provisions of subparagraphs (A) and (B),
15the committee shall use the following criteria in allocating housing
16credits:

17(i) Projects serving large families in which a substantial number,
18as defined by the committee, of all residential units are low-income
19units with three or more bedrooms.

20(ii) Projects providing single-room occupancy units serving
21very low income tenants.

22(iii) (I) Existing projects that are “at risk of conversion.”

23(II) For purposes of this section, the term “at risk of conversion,”
24with respect to an existing property means a property that satisfies
25all of the following criteria:

26(ia) The property is a multifamily rental housing development
27in which at least 50 percent of the units receive governmental
28assistance pursuant to any of the following:

29(Ia) New construction, substantial rehabilitation, moderate
30rehabilitation, property disposition, and loan management set-aside
31programs, or any other program providing project-based assistance
32pursuant to Section 8 of the United States Housing Act of 1937,
33Section 1437f of Title 42 of the United States Code, as amended.

34(Ib) The Below-Market-Interest-Rate Program pursuant to
35Section 221(d)(3) of the National Housing Act, Sections
361715l(d)(3) and (5) of Title 12 of the United States Code.

37(Ic) Section 236 of the National Housing Act, Section 1715z-1
38of Title 12 of the United States Code.

P50   1(Id) Programs for rent supplement assistance pursuant to Section
218 101 of the Housing and Urban Development Act of 1965,
3Section 1701s of Title 12 of the United States Code, as amended.

4(Ie) Programs pursuant to Section 515 of the Housing Act of
51949, Section 1485 of Title 42 of the United States Code, as
6amended.

7(If) The low-income housing credit program set forth in Section
842 of the Internal Revenue Code.

9(ib) The restrictions on rent and income levels will terminate
10or the federal insured mortgage on the property is eligible for
11prepayment any time within five years before or after the date of
12application to the California Tax Credit Allocation Committee.

13(ic) The entity acquiring the property enters into a regulatory
14agreement that requires the property to be operated in accordance
15with the requirements of this section for a period equal to the
16greater of 55 years or the life of the property.

17(id) The property satisfies the requirements of Section 42(e) of
18the Internal Revenue Code, regarding rehabilitation expenditures
19except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
20apply.

21(iv) Projects for which a public agency provides direct or indirect
22long-term financial support for at least 15 percent of the total
23project development costs or projects for which the owner’s equity
24constitutes at least 30 percent of the total project development
25costs.

26(v) Projects that provide tenant amenities not generally available
27to residents of low-income housing projects.

28(4) For purposes of allocating credits pursuant to this section,
29the committee shall not give preference to any project by virtue
30of the date of submission of its application.

31(k) Section 42(l) of the Internal Revenue Code, relating to
32certifications and other reports to secretary, shall be modified as
33follows:

34The term “secretary” shall be replaced by the term “Franchise
35Tax Board.”

36(l) In the case where the credit allowed under this section
37exceeds the net tax, the excess may be carried over to reduce the
38net tax in the following year, and succeeding years, if necessary,
39until the credit has been exhausted.

P51   1(m) A project that received an allocation of a 1989 federal
2housing credit dollar amount shall be eligible to receive an
3allocation of a 1990 state housing credit dollar amount, subject to
4all of the following conditions:

5(1) The project was not placed in service prior to 1990.

6(2) To the extent the amendments made to this section by the
7Statutes of 1990 conflict with any provisions existing in this section
8prior to those amendments, the prior provisions of law shall prevail.

9(3) Notwithstanding paragraph (2), a project applying for an
10allocation under this subdivision shall be subject to the
11requirements of paragraph (3) of subdivision (j).

12(n) The credit period with respect to an allocation of credit in
131989 by the California Tax Credit Allocation Committee of which
14any amount is attributable to unallocated credit from 1987 or 1988
15shall not begin until after December 31, 1989.

16(o) The provisions of Section 11407(a) of Public Law 101-508,
17relating to the effective date of the extension of the low-income
18housing credit, shall apply to calendar years after 1989.

19(p) The provisions of Section 11407(c) of Public Law 101-508,
20relating to election to accelerate credit, shall not apply.

21(q) Any unused credit may continue to be carried forward, as
22provided in subdivision (l), until the credit has been exhausted.

23(r) This section shall remain in effect on and after December 1,
241990, for as long as Section 42 of the Internal Revenue Code,
25relating to low-income housing credit, remains in effect.

26(s) (1) For a project that receives a preliminary reservation
27under this section beginning on or after January 1, 2016, a taxpayer
28may make an irrevocable election in its application to the California
29Tax Credit Allocation Committee to sell all or any portion of any
30credit allowed under this section to one or more unrelated parties
31for each taxable year in which the credit is allowed subject to both
32of the following conditions:

33(A) The credit is sold for consideration that is not less than 80
34percent of the amount of the credit.

35(B) The unrelated party or parties purchasing any or all of the
36credit pursuant to this subdivision is a taxpayer allowed the credit
37under this section for the taxable year of the purchase or any prior
38taxable year or is a taxpayer allowed the federal credit under
39Section 42 of the Internal Revenue Code, relating to low-income
40housing credit, for the taxable year of the purchase or any prior
P52   1taxable year in connection with any project located in this state.
2For purposes of this subparagraph, “taxpayer allowed the credit
3under this section” means a taxpayer that is allowed the credit
4under this section without regard to the purchase of a credit
5pursuant to this subdivision.

6(2) (A) The taxpayer that originally received the credit shall
7report to the California Tax Credit Allocation Committee within
810 days of the sale of the credit, in the form and manner specified
9by the California Tax Credit Allocation Committee, all required
10information regarding the purchase and sale of the credit, including
11the social security or other taxpayer identification number of the
12unrelated party to whom the credit has been sold, the face amount
13of the credit sold, and the amount of consideration received by the
14taxpayer for the sale of the credit.

15(B) The California Tax Credit Allocation Committee shall
16provide an annual listing to the Franchise Tax Board, in a form
17and manner agreed upon by the California Tax Credit Allocation
18Committee and the Franchise Tax Board, of the taxpayers that
19have sold or purchased a credit pursuant to this subdivision.

20(3) (A) A credit may be sold pursuant to this subdivision to
21more than one unrelated party.

22(B) (i) Except as provided in clause (ii), a credit shall not be
23resold by the unrelated party to another taxpayer or other party.

24(ii) All or any portion of any credit allowed under this section
25may be resold once by an original purchaser to one or more
26unrelated parties, subject to all of the requirements of this
27subdivision.

28(4) Notwithstanding any other provision of law, the taxpayer
29that originally received the credit that is sold pursuant to paragraph
30(1) shall remain solely liable for all obligations and liabilities
31imposed on the taxpayer by this section with respect to the credit,
32none of which shall apply to any party to whom the credit has been
33sold or subsequently transferred. Parties who purchase credits
34pursuant to paragraph (1) shall be entitled to utilize the purchased
35credits in the same manner in which the taxpayer that originally
36received the credit could utilize them.

37(5) A taxpayer shall not sell a credit allowed by this section if
38the taxpayer was allowed the credit on any tax return of the
39taxpayer.

P53   1(6) Notwithstanding paragraph (1), the taxpayer, with the
2 approval of the Executive Director of the California Tax Credit
3Allocation Committee, may rescind the election to sell all or any
4portion of the credit allowed under this section if the consideration
5for the credit falls below 80 percent of the amount of the credit
6after the California Tax Credit Allocation Committee reservation.

7(t) The California Tax Credit Allocation Committee may
8prescribe rules, guidelines, or procedures necessary or appropriate
9to carry out the purposes of this section, including any guidelines
10regarding the allocation of the credit allowed under this section.
11Chapter 3.5 (commencing with Section 11340) of Part 1 of Division
123 of Title 2 of the Government Code shall not apply to any rule,
13guideline, or procedure prescribed by the California Tax Credit
14Allocation Committee pursuant to this section.

15(u) The amendments to this section made by Chapter 1222 of
16the Statutes of 1993 shall apply only to taxable years beginning
17on or after January 1, 1994.

18

SEC. 3.  

Section 23610.5 of the Revenue and Taxation Code
19 is amended to read:

20

23610.5.  

(a) (1) There shall be allowed as a credit against the
21“tax,” as defined by Section 23036, a state low-income housing
22tax credit in an amount equal to the amount determined in
23subdivision (c), computed in accordance with Section 42 of the
24Internal Revenue Code except as otherwise provided in this section.

25(2) “Taxpayer,” for purposes of this section, means the sole
26owner in the case of a “C” corporation, the partners in the case of
27a partnership, members in the case of a limited liability company,
28and the shareholders in the case of an “S” corporation.

29(3) “Housing sponsor,” for purposes of this section, means the
30sole owner in the case of a “C” corporation, the partnership in the
31case of a partnership, the limited liability company in the case of
32a limited liability company, and the “S” corporation in the case of
33an “S” corporation.

34(4) “Extremely low-income” has the same meaning as in Section
3550053 of the Health and Safety Code.

36(5) “Very low-income” has the same meaning as in Section
3750053 of the Health and Safety Code.

38(b) (1) The amount of the credit allocated to any housing
39sponsor shall be authorized by the California Tax Credit Allocation
40Committee, or any successor thereof, based on a project’s need
P54   1for the credit for economic feasibility in accordance with the
2requirements of this section.

3(A) The low-income housing project shall be located in
4California and shall meet either of the following requirements:

5(i) Except for projects to provide farmworker housing, as defined
6in subdivision (h) of Section 50199.7 of the Health and Safety
7Code, that are allocated credits solely under the set-aside described
8in subdivision (c) of Section 50199.20 of the Health and Safety
9Code, the project’s housing sponsor has been allocated by the
10California Tax Credit Allocation Committee a credit for federal
11income tax purposes under Section 42 of the Internal Revenue
12Code.

13(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
14Internal Revenue Code.

15(B) The California Tax Credit Allocation Committee shall not
16require fees for the credit under this section in addition to those
17fees required for applications for the tax credit pursuant to Section
1842 of the Internal Revenue Code. The committee may require a
19fee if the application for the credit under this section is submitted
20in a calendar year after the year the application is submitted for
21the federal tax credit.

22(C) (i) For a project that receives a preliminary reservation of
23the state low-income housing tax credit, allowed pursuant to
24subdivision (a), on or after January 1, 2009, and before January 1,
252016, the credit shall be allocated to the partners of a partnership
26owning the project in accordance with the partnership agreement,
27regardless of how the federal low-income housing tax credit with
28respect to the project is allocated to the partners, or whether the
29allocation of the credit under the terms of the agreement has
30substantial economic effect, within the meaning of Section 704(b)
31of the Internal Revenue Code.

32(ii) To the extent the allocation of the credit to a partner under
33this section lacks substantial economic effect, any loss or deduction
34otherwise allowable under this part that is attributable to the sale
35or other disposition of that partner’s partnership interest made prior
36to the expiration of the federal credit shall not be allowed in the
37taxable year in which the sale or other disposition occurs, but shall
38instead be deferred until and treated as if it occurred in the first
39taxable year immediately following the taxable year in which the
40federal credit period expires for the project described in clause (i).

P55   1(iii) This subparagraph shall not apply to a project that receives
2a preliminary reservation of state low-income housing tax credits
3under the set-aside described in subdivision (c) of Section 50199.20
4of the Health and Safety Code unless the project also receives a
5preliminary reservation of federal low-income housing tax credits.

6(iv) This subparagraph shall cease to be operative with respect
7to any project that receives a preliminary reservation of a credit
8on or after January 1, 2016.

9(2) (A) The California Tax Credit Allocation Committee shall
10certify to the housing sponsor the amount of tax credit under this
11section allocated to the housing sponsor for each credit period.

12(B) In the case of a partnership, limited liability company, or
13an “S” corporation, the housing sponsor shall provide a copy of
14the California Tax Credit Allocation Committee certification to
15the taxpayer.

16(C) The taxpayer shall, upon request, provide a copy of the
17certification to the Franchise Tax Board.

18(D) All elections made by the taxpayer pursuant to Section 42
19of the Internal Revenue Code shall apply to this section.

20(E) (i) The California Tax Credit Allocation Committee may
21allocate a credit under this section in exchange for a credit allocated
22pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in
23amounts up to 30 percent of the eligible basis of a building if the
24credits allowed under Section 42 of the Internal Revenue Code are
25reduced by an equivalent amount.

26(ii) An equivalent amount shall be determined by the California
27Tax Credit Allocation Committee based upon the relative amount
28required to produce an equivalent state tax credit to the taxpayer.

29(c) Section 42(b) of the Internal Revenue Code shall be modified
30as follows:

31(1) In the case of any qualified low-income building that is a
32new building, as defined in Section 42 of the Internal Revenue
33Code and the regulations promulgated thereunder, and not federally
34subsidized, the term “applicable percentage” means the following:

35(A) For each of the first three years, the percentage prescribed
36by the Secretary of the Treasury for new buildings that are not
37federally subsidized for the taxable year, determined in accordance
38with the requirements of Section 42(b)(1) of the Internal Revenue
39Code.

P56   1(B) For the fourth year, the difference between 30 percent and
2the sum of the applicable percentages for the first three years.

3(2) In the case of any qualified low-income building that (i) is
4a new building, as defined in Section 42 of the Internal Revenue
5Code and the regulations promulgated thereunder, (ii) not located
6in designated difficult development areas (DDAs) or qualified
7census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
8Internal Revenue Code, and (iii) is federally subsidized, the term
9“applicable percentage” means for the first three years, 15 percent
10of the qualified basis of the building, and for the fourth year, 5
11percent of the qualified basis of the building.

12(3) In the case of any qualified low-income building that is (i)
13an existing building, as defined in Section 42 of the Internal
14Revenue Code and the regulations promulgated thereunder, (ii)
15not located in designated difficult development areas (DDAs) or
16qualified census tracts (QCTs), as defined in Section 42(d)(5)(B)
17of the Internal Revenue Code, and (iii) is federally subsidized, the
18term applicable percentage means the following:

19(A) For each of the first three years, the percentage prescribed
20by the Secretary of the Treasury for new buildings that are federally
21subsidized for the taxable year.

22(B) For the fourth year, the difference between 13 percent and
23the sum of the applicable percentages for the first three years.

24(4) In the case of any qualified low-income building that is (i)
25a new or an existing building, (ii) located in designated difficult
26development areas (DDAs) or qualified census tracts (QCTs) as
27defined in Section 42(d)(5)(B) of the Internal Revenue Code, and
28(iii) federally subsidized, the California Tax Credit Allocation
29Committee shall determine the amount of credit to be allocated
30under subparagraph (E) of paragraph (2) of subdivision (b) required
31to produce an equivalent state tax credit to the taxpayer, as
32produced in paragraph (2), taking into account the basis boost
33provided under Section 42(d)(5)(B) of the Internal Revenue Code.

34(5) In the case of any qualified low-income building that meets
35all of the requirements of subparagraphs (A) through (D), inclusive,
36the term “applicable percentage” means 30 percent for each of the
37first three years and 5 percent for the fourth year. A qualified
38low-income building receiving an allocation under this paragraph
39is ineligible to also receive an allocation under paragraph (3).

40(A) The qualified low-income building is at least 15 years old.

P57   1(B) The qualified low-income building is serving households
2of very low-income or extremely low-income such that the average
3maximum household income as restricted, pursuant to an existing
4regulatory agreement with a federal, state, county, local, or other
5governmental agency, is not more than 45 percent of the area
6median gross income, as determined under Section 42 of the
7Internal Revenue Code, adjusted by household size, and a tax credit
8regulatory agreement is entered into for a period of not less than
955 years restricting the average targeted household income to no
10more than 45 percent of the area median income.

11(C) The qualified low-income building would have insufficient
12credits under paragraphs (2) and (3) to complete substantial
13rehabilitation due to a low appraised value.

14(D) The qualified low-income building will complete the
15substantial rehabilitation in connection with the credit allocation
16herein.

17(d) The term “qualified low-income housing project” as defined
18in Section 42(c)(2) of the Internal Revenue Code is modified by
19adding the following requirements:

20(1) The taxpayer shall be entitled to receive a cash distribution
21from the operations of the project, after funding required reserves,
22that at the election of the taxpayer, is equal to:

23(A) An amount not to exceed 8 percent of the lesser of:

24(i) The owner equity, that shall include the amount of the capital
25contributions actually paid to the housing sponsor and shall not
26include any amounts until they are paid on an investor note.

27(ii) Twenty percent of the adjusted basis of the building as of
28the close of the first taxable year of the credit period.

29(B) The amount of the cashflow from those units in the building
30that are not low-income units. For purposes of computing cashflow
31under this subparagraph, operating costs shall be allocated to the
32low-income units using the “floor space fraction,” as defined in
33Section 42 of the Internal Revenue Code.

34(C) Any amount allowed to be distributed under subparagraph
35(A) that is not available for distribution during the first five years
36of the compliance period may be accumulated and distributed any
37time during the first 15 years of the compliance period but not
38thereafter.

P58   1(2) The limitation on return shall apply in the aggregate to the
2partners if the housing sponsor is a partnership and in the aggregate
3to the shareholders if the housing sponsor is an “S” corporation.

4(3) The housing sponsor shall apply any cash available for
5distribution in excess of the amount eligible to be distributed under
6paragraph (1) to reduce the rent on rent-restricted units or to
7increase the number of rent-restricted units subject to the tests of
8Section 42(g)(1) of the Internal Revenue Code.

9(e) The provisions of Section 42(f) of the Internal Revenue Code
10shall be modified as follows:

11(1) The term “credit period” as defined in Section 42(f)(1) of
12the Internal Revenue Code is modified by substituting “four taxable
13years” for “10 taxable years.”

14(2) The special rule for the first taxable year of the credit period
15under Section 42(f)(2) of the Internal Revenue Code shall not apply
16to the tax credit under this section.

17(3) Section 42(f)(3) of the Internal Revenue Code is modified
18to read:

19If, as of the close of any taxable year in the compliance period,
20after the first year of the credit period, the qualified basis of any
21building exceeds the qualified basis of that building as of the close
22of the first year of the credit period, the housing sponsor, to the
23extent of its tax credit allocation, shall be eligible for a credit on
24the excess in an amount equal to the applicable percentage
25determined pursuant to subdivision (c) for the four-year period
26beginning with the later of the taxable years in which the increase
27in qualified basis occurs.

28(f) The provisions of Section 42(h) of the Internal Revenue
29Code shall be modified as follows:

30(1) Section 42(h)(2) of the Internal Revenue Code shall not be
31applicable and instead the following provisions shall be applicable:

32The total amount for the four-year credit period of the housing
33credit dollars allocated in a calendar year to any building shall
34reduce the aggregate housing credit dollar amount of the California
35Tax Credit Allocation Committee for the calendar year in which
36the allocation is made.

37(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
38(7), and (8) of Section 42(h) of the Internal Revenue Code shall
39not be applicable.

P59   1(g) The aggregate housing credit dollar amount that may be
2allocated annually by the California Tax Credit Allocation
3Committee pursuant to this section, Section 12206, and Section
417058 shall be an amount equal to the sum of all the following:

5(1) (A) Seventy million dollars ($70,000,000) for the 2001
6calendar year, and, for the 2002 calendar year and each calendar
7year thereafter, seventy million dollars ($70,000,000) increased
8by the percentage, if any, by which the Consumer Price Index for
9the preceding calendar year exceeds the Consumer Price Index for
10the 2001 calendar year. For the purposes of this paragraph, the
11term “Consumer Price Index” means the last Consumer Price Index
12for All Urban Consumers published by the federal Department of
13Labor.

14(B)  begin deleteAn end delete begin insertFor calendar years 2016 through 2021, inclusive, an end insert
15additionalbegin delete threeend deletebegin insert oneend insert hundred million dollarsbegin delete ($300,000,000)end delete
16begin insert ($100,000,000)end insert for the 2016 calendar year, and, for thebegin delete 2017
17calendar year and each calendar year thereafter, three hundred
18million dollars ($300,000,000)end delete
begin insert 2017 through 2021 calendar years,
19one hundred million dollars ($100,000,000)end insert
increased by the
20percentage, if any, by which the Consumer Price Index for the
21preceding calendar year exceeds the Consumer Price Index for the
222016 calendar year. For the purposes of this paragraph, the term
23“Consumer Price Index” means the last Consumer Price Index for
24All Urban Consumers published by the federal Department of
25Labor. A housing sponsor receiving an allocation under paragraph
26(1) of subdivision (c) shall not be eligible for receipt of the housing
27credit allocated from the increased amount under this subparagraph.
28A housing sponsor receiving an allocation under paragraph (1) of
29subdivision (c) shall remain eligible for receipt of the housing
30credit allocated from the credit ceiling amount under subparagraph
31(A).

32(2) The unused housing credit ceiling, if any, for the preceding
33calendar years.

34(3) The amount of housing credit ceiling returned in the calendar
35year. For purposes of this paragraph, the amount of housing credit
36dollar amount returned in the calendar year equals the housing
37credit dollar amount previously allocated to any project that does
38not become a qualified low-income housing project within the
39period required by this section or to any project with respect to
P60   1which an allocation is canceled by mutual consent of the California
2Tax Credit Allocation Committee and the allocation recipient.

3(4) Five hundred thousand dollars ($500,000) per calendar year
4for projects to provide farmworker housing, as defined in
5subdivision (h) of Section 50199.7 of the Health and Safety Code.

6(5) The amount of any unallocated or returned credits under
7former Sections 17053.14, 23608.2, and 23608.3, as those sections
8read prior to January 1, 2009, until fully exhausted for projects to
9provide farmworker housing, as defined in subdivision (h) of
10Section 50199.7 of the Health and Safety Code.

11(h) The term “compliance period” as defined in Section 42(i)(1)
12of the Internal Revenue Code is modified to mean, with respect to
13any building, the period of 30 consecutive taxable years beginning
14with the first taxable year of the credit period with respect thereto.

15(i) Section 42(j) of the Internal Revenue Code shall not be
16applicable and the following shall be substituted in its place:

17The requirements of this section shall be set forth in a regulatory
18agreement between the California Tax Credit Allocation Committee
19and the housing sponsor, and the regulatory agreement shall be
20subordinated, when required, to any lien or encumbrance of any
21banks or other institutional lenders to the project. The regulatory
22agreement entered into pursuant to subdivision (f) of Section
2350199.14 of the Health and Safety Code shall apply, provided that
24the agreement includes all of the following provisions:

25(1) A term not less than the compliance period.

26(2) A requirement that the agreement be recorded in the official
27records of the county in which the qualified low-income housing
28project is located.

29(3) A provision stating which state and local agencies can
30enforce the regulatory agreement in the event the housing sponsor
31fails to satisfy any of the requirements of this section.

32(4) A provision that the regulatory agreement shall be deemed
33a contract enforceable by tenants as third-party beneficiaries
34thereto, and that allows individuals, whether prospective, present,
35or former occupants of the building, who meet the income
36limitation applicable to the building, the right to enforce the
37regulatory agreement in any state court.

38(5) A provision incorporating the requirements of Section 42
39of the Internal Revenue Code as modified by this section.

P61   1(6) A requirement that the housing sponsor notify the California
2Tax Credit Allocation Committee or its designee if there is a
3determination by the Internal Revenue Service that the project is
4not in compliance with Section 42(g) of the Internal Revenue Code.

5(7) A requirement that the housing sponsor, as security for the
6performance of the housing sponsor’s obligations under the
7regulatory agreement, assign the housing sponsor’s interest in rents
8that it receives from the project, provided that until there is a
9default under the regulatory agreement, the housing sponsor is
10entitled to collect and retain the rents.

11(8) The remedies available in the event of a default under the
12regulatory agreement that is not cured within a reasonable cure
13period include, but are not limited to, allowing any of the parties
14designated to enforce the regulatory agreement to collect all rents
15with respect to the project; taking possession of the project and
16operating the project in accordance with the regulatory agreement
17until the enforcer determines the housing sponsor is in a position
18to operate the project in accordance with the regulatory agreement;
19applying to any court for specific performance; securing the
20appointment of a receiver to operate the project; or any other relief
21as may be appropriate.

22(j) (1) The committee shall allocate the housing credit on a
23regular basis consisting of two or more periods in each calendar
24year during which applications may be filed and considered. The
25committee shall establish application filing deadlines, the maximum
26percentage of federal and state low-income housing tax credit
27ceiling that may be allocated by the committee in that period, and
28the approximate date on which allocations shall be made. If the
29enactment of federal or state law, the adoption of rules or
30regulations, or other similar events prevent the use of two allocation
31periods, the committee may reduce the number of periods and
32adjust the filing deadlines, maximum percentage of credit allocated,
33and allocation dates.

34(2) The committee shall adopt a qualified allocation plan, as
35provided in Section 42(m)(1) of the Internal Revenue Code. In
36adopting this plan, the committee shall comply with the provisions
37of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
38Code, respectively.

39(3) Notwithstanding Section 42(m) of the Internal Revenue
40Code the California Tax Credit Allocation Committee shall allocate
P62   1housing credits in accordance with the qualified allocation plan
2and regulations, which shall include the following provisions:

3(A) All housing sponsors, as defined by paragraph (3) of
4subdivision (a), shall demonstrate at the time the application is
5filed with the committee that the project meets the following
6threshold requirements:

7(i) The housing sponsor shall demonstrate there is a need for
8low-income housing in the community or region for which it is
9proposed.

10(ii) The project’s proposed financing, including tax credit
11proceeds, shall be sufficient to complete the project and shall be
12adequate to operate the project for the extended use period.

13(iii) The project shall have enforceable financing commitments,
14either construction or permanent financing, for at least 50 percent
15of the total estimated financing of the project.

16(iv) The housing sponsor shall have and maintain control of the
17site for the project.

18(v) The housing sponsor shall demonstrate that the project
19complies with all applicable local land use and zoning ordinances.

20(vi) The housing sponsor shall demonstrate that the project
21development team has the experience and the financial capacity
22 to ensure project completion and operation for the extended use
23period.

24(vii) The housing sponsor shall demonstrate the amount of tax
25credit that is necessary for the financial feasibility of the project
26and its viability as a qualified low-income housing project
27throughout the extended use period, taking into account operating
28expenses, a supportable debt service, reserves, funds set aside for
29rental subsidies and required equity, and a development fee that
30does not exceed a specified percentage of the eligible basis of the
31project prior to inclusion of the development fee in the eligible
32basis, as determined by the committee.

33(B) The committee shall give a preference to those projects
34satisfying all of the threshold requirements of subparagraph (A)
35if both of the following apply:

36(i) The project serves the lowest income tenants at rents
37affordable to those tenants.

38(ii) The project is obligated to serve qualified tenants for the
39longest period.

P63   1(C) In addition to the provisions of subparagraphs (A) and (B),
2the committee shall use the following criteria in allocating housing
3credits:

4(i) Projects serving large families in which a substantial number,
5as defined by the committee, of all residential units are low-income
6units with three or more bedrooms.

7(ii) Projects providing single-room occupancy units serving
8very low income tenants.

9(iii) (I) Existing projects that are “at risk of conversion.”

10(II) For purposes of this section, the term “at risk of conversion,”
11with respect to an existing property means a property that satisfies
12all of the following criteria:

13(ia) The property is a multifamily rental housing development
14in which at least 50 percent of the units receive governmental
15assistance pursuant to any of the following:

16(Ia) New construction, substantial rehabilitation, moderate
17rehabilitation, property disposition, and loan management set-aside
18programs, or any other program providing project-based assistance
19pursuant to Section 8 of the United States Housing Act of 1937,
20Section 1437f of Title 42 of the United States Code, as amended.

21(Ib) The Below-Market-Interest-Rate Program pursuant to
22Section 221(d)(3) of the National Housing Act, Sections
231715l(d)(3) and (5) of Title 12 of the United States Code.

24(Ic) Section 236 of the National Housing Act, Section 1715z-1
25of Title 12 of the United States Code.

26(Id) Programs for rent supplement assistance pursuant to Section
2718 101 of the Housing and Urban Development Act of 1965,
28Section 1701s of Title 12 of the United States Code, as amended.

29(Ie) Programs pursuant to Section 515 of the Housing Act of
301949, Section 1485 of Title 42 of the United States Code, as
31amended.

32(If) The low-income housing credit program set forth in Section
3342 of the Internal Revenue Code.

34(ib) The restrictions on rent and income levels will terminate
35or the federal insured mortgage on the property is eligible for
36prepayment any time within five years before or after the date of
37application to the California Tax Credit Allocation Committee.

38(ic) The entity acquiring the property enters into a regulatory
39agreement that requires the property to be operated in accordance
P64   1with the requirements of this section for a period equal to the
2greater of 55 years or the life of the property.

3(id) The property satisfies the requirements of Section 42(e) of
4the Internal Revenue Code, regarding rehabilitation expenditures
5except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
6apply.

7(iv) Projects for which a public agency provides direct or indirect
8long-term financial support for at least 15 percent of the total
9project development costs or projects for which the owner’s equity
10constitutes at least 30 percent of the total project development
11costs.

12(v) Projects that provide tenant amenities not generally available
13to residents of low-income housing projects.

14(4) For purposes of allocating credits pursuant to this section,
15the committee shall not give preference to any project by virtue
16of the date of submission of its application except to break a tie
17when two or more of the projects have an equal rating.

18(5) Not less than 20 percent of the low-income housing tax
19credits available annually under this section, Section 12206, and
20Section 17058 shall be set aside for allocation to rural areas as
21defined in Section 50199.21 of the Health and Safety Code. Any
22amount of credit set aside for rural areas remaining on or after
23October 31 of any calendar year shall be available for allocation
24 to any eligible project. No amount of credit set aside for rural areas
25shall be considered available for any eligible project so long as
26there are eligible rural applications pending on October 31.

27(k) Section 42(l) of the Internal Revenue Code shall be modified
28as follows:

29The term “secretary” shall be replaced by the term “California
30Franchise Tax Board.”

31(l) In the case where the credit allowed under this section
32exceeds the “tax,” the excess may be carried over to reduce the
33“tax” in the following year, and succeeding taxable years if
34necessary, until the credit has been exhausted.

35(m) A project that received an allocation of a 1989 federal
36housing credit dollar amount shall be eligible to receive an
37allocation of a 1990 state housing credit dollar amount, subject to
38all of the following conditions:

39(1) The project was not placed in service prior to 1990.

P65   1(2) To the extent the amendments made to this section by the
2Statutes of 1990 conflict with any provisions existing in this section
3prior to those amendments, the prior provisions of law shall prevail.

4(3) Notwithstanding paragraph (2), a project applying for an
5allocation under this subdivision shall be subject to the
6requirements of paragraph (3) of subdivision (j).

7(n) The credit period with respect to an allocation of credit in
81989 by the California Tax Credit Allocation Committee of which
9any amount is attributable to unallocated credit from 1987 or 1988
10shall not begin until after December 31, 1989.

11(o) The provisions of Section 11407(a) of Public Law 101-508,
12relating to the effective date of the extension of the low-income
13housing credit, shall apply to calendar years after 1989.

14(p) The provisions of Section 11407(c) of Public Law 101-508,
15relating to election to accelerate credit, shall not apply.

16(q) (1) A corporation may elect to assign any portion of any
17credit allowed under this section to one or more affiliated
18corporations for each taxable year in which the credit is allowed.
19For purposes of this subdivision, “affiliated corporation” has the
20meaning provided in subdivision (b) of Section 25110, as that
21section was amended by Chapter 881 of the Statutes of 1993, as
22of the last day of the taxable year in which the credit is allowed,
23except that “100 percent” is substituted for “more than 50 percent”
24wherever it appears in the section, as that section was amended by
25Chapter 881 of the Statutes of 1993, and “voting common stock”
26is substituted for “voting stock” wherever it appears in the section,
27as that section was amended by Chapter 881 of the Statutes of
281993.

29(2) The election provided in paragraph (1):

30(A) May be based on any method selected by the corporation
31that originally receives the credit.

32(B) Shall be irrevocable for the taxable year the credit is allowed,
33once made.

34(C) May be changed for any subsequent taxable year if the
35election to make the assignment is expressly shown on each of the
36returns of the affiliated corporations that assign and receive the
37credits.

38(r) Any unused credit may continue to be carried forward, as
39provided in subdivision (l), until the credit has been exhausted.

P66   1(s) This section shall remain in effect on and after December 1,
21990, for as long as Section 42 of the Internal Revenue Code,
3relating to low-income housing credit, remains in effect.

4(t) The amendments to this section made by Chapter 1222 of
5the Statutes of 1993 shall apply only to taxable years beginning
6on or after January 1, 1994, except that paragraph (1) of subdivision
7(q), as amended, shall apply to taxable years beginning on or after
8January 1, 1993.

9

SEC. 3.5.  

Section 23610.5 of the Revenue and Taxation Code
10 is amended to read:

11

23610.5.  

(a) (1) There shall be allowed as a credit against the
12“tax,” as defined by Section 23036, a state low-income housing
13tax credit in an amount equal to the amount determined in
14subdivision (c), computed in accordance with Section 42 of the
15Internal Revenue Code, relating to low-income housing credit,
16except as otherwise provided in this section.

17(2) “Taxpayer,” for purposes of this section, means the sole
18owner in the case of a “C” corporation, the partners in the case of
19a partnership, members in the case of a limited liability company,
20and the shareholders in the case of an “S” corporation.

21(3) “Housing sponsor,” for purposes of this section, means the
22sole owner in the case of a “C” corporation, the partnership in the
23case of a partnership, the limited liability company in the case of
24a limited liability company, and the “S” corporation in the case of
25an “S” corporation.

26(4) “Extremely low-income” has the same meaning as in Section
2750053 of the Health and Safety Code.

28(5) “Very low-income” has the same meaning as in Section
2950053 of the Health and Safety Code.

30(b) (1) The amount of the credit allocated to any housing
31sponsor shall be authorized by the California Tax Credit Allocation
32Committee, or any successor thereof, based on a project’s need
33for the credit for economic feasibility in accordance with the
34requirements of this section.

35(A) The low-income housing project shall be located in
36California and shall meet either of the following requirements:

37(i) Except for projects to provide farmworker housing, as defined
38in subdivision (h) of Section 50199.7 of the Health and Safety
39Code, that are allocated credits solely under the set-aside described
40in subdivision (c) of Section 50199.20 of the Health and Safety
P67   1Code, the project’s housing sponsor has been allocated by the
2California Tax Credit Allocation Committee a credit for federal
3income tax purposes under Section 42 of the Internal Revenue
4Code, relating to low-income housing credit.

5(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
6Internal Revenue Code, relating to special rule where 50 percent
7or more of building is financed with tax-exempt bonds subject to
8volume cap.

9(B) The California Tax Credit Allocation Committee shall not
10require fees for the credit under this section in addition to those
11fees required for applications for the tax credit pursuant to Section
1242 of the Internal Revenue Code, relating to low-income housing
13credit. The committee may require a fee if the application for the
14credit under this section is submitted in a calendar year after the
15year the application is submitted for the federal tax credit.

16(C) (i) For a project that receives a preliminary reservation of
17the state low-income housing tax credit, allowed pursuant to
18subdivision (a), on or after January 1, 2009, the credit shall be
19allocated to the partners of a partnership owning the project in
20accordance with the partnership agreement, regardless of how the
21federal low-income housing tax credit with respect to the project
22is allocated to the partners, or whether the allocation of the credit
23under the terms of the agreement has substantial economic effect,
24within the meaning of Section 704(b) of the Internal Revenue
25Code, relating to determination of distributive share.

26(ii) To the extent the allocation of the credit to a partner under
27this section lacks substantial economic effect, any loss or deduction
28otherwise allowable under this part that is attributable to the sale
29or other disposition of that partner’s partnership interest made prior
30to the expiration of the federal credit shall not be allowed in the
31taxable year in which the sale or other disposition occurs, but shall
32instead be deferred until and treated as if it occurred in the first
33taxable year immediately following the taxable year in which the
34federal credit period expires for the project described in clause (i).

35(iii) This subparagraph shall not apply to a project that receives
36a preliminary reservation of state low-income housing tax credits
37under the set-aside described in subdivision (c) of Section 50199.20
38of the Health and Safety Code unless the project also receives a
39preliminary reservation of federal low-income housing tax credits.

P68   1(2) (A) The California Tax Credit Allocation Committee shall
2certify to the housing sponsor the amount of tax credit under this
3section allocated to the housing sponsor for each credit period.

4(B) In the case of a partnership, limited liability company, or
5an “S” corporation, the housing sponsor shall provide a copy of
6the California Tax Credit Allocation Committee certification to
7the taxpayer.

8(C) The taxpayer shall, upon request, provide a copy of the
9certification to the Franchise Tax Board.

10(D) All elections made by the taxpayer pursuant to Section 42
11of the Internal Revenue Code, relating to low-income housing
12credit, shall apply to this section.

13(E) (i) The California Tax Credit Allocation Committee may
14allocate a credit under this section in exchange for a credit allocated
15pursuant to Section 42(d)(5)(B) of the Internal Revenue Code,
16relating to increase in credit for buildings in high-cost areas, in
17amounts up to 30 percent of the eligible basis of a building if the
18credits allowed under Section 42 of the Internal Revenue Code,
19relating to low-income housing credit, are reduced by an equivalent
20amount.

21(ii) An equivalent amount shall be determined by the California
22Tax Credit Allocation Committee based upon the relative amount
23required to produce an equivalent state tax credit to the taxpayer.

24(c) Section 42(b) of the Internal Revenue Code, relating to
25applicable percentage, shall be modified as follows:

26(1)  In the case of any qualified low-income building that is a
27new building, as defined in Section 42 of the Internal Revenue
28Code and the regulations promulgated thereunder, and not federally
29subsidized, the term “applicable percentage” means the following:

30(A) For each of the first three years, the percentage prescribed
31by the Secretary of the Treasury for new buildings that are not
32federally subsidized for the taxable year, determined in accordance
33with the requirements of Section 42(b)(1) of the Internal Revenue
34 Code.

35(B) For the fourth year, the difference between 30 percent and
36the sum of the applicable percentages for the first three years.

37(2) In the case of any qualified low-income building that (i) is
38a new building, as defined in Section 42 of the Internal Revenue
39Code and the regulations promulgated thereunder, (ii) not located
40in designated difficult development areas (DDAs) or qualified
P69   1census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
2Internal Revenue Code, and (iii) is federally subsidized, the term
3“applicable percentage” means for the first three years, 15 percent
4of the qualified basis of the building, and for the fourth year, 5
5percent of the qualified basis of the building.

6(3) In the case of any qualified low-income building that is (i)
7an existing building, as defined in Section 42 of the Internal
8Revenue Code and the regulations promulgated thereunder, (ii)
9not located in designated difficult development areas (DDAs) or
10qualified census tracts (QCTs), as defined in Section 42(d)(5)(B)
11of the Internal Revenue Code, and (iii) is federally subsidized, the
12term applicable percentage means the following:

13(A) For each of the first three years, the percentage prescribed
14by the Secretary of the Treasury for new buildings that are federally
15subsidized for the taxable year.

16(B) For the fourth year, the difference between 13 percent and
17the sum of the applicable percentages for the first three years.

18(4) In the case of any qualified low-income building that is (i)
19a new or an existing building, (ii) located in designated difficult
20development areas (DDAs) or qualified census tracts (QCTs) as
21defined in Section 42(d)(5)(B) of the Internal Revenue Code, and
22(iii) federally subsidized, the California Tax Credit Allocation
23Committee shall determine the amount of credit to be allocated
24under subparagraph (E) of paragraph (2) of subdivision (b) required
25to produce an equivalent state tax credit to the taxpayer, as
26produced in paragraph (2), taking into account the basis boost
27provided under Section 42(d)(5)(B) of the Internal Revenue Code.

28(5) In the case of any qualified low-income building that meets
29all of the requirements of subparagraphs (A) through (D), inclusive,
30the term “applicable percentage” means 30 percent for each of the
31first three years and 5 percent for the fourth year. A qualified
32low-income building receiving an allocation under this paragraph
33is ineligible to also receive an allocation under paragraph (3).

34(A) The qualified low-income building is at least 15 years old.

35(B) The qualified low-income building is serving households
36of very low-income or extremely low-income such that the average
37maximum household income as restricted, pursuant to an existing
38regulatory agreement with a federal, state, county, local, or other
39governmental agency, is not more than 45 percent of the area
40median gross income, as determined under Section 42 of the
P70   1Internal Revenue Code, adjusted by household size, and a tax credit
2 regulatory agreement is entered into for a period of not less than
355 years restricting the average targeted household income to no
4more than 45 percent of the area median income.

5(C) The qualified low-income building would have insufficient
6credits under paragraphs (2) and (3) to complete substantial
7rehabilitation due to a low appraised value.

8(D) The qualified low-income building will complete the
9substantial rehabilitation in connection with the credit allocation
10herein.

11(d) The term “qualified low-income housing project” as defined
12in Section 42(c)(2) of the Internal Revenue Code, relating to
13qualified low-income building, is modified by adding the following
14requirements:

15(1) The taxpayer shall be entitled to receive a cash distribution
16from the operations of the project, after funding required reserves,
17 that, at the election of the taxpayer, is equal to:

18(A) An amount not to exceed 8 percent of the lesser of:

19(i) The owner equity, which shall include the amount of the
20capital contributions actually paid to the housing sponsor and shall
21not include any amounts until they are paid on an investor note.

22(ii) Twenty percent of the adjusted basis of the building as of
23the close of the first taxable year of the credit period.

24(B) The amount of the cashflow from those units in the building
25that are not low-income units. For purposes of computing cashflow
26under this subparagraph, operating costs shall be allocated to the
27low-income units using the “floor space fraction,” as defined in
28Section 42 of the Internal Revenue Code, relating to low-income
29housing credit.

30(C) Any amount allowed to be distributed under subparagraph
31(A) that is not available for distribution during the first five years
32of the compliance period may be accumulated and distributed any
33time during the first 15 years of the compliance period but not
34thereafter.

35(2) The limitation on return shall apply in the aggregate to the
36partners if the housing sponsor is a partnership and in the aggregate
37to the shareholders if the housing sponsor is an “S” corporation.

38(3) The housing sponsor shall apply any cash available for
39distribution in excess of the amount eligible to be distributed under
40paragraph (1) to reduce the rent on rent-restricted units or to
P71   1increase the number of rent-restricted units subject to the tests of
2Section 42(g)(1) of the Internal Revenue Code, relating to in
3general.

4(e) The provisions of Section 42(f) of the Internal Revenue
5Code, relating to definition and special rules relating to credit
6period, shall be modified as follows:

7(1) The term “credit period” as defined in Section 42(f)(1) of
8the Internal Revenue Code, relating to credit period defined, is
9modified by substituting “four taxable years” for “10 taxable
10years.”

11(2) The special rule for the first taxable year of the credit period
12under Section 42(f)(2) of the Internal Revenue Code, relating to
13special rule for first year of credit period, shall not apply to the tax
14credit under this section.

15(3) Section 42(f)(3) of the Internal Revenue Code, relating to
16determination of applicable percentage with respect to increases
17in qualified basis after first year of credit period, is modified to
18read:

19If, as of the close of any taxable year in the compliance period,
20after the first year of the credit period, the qualified basis of any
21building exceeds the qualified basis of that building as of the close
22of the first year of the credit period, the housing sponsor, to the
23extent of its tax credit allocation, shall be eligible for a credit on
24the excess in an amount equal to the applicable percentage
25determined pursuant to subdivision (c) for the four-year period
26beginning with the later of the taxable years in which the increase
27in qualified basis occurs.

28(f) The provisions of Section 42(h) of the Internal Revenue
29Code, relating to limitation on aggregate credit allowable with
30respect to projects located in a state, shall be modified as follows:

31(1) Section 42(h)(2) of the Internal Revenue Code, relating to
32allocated credit amount to apply to all taxable years ending during
33or after credit allocation year, shall not be applicable and instead
34the following provisions shall be applicable:

35The total amount for the four-year credit period of the housing
36credit dollars allocated in a calendar year to any building shall
37reduce the aggregate housing credit dollar amount of the California
38Tax Credit Allocation Committee for the calendar year in which
39the allocation is made.

P72   1(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
2(7), and (8) of Section 42(h) of the Internal Revenue Code, relating
3to limitation on aggregate credit allowable with respect to projects
4located in a state, shall not be applicable.

5(g) The aggregate housing credit dollar amount that may be
6allocated annually by the California Tax Credit Allocation
7Committee pursuant to this section, Section 12206, and Section
817058 shall be an amount equal to the sum of all the following:

9(1) (A) Seventy million dollars ($70,000,000) for the 2001
10calendar year, and, for the 2002 calendar year and each calendar
11year thereafter, seventy million dollars ($70,000,000) increased
12by the percentage, if any, by which the Consumer Price Index for
13the preceding calendar year exceeds the Consumer Price Index for
14the 2001 calendar year. For the purposes of this paragraph, the
15term “Consumer Price Index” means the last Consumer Price Index
16for All Urban Consumers published by the federal Department of
17Labor.

18(B) begin deleteAn end deletebegin insertFor calendar years 2016 through 2021, inclusive, an end insert
19additionalbegin delete threeend deletebegin insert oneend insert hundred million dollarsbegin delete ($300,000,000)end delete
20begin insert ($100,000,000)end insert for the 2016 calendar year, and, for thebegin delete 2017
21calendar year and each calendar year thereafter, three hundred
22million dollars ($300,000,000)end delete
begin insert 2017 through 2021 calendar years,
23one hundred million dollars ($100,000,000)end insert
increased by the
24percentage, if any, by which the Consumer Price Index for the
25preceding calendar year exceeds the Consumer Price Index for the
262016 calendar year. For the purposes of this paragraph, the term
27“Consumer Price Index” means the last Consumer Price Index for
28All Urban Consumers published by the federal Department of
29Labor. A housing sponsor receiving an allocation under paragraph
30(1) of subdivision (c) shall not be eligible for receipt of the housing
31credit allocated from the increased amount under this subparagraph.
32A housing sponsor receiving an allocation under paragraph (1) of
33subdivision (c) shall remain eligible for receipt of the housing
34credit allocated from the credit ceiling amount under subparagraph
35(A).

36(2) The unused housing credit ceiling, if any, for the preceding
37calendar years.

38(3) The amount of housing credit ceiling returned in the calendar
39year. For purposes of this paragraph, the amount of housing credit
40dollar amount returned in the calendar year equals the housing
P73   1credit dollar amount previously allocated to any project that does
2not become a qualified low-income housing project within the
3period required by this section or to any project with respect to
4which an allocation is canceled by mutual consent of the California
5Tax Credit Allocation Committee and the allocation recipient.

6(4) Five hundred thousand dollars ($500,000) per calendar year
7for projects to provide farmworker housing, as defined in
8subdivision (h) of Section 50199.7 of the Health and Safety Code.

9(5) The amount of any unallocated or returned credits under
10former Sections 17053.14, 23608.2, and 23608.3, as those sections
11read prior to January 1, 2009, until fully exhausted for projects to
12provide farmworker housing, as defined in subdivision (h) of
13Section 50199.7 of the Health and Safety Code.

14(h) The term “compliance period” as defined in Section 42(i)(1)
15of the Internal Revenue Code, relating to compliance period, is
16modified to mean, with respect to any building, the period of 30
17consecutive taxable years beginning with the first taxable year of
18the credit period with respect thereto.

19(i) Section 42(j) of the Internal Revenue Code, relating to
20recapture of credit, shall not be applicable and the following shall
21be substituted in its place:

22The requirements of this section shall be set forth in a regulatory
23agreement between the California Tax Credit Allocation Committee
24and the housing sponsor, and the regulatory agreement shall be
25subordinated, when required, to any lien or encumbrance of any
26banks or other institutional lenders to the project. The regulatory
27agreement entered into pursuant to subdivision (f) of Section
2850199.14 of the Health and Safety Code shall apply, provided that
29the agreement includes all of the following provisions:

30(1) A term not less than the compliance period.

31(2) A requirement that the agreement be recorded in the official
32records of the county in which the qualified low-income housing
33project is located.

34(3) A provision stating which state and local agencies can
35enforce the regulatory agreement in the event the housing sponsor
36fails to satisfy any of the requirements of this section.

37(4) A provision that the regulatory agreement shall be deemed
38a contract enforceable by tenants as third-party beneficiaries thereto
39and that allows individuals, whether prospective, present, or former
40occupants of the building, who meet the income limitation
P74   1applicable to the building, the right to enforce the regulatory
2agreement in any state court.

3(5) A provision incorporating the requirements of Section 42
4of the Internal Revenue Code, relating to low-income housing
5credit, as modified by this section.

6(6) A requirement that the housing sponsor notify the California
7Tax Credit Allocation Committee or its designee if there is a
8determination by the Internal Revenue Service that the project is
9not in compliance with Section 42(g) of the Internal Revenue Code,
10relating to qualified low-income housing project.

11(7) A requirement that the housing sponsor, as security for the
12performance of the housing sponsor’s obligations under the
13regulatory agreement, assign the housing sponsor’s interest in rents
14that it receives from the project, provided that until there is a
15default under the regulatory agreement, the housing sponsor is
16entitled to collect and retain the rents.

17(8) A provision that the remedies available in the event of a
18default under the regulatory agreement that is not cured within a
19reasonable cure period include, but are not limited to, allowing
20any of the parties designated to enforce the regulatory agreement
21to collect all rents with respect to the project; taking possession of
22the project and operating the project in accordance with the
23regulatory agreement until the enforcer determines the housing
24sponsor is in a position to operate the project in accordance with
25the regulatory agreement; applying to any court for specific
26performance; securing the appointment of a receiver to operate
27the project; or any other relief as may be appropriate.

28(j) (1) The committee shall allocate the housing credit on a
29regular basis consisting of two or more periods in each calendar
30year during which applications may be filed and considered. The
31committee shall establish application filing deadlines, the maximum
32percentage of federal and state low-income housing tax credit
33ceiling that may be allocated by the committee in that period, and
34the approximate date on which allocations shall be made. If the
35enactment of federal or state law, the adoption of rules or
36regulations, or other similar events prevent the use of two allocation
37periods, the committee may reduce the number of periods and
38adjust the filing deadlines, maximum percentage of credit allocated,
39and allocation dates.

P75   1(2) The committee shall adopt a qualified allocation plan, as
2provided in Section 42(m)(1) of the Internal Revenue Code, relating
3to plans for allocation of credit among projects. In adopting this
4plan, the committee shall comply with the provisions of Sections
542(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code,
6relating to qualified allocation plan and relating to certain selection
7criteria must be used, respectively.

8(3) Notwithstanding Section 42(m) of the Internal Revenue
9Code, relating to responsibilities of housing credit agencies, the
10California Tax Credit Allocation Committee shall allocate housing
11credits in accordance with the qualified allocation plan and
12regulations, which shall include the following provisions:

13(A) All housing sponsors, as defined by paragraph (3) of
14subdivision (a), shall demonstrate at the time the application is
15filed with the committee that the project meets the following
16threshold requirements:

17(i) The housing sponsor shall demonstrate there is a need for
18low-income housing in the community or region for which it is
19proposed.

20(ii) The project’s proposed financing, including tax credit
21proceeds, shall be sufficient to complete the project and shall be
22adequate to operate the project for the extended use period.

23(iii) The project shall have enforceable financing commitments,
24either construction or permanent financing, for at least 50 percent
25of the total estimated financing of the project.

26(iv) The housing sponsor shall have and maintain control of the
27site for the project.

28(v) The housing sponsor shall demonstrate that the project
29complies with all applicable local land use and zoning ordinances.

30(vi) The housing sponsor shall demonstrate that the project
31development team has the experience and the financial capacity
32to ensure project completion and operation for the extended use
33period.

34(vii) The housing sponsor shall demonstrate the amount of tax
35credit that is necessary for the financial feasibility of the project
36and its viability as a qualified low-income housing project
37throughout the extended use period, taking into account operating
38expenses, a supportable debt service, reserves, funds set aside for
39rental subsidies and required equity, and a development fee that
40does not exceed a specified percentage of the eligible basis of the
P76   1project prior to inclusion of the development fee in the eligible
2basis, as determined by the committee.

3(B) The committee shall give a preference to those projects
4satisfying all of the threshold requirements of subparagraph (A)
5if both of the following apply:

6(i) The project serves the lowest income tenants at rents
7affordable to those tenants.

8(ii) The project is obligated to serve qualified tenants for the
9longest period.

10(C) In addition to the provisions of subparagraphs (A) and (B),
11the committee shall use the following criteria in allocating housing
12credits:

13(i) Projects serving large families in which a substantial number,
14as defined by the committee, of all residential units are low-income
15units with three or more bedrooms.

16(ii) Projects providing single-room occupancy units serving
17very low income tenants.

18(iii) (I) Existing projects that are “at risk of conversion.”

19(II) For purposes of this section, the term “at risk of conversion,”
20with respect to an existing property means a property that satisfies
21all of the following criteria:

22(ia) The property is a multifamily rental housing development
23in which at least 50 percent of the units receive governmental
24assistance pursuant to any of the following:

25(Ia) New construction, substantial rehabilitation, moderate
26rehabilitation, property disposition, and loan management set-aside
27programs, or any other program providing project-based assistance
28pursuant to Section 8 of the United States Housing Act of 1937,
29Section 1437f of Title 42 of the United States Code, as amended.

30(Ib) The Below-Market-Interest-Rate Program pursuant to
31Section 221(d)(3) of the National Housing Act, Sections
321715l(d)(3) and (5) of Title 12 of the United States Code.

33(Ic) Section 236 of the National Housing Act, Section 1715z-1
34of Title 12 of the United States Code.

35(Id) Programs for rent supplement assistance pursuant to Section
3618 101 of the Housing and Urban Development Act of 1965,
37Section 1701s of Title 12 of the United States Code, as amended.

38(Ie) Programs pursuant to Section 515 of the Housing Act of
391949, Section 1485 of Title 42 of the United States Code, as
40amended.

P77   1(If) The low-income housing credit program set forth in Section
242 of the Internal Revenue Code.

3(ib) The restrictions on rent and income levels will terminate
4or the federal insured mortgage on the property is eligible for
5prepayment any time within five years before or after the date of
6application to the California Tax Credit Allocation Committee.

7(ic) The entity acquiring the property enters into a regulatory
8agreement that requires the property to be operated in accordance
9with the requirements of this section for a period equal to the
10greater of 55 years or the life of the property.

11(id) The property satisfies the requirements of Section 42(e) of
12the Internal Revenue Code, regarding rehabilitation expenditures
13except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
14apply.

15(iv) Projects for which a public agency provides direct or indirect
16long-term financial support for at least 15 percent of the total
17project development costs or projects for which the owner’s equity
18constitutes at least 30 percent of the total project development
19costs.

20(v) Projects that provide tenant amenities not generally available
21to residents of low-income housing projects.

22(4) For purposes of allocating credits pursuant to this section,
23the committee shall not give preference to any project by virtue
24of the date of submission of its application except to break a tie
25when two or more of the projects have an equal rating.

26(5) Not less than 20 percent of the low-income housing tax
27credits available annually under this section, Section 12206, and
28Section 17058 shall be set aside for allocation to rural areas as
29defined in Section 50199.21 of the Health and Safety Code. Any
30amount of credit set aside for rural areas remaining on or after
31October 31 of any calendar year shall be available for allocation
32to any eligible project. No amount of credit set aside for rural areas
33shall be considered available for any eligible project so long as
34there are eligible rural applications pending on October 31.

35(k) Section 42(l) of the Internal Revenue Code, relating to
36certifications and other reports to secretary, shall be modified as
37follows:

38The term “secretary” shall be replaced by the term “Franchise
39Tax Board.”

P78   1(l) In the case where the credit allowed under this section
2exceeds the “tax,” the excess may be carried over to reduce the
3“tax” in the following year, and succeeding taxable years if
4necessary, until the credit has been exhausted.

5(m) A project that received an allocation of a 1989 federal
6housing credit dollar amount shall be eligible to receive an
7allocation of a 1990 state housing credit dollar amount, subject to
8all of the following conditions:

9(1) The project was not placed in service prior to 1990.

10(2) To the extent the amendments made to this section by the
11Statutes of 1990 conflict with any provisions existing in this section
12prior to those amendments, the prior provisions of law shall prevail.

13(3) Notwithstanding paragraph (2), a project applying for an
14allocation under this subdivision shall be subject to the
15requirements of paragraph (3) of subdivision (j).

16(n) The credit period with respect to an allocation of credit in
171989 by the California Tax Credit Allocation Committee of which
18any amount is attributable to unallocated credit from 1987 or 1988
19shall not begin until after December 31, 1989.

20(o) The provisions of Section 11407(a) of Public Law 101-508,
21relating to the effective date of the extension of the low-income
22housing credit, shall apply to calendar years after 1989.

23(p) The provisions of Section 11407(c) of Public Law 101-508,
24relating to election to accelerate credit, shall not apply.

25(q) (1) A corporation may elect to assign any portion of any
26credit allowed under this section to one or more affiliated
27corporations for each taxable year in which the credit is allowed.
28For purposes of this subdivision, “affiliated corporation” has the
29meaning provided in subdivision (b) of Section 25110, as that
30section was amended by Chapter 881 of the Statutes of 1993, as
31of the last day of the taxable year in which the credit is allowed,
32except that “100 percent” is substituted for “more than 50 percent”
33wherever it appears in the section, as that section was amended by
34Chapter 881 of the Statutes of 1993, and “voting common stock”
35is substituted for “voting stock” wherever it appears in the section,
36as that section was amended by Chapter 881 of the Statutes of
371993.

38(2) The election provided in paragraph (1):

39(A) May be based on any method selected by the corporation
40that originally receives the credit.

P79   1(B) Shall be irrevocable for the taxable year the credit is allowed,
2once made.

3(C) May be changed for any subsequent taxable year if the
4election to make the assignment is expressly shown on each of the
5returns of the affiliated corporations that assign and receive the
6credits.

7(r) Any unused credit may continue to be carried forward, as
8provided in subdivision (l), until the credit has been exhausted.

9(s) This section shall remain in effect on and after December 1,
101990, for as long as Section 42 of the Internal Revenue Code,
11relating to low-income housing credit, remains in effect.

12(t) (1) For a project that receives a preliminary reservation
13under this section beginning on or after January 1, 2016, a taxpayer
14may make an irrevocable election in its application to the California
15Tax Credit Allocation Committee to sell all or any portion of any
16credit allowed under this section to one or more unrelated parties
17for each taxable year in which the credit is allowed subject to both
18of the following conditions:

19(A) The credit is sold for consideration that is not less than 80
20percent of the amount of the credit.

21(B) (i) The unrelated party or parties purchasing any or all of
22the credit pursuant to this subdivision is a taxpayer allowed the
23credit under this section for the taxable year of the purchase or any
24prior taxable year or is a taxpayer allowed the federal credit under
25Section 42 of the Internal Revenue Code, relating to low-income
26housing credit, for the taxable year of the purchase or any prior
27taxable year in connection with any project located in this state.

28(ii) For purposes of this subparagraph, “taxpayer allowed the
29credit under this section” means a taxpayer that is allowed the
30credit under this sectionbegin delete without regard to the purchase of a credit
31pursuant to this subdivisionend delete
without regard to any of the following:

32(I) The purchase of a credit under this section pursuant to this
33subdivision.

34(II) The assignment of a credit under this section pursuant to
35subdivision (q).

36(III) The assignment of a credit under this section pursuant to
37Section 23363.

38(2) (A) The taxpayer that originally received the credit shall
39report to the California Tax Credit Allocation Committee within
4010 days of the sale of the credit, in the form and manner specified
P80   1by the California Tax Credit Allocation Committee, all required
2information regarding the purchase and sale of the credit, including
3the social security or other taxpayer identification number of the
4unrelated party to whom the credit has been sold, the face amount
5of the credit sold, and the amount of consideration received by the
6taxpayer for the sale of the credit.

7(B) The California Tax Credit Allocation Committee shall
8provide an annual listing to the Franchise Tax Board, in a form
9and manner agreed upon by the California Tax Credit Allocation
10Committee and the Franchise Tax Board, of the taxpayers that
11have sold or purchased a credit pursuant to this subdivision.

12(3) (A) A credit may be sold pursuant to this subdivision to
13more than one unrelated party.

14(B) (i) Except as provided in clause (ii), a credit shall not be
15resold by the unrelated party to another taxpayer or other party.

16(ii) All or any portion of any credit allowed under this section
17may be resold once by an original purchaser to one or more
18unrelated parties, subject to all of the requirements of this
19subdivision.

20(4) Notwithstanding any other provision of law, the taxpayer
21that originally received the credit that is sold pursuant to paragraph
22(1) shall remain solely liable for all obligations and liabilities
23imposed on the taxpayer by this section with respect to the credit,
24none of which shall apply to any party to whom the credit has been
25sold or subsequently transferred. Parties who purchase credits
26pursuant to paragraph (1) shall be entitled to utilize the purchased
27credits in the same manner in which the taxpayer that originally
28received the credit could utilize them.

29(5) A taxpayer shall not sell a credit allowed by this section if
30the taxpayer was allowed the credit on any tax return of the
31taxpayer.

32(6) Notwithstanding paragraph (1), the taxpayer, with the
33approval of the Executive Director of the California Tax Credit
34Allocation Committee, may rescind the election to sell all or any
35portion of the credit allowed under this section if the consideration
36for the credit falls below 80 percent of the amount of the credit
37after the California Tax Credit Allocation Committee reservation.

38(u) The California Tax Credit Allocation Committee may
39prescribe rules, guidelines, or procedures necessary or appropriate
40to carry out the purposes of this section, including any guidelines
P81   1regarding the allocation of the credit allowed under this section.
2Chapter 3.5 (commencing with Section 11340) of Part 1 of Division
33 of Title 2 of the Government Code shall not apply to any rule,
4guideline, or procedure prescribed by the California Tax Credit
5Allocation Committee pursuant to this section.

6(v) The amendments to this section made by Chapter 1222 of
7the Statutes of 1993 shall apply only to taxable years beginning
8on or after January 1, 1994, except that paragraph (1) of subdivision
9(q), as amended, shall apply to taxable years beginning on or after
10January 1, 1993.

begin delete
11

SEC. 4.  

Notwithstanding Section 10231.5 of the Government
12Code, on or before January 1, 2020, the Treasurer shall issue a
13report to the Legislature describing the increase, if any, of the use
14of the 4 percent low-income housing credit, allocated pursuant to
15paragraphs (2) to (5), inclusive, of subdivision (c) of Sections
1612206, 17058, and 23610.5 of the Revenue and Taxation Code.
17The report shall compare the use of those credits before the
18effective date of this act to the use of those credits after the
19effective date of this act. The report shall be submitted in
20compliance with Section 9795 of the Government Code.

end delete
21

begin deleteSEC. 5.end delete
22begin insert SEC. 4.end insert  

The California Tax Credit Allocation Committee shall
23enter into an agreement with the Franchise Tax Board to pay any
24costs incurred by the Franchise Tax Board in the administration
25of subdivision (o) of Section 12206, subdivision (s) of Section
2617058, and subdivision (t) of Section 23610.5 of the Revenue and
27Taxation Code.

28

begin deleteSEC. 6.end delete
29begin insert SEC. 5.end insert  

(a) Section 1.5 of this bill incorporates amendments
30to Section 12206 of the Revenue and Taxation Code proposed by
31both this bill and Senate Bill 377. It shall only become operative
32if (1) both bills are enacted and become effective on or before
33January 1, 2016, (2) each bill amends Section 12206 of the
34Revenue and Taxation Code, and (3) this bill is enacted after Senate
35Bill 377, in which case Section 1 of this bill shall not become
36operative.

37(b) Section 2.5 of this bill incorporates amendments to Section
3817058 of the Revenue and Taxation Code proposed by both this
39bill and Senate Bill 377. It shall only become operative if (1) both
40bills are enacted and become effective on or before January 1,
P82   12016, (2) each bill amends Section 17058 of the Revenue and
2Taxation Code, and (3) this bill is enacted after Senate Bill 377,
3in which case Section 2 of this bill shall not become operative.

4(c) Section 3.5 of this bill incorporates amendments to Section
523610.5 of the Revenue and Taxation Code proposed by both this
6bill and Senate Bill 377. It shall only become operative if (1) both
7bills are enacted and become effective on or before January 1,
82016, (2) each bill amends Section 23610.5 of the Revenue and
9Taxation Code, and (3) this bill is enacted after Senate Bill 377,
10in which case Section 3 of this bill shall not become operative.

11(d) Section 5 of this bill, which adds an uncodified provision
12that requires the California Tax Credit Allocation Committee to
13enter a specified agreement with the Franchise Tax Board. proposed
14by both this bill and Senate Bill 377, shall only become operative
15if (1) both bills are enacted and become effective on or before
16January 1, 2016, (2) each bill amends Sections 12206, 17058, and
1723610.5 of the Revenue and Taxation Code, (3) each bill adds the
18uncodified provision set forth in Section 5, and (4) this bill is
19enacted after Senate Bill 377.

20

begin deleteSEC. 7.end delete
21begin insert SEC. 6.end insert  

This act provides for a tax levy within the meaning
22of Article IV of the Constitution and shall go into immediate effect.



O

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