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Right of First Refusal Under IRC Section 42(i)(7)
Institute for Professional and Executive Development, Inc.Boston, Massachusetts
October 11-12, 2007
James F. Duffy
[email protected], 617-345-1129
Right of First Refusal Under IRC Section 42(i)(7)
• Added to Section 42 in 1990
• Provides that no Federal income tax benefit will fail to be allowable merely by reason of:
– A Right of First Refusal to purchase the property after the close of the Compliance Period
– Held by Certain Eligible Holders
– For a specified Minimum Purchase Price
Eligible Holders of a Right of First Refusal Under IRC Section 42(i)(7)
• Tenants of the project (in cooperative form or otherwise)
• Resident management corporation of such building
• Qualified nonprofit organization (as defined in Section 42(h)(5)(C), the test for the nonprofit set-aside)
• Government agency
Minimum ROFR Purchase Price
The Minimum Purchase Price equals the sum of:
(1) the principal amount of the outstanding indebtedness secured by the buildings (other than indebtedness incurred during previous 5 years), plus
(2) all Federal, state and local taxes attributable to such sale
Considerations When There’s a Right of First Refusal
• The statutory purchase price is a minimum price. It doesn’t include accrued but unpaid amounts due to limited partners, such as Fees, Loans and Tax credit adjusters
• This is not an option
• Look to the sales proceeds waterfall in the partnership agreement to see how the proceeds are distributed
• The parties don’t have to use the ROFR in Year 1510750975.2