HISTORIC TAX CREDITS 101

Presented by:

Bryan C. Keller, CPA

Partner In Charge

Real Estate Services Group

Rubin, Brown,Gornstein & Co. LLP

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HTC Guidelines

Greater than $250,000 Independent CPA must perform a 100% audit

of all available invoices and proof of payment CPA must also document any and all accrued

expenses• If incurred but not yet paid, applicant must

submit legal agreement outlining scope of work and time for payment

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Documentation Guidelines

Back up documentation of all expenditures must be provided with Form HTC-E Proof of payment is required

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Examination

We have examined the accompanying Missouri Department of Economic Development Historic Tax Credit Program List of Itemized Project Costs (List) for the Project. This list is the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the List of Itemized Project Costs based on our examination.

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Examination

We conducted our examination in accordance with attestation standards established by the American Institute of Certified Public Accountants, and, accordingly, our procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the List and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion.

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Examination

The List has been prepared on the basis of the accounting and reporting practices prescribed by the Missouri Department of Economic Development. These prescribed practices are a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. This report is intended solely for the information and use of the Missouri Department of Economic Development and is not intended to be and should not be used by anyone other than the Missouri Department of Economic Development.

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Examination Opinion

In our opinion, the List presents fairly, in all material respects, the actual cost of the Project through Date on the basis of accounting described in the previous paragraph

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Work QualifiedCompleted Rehabilitation Non Qualified

Method of 8/28/98 - Expenditures - RehabilitationCategory of Work Payment Date Paid Contractor Description of Expenditure 9/13/2004 Post 8/27/98 Expenditure

Acquisition Total See Detail See Detail See Detail Acquisition 1,800,000$ —$ 1,800,000$ Appliances Total See Detail See Detail See Detail Appliances 4,300 — 4,300 Architectural & Engineering Total See Detail See Detail See Detail Architecture & Engineering 277,000 277,000 — Asbestos & Environmental Remediation Total See Detail See Detail See Detail Environmental 67,000 67,000 — Cabinets Total See Detail See Detail See Detail Cabinets 8,827 8,827 — Carpentry Labor Total See Detail See Detail See Detail Carpentry Labor 163,000 163,000 — Common Labor Total See Detail See Detail See Detail Common Labor 55,540 55,540 — Concrete Finishing Total See Detail See Detail See Detail Concrete Finishing 49,500 49,500 — Concrete Floor Topping Total See Detail See Detail See Detail Concrete Floor 31,668 31,668 — Concrete Ramps, Structural Formwork Total See Detail See Detail See Detail Concrete Ramps, Structural Formwork 134,745 134,745 — Concrete Ramps-Floors Total See Detail See Detail See Detail Concrete Ramps-Floors 4,851 4,851 — Concrete Removal Total See Detail See Detail See Detail Concrete Removal 96,295 96,295 — Concrete Restoration Total See Detail See Detail See Detail Concrete Restoration 172,278 172,278 — Construction Insurance Total See Detail See Detail See Detail Construction Insurance 119,798 113,060 6,738 Construction Period Interest Total See Detail See Detail See Detail Construction Period Interest 600,000 230,000 470,000 Demolition Total See Detail See Detail See Detail Demolition 190,718 190,718 — Developer Fee Total See Detail See Detail See Detail Developer Fee 1,500,000 1,500,000 — Electrical Total See Detail See Detail See Detail Electrical 600,000 560,000 40,000 Elevators Total See Detail See Detail See Detail Elevators 119,108 119,108 — Financing Costs Total See Detail See Detail See Detail Financing Costs 109,105 59,786 49,319 Finish Carpentry Total See Detail See Detail See Detail Finish Carpentry 10,136 10,136 — Fire Suppression System Total See Detail See Detail See Detail Fire Suppression System 204,142 204,142 — Fireplace Total See Detail See Detail See Detail Fireplace 1,651 1,651 — Flashing & Sheet Metal Total See Detail See Detail See Detail Flashing & Sheet Metal 17,100 17,100 — General Requirements Total See Detail See Detail See Detail General Requirements 165,000 165,000 — Glass & Glazing Total See Detail See Detail See Detail Glass & Glazing 4,861 4,861 — Gypsum Board Assemblies Total See Detail See Detail See Detail Gypsum Board Assemblies 400,000 400,000 — HVAC Total See Detail See Detail See Detail HVAC 250,000 250,000 — Legal/Accounting/Consulting Total See Detail See Detail See Detail Legal/Accounitng/Consulting 17,755 4,379 13,376 Lumber - Materials Total See Detail See Detail See Detail Lumber - Materials 7,735 7,735 — Marketing/Management/Start Up Total See Detail See Detail See Detail Marketing/Management/Start Up 71,652 — 71,652 Masonry Total See Detail See Detail See Detail Masonry 6,750 6,750 — Membrane Roofing Total See Detail See Detail See Detail Membrane Roofing 73,470 73,470 — Metal Doors & Frames Total See Detail See Detail See Detail Metal Doors & Frames 9,287 9,287 — Metal Fabrication Total See Detail See Detail See Detail Metal Fabrication 31,336 31,336 — Ornamental Metal Fabrication Total See Detail See Detail See Detail Ornamental Metal Fabrication 200,000 200,000 — Other Costs Total See Detail See Detail See Detail Other Costs 15,524 7,189 8,335 Overhead / Supervision Total See Detail See Detail See Detail Overhead/Supervision 250,000 250,000 — Painting Total See Detail See Detail See Detail Painting 79,925 79,925 — Permits Total See Detail See Detail See Detail Permits 75,894 64,399 11,495 Plumbing Total See Detail See Detail See Detail Plumbing 425,000 425,000 — Postal Specialties Total See Detail See Detail See Detail Postal Specialties 1,243 1,243 — Profit Total See Detail See Detail See Detail Profit 180,000 180,000 — Rough Carpentry-Materials Total See Detail See Detail See Detail Rough Carpentry-Materials 32,743 32,743 — Sandblasting Interior Total See Detail See Detail See Detail Sandblasting 98,456 98,456 — Toilet & Bath Accessories Total See Detail See Detail See Detail Toilet & Bath Accessories 332 332 — Windows Total See Detail See Detail See Detail Windows 240,000 240,000 — Wood Floor Total See Detail See Detail See Detail Wood Floor 1,759 1,759 —

Grand Total 8,975,484$ 6,600,269$ 2,475,215$

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Work QualifiedMethod Completed Rehabilitation Non Qualified

of Date 8/28/98 - Expenditures - RehabilitationCategory of Work Payment Paid Contractor Description of Expenditure 9/13/2004 Post 8/27/98 Expenditure

Acquisition Check 04/03/03 Bank1 Accrued Interest - Additional Acquisition Cost 3,189$ —$ 3,189$ Withhold 04/03/03 Bank 2 Acquisition Loan Costs 16,554 — 16,554 Check 04/03/03 Bank 1 Title Fee 125 — 125 Check 04/03/03 Bank 2 Closing Fee-Buyer 125 — 125 Check 04/03/03 Bank1 Recording 137 — 137 Check 04/03/03 Bank 2 Acquisition Loan - Lender's Counsel 6,000 — 6,000 Check 04/03/03 Bank 1 MSD Fees-Additional Acquisition Cost 58 — 58 Check 04/03/03 Bank 2 Acquisition Legal 1,457 — 1,457 Check 04/03/03 Bank1 Survey 2,225 — 2,225 Wire 04/11/03 Bank 2 Acquisition Payment at Closing 1,400,000 — 1,400,000

Check 06/27/03 Bank 1 Seller Financing 211,000 — 211,000 Check 06/27/03 Bank 2 Refund of Earnest Money & Purchase Option Cost 27,500 — 27,500

Withhold 06/27/04 Bank 1 Pre-Construction Interest 131,630 — 131,630 Acquisition Total 1,800,000 — 1,800,000

Appliances Check 12/03/03 Vendor 1 Appliances 2,297 2,297 Check 12/03/03 Vendor 1 Appliances 238 238 Check 01/08/04 Vendor 1 Appliances 213 213 Check 09/13/04 Vendor 1 Appliances 828 828 Check 09/15/04 Vendor 1 Appliances 724 724

Appliances Total 4,300 — 4,300

Architectural & Engineering Check 06/27/03 Vendor 1 Architectural Fees 25,000 25,000 — Check 06/27/03 Vendor 2 Architectural Fees 32,000 32,000 — Check 08/06/03 Vendor 3 Engineering 1,290 1,290 — Check 08/06/03 Vendor 1 Engineering 4,960 4,960 — Check 08/06/03 Vendor 2 Engineering 1,600 1,600 — Check 09/04/03 Vendor 3 Engineering 3,360 3,360 — Check 09/04/03 Vendor 1 Engineering 15 15 — Check 09/04/03 Vendor 2 Architectural Fees 32,643 32,643 — Check 10/09/03 Vendor 3 Engineering 2,960 2,960 — Check 10/09/03 Vendor 1 Engineering 10,270 10,270 — Check 10/09/03 Vendor 2 Architectural Fees 50,000 50,000 — Check 11/06/03 Vendor 3 Engineering - Structural evaluation and Design 5,600 5,600 — Check 11/06/03 Vendor 1 Engineering - surveying 1,960 1,960 — Check 11/06/03 Vendor 2 Blueprints 27 27 — Check 11/06/03 Vendor 3 Blueprints 113 113 — Check 12/03/03 Vendor 1 Engineering 505 505 — Check 12/03/03 Vendor 2 Architectural Fees 61,392 61,392 — Check 12/22/03 Vendor 3 Engineering 5,580 5,580 — Check 01/08/04 Vendor 1 Engineering 6,740 6,740 — Check 01/08/04 Vendor 2 Engineering 490 490 — Check 01/08/04 Vendor 3 Architectural Fees 11,505 11,505 —

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Qualified Rehabilitation Expenses

Qualified Rehabilitation Expenses only are eligible for tax credits Qualified rehabilitation expenses include…

• Any expenditures for a structural component of a building, including:

– Walls– Partitions– Floors– Ceilings– Paneling

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Qualified Rehabilitation Expenses

Qualified rehabilitation expenses include… Any expenditure for a structural component of a

building, including:• Tile• Windows• Doors• HVAC systems• Plumbing

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Qualified Rehabilitation Expenses

Qualified rehabilitation expenses include… Plumbing and plumbing fixtures Electrical wiring and lighting fixtures Chimneys Stairs Elevators/escalators Sprinkler systems

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Qualified Rehabilitation Expenses

Soft Costs: Construction period interest, excluding acquisition

interest Construction period taxes/insurance Architect fees Professional fees Engineering fees Construction management costs “Reasonable” development fees Construction financing fees/costs

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Costs Ineligible for Historic Tax Credits

Acquisition costs, acquisition related interest Appliances Additions or enlargements (decks, porches, enclosing

open areas, adding rooms/floors) Unattached cabinets Carpeting (if tacked in place and not glued) Demolition (interior demo includable) Fencing Financing fees (permanent financing) Furniture

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Costs Ineligible for Historic Tax Credits

Leasing expenses Outdoor lighting Parking lots/paving Planters Retaining walls Sidewalks Signage Storm sewer construction Window treatments

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Federal Credit Calculation

Total Development Costs $10,000,000Ineligible Costs (1,000,000)Credit Eligible Costs $9,000,000Federal Credit % x 20%Federal Historic Tax Credit $1,800,000Limited Partner Ownership % x 99%Federal Credit to LP $1,782,000Equity “pricer” x .90Limited Partner Equity $1,603,800

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Who can use the credit?

The person(s) and/or entity who holds title to the property Widely held C corporations Real estate professionals (subject to participation and

eligibility rules) Individuals (with limitations) Limitations:

• Passive activity rules• Credit not available against AMT• Unused credits can be carried back one year and forward

for 20 years

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Who can use the credit?

A lessee of a building can claim the tax credit A lessee who incurs the cost of rehabilitation

and who has a lease term greater than the recovery period, can claim the tax credit on qualified rehabilitation expenditures

A building owner, who is not tax exempt, who incurs the cost of rehabilitation, can elect to pass the tax credit to its lessee

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Claiming the Credit

Federal Form 3468 Attachment to Form 3468 (1.4-12(b)(2)(viii)

Beginning/ending dates of measuring period Adjusted basis of building as of beginning of measuring

period Amount of QRE incurred or treated as incurred during

measuring period Copy of final certification of completed work by

Secretary of the Interior If adjusted basis includes that of a 3rd party, must attach

statement by 3rd party as first day of holding period, measuring period and adjusted basis calculation

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Credit Recapture Rules

Rehab credits are subject to recapture if the building is sold or ceases to be business use property.

No recapture required after 5 years from placed in service date.

Recapture Schedule: Year 1 100% Year 4 40% Year 2 80% Year 5 20% Year 3 60% After Year 5 None

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State Credit Calculation

Total Development Costs $10,000,000

Ineligible Costs (1,000,000)

Credit Eligible Costs $ 9,000,000

State Credit % x 25%

State Historic Tax Credit $ 2,250,000

Limited Partner State Credit % x 100%

State Credit to LP $ 2,250,000

Equity “pricer” x .80

Limited Partner Equity $ 1,800,000

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Other Issues/Topics

Tax exempt entities Disqualified leases At risk rules – 704(b) Combining with other tax credit programs Deferred developer fees Application/Final Approval/Transfer Forms

Federal State