Investments in Local Limited Partnerships

3 Months Ended

Jun. 30, 2012

Equity Method Investments and Joint Ventures [Abstract]

Investments in Local Limited Partnerships

NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS

As of June 30, 2012 and March 31, 2012, the Partnership owns Local Limited Partnership interests in 8 Local Limited Partnerships. Each of these Local Limited Partnership’s own one Housing Complex consisting of an aggregate of 598 apartment units as of June 30, 2012 and March 31, 2012. The respective Local General Partners of the Local Limited Partnerships manage the day to day operations of the entities. Significant Local Limited Partnership business decisions require approval from the Partnership. The Partnership, as a limited partner, is generally entitled to 99.98%, as specified in the Local Limited Partnership Agreements, of the operating profits and losses, taxable income and losses, and Low Income Housing Tax Credits of the Local Limited Partnerships.

The following is a summary of the equity method activity of the investments in Local Limited Partnerships for the periods presented below:

	For the Three Months Ended June 30, 2012			For the Year Ended March 31, 2012
Investments per balance sheet, beginning of period	$	8,318,507		$	8,956,651
Distributions received from Local Limited Partnerships		(4,374	)		-
Equity in losses of Local Limited Partnerships		(88,373	)		(353,492	)
Impairment loss		(339,689	)		(215,952	)
Amortization of acquisition fees and costs		(17,166	)		(68,664	)
Amortization of warehouse interest and costs		(9	)		(36	)
Investments per balance sheet, end of period	$	7,868,896		$	8,318,507

	For the Three Months Ended June 30, 2012		For the Year Ended March 31, 2012
Investments in Local Limited Partnerships, net	$	6,350,777	$	6,783,213
Acquisition fees and costs, net of accumulated amortization of $370,989 and $353,823		1,517,301		1,534,467
Capitalized warehouse costs and interest, net of accumulated amortization of $221 and $212		818		827
Investments per balance sheet, end of period	$	7,868,896	$	8,318,507

Selected financial information for the three months ended June 30, 2012 and 2011 from the unaudited combined condensed financial statements of the Local Limited Partnerships in which the Partnership has invested is as follows:

COMBINED CONDENSED STATEMENTS OF OPERATIONS

	2012			2011
Revenues	$	1,167,000		$	1,167,000
Expenses:
Interest expense		344,000			344,000
Depreciation and amortization		484,000			484,000
Operating expenses		876,000			885,000
Total expenses		1,704,000			1,713,000
Net loss	$	(537,000	)	$	(546,000	)
Net loss allocable to the Partnership	$	(537,000	)	$	(537,000	)
Net loss recorded by the Partnership	$	(88,000	)	$	(88,000	)

Certain Local Limited Partnerships have incurred significant operating losses and/or have working capital deficiencies. In the event these Local Limited Partnerships continue to incur significant operating losses, additional capital contributions by the Partnership may be required to sustain operations of such Local Limited Partnerships. If additional capital contributions are not made when they are required, the Partnership’s investments in certain of such Local Limited Partnerships could be impaired, and the loss and recapture of the related Low Income Housing Tax Credits could occur.

Troubled Housing Complexes

Davenport started construction in October 2006 and was scheduled to be completed in June 2008. Construction was delayed due to the original Local General Partner defaulting on his construction guarantee and resulting disputed mechanic liens on the property. In November 2008, the original Local General Partner was replaced with a new Local General Partner, Shelter Resource Corporation, due to restrictions implemented by the Iowa Finance Authority (“IFA”). Subsequently, with IFA’s approval, the defaulting original Local General Partner was removed from the Partnership leaving Shelter Resource Corporation as the sole Local General Partner.

As of March 31, 2010, the property was 100% completed and a certificate of occupancy was granted for both buildings in December 2009. The Partnership engaged all sub-contractors to sign new construction contracts, along with lien releases for any and all work done after their engagement. During the year ended March 31, 2010, the Partnership voluntarily advanced $846,175 to Davenport for construction related costs. There were no additional advances made to Davenport due to the additional investment made, as discussed below.

The project was fully completed as of March 31, 2010 and it achieved stabilized operations by June 2010. In June 2010 the property achieved 85% occupancy and has maintained occupancy of 80% to 90% to the date of this filing. Davenport has been awarded state historical tax credits from the State of Iowa, federal historical credits and federal Low Income Housing Tax Credits. The State historical credits are given in the form of a refund check from the State in conjunction with the State tax return filing. The net amount of the check after applicable federal taxes will be contributed back to the property to help fund construction shortfalls. Davenport was also allocated additional federal Low Income Housing Tax Credits as well as federal historical tax credits. Upon the Limited Partners’ approval of the dispositions of Sierra’s Run and Fernwood, the Partnership made the additional investment in Davenport. See the exit strategy in Note 1 regarding the dispositions of Sierra’s Run and Fernwood. On July 1, 2010, the Partnership committed additional capital to Davenport in the amount of $2,490,651. This additional commitment generated $408,710 of federal historic credits and $3,582,550 of additional federal Low Income Housing Tax Credits which was allocated to the partners of the Partnership.

Grove Village Limited Partnership (“Grove Village”) and Pleasant Village Limited Partnership (“Pleasant Village”), both Texas limited partnerships in which the Partnership is a Limited Partner, were audited by the Internal Revenue Service (“IRS”) for tax years 2007, 2008 and 2009. In its findings of those audits, the IRS asserted that the Low Income Housing Tax Credits (“LIHTCs”) for Grove Village and Pleasant Village should not have been claimed for those three years. As of the year-end for each of those years the IRS 8609 Forms had not been issued by the Texas Department of Housing & Community Affairs (“TDHCA”).

The Local General Partner, which is not an affiliate of WNC, has engaged counsel and is challenging the IRS notices, primarily on the basis that the Local General Partner has diligently pursued the issuance of the 8609 Forms by TDHCA. A formal request for an appeal has been made to the IRS. Once the appeal was filed, IRS procedures dictate that a new auditor be assigned to review the filings. The Local General Partner has represented to us that this case is currently with the appellate division of the IRS. The Appellate Division will not proceed with this case until the 8609 Forms are issued by TDHCA. As of today, those forms still have not been issued.

In December 2012, a representative of the Partnership and the Local General Partner met with TDHCA to get an understanding of what needs to be completed on both properties in order to get the 8609 Forms issued. Currently the Local General Partner is putting together a plan of how the necessary work is going to be completed in order to suffice TDHCA. It is estimated that it could take a minimum of six months for all the changes to be made to the properties and for TDHCA to issue the 8609 Forms. Once those Forms have been issued then the Local General Partner will have to go through the Appellate Court of the IRS. It is estimated that the entire process could take over a year.

Due to the uncertainty of this situation the Partnership chose not to take the LIHTC’s for Grove Village and Pleasant Village for the years ended 2011 and 2012. In the event the 8609 forms are not issued, management believes the maximum potential recapture amount would be $3,549,000, or $169 per Partnership Unit, including interest and penalties.