1. (a)

   1. (1)

      1. (A) Congress created the LIHTC program under the Tax Reform Act of 1986, Pub. L. No. 99-514.
      2. (B) The LIHTC program, governed by I.R.C. § 42, began in 1987.
   2. (2) The tax credit is a dollar-for-dollar reduction in tax liability to investors in exchange for equity participation in the construction or acquisition and rehabilitation of rental housing that will remain income and rent restricted for an extended period of time.

   3. (3)

      1. (A) Tax credits are allocated by the Arkansas Development Finance Authority for properties located in Arkansas.
      2. (B)

2. (i) After the authority allocates the tax credits to developers, the developers typically sell the credits to private investors.

   1. (ii) The private investors use the tax credits to offset taxes otherwise owed on their tax returns.

      1. (C)

         1. (i) The money private investors pay for the credits is paid into the projects as equity financing.
         2. (ii) Equity financing is used to fill the gap between development costs for a project and the non-tax credit financing sources, such as mortgages, that could be expected to be repaid from rental income.

   2. (4)

      1. (A) In awarding the credits, the authority attempts to provide sufficient credits to ensure the project's financial feasibility throughout the fifteen-year tax credit compliance period.

      2. (B) The authority must consider:

         1. (i) Any proceeds or receipts expected to be generated through tax benefits;
         2. (ii) The percentage of housing credit dollar amounts used for project costs other than the cost of intermediaries; and
         3. (iii) The reasonableness of developmental and operational costs.

      3. (C)

         1. (i) Generally, the authority will compare the proposed project's developmental costs with the nontax credit financing, both private and governmental.
         2. (ii) The difference between the development costs and the non-tax credit financing is the financing gap.
         3. (iii) Tax credits are used to attract the equity investment needed to fill the gap, but are limited to a ceiling.

3. (b)

   1. (1) The authority is also designated as Arkansas’s LIHTC compliance monitoring agency.

   2. (2) Crucial elements of compliance are:

      1. (A) Ensuring that the appropriate number of tax credit units are occupied by eligible households;
      2. (B) Following income eligibility guidelines; and
      3. (C) Restricting rents over a specified time period.

   3. (3) The authority also monitors to ensure LIHTC properties are:

      1. (A) Decent;
      2. (B) Safe;
      3. (C) Sanitary; and
      4. (D) In good repair.
   4. (4) The authority is available to provide guidance to owners in maintaining continuous compliance with federal and state LIHTC guidelines throughout the compliance period.

Codification Notes: "LIHTC" means low-income housing tax credit.