One hears of tax credit deals so complex that their diagrams make pleasantly intricate wall hangings. But how many are unique enough to patent? There’s at least one—or so claims an application published in February.

The application purports to solve a long-puzzling problem: how to syndicate low-income housing tax credits (LIHTCs) from so-called “80/20” projects—mixed-income buildings financed by tax-exempt private-activity bonds with 80 percent of the units at market rate and 20 percent subsidized.

This application is no fluke: Serious money and expertise went into it, and the structure it describes is already in licensed use for syndication deals by a partnership involving The Richman Group Affordable Housing Corp.

Richman’s president, David Salzman, said the licensee, Richman-KCM Tax Credit Advisors, LLC, was a partnership between his own company and Peter Kelly of the Clover Capital Corp. in Manhattan Beach, Calif.

Glenn S. Miller, a Bingham McCutchen tax law partner retained by Kelly, is one of three inventors named on the application. Miller said the structure is the same one that prompted the Internal Revenue Service’s Private Letter Ruling (PLR) 200601021.

Salzman said Richman-KCM was actively syndicating tax credits through “private-label funds” for 80/20 bond-funded projects in the high-rent areas of New York City, Los Angeles, and San Francisco. In 80/20 deals, he explained, “there’s no cash flow ... no net operating income available from the subsidized units,” so the market-rate units have to subsidize them. “This only works in areas where there’s a huge disparity between the low-income [rents] and the market [rents].”

PLR 200601021, issued in December 2004, caused a stir when it became public in early 2006. It allows bond-financed investment deals to separate ownership of subsidized and market-rate units for tax purposes even if the units are physically mingled in the same building. Salzman said the PLR, when combined with the structure in the application, allows a developer to keep the depreciation and cash flow from the project while selling the LIHTCs, whereas “prior to the private letter ruling, the bond rules wouldn’t allow this.” He said Richman Group participated in seeking the PLR.

Although the PLR itself is public property, Miller said a business deal taking advantage of it would probably need the methods in the patent application.

He described the patent application as an effort to recoup Kelly’s large investment in developing the 80/20 structure. Salzman said “it’s taken probably four years or so” and “hundreds of thousands of dollars, if not millions, to develop the structure.”

Some in the industry have complained that the attempt to patent a tax credit syndication strategy is bad for affordable housing. But Miller argued, “this structure promotes affordable housing where none was possible before.” He said public bond issuers were especially pleased that the structure would allow more 80/20 projects than before.

One obstacle might be S. 681, a bill by Sen. Carl Levin (D-Mich.) that would block a patent if “the invention is designed to minimize, avoid, defer, or otherwise affect the liability for federal, state, local, or foreign tax.” Miller insisted the 80/20 structure was not an attempt to patent a “tax structure” but instead resembled financial structures for transactions such as mortgages. However, he said the S. 681 language sounded like “that’ll have to be narrowed. That’s just too broad.”

Need to Know: Key Regulatory Developments

Some upcoming application deadlines:

  • June 18: Secs. 514 and 516 farmworker housing grants.
  • June 18: Sec. 533 rural housing preservation grants.
  • June 29: Sec. 515 Rural Rental Housing new construction loans.

Some upcoming comment deadlines:

  • June 4: Proposed rule on reserve accounts for new multifamily projects under Secs. 515 and 514/516.
  • June 15: Local agencies’ reports to HUD on Davis-Bacon enforcement and a proposed new investigation process for alleged labor violations on HUD-funded projects.
  • June 25: The requirement for multifamily project monthly accounting reports.
  • July 2: The Sec. 202 application process and forms.
  • July 5: Census Bureau proposals to change the boundaries of census tracts, “designated places,” divisions within or instead of counties, and “block groups” within census tracts.

Other regulatory news:

  • As of late March, HUD planned to “pro-rate” public housing operating funds at 82 percent to 84.5 percent.
  • HUD released fiscal 2007 income limits for Sec. 8.
  • PIHN 2007-10 issued guidance on vouchers for displaced tenants.
  • IRS Rev. Proc. 2007-31 set median gross income figures for mortgages financed by tax-exempt bonds.
  • HUD's Fair Housing office introduced a mascot, “Franklin the Fair Housing Fox.”

A presentation Kelly gave the National Housing and Rehabilitation Association can be found online at The PLR is on The patent application is No. 20070043645, available at