David A. Davenport and Samuel T. Johnson, Year-15 Disputes in the Low-Income Tax Credit Program, Aggregators, and Their Playbooks, 31 A.B.A. Journal of Affordable Housing and Community Development Law 59 (2022)

The federal government’s Low-Income Housing Tax Credit (LIHTC) program has been exposed to a troubling trend in recent history. The culprits—known throughout the LIHTC industry as “Aggregators”—are private firms that have collected limited partner interests in LIHTC entities that own affordable housing and have been systematically employing vulturine strategies meant to extract unintended cash windfalls out of affordable housing projects to line their pockets with cash. In the face of Aggregators carrying out this business model, developers and sponsors of affordable housing, which include both nonprofit and profit-based organizations, are being deprived of the promised, bargained-for exchanges that first incentivized them to develop the affordable housing and participate in the LIHTC program. These Aggregators are neither involved in the initial phase of LIHTC project development, wherein the tax credits central to the LIHTC program are sought, secured, and syndicated; nor are they part of the initial investment in low-income housing, or its planning, development, or operation. Yet Aggregators generally assume some interest in the applicable LIHTC entity, typically a limited partnership or limited liability company, prior to the end of a fifteen-year period known as the “Compliance Period.” The Compliance Period marks a significant turning point, since prior to this juncture the tax credit exchanges at the heart of the LIHTC program are subject to recapture under Section 42(j) of the Internal Revenue Code of 1986, as amended (the “Code”), unless participants comply with complex federal, state, and local regulations throughout those fifteen years. In the post-compliance period, however, the tax credits have been secured without risk of recapture.

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