Accountants

The lower-tier partnerships are all pass-through entities to NEF’s investors, many of which have international tax provision reporting requirements. As such, NEF needs each lower-tier partnership to include Schedules K-2 and K-3 with all relevant information for the lower-tier partnership in its tax return for the year-ended 12/31/21.

NEF anticipates that Parts I – IV and Parts IX – X will be completed for all lower-tier partnerships. For any lower-tier partnership that itself has foreign business activity, we would also expect that Parts V – VIII would be completed.

Please see NEF’s Section 163(j) Election Schedule for the year ended 2021.

Real Property Trades or Businesses that DID ELECT OUT of the IRC Section 163(j) interest limitation are to use 30-year ADS depreciation for residential real estate placed in service before January 1, 2018.

• Previously under the TCJA, electing Real Property Trades or Businesses had to change their building’s depreciation life from 27.5 years to 40 years, if placed in service prior to January 1, 2018.
• Now those buildings must be depreciated over a 30-year life instead of 40
• Exclusion: if the building was placed in service prior to January 1, 2018 and was subject to ADS (due to tax-exempt use property rules or making the election to use ADS), it would still be required to use 40-year ADS. The 30-year ADS life fix ONLY applies to buildings that were PIS prior to January 1, 2018 that weren’t previously subject to ADS and made the 163j election.
• Exclusion: Commercial property remains at 39-year useful life
• This change will impact the partnership 2020 tax returns for entities that made the 163(j) election because depreciation will need to be recalculated to use the 30-year life versus previous 40-year life. The IRS has not issued guidance on how to make this change. NEF has spoken with several national CPA firms that have reached out to the IRS on how to make the change. The IRS is currently working on guidance, but it won’t likely be provided yet this month. There are various interpretations on how these changes will be made, including that it would be treated as a 481 adjustment to be reported on Form 3115. Until the IRS provides some further guidance, we ask that you do the following for the partnerships that meet the requirements to change to a 30-year useful life.

• File Form 7004 Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns
• NEF will require a review of all draft tax returns, for which the due date to NEF is extended to 2/21/21. PLEASE SEE THE LIST OF APPLICABLE PARTNERSHIPS ON NEF’S WEBSITE (available 1/28). The extension to 2/21/21 for the drafts ONLY applies to these specific partnerships.
• We will reach back out once we have further information on the reporting of the change in the deprecation.

In addition, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was passed in April 2020 has some additional changes to the IRC Section 163(j), particularly related to those partnerships that DID NOT previously ELECT OUT of the IRC Section 163(j) interest limitation.

• For the 2020 tax year only, partnerships may compute the section 163(j) interest limitation on Form 8990 based on 50% of their adjusted taxable income (ATI), rather than 30% of the ATI.
• For the 2020 tax year only, partnerships may use their 2019 ATI or their 2020 ATI on Form 8990 when calculating the section 163(j) interest limitation
• Partnerships may make a late Excepted Business Election to elect out of Section 163(j) interest limitation, effective back to 1/1/18. With the addition of change in useful life of the property placed in service prior to 1/1/18 (as noted above) from 40-years to 30-years, electing out of the Section 163(j) interest limitation may now be beneficial to individual partnerships.
• While NEF is still assessing the impact of the changes to its partnerships and will post an overall list to NEF’s website by the end of January, NEF’s general guidance is as listed below. NOTE: THIS ONLY PERTAINS TO PARTNERSHIPS THAT DID NOT ELECT OUT OF SECTION 163(J) INTEREST LIMITATION AND HAVE BUILDINGS THAT PLACED SERVICE BEFORE 1/1/18. ALL PARTNERSHIPS WITH BUILDINGS THAT PLACED IN SERVICE BETWEEN 1/1/18 – 12/31/19 SHOULD NOT MAKE ANY CHANGES TO THE PREVIOUS ELECTIONS.

• For partnerships with all non-interest bearing debt or very limited interest expense, the partnership SHOULD NOT elect out of the Section 163(j) interest limitation (i.e. no change to the previous election)
• For partnerships with interest-bearing debt and/or interest expense limitations, the partnership SHOULD elect out of the Section 163(j) interest limitation EFFECTIVE IN THE 2020 TAX YEAR. NEF has determined that it is NOT a material benefit to make the election retro-active to 2018.

Please see additional notes regarding the section 163(j) election on the TAX RETURN NOTES page.

• When you upload a draft audit or draft tax return to the CPA Portal that does NOT require NEF review or approval, you will receive an auto-email that states the following message below. Typically only a partnership that closed in 2017-2019 will need NEF’s review and approval to finalize. This email serves as NEF’s formal approval of the submitted draft {document} for {limited partnership name}. Please proceed in uploading the Final Tax Return/Audit to the CPA Portal by the NEF deadline.Should you have any questions, please reply directly to this email. Thank you for your continued cooperation in our partnership.
• This auto-email will come from smt_process@nefinc.org and is considered to be NEF’s formal approval. You will not receive any other approval for these partnerships. Please check your junk folders or with your IT department to determine if these emails are being prevented.
• When a draft audit or draft tax return DOESrequire NEF review and approval, you will receive an email communication also from smt_process@nefinc.org with the reviewer’s comments or questions. Reviews on the drafts are typically completed within 5 business days.
• Please continue to use the CPA Portal as the primary source for submitting the required reporting to NEF. If you are unable to submit via the CPA Portal, please email to yereporting@nefinc.org directly; do not send the files to the individual Asset Managers.

Please utilize National Equity Fund’s (NEF’s) CPA Portal to quickly and securely upload all the reporting documents to be submitted to NEF. The site can also be used to view all required documents for each Partnership and the status of each document as received or still outstanding.

Use of the CPA Portal is the preferred method of submitting all year-end related documents. All documents are date and time stamped and immediately available to NEF staff.

If you are a new/unregistered user, you will need an electronic invitation from NEF to register for the CPA Portal. Please contact Tracey LeGrand, VP Financial Analysis at tlegrand@nefinc.org to request an invitation.

If you are unable to utilize the CPA Portal, you may submit a PDF document to yereporting@nefinc.org. Please note that during peak times, it may take up to two business days to post an email submission. In the meantime, the Partnership and/or CPA may receive follow-up calls/texts regarding the status of the outstanding documents.