For general partners and sponsors, the year 15 transition offers an opportunity to gain full ownership of their tax credit project. Indeed, the limited partnership agreement for NEF, Inc. managed investments charges a general partner with the responsibility of “disposition” of the project (i.e., to sell or otherwise transfer the project or the limited partner interest from the existing limited partnership) in accordance with the terms of the agreement.
As part of the agreement’s disposition-related sections, or sometimes in a separate purchase option agreement, the general partner or its parent entity may have the option to purchase the project based on a stated pricing approach. The documents may also provide a right of first refusal to purchase the project at the minimum allowable purchase price, which is equal to the outstanding partnership debt plus the sales exit taxes, or simply stated, a “debt plus taxes” price. Section 42 of the Internal Revenue Code (the Code) permits the granting of this right of first refusal to qualified buyers, specifically tenant groups, government agencies and qualified nonprofit corporations. If a general partner or sponsor does not want to purchase the project, it is expected to look for a third-party purchaser.