Tax Return Notes

On September 13, 2024, the Treasury and the IRS issued proposed rules under Section 56A related to the Corporate Alternative Minimum Tax, commonly known as CAMT.

• The new CORPORATE ALTERNATIVE MINIMUM TAX (CAMT) guidelines require CAMT partner entities to file specific information with the IRS and furnish details to their partners. Per the draft 2024 Form 1065 instructions, this information must be included on both Schedule K, Line 20AX (as an attached statement) and Schedule K-1, Line 20AX.
• Note that NEF REQUIRES ALL PARTNERSHIPS to provide the CAMT disclosure information starting with the 2024 TAX RETURN. Partnership tax returns submitted without this information will be noted as incomplete.
• Below is a summary of the requirements and adjustments to be reported on Schedule K-1, Line 20AX. Note that these are Partnership-level values stated at 100%. The amounts on Schedule K-1 are NOT adjusted for each partner’s respective P&L or ownership share.
  • Partnerships must report GAAP Financial Statement Income (FSI) from its audited financial statements (i.e. GAAP Net Income/(Loss)).
  • Provide the partnership’s Modified Financial Statement Income (MFSI) (can also be referred to as Adjusted Financial Statement Income (AFSI)) --> See example calculation provided below
  • Furnish any data necessary to enable CAMT entities to make adjustments that are separately stated under IRC Section 1.56-A, such as 743(b)-related items. See IRC Section 1.56A for such CAMT adjustments that may apply to the partnership.

• Here is the most typical EXAMPLE CALCULATION for the Modified FSI for a LIHTC partnership:
  
  • Start with the partnership’s Audited Net Income/(Loss): ($1,000,000)
  • Add back book depreciation expense & impairment loss: $500,000
  • Deduct tax depreciation expense: ($300,000)
  • Partnership Modified FSI: ($1,000,000) + $500,000 - $300,000 = ($800,000)
  • Refer to IRC Section 1.56A for additional CAMT adjustments that could apply to your situation
    
• Here are the TAX RETURN DISCLOSURES to be reported on Schedule K-1, Line 20AX based on the example calculation above:
  
  • Line 20AX – Partnership FSI: ($1,000,000)
  • Line 20AX – Partnership Modified FSI: ($800,000)
  • Line 20AX – Separately stated items, if applicable: $XX,XXX (such as IRC Section 743b depreciation (if applicable))

NEF requires all partnerships to complete and submit Schedules K-2 and K-3 with the tax return.

• Please include Part II, III, IV, IX and X. If there is no P&L activity for the current year, Parts III, IV and X should still be completed.
• Below are a few checks & reminders to use before submitting the tax return to NEF.
• General Notes
  • If there is a special allocation of P&L for any reason (minimum gain, % reallocation per LPA or amendment, mid-year disposition, etc), please be sure that the amounts in the respective Schedules K-3 align with the special allocation of P&L to each partner on their respective Schedule K-1.
  • Any entries on Line 18c should not be included in Schedules K-2/K-3.
  • Part II and X should EXCLUDE Line 13k from the Schedule K-1s.
• Part II, Sections 1 & 2
  • Line 24 = Lines 1 through 23
  • Line 54 = Lines 25 through 53
  • Line 24 - Line 54 = Line 55
  • K-1 income/loss - Line 13k = K-3 Line 55
• Part III, Section 2
  • Line 6a = Line 1 and 2 - Lines 3, 4 and 5
• Part IV, Section 1
  • Line 1 = Line 2a - Lines 2b and 2c
• Part IV, Section 2
  • Line 14F = Line 14A and 14B -Lines 14C, 14D and 14E
• Part X, Sections 1 & 2
  • Section 1 Line 21 = Lines 1 through 20
  • Section 2 Line 24 = Lines 1 through 23
  • Section 1 Line 21 - Section 2 Line 24 = Section 2 Line 25
  • K-1 income/loss - Line 13k = K-3 Line 25

• On Schedule K-1:
  • Part II, Line F: please include “NEF Assignment Corp, acting as Nominee”
  • Part II, Line I1: please indicate Nominee – C (or “tax-exempt entity” or “other”, if Nominee is not available in your tax software)
• On Schedule B-1:
  • NEF Assignment Corp will be listed
  • There should be at least one additional partner, if not two, listed as NEF Assignment Corp is a pass-through entity
• On Schedule M-3:
  • NEF Assignment Corp will NOT be listed; NEF Assignment Corp is not required to include Schedule M-3 in its federal tax return, and therefore, it doesn’t meet the requirements to be disclosed in the Partnership’s tax return.
  • The additional partner(s) that are listed on Schedule B-1 should also be included on Schedule M-3.

• There may still be additional partner(s) listed on Schedule B-1 and Schedule M-3
• If NEF entered the partnership in the current year, please contact Evelina Goehring, NEF's VP, Financial Analysis, by email to obtain any additional partner(s) to be included.

Line 15 credits should be reported on either Line 15B or Line 15D depending on the date the building was placed in service.

If the NEF Limited Partner disposed of its interest in the Partnership during the fiscal year, the tax return should include a K-1 for the NEF Limited Partner with the “Final K-1” checkbox marked. The NEF Limited Partner K-1 must also reflect the wind up of operations as indicated by $0 ending capital account balance (and by 0% ending partner share, preferred).

NEF requests that when a partnership is delivering first year tax credits, but the 8609s have not yet been received, that the draft tax return includes the estimated credits to be delivered by the partnership. Additionally, please submit a detailed calculation of the estimated credits to be reported on the tax return along with the draft tax return. NEF will need to review the credit calculation, verify the information provided with NEF’s records and reconcile any differences. To keep the process moving along quickly, please be sure to submit the credit calculation along with the draft tax return by uploading the detailed credit calculation via the CPA Portal under the “Credit Calculation” line.

Please attach this schedule to the tax return.

Per IRS Regulations, the Partner’s capital accounts should be tracked on a tax basis in order to perform a yearly minimum gain analysis (IRC Section 704(b)). Please upload a completed copy of the CPA’s Minimum Gain Analysis via the CPA Portal under the “Minimum gain Analysis” line.

Bonus Depreciation Guidance for NEF's operating partnerships

• For partnerships that are in years 1-3 and/or at initial Placed in Service:
  • Please follow the underwriting projections for bonus depreciation. The underwriting spreadsheets are attached to each LPA. There is a schedule that details the projected costs by asset class and if bonus is expected on those assets.
• For partnerships that are in years 4+:
  • If the cumulative additions are <$50,000, we generally would prefer to take the bonus depreciation (especially if the partnership previously took bonus depreciation); if the tax return is received without bonus depreciation, we will leave it as is due to the general immateriality.
  • If the cumulative additions are >$50,000, we generally would prefer to take the bonus depreciation, but do want to evaluate for potential/future minimum gain issues. Please send an email to Evelina Goehring with the LP Name, Amount of Additions Eligible for Bonus Depreciation and a current Minimum Gain analysis; we will review and respond within 5 business days.

NEF requests the following elections be included, as applicable

• Adopt recurring item exception (IRC Section 461)
• Capitalize Real Estate Taxes (IRC Section 461(c))
• De minimis Safe Harbor (IRC Section 1.263(A) – 1(F)
• Capitalized Repairs & Maintenance Costs (IRC Section 1.263 (A) – 3(N)
• Business Interest Expense Limitation (IRC Section 163(j)(7)(B) (if making the election)
• Bonus Depreciation (IRC Section 168(K) (If not taking bonus depreciation)

• If the partnership is to elect out of business interest expense limitation (Make 163 (j) Election = YES)
  • Schedule B, Line 23 = YES
  • Schedule B, Line 24 = NO
• If the partnership is not to elect out of business interest expense limitation (Make 163 (j) Election = NO)
  • Schedule B, Line 23 = NO
  • Schedule B, Line 24 = YES
  • Form 8990 must be completed and included in the tax return that is submitted to NEF. Because the partnership is a pass-through entity, it is considered a tax shelter and therefore, must complete and file Form 8990
• Please note that it is critical that the Federal Tax Depreciation schedule is included in each partnership’s tax return when it is submitted to NEF. If it is not already included in the tax return, please be sure to submit it as an additional file.

NEF expects that an officer of the General Partner will serve as the Partnership Representative.

• Please include the General Partner’s name, address, the Designated Individual’s name and EIN on Form 1065, Schedule B, between line 25 and 26.
• For additional information related to the tax matters partner designation, please read the notice here.