Current through Register Vol. 48, No. 38, September 20, 2024
a) The legislature
has expressly determined that property otherwise qualifying for an exemption
under the charitable exemption Section of the Illinois Property Tax Code shall
not lose its exemption because the legal title is held:
1) by an entity that is organized solely to
hold that title and that qualifies under paragraph (2) of section 501(c) of the
Internal Revenue Code or its successor, whether or not that entity receives
rent from the charitable organization for the repair and maintenance of the
property;
2) by an entity that is
organized as a partnership or limited liability company, in which the
charitable organization, or an affiliate or subsidiary of the charitable
organization, is a general partner of the partnership or managing member of the
limited liability company, for the purposes of owning and operating a
residential rental property that has received an allocation of Low Income
Housing Tax Credits for 100% of the dwelling units under section 42 of the
Internal Revenue Code of 1986 as amended; or
3) for any assessment year including and
subsequent to January 1, 1996 for which an application for exemption has been
filed and a decision on which has not become final and nonappealable, by a
limited liability company organized under the Limited Liability Company Act
provided that:
A) the limited liability
company's sole member or members, as that term is used in Section 1-5 of the
Limited Liability Company Act, are the institutions of public charity that
actually and exclusively use the property for charitable and beneficent
purposes;
B) the limited liability
company is a disregarded entity for federal and Illinois income tax purposes
and, as a result, the limited liability company is deemed exempt from income
tax liability by virtue of the Internal Revenue Code section 501(c)(3) status
of its sole member or members; and
C) the limited liability company does not
lease the property or otherwise use it with a view to profit. [35 ILCS 15
-65]
b) The
Illinois Supreme Court has held that charitable property tax exemptions are
constitutional as well as statutory and must comply with court determinations
setting out factors that must be satisfied in order for the exemption to be
granted. The exemption requires both charitable ownership and charitable use of
the property.
c) The Requirement of
Charitable Ownership
A Low Income Housing Project (Project) owned by a partnership
or limited liability company and financed with an allocation of federal Low
Income Housing Tax Credits (tax credits) pursuant to section 42 of the Internal
Revenue Code of 1986, as amended (Code section 42), will satisfy the charitable
ownership requirement for exemption and any for-profit entity's involvement to
acquire tax credits as a limited partner or limited liability company member
(LLC Member) shall be viewed as a financing mechanism in that the limited
partner or LLC Member does not have the usual indicia of ownership when the
following requirements are satisfied:
1) The general partner of the partnership or
managing member of the limited liability company shall be a charitable
organization, or a wholly-owned or controlled affiliate or subsidiary of the
charitable organization. The charitable organization must qualify as a
charitable organization under Illinois law as established by statute and the
relevant guidelines created by the Illinois Supreme Court.
2) The project must have an extended
low-income housing commitment in accordance with Code section 42(h)(6)
(Extended Use Agreement) co-signed by an authorized tax credit allocating
agency. The Extended Use Agreement must be recorded against the property. The
Extended Use Agreement and/or other written agreements with federal, State, or
local government agencies, municipalities, or other charitable organizations at
a minimum must evidence the following:
A)
100% of the residential rental units in the project are subject to and operated
in accordance with the requirements of Code section 42; and
B) the targeted underserved populations in
need of housing that will be served by the project; and
C) the support services to be provided by the
charitable organization to the target populations and/or the projected
operating support to be provided by the charitable organization for the
project.
d)
Requirements of the General Partner or Managing Member
1) The general partner of the partnership or
managing member of the limited liability company shall manage and control the
day-to-day operations of the project, and shall have the exclusive rights to
select project tenants, determine (in consultation with the charitable
organization or a third-party service provider) whether and to what extent
supportive services may be offered to a tenant, and whether a tenant has
fulfilled the terms of his or her tenancy, including whether the tenant has
fulfilled the non-eviction policy requirements (as defined in subsection
(f)(1)). The general partner or managing member shall also select and supervise
the property manager for the project.
2) The partnership or limited liability
company shall grant and execute, with the for-profit entity's written consent,
a right of first refusal in favor of the charitable organization or the general
partner or managing member to purchase and acquire the project on terms no less
favorable than required by Code section 42(i)(7), or such other terms as may be
required by federal statute, regulation or directive.
e) Limitations on the Investors
The investors, whether a limited partner of a partnership or
LLC Member (the investors), may not receive any profit or monetary benefit from
the sale or operations of the project other than the tax credits or tax losses
incurred or received by the partnership or limited liability company relating
to the project. Provided that all other current debts and obligations of the
partnership or limited liability company have been paid and operating reserves
for the project are fully funded, some additional benefits to the investors may
be permitted provided that they are de minimus and consistent with Code section
42.
f) The Requirement of
Charitable Use
In addition to satisfying the charitable ownership requirement,
the project must also be charitably used. A project shall be considered in
exempt charitable use if the following factors are satisfied:
1) The partnership or limited liability
company must adopt and maintain a policy not to evict a tenant for non-payment
of rent or other residency fees or charges if:
A) the non-payment is due solely to the
tenant's financial inability to pay the project's rent, fees or
charges;
B) the tenant has
documented his or her financial inability to pay in accordance with the
charitable organization's policies and procedures (the non-eviction
policy);
C) the partnership or
limited liability company must publish and communicate in writing its
non-eviction policy to the project's tenants;
D) the partnership or limited liability
company must not evict a tenant for his or her documented inability to pay rent
in violation of the non-eviction policy; and
2) The partnership or limited liability
company shall document charitable support, whether financial or in-kind, that
it will provide to the project or the project's tenants.
A) Charitable support in the form of support
services must be sufficient to address the needs of the project's target
populations and may include but is not limited to: vocational training;
lifestyle counseling; health screenings and referrals; recreational activities
for elderly persons; providing access to alcohol or drug counseling or other
counseling services; social skills and functional literacy training; and
educational opportunities.
B)
Charitable support in the forms of operating deficit and related guaranty
obligations from the general partner, managing member or charitable
organization controlling the general partner or managing member for the
project, or operating subsidies actually provided or projected to be provided
by general partner, managing member or charitable organization controlling the
general partner or managing member shall be documented.
3) The partnership agreement or operating
agreement shall provide that, in the event of a conflict between the
obligations of the charitable organization (in its capacity as general partner
or managing member) to operate the partnership or limited liability company in
furtherance of the charitable organization's tax exempt purposes and any duty
it may have to maximize profits of the partnership or limited liability company
for the investor, the charitable purposes of the charitable organization shall
control.
g) Affidavit of
Compliance
The partnership or limited liability company shall include, in
addition to the usual requirements, a certification in its annual Affidavit of
Use submitted to the chief county assessment officer that the partnership or
limited liability company, as applicable, is in compliance with the provisions
of the Extended Use Agreement and has not received an Internal Revenue Service
Form 8823 (or successor IRS form) from the allocating agency for non-compliance
in the previous year that it failed to cure timely to the allocating agency's
satisfaction. The counties shall have the authority to create and require their
own annual Affidavits of Use and request additional information as needed to
verify compliance with the statute and this Section.
