Surety

While the IRS no longer requires a disposition bond (IRS form 8693) to avoid tax credit recapture in the event of ownership disposition in a Low Income Housing Tax Credit Section 42 project, the tax credit recapture exposure still exists.

Many institutional investors refuse to dispose of ownership before the 15 year federal compliance period is up or require some type of collateral to protect them from tax credit recapture.
CMR Risk & Insurance Services, Inc. has developed an exclusive surety product to protect against tax credit recapture and interest penalties due to any non-compliance that they may arise after disposition. This product is provided by an A+ “superior” rated insurance company and covers the entire compliance and audit discovery period.

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CMR utilizes a unique financial benchmarking planning analysis process to increase bonding capacity and reduce indemnity while securing a competitive rate. CMR has partnered with three surety companies creating a collaborative financial analysis planning tool to accomplish these goals.

In addition, CMR also has an express $500,000/$500,000 and $1,000,000/$1,000,000 program. The $500M/$500M program is an application and credit driven program, no financial statements needed and short form indemnity agreement. For single bonds and aggregate work programs greater than $500,000 and up to $1MM we will need the most recent corporate financial year-end statement, interim statement (in-house statements will suffice) and personal financials of all owners. Our program includes: Backlog management – We will run off liability. This means no more waiting for a job to be completed before you have the capacity again to place another bond; Service contractors and multi-year service contracts with the use of an annually renewable bond form.

All LIHTC partnership agreements require establishing an operating cash reserve account to fund potential operating deficits as per the terms of the operating deficit guarantee provided by the project sponsor. The partnership agreement will detail when these operating reserve funds may be utilized to cover operating deficits before the sponsor must fund the difference.  On many projects this cash reserve often just sits in the reserve account and is never used and is eventually treated as a cash flow disbursement.

CMR has developed an operating reserve bond that can be utilized to guarantee funding of the operating reserve versus holding cash in an account.  This product is only for Operating Deficit Reserves.

This bond is backed by an insurer rated A++ XV by AM Best (highest possible rating) and underwrites the developer/general partners experience in operating Section 42 LIHC projects and financial ability to fund the Operating Deficit Reserve Fund.

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CMR offers an exclusive surety program that guarantees the delivery, receipt and against recapture of Section 48 Energy Credit of the Internal Revenue Code.

This program is backed by an S&P AA rated insurer and underwrites the developer/general partners experience in Section 48 Energy Credits and guarantees payment if the credits are not received or are recaptured for any reason, with the exception of a casualty loss which is normally protected by a payment provision in Property insurance.  The surety bond is irrevocable/non-cancellable and provides protection for the entire delivery, compliance and any audit discovery period.

Rehabilitation tax credits, as per Section 47 Rehabilitation Credit of the Internal Revenue Code, are subject to recapture for numerous reasons including if a building is foreclosed, destroyed by a casualty or removed from the Historic Register.  CMR offers an exclusive surety program to guarantee payment of recaptured tax credits in the event of any non-compliance that leads to tax credit recapture that is backed by S&P AA rated insurer.

This program underwrites the developer/general partners experience in historic rehabilitation tax credit projects and provides a guaranteed payment for recaptured tax credits due to any non-compliance.  The surety bond is irrevocable/non-cancellable and provides protection for the entire compliance and any audit discovery period.