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California Tax Credit Allocation Committee

PIS Guidance

Project owners and developers can help ensure a more timely issuance of tax forms by putting the same level of effort into a PIS application as they do a 9% application and by implementing internal or external quality controls. PIS staff and managers are available to answer questions as you prepare the placed in service application. CTCAC has also provided tutorials and guidance on the Placed In Service web page and periodically schedules PIS application training at northern and southern California locations. We encourage you to take advantage of these resources, and our staff is preparing additional tutorials and recorded training materials.

The PIS application is in many ways a different application process. There are four main components of CTCAC staff’s PIS application review:

  • (1) regulatory agreement, preparation;
  • (2) cost certification review;
  • (3) credit allocation calculation;
  • (4) documentation needed to prepare tax Form(s) 8609.

Approaching the PIS application simply as an update of the original application often results in poor quality PIS applications. Below are tips for common errors that cause delays in processing PIS applications. Please consider these as you prepare the PIS application and do not disregard them as inapplicable to your staff or your PIS submissions. CTCAC staff finds such fundamental errors in most PIS applications.

PIS checklist

  • Complete and submit all documents required and listed in the PIS Checklist. Several items below are listed as required documents in the PIS Checklist or on the Placed In Service web page but are often missing from a PIS application.
  • Each section of the PIS Checklist has a space to leave comments or explanations. Use these sections to provide CTCAC staff with additional information about documents or explain changes made from the original approved tax credit application.
  • Ensure accuracy and consistency of data input into the Form B, Excel application, and cost certification.
  • Ensure the tax credits requested at Placed in Service is the correct amount that will ultimately be issued on the IRS Tax Form(s) 8609. Once the IRS Tax Form(s) 8609 are issued, the tax credit amount may not be increased.

Regulatory agreement preparation

  • Ensure owner contact information is correct and updated in all application documents.
  • Ensure the Form B unit mix matches the Excel application unit mix table and reflects the actual unit mix at the project.
  • Ensure all appropriate grant deeds are included.
  • Ensure the Form B placed in service dates are consistent with the certificates of occupancy and recorded grant deed.
  • All non-income qualified tenant units must be identified and categorized as market rate units.

Form B

  • The Excel Form B must be included in the PIS submission. The PDF is often illegible, and CTCAC staff use the Excel Form B when preparing the IRS Tax Form(s) 8609.
  • Read the instructions and information provided in the comment boxes, which can be viewed when hovering over cells.
  • The Form B total building eligible basis (total of column W) must match the eligible basis of the cost certification and the Excel application Basis & Credits sheet. Information in the Form B must be consistent with the cost certification and Excel application.
  • The manager unit should not be included in columns P-U. The manager unit is included in Part 1 the Form B under MANAGER UNIT(S) INFORMATION.
  • Do not use a post office box (P.O. box) as the owner address on the Form B unless the physical address is specified by the United States Postal Service as an undeliverable location. For IRS Tax Form(s) 8609 the owner address must be a physical address. If you would like CTCAC to mail all future correspondence for a project to a P.O. box, you may include the P.O. box as an alternate address in the PIS application.
  • Please read Form B Tips and Reminders

Legal description of the site

  • It is important for the CTCAC regulatory agreement to be correctly recorded on title. CTCAC has received and reviewed numerous incorrect or incomplete legal descriptions, and continues to expend resources confirming this basic function of ensuring the project owner is providing the correct legal description(s) of a project site. Because legal description errors are easily transmitted from one legal document to another, it is important that project managers and those submitting PIS applications understand how to correctly identify and verify the legal description of a site. Staff understands that legal descriptions may sometimes change, and when this occurs it is essential for an explanation to be included in the PIS submission.
  • CTCAC has seen an increase in multi-phase projects, scattered site projects, single building multi-project sites, bundled resyndications, hybrid 9% and 4% credit projects, and other complex physical configurations. While project owners may have a complete understanding of these configurations, the PIS application is often submitted with little or no explanation. Deciphering an accurate representation of these projects from legal description documents can be nearly impossible, and typically results in lengthy communications between CTCAC and the project manager. This delays the regulatory agreement preparation, the first step in the PIS review.

Land cost or value

  • Land cost, once established pursuant to the site control documents in the original application, is not permitted to increase (final closing costs such as title and recording fees are permitted). It is the owner’s responsibility to adhere to the acquisition cost, whether new construction or rehabilitation, once the agreed-upon price or value is established. If a site is donated for $0, a cost to be paid by the limited partnership cannot be subsequently established. If any changes to the site control in the original application are contemplated, these must be authorized by CTCAC in advance since the credit reservation was approved pursuant to the application’s site control and underwriting. An alternate or subsequent appraisal cannot be used to increase the land cost or value presented in the original application.

Changes made to a project’s financing structure or type of financing

  • CTCAC staff must verify the permanent financing sources and amounts. This is part of CTCAC’s responsibility to ensure that a project is not over subsidized and that CTCAC allocates no more credit than necessary.
  • It is the owner’s responsibility to include an explanation of changes to a project’s financing structure or types of financing and ensure these changes meet program requirements. The credit reservation and application underwriting were based the financing structure presented in the original application. Significant and/or unexplained changes will delay a PIS application and it is not uncommon for changes to be out of compliance with CTCAC regulations. Commonly occurring examples include:
    • No documentation for a financing source;
    • Inadequate documentation of the final loan amount for a construction-to-perm conversion;
    • Changes made to resyndication Transfer Event commitment requirements;
    • Changes in required developer fee contributions;
    • Changing from a donation to a soft loan;
    • Unapproved reductions of public funding sources that provided tiebreaker advantage to competitive applications.

  • Resyndications: CTCAC staff will verify that transfer event terms stated in the CTCAC staff report have been adhered to. Please review the CTCAC staff report Resyndication section as you prepare the PIS application and ensure the requirements have been met and documented in the PIS application.

Final Cost Certification and the Sources and Uses Budget

  • The cost certification source names must be accurate. For example, a general partner loan should not be described as general partner equity.
  • Ensure the post-award explanation sheet in the Excel application includes an adequate level of explanation for significant line item cost increases or decreases. CTCAC staff review these items for each project and will send questions if the explanation is insufficient. This is part of CTCAC’s responsibility in ensuring that a project is not over subsidized and no more credit than necessary is allocated.
  • CTCAC staff review the cost certification line items. Ensure these are properly described, such as: “Other” cost items include sufficient description; no significant change in commercial component proration; no syndication costs are included; no developer fee-related costs are listed outside the Developer Fee section of the budget.
  • The investor equity certification document must match the tax credit equity amount in the budget and the tax credit factor in the Excel application’s tax credit calculation. Discrepancies among these documents are common and extend the PIS review period.

Competitive application changes

  • Competitive applications committed to various point category requirements and scoring criteria. Any changes to these commitments must be approved by CTCAC; applicants and owners should contact CTCAC staff in advance of making such changes. Examples of these changes include but are not limited to:
    • Unit mix
    • Income targeting
    • Bedroom type
    • Manager unit increases or decreases
    • Service amenities
    • Property management
    • Final tie breaker score
    • Public financing
    • Etc.

  • Rather than expend valuable time on lengthy communications advocating for changes made without CTCAC’s knowledge or consent, CTCAC staff urge owners to maintain the commitments that resulted in competitive advantage to these applications.

Reserve accounts

  • CTCAC regulations generally required that “all unexpended funds in project reserve accounts shall remain with the project to be used for the benefit of the property and/or its residents.” It has come to CTCAC staff’s attention that many limited partnership agreements (LPAs) do not reflect this requirement but rather allow distribution of reserves as cash flow or use of the reserves for other purposes such as funding exit taxes.
  • CTCAC requires an amendment of any LPA language that does not conform to the regulatory requirement and will not issue IRS Tax Form(s) 8609 until the amendment is executed and provided to CTCAC. In order to expedite reviews and the issuance of tax forms, CTCAC strongly encourages owners to ensure the LPA’s conformance with this requirement prior to submitting the PIS application.

Projects with a ground lease (approximately 20-25% of all projects)

  • CTCAC requires a lease rider agreement for all housing projects developed as leasehold interests (ownership of project building(s) with a land “ground” lease). The CTCAC lease rider template is available on the CTCAC website.
  • The CTCAC lease rider template is not a document subject to negotiated variations. Proposed changes, either substantive or clarifying, will not be accepted. Section 20 is reserved for addressing circumstances unique to a particular project and any additions to this section must be approved by CTCAC. If you have questions or comments about template sections or specific language as you review or prepare, contact the CTCAC PIS manager.
  • The CTCAC regulatory agreement requires a leasehold legal description. Frequently, CTCAC staff finds that owners’ project managers do not have a basic understanding of legal descriptions or the disastrous effects of recording documents against the wrong legal description. Ground lease arrangements have two legal descriptions, fee and leasehold. The landowner lessor’s ground lease document is recorded against the fee simple legal description, as is CTCAC’s lease rider. The project owner/lessee/building owner’s ownership of the improvements is a leasehold estate interest and the CTCAC regulatory agreement is recorded against this legal description, not the fee simple legal description. Please ensure you follow the PIS Checklist requirements related to lease riders and legal descriptions, and contact CTCAC staff with questions.

Developer fee re-calculation

  • The developer fee includes all funds paid as compensation for developing the project, such as development and financial consultants, developer overhead and profit, construction management (excluding 3rd party), syndicator consulting fees. Development consultant fees include any fees paid to a person or entity for services that are normally or should be performed by the developer. This includes, but is not limited to, tenant file review, financial modeling or consulting, funding application preparation or review, entitlement consulting or services, and building permit expediting.
  • For 4% credit projects that are permitted to re-calculate the developer fee, the sum of all permanent funding sources from related parties from the original application must be maintained and the entire increase is additionally deferred or contributed as equity. Contact CTCAC staff with questions about this calculation.
  • For 9% credit projects that must re-calculate the developer fee based on the final high cost test, contact CTCAC staff with any questions about this calculation.
  • A calculator for PIS developer fee recalculation is in process and will be available on the CTCAC website shortly.