Coalition Expects to Pursue Legislative Relief on Audit Issue
By Caitlin Jones & A. J. Johnson
4 min read
AFTER AN UNSUCCESSFUL ATTEMPT to win regulatory relief from the U.S. Securities and Exchange Commission (SEC), a coalition of housing groups now expects to pursue passage of federal legislation to ease stricter new audit requirements for certain lowincome housing tax credit (LIHTC) partnerships.
The change in tactics follows a recent exchange of letters between House Financial Services Committee Chairman Barney Frank (D-MA) and SEC Chairman Christopher Cox.
Groups in the coalition are the Housing Advisory Group, Affordable Housing Tax Credit Coalition, and National Association of Home Builders. They represent various LIHTC program participants: developers, syndicators, lenders, and others.
For a while, the coalition tried to persuade the SEC to modify its position to exempt annual audits done of LIHTC operating (“lowertier”) limited partnerships from having to meet the stricter auditing requirements imposed by regulations issued by the Public Company Accounting Oversight Board (PCAOB) following the Enron scandal and passage of the Sarbanes-Oxley Act.
As present, the new rules require the more stringent standards to be followed in preparing audits both of lower-tier operating partnerships and upper-tier partnerships in “public” LIHTC funds, which are marketed to individual investors. These requirements mandate that such audits be done by an “independent auditor.”
The groups have contended the more stringent and complex audit requirements are more onerous, costly, and unnecessary for LIHTC operating limited partnerships, and don’t provide additional protection for investors. They noted the requirements, which had to be followed for audits done last tax season, merely hike operating expenses for LIHTC projects.While the stricter requirements now apply just to public LIHTC funds, some fear that corporate investors in housing credits may also eventually want them applied for audits of operating partnerships in tax credit funds in which they invest.
In September 2007, the coalition wrote Chairman Frank outlining its concerns, the impact of the stricter requirements and reasons for relief, and asked for assistance. Frank then wrote to Cox, who responded to Frank in a letter that had an attached memo from SEC staff on the application of the new “auditor independence rules” to LIHTC funds. Cox in his letter said SEC staff would be “pleased to meet” with representatives of the member groups to discuss the application of PCAOB and SEC rules to LIHTC funds, “and to work with them to find a solution that would protect housing tax credit fund investors without unduly driving up affordable housing costs.”
David Gasson, executive director of the Housing Advisory Group (HAG) and a vice president of Boston Capital Partners, Boston, MA, indicated to the Tax Credit Advisor in an interview on 12/4/07 that Cox’s response has been viewed as supporting the status quo, that additional meetings with SEC wouldn’t be productive, and that further regulatory relief is unlikely.
Accordingly, Gasson said he expects the coalition to try to get Congress next year to approve a legislative amendment to provide the requested relief, and has begun discussions with House Financial Services Committee staff. He said the relief sought would allow annual audits of LIHTC operating partnerships to be done according to the prior auditing rules. Annual audits of upper-tier partnerships would still abide by the stricter new standards, but the audits of the lower-tier partnerships done under the old rules could be “brought up” into the audit opinion for the upper-tier.
Gasson said Boston Capital has been absorbing the costs to “redo” — to conform to the new standards — the audits of lower-tier operating partnerships in the outstanding public LIHTC funds that Boston Capital has sponsored, since it can’t recoup this added expense from the general partners. He said Boston Capital stopped marketing new public LIHTC funds a few years ago. Few if any syndicators now market new public funds, which were popular in the early years of the LIHTC program in the late 1980s.
(For background, see Tax Credit Advisor, March 2006, p. 1.)
