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| Real Estate and Business Transactions, Tax Credit Investments and General Tax, Affordable Housing: Recent Developments |
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Client Alert: Federal Tax Credit Exchange Funds NOT Subject to MD Tax
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7/28/2009
Authors: GEJ
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Developers, tax credit investors and other participants in federal low income housing tax credit (LIHTC) projects in Maryland should be aware that grants of LIHTC exchange funds are not subject to Maryland state income tax.
Under the American Recovery and Reinvestment Act of 2009 (ARRA), the Maryland Department of Housing and Community Development (DHCD) may return to the United States Treasury (Treasury) a portion of DHCD’s LIHTC ceiling in exchange for funds from the Treasury. DHCD will then grant these funds to project owners as subawards in lieu of LIHTCs. This program is often referred to as the Section 1602 exchange program or the tax credit monetization program (Exchange Program).
The legislative history of ARRA and informal guidance by the IRS indicate that Exchange Program grants are not subject to federal income tax. Interested parties were concerned that the Exchange Program grants might be subject to Maryland income tax for one year, because Maryland has a general tax law (Maryland Decoupling Law) which provides that any amendment to the Internal Revenue Code that affects a taxpayer’s federal taxable income will not alter Maryland taxable income for one taxable year.
The Comptroller of Maryland issued a recently published letter to the Governor, stating that the Maryland Budget Reconciliation and Financing Act of 2009 provides that the Maryland Decoupling Law does not apply to ARRA’s provisions, which would include the Exchange Program. Therefore, Exchange Program grants are not subject to taxation in Maryland.
If you have questions about the Exchange Program, please contact any one of the following Gallagher Tax Credit attorneys:
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