Section 110.116 Charitable Exemption Eligibility: Low Income Housing Projects

Section 110.116  Charitable Exemption Eligibility: Low

Income Housing Projects

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 other

ritable

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

he

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))

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

he 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

ices 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

ted 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.