Final Cost Certification (HTC 9) Part 1 of 2

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[Letterhead of CPA Firm]

HOUSING TAX CREDITS FINAL COST CERTIFICATION
INDEPENDENT AUDITOR'S REPORT

[Date]

Minnesota Housing Finance Agency
400 Wabasha St. N 
Suite 400
St. Paul, MN 55102

[Name of Ownership Entity]
[Address]

Re:	[Name and Location of Development]
	[Minnesota Housing HTC #]

Dear Minnesota Housing:

We have audited the accompanying final cost certification of [name of ownership entity] (Owner) pertaining to the development of [project name] (Project), which comprises the Statement of Final Cost Certification for Housing Tax Credits (Minnesota Housing HTC Form 9 Exhibit A) as of [date] and the related notes to the final cost certification.

Owner’s Responsibility for the Final Cost Certification
Owner is responsible for the preparation and fair presentation of the final cost certification in accordance with the accounting and reporting practices relating to the Housing Tax Credit (HTC) Program as prescribed by Section 42 of the Internal Revenue Code (IRC) and the Minnesota Housing Finance Agency (Minnesota Housing), as described in Note 2 in the Notes section below; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of a final cost certification that is free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on the final cost certification based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the final cost certification is free from material misstatement.  

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the final cost certification. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the final cost certification, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Owner’s preparation and fair presentation of the final cost certification in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Owner’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by Owner, as well as evaluating the overall presentation of the final cost certification.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the final cost certification referred to above presents fairly, in all material respects, the actual project costs and eligible basis of Owner pertaining to the development of the Project as of [date], in accordance with accounting and reporting practices referred to above and described in Note 2 in the Notes section below.

We specifically opine that the final cost certification excludes from eligible basis [amount] of costs attributable to facilities, including parking facilities, for which tenants will be charged a fee for their use and that the method by which costs were allocated to such facilities, as described in Note 2, is consistent with the requirements of the Internal Revenue Code and Treasury Regulations applicable to the HTC Program.

Basis of Accounting
We draw attention to Note 2, in the Notes section below, of the final cost certification, which describes the basis of accounting. Our opinion is not modified with respect to that matter.

[Report on Supplementary Information
Our audit was conducted for the purpose of forming an opinion on the final cost certification. The accompanying supplementary information shown on page [#], which is the responsibility of Owner, is presented for purposes of additional analysis to calculate the amount of housing tax credits {and the 50% test for tax exempt volume limited bonds} and is a required part of the final cost certification.]  

Other Matters
We have no financial interest in the Owner other than in the practice of our profession.

Restriction on Use
This report is intended solely for the information and use of the Owner and Minnesota Housing and is not intended to be and should not be used by anyone other than these specified parties.

     	     
Signature	Date

     	     
Name of Signatory (typed or printed)	Name of Independent Accounting Firm

[OWNER NAME]

NOTES TO THE FINAL COST CERTIFICATION

[Date]

1.	Organization
Owner is a [type of entity] formed on [date] in accordance with the laws of the State of the Minnesota. Owner will continue [until {date}][in perpetuity] unless it is dissolved prior to that date in accordance with the provisions of [Owner’s applicable organizational document(s)]. 

Owner was formed to [construct/acquire, rehabilitate], own and operate an affordable [type of development] development consisting of [#] units (the Project) located in [city], Minnesota. The Project will be known as [project name] and will have [#] low-income housing tax credit units [and {#} {common space/market rate} unit(s)]. The land was acquired on [date]. [Construction/rehabilitation] was complete in [month] [year]. The low-income housing tax credit units were placed in service in [month] [year].

Owner provides affordable housing utilizing the HTC Program. The HTC Program places restrictions on rental rates and requires tenants to qualify for occupancy based on income levels. Owner expects [year] to be the first year of the HTC period for the Project. In order to avoid recapture, Owner must remain in compliance with various regulations through the end of the HTC compliance period, which is expected to be [month] [year]. In addition, Owner has signed a Declaration of Land Use Restrictive Covenants for Low-Income Housing Credits extending the extended use period for [#] years beyond the HTC compliance period (for a total of [#] years).

The [general partner/managing member] is [entity name]. The investor [limited partner/member] is [entity name].

2.	Summary of Significant Accounting Policies 
Basis of Accounting – The final cost certification was prepared in conformity with the accounting and reporting practices relating to the HTC Program as prescribed by Section 42 of the IRC, under the accrual method of accounting, and in conformity with the format specified by Minnesota Housing. That basis differs from generally accepted accounting principles primarily in that IRS Regulation 1.42-17(a)(5) requires the Owner to submit a schedule of project costs prepared on the method of accounting used for federal income tax purposes that details the Project’s total costs as well as those costs that qualify for inclusion in eligible basis. 

Also, reported costs include reserves that have not been funded and estimates of costs that have not been incurred. See Note 3 below. Costs that have not been incurred as of [date] include [dollar amounts and items]. 

Estimates – Owner uses estimates and assumptions in preparing the final cost certification. Those estimates and assumptions affect certain reported amounts of Project costs and eligible basis.  

Owner will charge tenants a separate fee for the use of [tenant facility/facilities]. In accordance with Section 42 of the IRC, direct costs in the amount of $[dollar amount] and indirect costs in the amount of $[dollar amount] have been excluded from eligible basis. [List direct and indirect costs separately for each type of tenant facility]. Owner allocated direct and indirect costs to the [tenant facility] by [Describe the method of allocation used to allocate direct and indirect costs to any facilities for which a separate fee will be charged].

3.	Reserves 
The [Owner’s applicable organizational document(s)] and/or mortgage loan agreements require the following reserves:

Operating Reserve – Owner is required to fund an operating reserve in the amount of $[dollar amount] from [source]. No withdrawal will be made from the operating reserve unless the [general partner/managing member] has fulfilled its obligations to [requirements]. The operating reserve is to be used to fund [items] or other expenses approved by the investor [limited partner/member]. The operating reserve has not been funded as of [date].

[Minnesota Housing’s Operating Deficit Escrow (ODE) Reserve – This reserve will be funded in the amount of {amount} from the proceeds of the [type] loan and will be held by Minnesota Housing. This reserve is to be used in the following order: {Uses in order of priority}. The ODE Reserve has not been funded as of {date}].

[Describe other reserves/deposits.]

4.	Related Party Transactions
[Under the [name of agreement], [entity name] (the Developer), a related party of the [general partner/managing member], is to receive a developer fee totaling $[amount], all of which has been earned and $[amount] of which remains to be paid as of [date].]

[The land was purchased from a related party of the [general partner/managing member] on [date] for [amount].]

[[Entity name], a related party of the [general partner/managing member], is the construction contractor for the Project. The construction contract plus change orders totaled $[amount], of which $[amount] remains to be paid as of [date].]

[The construction loan has been provided by a related party of the investor [limited partner/member]. Construction interest of $[amount], other origination fee of $[amount], construction loan fees of $[amount], post construction interest of $[amount], and [other items and amounts as appropriate], relate to the construction loan.

5.	Subsequent Events
[On [date], Owner closed on the [lender name] [type] loan ($[amount]), received a capital contribution from the investor [Limited Partner/member] ([$amount]; paid off the construction loan, post construction interest, mortgage insurance premium, title and recording; funded the operating reserve and the Minnesota Housing development cost escrow and made a developer fee payment of $[amount].]

Owner has evaluated subsequent events through [date], the date on which the Statement of Final Cost Certification was available for issue and identified no further significant events or transactions to disclose.
INSTRUCTIONS:

1.	IRS Requirements. IRC Section 42(m)(2)(A) through (C) requires housing tax credit agencies to evaluate the sources and uses of funds for a Project at the time the Project is placed in service. IRS Regulations Section 1.42-17 (a) (5) requires a taxpayer to submit a schedule of project costs (Statement of Final Cost Certification) to the housing tax credit agency for this evaluation.

2.	Total Project Costs and Eligible Basis. The Statement of Final Cost Certification must detail the Project’s total costs as well as those costs that qualify for inclusion in eligible basis under Code Section 42(d) of the IRC.

3.	CPA Report. The Statement of Final Cost Certification must be accompanied by a certified public accountant’s audit report. The audit must be conducted in accordance with generally accepted auditing standards. The auditor’s report must be unqualified.

4.	Method of Accounting. The Statement of Final Cost Certification is to be prepared on the method of accounting used by the taxpayer for federal income tax purposes.

5.	Cut-off Timing and Eligibility of Costs. In general, the Statement of Final Cost Certification should be prepared as soon as possible after the Project has been placed in service, new construction and/or rehabilitation has been completed, the bridge loan has been paid off and the funding sources have converted to permanent. The cut-off date selected by the taxpayer should represent the date when construction is complete and the costs includable in eligible basis have been incurred and disbursed.
a.	Total Project Costs. In general, only costs that have been paid in cash or have been incurred (i.e., the work has been completed and billed) should be included in the Total Project Costs column. When escrows are established for items of incomplete work, the full amount of the contract may be included. Costs to be paid in cash within 45 days of the cut-off date (such as cost certification fees or HTC fees) may be included. Reserves, such as the Operating Deficit Escrow (ODE) and permanent loan closing costs that will be funded out of a final loan closing, or operating reserves that will be funded out of future capital contributions, may be included if the source of funding is available by a firm commitment.
b.	Eligible Basis. Eligible basis is determined as of the close of the first taxable year of the HTC period. Accordingly, costs that qualify as eligible basis must be incurred (in accordance with the taxpayer’s method of accounting for federal income tax purposes) by the close of the year.

6.	Due Date. The Statement of Final Cost Certification along with the CPA report must be submitted to Minnesota Housing prior to the issuance of the final HTC award or allocation (if applicable) and the IRS Form 8609. At the latest, the Final Cost Certification along with the complete application for 8609 must be submitted to Minnesota Housing no later than 15 days following the close of the first taxable year of the HTC period.

SUPPLEMENTARY INFORMATION

FINAL COST CERTIFICATION – Attach HTC Form 9 Exhibit A

I certify that the information contained herein is accurate, and I authorize Minnesota Housing to utilize this information to calculate the HTC and/or the eligible basis of the Project.

	IN WITNESS WHEREOF, the undersigned has caused this document to be duly executed in its name on this      day of      ,      .

     
Print or Type Name of Ownership Entity

By:	 
Signature

Its:      

     
Print or Type Name of Signatory

STATE OF MINNESOTA	)
	)
COUNTY OF      )

	The foregoing instrument was acknowledged before me this      day of      ,      ,

by      .

	
Notary Public