Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a) Definitions. The definitions set forth in
this regulation shall govern the construction of Revenue and Taxation Code
section
214,
subdivision (g), which provides the requirements for the welfare exemption for
low-income housing properties owned by a limited partnership in which the
managing general partner is an eligible nonprofit corporation or eligible
limited liability company.
(1) "General
partner" means "general partner" as defined by section 15901.02, subdivision
(m) of the Corporations Code.
(2)
"Limited partner" means "limited partner" as defined by section 15901.02,
subdivision (p) of the Corporations Code.
(3) "Limited partnership" means a "limited
partnership" as defined by section 15901.02, subdivision (q) of the
Corporations Code, or a "foreign limited partnership" as defined by section
15901.02, subdivision (k) of the Corporations Code.
(4) "Limited partnership agreement" means any
valid written agreement of the partners as to the affairs of a limited
partnership and the conduct of its business, including all amendments
thereto.
(5) "Majority in interest
of the general partners" means more than 50 percent of the interests of the
general partners, and does not include the interests of any of the limited
partners, in the current profits derived from business operations of the
limited partnership.
(6) "Managing
general partner" means a general partner that:
(A) is a nonprofit corporation, or an
eligible limited liability company meeting the requirements of Revenue and
Taxation Code section
214,
designated in the limited partnership agreement as the "managing general
partner" of the limited partnership;
(B) is authorized to receive a partnership
management fee, or similar form of compensation, payable in the amount and the
manner set forth in the limited partnership agreement or other agreement
executed by all of the general partners for performing its duties;
(C) has "material participation," as defined
in subdivision (a)(7) below, in the control, management, and direction of the
limited partnership's business; and
(D) the officers and directors of the
for-profit general partners, for-profit limited partners, or any of its
for-profit affiliates, do not, as individuals or collectively, have a
controlling vote or majority interest in the nonprofit managing general
partner.
(7) "Material
participation" means that the limited partnership agreement or other agreement
executed by all of the general partners expressly provides that the managing
general partner:
(A) has a right to vote in
all the "major decisions," defined in subdivision (a)(8) below;
(B) performs "substantial management duties,"
defined in subdivision (a)(10) below;
(C) directly, or indirectly under its
supervision, manages the limited partnership;
(D) annually conducts a physical inspection
of the low-income housing property to ensure that the property is being used as
low-income housing and meets all of the requirements set forth in Regulation
140; and
(E) annually submits a
certification to the county assessor for the county in which the property is
located that the low-income housing property meets all of the requirements set
forth in Regulation 140.
(8) "Major decisions" means those acts, if
any, that require a vote of a majority in interest of the general
partners.
(9) "Partner" means a
limited or general partner.
(10)
"Substantial management duties" means that the managing general partner
actually performs five or more of the following partnership management duties
on behalf of the limited partnership:
(A)
rents, maintains and repairs the low-income housing property, or if such duties
are delegated to a property management agent, participates in hiring and
overseeing the work of the property management agent;
(B) participates in hiring and overseeing the
work of all persons necessary to provide services for the management and
operation of the limited partnership business;
(C) executes and enforces all contracts
executed by the limited partnership;
(D) executes and delivers all partnership
documents on behalf of the limited partnership;
(E) prepares or causes to be prepared all
reports to be provided to the partners or lenders on a monthly, quarterly, or
annual basis consistent with the requirements of the limited partnership
agreement;
(F) coordinates all
present and future development, construction, or rehabilitation of low-income
housing property that is the subject of the limited partnership
agreement;
(G) monitors compliance
with all government regulations and files or supervises the filing of all
required documents with government agencies;
(H) acquires, holds, assigns or disposes of
property or any interest in property;
(I) borrows money on behalf of the limited
partnership, encumbers limited partnership assets, places title in the name of
a nominee to obtain financing, prepays in whole or in part, refinances,
increases, modifies or extends any obligation;
(J) pays organizational expenses incurred in
the creation of the partnership and all operational expenses;
(K) determines the amount and timing of
distributions to partners and establishes and maintains all required reserves;
and
(L) ensures that charitable
services or benefits, such as vocational training, educational programs,
childcare and after-school programs, cultural activities, family counseling,
transportation, meals, and linkages to health and/or social services are
provided or information regarding charitable services or benefits are made
available to the low-income housing tenants.
(b) The managing general partner must
maintain records and documents evidencing the duties performed by the managing
general partner. Such records and documents may include, but are not limited
to:
(1) accounting books and
records;
(2) tax returns;
(3) budgets and financial reports;
(4) reports required by lenders;
(5) documents related to the construction or
rehabilitation of real property;
(6) legal documents such as contracts, deeds,
notes, leases, and deeds of trust;
(7) documents related to complying with
government regulations and filings;
(8) documents related to property
inspections;
(9) documents related
to charitable services or benefits provided or the information provided
regarding such services or benefits;
(10) reports prepared for the
partners;
(11) bank account
records;
(12) audited annual
financial statement of the limited partnership; and
(13) property management
agreement.
(c)
Substitution of Managing General Partner. A limited partnership in which the
managing general partner is an eligible nonprofit corporation or an eligible
limited liability company that has qualified for the welfare exemption for
low-income housing may allow a substitution of its managing general partner by
another eligible nonprofit corporation or eligible limited liability company
without affecting the organizational qualification for the welfare exemption
provided that:
(1) the limited partnership
agreement authorizes the withdrawal or removal of the managing general partner
and the admission of a substitute managing general partner on the same
effective date and such admission of the substituting managing general partner
into the limited partnership is in compliance with the requirements of section
15904.01
of the Corporations Code; and
(2)
the substitute managing general partner meets all of the requirements of a
managing general partner set forth in subdivision (a)(6)
above.
(d) Delegation of
Authority Clause. If the limited partnership agreement contains a delegation of
authority clause, such clause must provide either that:
(1) the managing general partner may not
delegate any of its substantial management duties defined in (a)(10) above;
or
(2) the managing general partner
may delegate its substantial management duties, defined in (a)(10) above, to
persons who, under its supervision, may perform such duties for the partnership
subject to the supervision by the managing general partner. If the managing
general partner elects to delegate one or more of its substantial management
duties, the managing general partner must demonstrate that it is actually
supervising the performance of the delegated duties.
(e) Certification Requirements. The limited
partnership must file for and receive a supplemental clearance certificate from
the Board as provided in Regulation 140.2.
(f) The provisions of this regulation shall
apply prospectively to claims or applications for the welfare exemption under
Revenue and Taxation Code section
214
and supplemental clearance certificates under Regulation 140.2, filed on or
after the effective date of this regulation. For supplemental clearance
certificates issued prior to the effective date of this regulation, claimants
shall have until the January 1, 2007 lien date to be in compliance with this
regulation unless the Board has issued a written notice of noncompliance. If
the Board has issued such notice, claimant shall have 90 days from the date of
the notice to comply with this regulation. Upon written request for an
extension of time prior to the expiration of the 90-day period to comply, the
Board shall grant a reasonable amount of time to comply with this
regulation.
1. New
section filed 6-23-2006; operative 7-23-2006 (Register 2006, No.
25).
2. Change without regulatory effect amending subsections
(a)(1)-(a)(3) and (c)(1) filed 1-28-2015 pursuant to section
100, title 1, California Code of
Regulations (Register 2015, No. 5).
Note: Authority cited: Section
15606,
Government Code. Reference: Section
214,
Revenue and Taxation Code.
