§ 105-129.41. (See note for repeal) Credit for low-income housing awarded a federal credit allocation before January 1, 2003. - North Carolina Statutes

§ 105‑129.41.  (See notefor repeal) Credit for low‑income housing awarded a federal creditallocation before January 1, 2003.

(a)        Credit. – Ataxpayer that is allowed for the taxable year a federal income tax credit forlow‑income housing under section 42 of the Code with respect to aqualified North Carolina low‑income building, is allowed a credit underthis Article equal to a percentage of the total federal credit allowed withrespect to that building. For the purposes of this section, the total federalcredit allowed is the total allowed during the 10‑year federal creditperiod plus the disallowed first‑year credit allowed in the 11th year.For the purposes of this section, the total federal credit is calculated basedon qualified basis as of the end of the first year of the credit period and isnot recalculated to reflect subsequent increases in qualified basis. Forbuildings that meet condition (c)(1) or (c)(1a) of this section, the creditpercentage is seventy‑five percent (75%). For other buildings, the creditpercentage is twenty‑five percent (25%).

(a1)      Tax Election. – Thecredit allowed in this section is allowed against the franchise tax levied inArticle 3 of this Chapter, the income taxes levied in Article 4 of thisChapter, or the gross premiums tax levied in Article 8B of this Chapter. Thetaxpayer must elect the tax against which the credit will be claimed whenfiling the return on which the first installment of the credit is claimed. Thiselection is binding. Any carryforwards of the credit must be claimed againstthe same tax.

(a2)      Cap. – The creditallowed in this section may not exceed fifty percent (50%) of the tax againstwhich it is claimed for the taxable year, reduced by the sum of all othercredits made by or on behalf of the taxpayer. This limitation applies to thecumulative amount of credit, including carryforwards, claimed by the taxpayerunder this section against each tax for the taxable year. Any unused portion ofthe credit may be carried forward for the succeeding five years.

(b)        Timing. – Thecredit must be taken in equal installments over the five years beginning in thefirst taxable year in which the federal credit is claimed for that building.During the first taxable year in which the credit allowed under this sectionmay be taken with respect to a building, the amount of the installment must bemultiplied by the applicable fraction under section 42(f)(2)(A) of the Code.Any reduction in the amount of the first installment as a result of thismultiplication is carried forward and may be taken in the first taxable yearafter the fifth installment is allowed under this section.

(b1)      Allocation. – Notwithstandingthe provisions of G.S. 105‑131.8 and G.S. 105‑269.15, a pass‑throughentity that qualifies for the credit provided in this section may allocate thecredit among any of its owners in its discretion as long as an owner's adjustedbasis in the pass‑through entity, as determined under the Code at the endof the taxable year in which the federal credit is first claimed, is at leastforty percent (40%) of the amount of credit allocated to that owner. Owners towhom a credit is allocated are allowed the credit as if they had qualified forthe credit directly. A pass‑through entity and its owners must includewith their tax returns for every taxable year in which an allocated credit isclaimed a statement of the allocation made by the pass‑through entity andthe allocation that would have been required under G.S. 105‑131.8 or G.S.105‑269.15.

(c)        QualifyingBuildings. – As used in this section the term "qualified North Carolinalow‑income building" means a qualified low‑income buildingthat was allocated a federal credit under section 42(h)(1) of the Code, was notallowed a federal credit under section 42(h)(4) of the Code, and meets any ofthe following conditions:

(1)        It is located in anarea that, at the time the federal credit is allocated to the building, is atier one or two enterprise area, as defined in G.S. 105‑129.3.

(1a)      (Expires January1, 2005) It is located in a county that, at the time the federal credit isallocated to the building, has been designated as having sustained severe ormoderate damage from a hurricane or a hurricane‑related disaster,according to the Federal Emergency Management Agency impact map, revised onSeptember 25, 1999. Those counties are Bertie, Beaufort, Bladen, Brunswick,Carteret, Columbus, Craven, Dare, Duplin, Edgecombe, Greene, Halifax, Hertford,Jones, Lenoir, Martin, Nash, New Hanover, Northampton, Onslow, Pasquotank,Pender, Pitt, Washington, Wayne, and Wilson Counties.

(2)        It is located in anarea that, at the time the federal credit is allocated to the building, is atier three or four enterprise area, and forty percent (40%) of its residentialunits are both rent‑restricted and occupied by individuals whose incomeis fifty percent (50%) or less of area median gross income as defined in theCode.

(3)        It is located in anarea that, at the time the federal credit is allocated to the building, is atier five enterprise area, and forty percent (40%) of its residential units areboth rent‑restricted and occupied by individuals whose income is thirty‑fivepercent (35%) or less of area median gross income as defined in the Code.

(d)        Expiration. – If,in one of the five years in which an installment of the credit under thissection accrues, the taxpayer is no longer eligible for the correspondingfederal credit with respect to the same qualified North Carolina low‑incomebuilding, then the credit under this section expires and the taxpayer may nottake any remaining installment of the credit. If, in one of the five years inwhich an installment of the credit under this section accrues, the building nolonger qualifies as a low‑income building under subdivision (2) or (3) ofsubsection (c) of this section because less than forty percent (40%) of itsresidential units are both rent‑restricted and occupied by individualswho meet the income requirements, then the credit under this section expiresand the taxpayer may not take any remaining installments of the credit. Thetaxpayer may, however, take the portion of an installment that accrued in aprevious year and was carried forward to the extent permitted under G.S. 105‑129.17.

(e)        Forfeiture forDisposition. – If the taxpayer is required under section 42(j) of the Code torecapture all or part of a federal credit under that section with respect to aqualified North Carolina low‑income building, the taxpayer must reportthe recapture event to the Secretary and to the Housing Finance Agency. Thetaxpayer forfeits the corresponding part of the credit allowed under thissection with respect to that qualified North Carolina low‑incomebuilding. If the credit was allocated among the owners of a pass‑throughentity, the forfeiture applies to the owners in the same proportion that thecredit was allocated. This subsection does not apply when the recapture of partor all of the federal credit is the result of an event that occurs after thecredit period described in subsection (b) of this section.

(f)         Forfeiture forChange in Ownership. – If an owner of a pass‑through entity that hasqualified for the credit allowed under this section disposes of all or aportion of the owner's interest in the pass‑through entity within fiveyears from the date the federal credit is first claimed and the owner'sinterest in the pass‑through entity is reduced to less than two‑thirdsof the owner's interest in the pass‑through entity at the time thefederal credit is first claimed, the owner must report the change to theSecretary and to the Housing Finance Agency. The owner forfeits a portion ofthe credit. The amount forfeited is determined by multiplying the amount ofcredit by the percentage reduction in ownership and then multiplying thatproduct by the forfeiture percentage. The forfeiture percentage equals therecapture percentage found in the table in section 50(a)(1)(B) of the Code. Theremaining allowable credit is allocated equally among the five years in whichthe credit is claimed. Forfeiture as provided in this subsection is notrequired if the change in ownership is the result of any of the following:

(1)        The death of theowner.

(2)        A merger,consolidation, or similar transaction requiring approval by the shareholders,partners, or members of the taxpayer under applicable State law, to the extentthe taxpayer does not receive cash or tangible property in the merger,consolidation, or other similar transaction.

(g)        Liability FromForfeiture. – A taxpayer or an owner of a pass‑through entity thatforfeits a credit under this section is liable for all past taxes avoided as aresult of the credit plus interest at the rate established under G.S. 105‑241.21,computed from the date the taxes would have been due if the credit had not beenallowed. The past taxes and interest are due 30 days after the date the creditis forfeited. A taxpayer or owner of a pass‑through entity that fails topay the taxes and interest by the due date is subject to the penalties providedin G.S. 105‑236. (1999‑360, s. 11; 2000‑56, s. 7; 2000‑140, s. 88; 2001‑431,s. 2; 2002‑87, s. 2; 2003‑416, s. 1; 2007‑491, s. 44(1)a.)