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State of California
State of California
Board of Equalization
Legal Department-MIC:83
Office of the Chief Counsel
(916) 445-4380
Fax: (916) 322-0341
Memorandum
To:
Honorable Jerome E. Horton, Chairman
Honorable Michelle Steel, Vice Chair
Honorable Betty T. Yee, First District
Senator George Runner, Second District
Honorable John Chiang, State Controller
From:
Randy Ferris
Chief Counsel
Subject:
Board Meeting, November 19-20, 2014
Item J- Chief Counsel's Rulemaking Calendar
Regulation 140.1, Requirements for Managing General Partner of Limited Partnership
for Welfare Exemption for Low-Income Housing Properties
Date: October 8, 2014
We request your approval to place proposed changes to Property Tax Rule 140.1,
Requirements for Managing General Partner of Limited Partnership for Welfare
Exemption for Low-Income Housing Properties, on the Chief Counsel's Rulemaking
Calendar for the November 19-20,2014 Board meeting. The rule defines the term
"managing general partner" and prescribes the requirements to establish that an eligible
nonprofit corporation is the managing general partner of a limited partnership for
purposes of qualifying for the welfare exemption under Revenue and Taxation Code
section 214, subdivision (g). The proposed changes make the rule consistent with the
repeal of Corporations Code sections 15611 and 15641 and the enactment of
Corporations Code sections 15 901.02 and 15 904.01.
Corporations Code section 15611, subdivisions (1), (n), (q), and (r), respectively, defined
the terms "foreign limited partnership," "general partner," "limited partner," and "limited
partnership" for purposes ofthe Revised Limited Partnership Act (Corp. Code,§§ 1561115724). Corporations Code section 15641 governed the admission of general partners to
limited partnerships under the Revised Limited Partnership Act.
Corporations Code sections 15901.02 and 15904.01 were included as part of the Uniform
Limited Partnership Act of2008, which was enacted by Assembly Bill No. (AB) 339
(Stats. 2006, ch. 495, § 20). Corporations Code section 15901.02, subdivisions (k), (m),
(p), and (q), respectively, define the terms "foreign limited partnership," "general
partner," "limited partner," and "limited partnership" for purposes of the Uniform
Limited Partnership Act of2008. Corporations Code section 15904.01 governs the
Item J2
11-19-14
Honorable Board Members
October 8, 2014
-2-
admission of general partners to limited partnerships under the Uniform Limited
Partnership Act of 2008.
Also enacted as part of the Uniform Limited Partnership Act of2008 was Corporations
Code section 15912.06, which by its terms provided for Corporations Code sections
15901.02 and 15904.01 to apply to all limited partnerships beginning on January 1, 2010.
In addition, Corporations Code section 15724 was enacted as part of AB 339 in order to
provide for the repeal of the Uniform Limited Partnership Act, including Corporations
Code sections 15611 and 15641, effective January 1, 2010. Therefore, in accordance
with Corporations Code sections 15724 and 15912.06, the provisions of Corporations
Code section 15611 were superseded by the provisions of Corporations Code section
15901.02 and the provisions of Corporations Code section 15641 were superseded by the
provisions of Corporations Code section 15904.01, beginning on January 1, 2010.
The proposed changes to Property Tax Rule 140.1 replace references to repealed
Corporations Code section 15611, subdivisions (l), (n), (q), and (r), with references to
current Corporations Code section 15901.02, subdivisions (k), (m), (p), and (q),
respectively, and replace a reference to Corporations Code section 15641 with a reference
to current Corporations Code section 15904.01.
Based on the foregoing, Board staff will request the Board's authorization to change
Property Tax Rule 140.1 under California Code of Regulations, title 1, section (Rule)
100, without the normal notice and public hearing process. These changes are
appropriate for processing under Rule 100 because they make the regulation consistent
with current law and do not materially alter any requirement, right, responsibility,
condition, prescription or other regulatory element of any California Code of Regulations
provision.
Attached is a strikeout and underlined version ofProperty Tax Rule 140.1 illustrating the
proposed changes.
If you have any questions regarding this request, please let me know or contact
Mr. Bradley Heller at (916) 323-3091.
Approved:
Randy FerriS::ef Counsel
C~r
Approved:
BOARD APPROVED
At the //-I 9 -1 i:( Board Meeting
Dean Kinnee, Acting Deputy Director
Property and Special Taxes Department
Joann Richmond, Chief
Board Proceedings Division
~~~
-3-
Honorable Board Members
RF:BH:yg
Atachment
cc:
Ms. Cynthia Bridges
Mr. Dean Kinnee
Ms. Joann Richmond
Mr. Robert Tucker
Mr. Richard Moon
Mr. Bradley M. Heller
Ms. Glenna Schultz
M1C:73
MIC:64
MIC:80
MIC:82
MIC:82
MIC:82
MIC:64
October 8, 2014
Text of Proposed Changes to
California Code of Regulations, Title 18. Section 140. 1
Rule 140.1. Requirements for Managing General Prutner of Limited Partnership for Welfru·e
Exemption for Low-Income Housing Properties.
(a) De finit ions. The definitions set forth in this regulation shall govern the construction of
Revenue and Taxation Code section 2 14, subdivision (g), which provides the requirements for
the welfare exemption for low-income housing properties owned by a limited partnership in
w hich the managing general partner is an eligible nonprofit corporation or eli gible limited
liabili ty company.
( I) ..General partner" means ··general partner"" as defmed by section 1590 1 .02~,
subdivision (ma) oftbe Corporations Code.
(2) .. Limited partner·· means '·limited partner"' as defined by section 1590 1.02~.
subdivision (Rtf) of the Corporations Code.
(3) ··Limited partnership'· means a ··timited partnership" as defined by section
15901.02 15611 , subdivision (gf) of the Corporations Code. or a ··foreign limited partnership.,
as defined by section l 5901.02-J...5.6..t-.l.. subdivision (kl) of the Corporations Code.
(4) ··Li mited partnership agreemenC means any valid written agreement of the partners as to
the affairs of a limited partnership and the conduct of its business, includ ing all amendments
thereto .
(5) ..Majority in interest of the general partners·· means more than 50 percent of the interests
of the general partne rs, and does not include tbe interests of any of the limited partners, in the
current profits derived from business operations of the limited prutnership.
(6) '·Managing general partner" means a general partner that:
(A) is a nonprofit corporation, or an eligible limited liabi lity company meeting the
requirements of Revenue and Taxation Code section 2 14, designated in the limited
prutnership agreement as the ·' managing general partner'' of the limited partnership;
(B) is authorized to receive a partnership management fee, or similar form of
compensation. payable in the amount and the manner set forth in the limited partnership
agreement or other agreement executed by all of the general partners for perfonning its
duties:
(C) has ··material participation; · as defined in subdivision (a)(7) below, in the control,
management, and direction of the limited partnership's business; and
(D) the officers and directors of the for-profit general partners, for-profit li mited partners.
or any of its for-profit affiliates. do not, as individuals or col lectively, have a controlli ng
vote or majority interest in the nonprofit managing general partner.
(7) .. Material participation'' means that the limited partnership agreement or other agreement
executed by all of the general partners expressly provides that the managing general partner:
(A) has a right to vote in all the "major decisions.'· defined in subdivi sion (a)( 8) below:
(B) performs '·substantial management duties,'' defined in subdi vision (a)( l 0) below;
(C) directl y, or indirectly under its supervision. manages the limited partnership;
(D) annually conducts a physical inspection oflhe low-income housing property to
ensure that the property is being used as low-income housing and meets all of the
requirements set forth in Regulation 140: and
(E) annually submits a certification to the county assessor for the county in whjch the
property is located that the low-income housing property meets all of the requirements set
forth in Regulation 140.
(8) .. Major decisions'· means those acts, if any. that require a vote of a majority in interest of
the general partners.
(9) ·'Partner'· means a limited or general partner.
( 10) "Substantial management duties'' means that the managing general partner actually
performs fi ve or more of the following partnership management duties on behalf of the
limited partnership:
(A) rents, mruntains and repairs the low-income housing property, or if such duties are
delegated to a property management agent, participates in hiring and overseeing the work
ofthe property management agent;
(B) parti cipates in hiring and overseeing the work of all persons necessary to provide
services for the management and operation of the limited partnership business;
(C) executes and enforces all contracts executed by the limited partnership;
(D) executes and delivers all partnership documents on behalf of the limited partnership;
(E) prepares or causes to be prepared all reports to be provided to the partners or lenders
on a monthly. quarterly, or annual basis consistent with the requirements of the limited
partnership agreement;
(F) coordinates all present and future development, construction, or rehabi li tation of lowincome housing property that is the subject of the limited partnership agreement;
(G) monitors compl iance with all government regulations and files or supervises the
filing of all required documents with government agencies;
(H) acquires. holds, assigns or disposes of property or any interest in property;
(I) borrows money on behalf of the limi ted partnership, encumbers limited partnership
assets. places title in the name of a nominee to obtain financing, prepays iJ1 whole or in
part. refinances, increases, modifies or extends any obligation;
(J) pays organizational expenses incurred in the creation ofthe partnersh ip and all
operational expenses;
(K) determines the amount and timing of distributions to partners and establishes and
maintains al l required reserves; and
(L) ensures that charitable services or benefits, such as vocational training, educational
programs. childcare and after-school programs, cultural activities, family counseling,
transportation, meals, and linkages to health and/or social services are provided or
informat ion regarding charitable services or benefits are made available to the lowincome housing tenants.
(b) The managing general partner must maintai n records and documents evidencing the duties
perfo1med by the managing general partner. Such records and documents may include, but are
not limited to:
( l ) accounting books and records;
(2) tax returns;
(3) budgets and financial reports;
(4) reports required by lenders;
(5) documents related to the construction or rehabilitation of real propetty;
(6) legal documents such as contracts, deeds, notes, leases, and deeds of trust;
(7) documents related to complying with government regulations and filings;
(8) documents related to property inspections;
(9) documents related to charitable services or benefits provided or the information provided
regarding such services or benefits;
(I 0) reports prepared for the partners;
( 11) bank account records:
( 12) audited annual financial statement oftbe limited partnership; and
( 13) property management agreement.
(c) Substitution of Managing General Partner. A limited partnership in which the managing
general partner is an eligible nonprofit corporation or an eligible limited liability company that
has qualified for the welfare exemption fo r low-income housing may allow a substi tution of its
managing general partner by another eligible nonprofit corporation or el igib le limited liability
company without affecting the organizational qualiticatjon for the welfare exemption provided
that:
( 1) the limited partnership agreement authorizes the withdrawal or removal of the managing
general partner and the admission of a substi tute managing general partner on the same
effective date and such admission of the substituting managing general partner into the
limited partnership is in compliance with the requirements of section 15904.0 I~ of the
Corporations Code: and
(2) the substitute managing general partner meets all of the requirements of a managing
general partner set forth in subdivision (a)(6) above.
(d) Delegation of Authority Clause. If the limited partnership agreement contains a delegation of
authority clause. such clause must provide either that:
(I) the managing general partner may not delegate any of its substanti al management duties
defined in (a)(! 0) above; or
(2) the managing general partner may delegate its substantial management duties, defined in
(a)( 10) above. to persons who, under its supervision. may perform such duties for the
partnership subject to the supervision by the managing general partner. If the managing
general partner elects to delegate one or more of its substantial management duties. the
managing general partner must demonstrate that it is actually supervisi ng the performance of
the delegated duties.
(e) Certification Requirements. The limited partnership must ftle for and receive a supplemental
clearance certificate from the Board as provided in Regulation 140.2.
(f) The provisions of thi s regulation shall apply prospectively to claims or applications tor the
welfare exemption under Revenue and Taxalion Code section 21 4 and supplemental clearance
certificates under Regulation 140.2, fil ed on or after the e ffecti ve date of this regulation. For
supplementa l clearance certificates issued prior to the effective date of thi s regulation, c laimants
sha ll have until the January I, 2007 lien date to be in compliance with this regul ati on unl ess the
Board has issued a written notice of noncompliance. ffthe Board has issued such notice,
claimant shall have 90 days from the date of the notice to comply wi th this regu lation. Upon
written request fo r an extension of time prior to the expiration of the 90-day period to comply.
the Board shall grant a reasonable amount of time to comply with this regulation.
Note: Authority cited: Section 15606, Government Code. Reference: Section 2 14. Revenue and
Taxation Code.
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