-: SJC-13564.
Tenants' Development Corporation et al,
the AMTAX Holdings 227, LLC et al.
Okay.
Attorney Davenport, whenever you're ready.
-: Morning, Your Honors.
Maybe afternoon, I don't know.
(judges laugh) -: Not yet.
-: It's an honor and a privilege to be here.
I have the distinct privilege
of representing Tenants' Development Corporation,
which is a historic nonprofit here in Boston.
It's all laid out in the pleadings,
but it's important to note just for context
as we begin to dive into the nature of the dispute,
that they are a nonprofit
who participated
in the low income housing tax credit program,
of which this court is familiar
because of the decision from 2018
in the case of Homeowner's Rehab,
normally I would spend a lot of time in cases like this
talking about the low income housing tax credit program
because it helps to inform
the context and the objectives of the contracting parties,
which are important when we're looking at intent
and what were they trying to accomplish
with this Section 42 ROFR.
But rather than spending a whole lot of time in context,
unless the court had questions there,
I'd like to turn to the issue
that you solicited amicus briefs on
relative to the purchase price
that's established by the Section 42 i7 ROFR
that is contractually agreed to
in the contracts that TDC entered into
with the express purpose
of being able to reacquire its property
that was deeded to it in 1973
by the historic...
It escapes me.
It'll come to me-
-: Redevelopment.
-: The Redevelopment Authority.
Thank you, Your Honor.
It was deeded to the nonprofits in 1973.
And then fast forward about 20 years later,
and they put the property into the program
in express agreement for the right to reacquire it
for the principal amount of debt secured by the property
and the taxes attributable to such sale.
And as this court knows,
the crux of the dispute that we are appealing
relates to that limited phrase,
"taxes attributable to the sale."
I think it's important to note
that we have bedrock contract interpretation principles
that help us inform the decision that we hope you will make,
which is to reverse the Superior Court
for the decision that it made,
that this nonprofit should have to pay
potential assumed exit taxes
for an institutional investor
who has received more benefits from their investment
than they contributed and ever anticipated.
That is what-
-: Can I ask you to address the Section 2.5
of the limited partner agreement,
which, and I'll just read it to you,
it says, "the partnership shall be dissolved
upon the happening of the sale
of all or substantially all of the property."
Why is that dissolution and the taxes attributable to it
not part of the taxes attributable to the sale
of all or substantially all the property?
-: Thank you, Your Honor,
because that dissolution will not occur
concurrent with or coincident to the sale of the property.
We know that from-
-: But the language that you just pointed us to
was "taxes attributable to the sale."
It doesn't say taxes incurred coincident to the sale,
it says attributable to the sale.
And one of the things that follow from the sale,
according to the limited partner agreement,
is that the partnership is dissolved.
It says shall be dissolved.
-: The partnership shall be dissolved
through an orderly liquidation process
that follows the terms and conditions
of the liquidation and dissolution provisions
and the partnership agreement
that follow the distribution of sale proceeds
from a sale under 6.2b-
-: But it's weird because it doesn't say followed,
it says prior.
-: Which section, Your Honor?
-: I'm looking at the same section as Justice Wendlandt.
It says "shall be dissolved prior to such date
upon the happening of any of the following events..."
So it's either before or upon.
Those are the two,
but nothing says following.
-: So what happens Your Honor,
is the partnership has more assets than just the property.
And when the property is sold,
Section 6.2b instructs what's supposed to happen
with the sale of the proceeds.
And then upon the occurrence of that sale
and the distribution of those proceeds,
the partnership has had an event of liquidation,
an event of dissolution,
something that triggers the need
to subsequently wind down the partnership
and its remaining assets.
And we know that from case law
that has been uniformly determined in different states,
not the Commonwealth,
but in Florida and New York and in elsewhere,
where they have said that the sale is an event
that will trigger the subsequent liquidation.
We know that from Hopkins Court,
we know that from St. Mary's,
we know that from the CED cases down in Florida,
and we know that from a decision
that was rendered by the northern district of Illinois
just recently
that we provided through supplemental authority.
So there's this, call it a two step process, if you will.
Most certainly what is going to happen upon the sale
is a distribution of the proceeds from the sale.
And then the partnership is going to sit back
and say, what does my partnership agreement
tell me I need to do?
I now need to dissolve and liquidate.
Okay, what are my remaining assets?
But as the partnership is doing that,
it's then liquidating those remaining assets,
potentially distributing that cash,
but the partnership does not dissolve
the day of the sale and the distribution.
It just can't.
The partnership's gonna have trailing obligations,
it's gonna have trailing liabilities.
It's going to have to allocate the gain from the sale
or the loss from the sale to the partners, right?
So you distribute the proceeds.
And there was a question
I think asked in an earlier argument here today about-
-: [Justice Wolohojian] The dissolution
is a necessary consequence of the sale.
-: That is correct.
-: [Justice Wolohojian] Then why isn't that enough to mean
that it's associated with it?
-: I'll give you an example.
So right now,
on the books and records of the partnership,
there's a negative capital account
reflected for the limited partners.
That allegedly is going to lead to them having exit taxes
when the partnership is dissolved.
That negative capital account
has nothing to do with the sale of the property.
So whatever taxes they may have today,
if they were to exit today and before the sale-
-: It's caused by the dissolution, right?
-: That's when they have to pay.
But what causes their exit tax liability
if this pass through entity that has no tax liability
has to ever pay taxes
is when it's due.
Like when you look at the capital gain,
you look at the different assets,
and this court has said, I think-
-: When will it become due?
-: [Attorney Davenport] It will become due
when they exit the partnership.
-: [Justice Wolohojian] Which is upon dissolution?
-: It's going to happen upon dissolution
following the sale- -: And then dissolution
is a necessary consequence of the sale of the property.
-: Ultimately, yes.
So that's the issue that we struggle with,
is where does the causation end and begin?
Because attributable to,
when we look at the dictionary definition of it,
is caused by an event.
What is the event that causes this to happen?
Their current exit tax balance...
Excuse me, capital account balance
has nothing to do with the sale of the property,
it exists because they've received more benefits,
it exists because of the operations of the property.
It has produced losses.
Those losses were allocated to them.
Maybe they took them, we don't know.
We don't know if they carried them forward.
-: Is the fact that they got more a timing issue?
I take it one of your arguments
is you could sell without their permission
at any time, right?
-: We can't sell without their permission.
In order to enter into a binding agreement to sell,
we have to have consent of the limited partner.
We can propose
for purposes of triggering the ROFR to sell, right?
We will get into the consent issue later,
or I can do it now if you want,
but to your question, we can't-
-: I'm trying to understand
'cause in order to get this low income housing built,
we've created these tax benefits
for basically your opponents here.
And you're saying,
well, they already got what they were entitled to
and now they're looking for more.
But I'm just trying to understand the timing,
'cause I take it sometimes they wouldn't have.
And the fact that they did good by doing good,
we want to encourage, right?
We we want them- -: To impact, sorry-
-: That's the whole purpose of the statute,
is people with the money are investing in low income housing
and they wouldn't otherwise do it.
And the benefit for them is the tax benefit.
And you're sort of saying, well, it's limited though,
but I'm trying to understand the principles behind that.
-: [Attorney Davenport] Sure.
-: And I don't get that
as well as my colleagues do at this point at all.
-: I'm happy to unpack that as best I can, Your Honor,
and please interrupt me along the way
if you have a question about what I'm about to say.
Their predecessors contributed the capital.
The people that are controlling those limited partners
contributed nothing.
So the predecessors,
the limited partners that are in the deal have-
Justice Kafker: They've stepped in the shoes
of those people, right? -: That is correct.
Justice Kafker: So that's a distinction
that doesn't matter.
-: Fair enough.
Okay, so now relative to what the limited partners
who contributed the capital,
they were investing in housing credits,
which are a dollar for dollar reduction
on the income tax obligations that they will have
on an annual basis.
And they were investing in the allocation of losses,
which results from depreciation
and other things that stem from operations.
Those loss allocations are made on an annual basis
through the tax returns and the K-1s.
Those loss allocations
exceeded the anticipated value of their investment
when coupled with the anticipated housing credit benefits.
So they received more tax benefit
than they paid into the partnership to receive.
No one begrudges them for that,
and that's not what we're trying to suggest at all.
But we are trying to suggest is
absent a contractual basis
that obligates TDC to pay their exit tax liabilities
at some point in the future
when they leave and the partnership is unwound,
that's on them.
We don't believe congressional intent,
which will help form the decision
that this court is going to make
evaluating the contractual provisions of the ROFR.
We don't believe congressional intent
was ever to shoulder non-profits
with potential or actual tax liability
from an institutional investor
who received more than they should have received.
Happy they got it.
Happy my client has done a great job
and delivered them additional losses,
but they should shoulder their own tax liability
unless they can prove that there is an agreement
that expressly requires us to do it.
The ROFR does not.
The ROFR focuses in context
on what are the partnership's obligations.
There's two components of the price.
What does the partnership need to do
to deliver clean title to the buyer?
In this instance, the buyer is TDC.
In any other instance, it would be a third party.
TDC needs to get clean title to the property.
So the first thing that the ROFR looks at
is the principal amount of debt.
We have to give the partnership enough money
to pay the bank.
But in this instance,
the contract allows,
consistent with Section 42's purposes,
for TDC to assume the debt
if mass housing will allow them to assume the debt.
Mass housing will allow them to assume the debt.
So we don't actually have to have the cash
on the day of the sale for that.
But that's the partnership obligation.
What else might the partnership have an obligation to do
on the day of sale?
It might have to pay a capital gain
associated with, attributable to, on the date of sale.
That's what we're talking about.
The partnership's taxes attributable to the sale.
It doesn't say the limited partner's taxes,
it doesn't say the general partner's taxes.
It says all state, federal and local taxes
attributable to the sale.
We believe that in context,
framed within the context of the program,
TDC's mission, TDC's purpose,
TDC's putting this property into the program
in express exchange for this right
was never to pay anybody else's taxes.
Just take care of the taxes
that the partnership might have to pay
when you're taking care of the liability,
and that will inform your purchase price.
That's why when CohnReznick's accountant
Nick Ratti here in Boston
sat down and did the calculation
when the ROFR became available,
he looked at it and said, it's gonna sell at a loss.
It's like if you're selling a home
that has a hundred thousand dollars mortgage
and the market's gone terrible
and you can only get a buyer for $80,000,
you short sell it and you have a loss.
Somebody is going to get the allocation of that loss,
it's going to go somewhere.
They get the losses, that may benefit them.
If they take those losses,
they will then have responsibilities associated with it.
But critical here,
they might not have ever taken the losses.
Just because they were allocated to them
doesn't mean that they claimed them and got a benefit.
They could have suspended them.
And if they have a tax liability
that arises upon exit of the partnership,
nine months from now
when the thing is unwound and dissolved,
they may have a tax liability
and they can go into their loss bucket
and say, Hey, guess what?
I suspended all those losses,
now I don't have to pay any taxes.
But we have to pay them cash anyway?
That's their theory, right?
And we say that's an absurd result.
It's totally inconsistent with what the...
With what Congress would've intended
when it tried to incentivize nonprofits to be here.
Very tellingly, they admitted at argument
before the Superior Court
when we went in on a motion for reconsideration
because there was this finding of,
well, you're both reasonable.
This is a colorable claim.
You have a reasonable position,
you have a reasonable position,
but I think they have the better argument
so he went in their favor.
I respectfully disagree with that honorable judge
because I don't think their position is reasonable
because it is just conflicting with all sorts of things.
But that was ambiguity,
but that's not what he found.
And so where we ended up with
was they are saying we have a hypothetical exit tax
from an entity that's passed through for tax purposes
and pays no taxes.
They're simply trying to create a cash windfall.
They want us to write them a check
for eight and a half or $9 million
that may never go towards paying anybody's taxes
because they may never not even exist.
So when we look at attributable to,
we look at it within the lens
of how is it framed up in the program?
How is it framed up with the intention of the parties?
Because what we know from bedrock Massachusetts law,
and as it's stated in the Homeowner's Rehab case,
we are intending to look at
the context in which it was written
with reference to the objectives sought to be accomplished.
So when we look at the context
within which the Section 42 ROFR
was embedded in this contract,
what was the objective it was intending to accomplish?
-: Can I interrupt you, sorry, for a second.
So the limited partner agreement
has something called an exit tax distribution.
How, if at all, does that affect this case?
-: It's not applicable.
It's the fourth item in the Section 6.2b waterfall-
-: Right.
And how you allocate certain funds from sales.
-: Yes, Your Honor.
So in item four of that waterfall,
it starts within the event of a sale
to a qualified nonprofit entity
pursuant to the LURA or tax credit reservation.
The LURA is short for Land Use Restrictive Agreement.
Neither one of those are applicable here
so there won't be an exit tax distribution.
But it shows you,
if somebody wanted to memorialize an agreement
to have the partnership pay an exit tax distribution,
you could have done it.
Not in the ROFR- -: Right.
That's why I'm wondering
why that argument was not marshaled.
Because it does, in my view,
show that there was consideration of such a thing
as an exit tax distribution
and expressly named in the LPA.
But then we have the other phrase
used in the right of first refusal document
suggesting that they're different things.
-: Right.
And so relative to what's in the section
in the right of first refusal,
it tracks the language in Section 42i7.
-: Right.
But it doesn't use the language of the LPA
called "exit tax distributions,"
which suggests maybe it's something else.
-: I think that's right, Your Honor.
I also think that, you know,
one of the things
that we attempted to provide the court with
was examples of other rights of first refusal
that are out there from other litigation.
Because trust me when I tell you,
this is happening all over the country,
where these folks are coming in
and trying to strip the equity outta these communities
after the end of the 15 year compliance period.
And we're trying to put a stop to it.
So we gave you examples of other contracts
where people have expressly expanded the ROFR
to include exit taxes,
to include the investor exit taxes
that will actually potentially be paid
through the owners of the pass through entity.
So this ROFR is clean,
it tracks exactly what's in the code.
Which is intended to be efficient and orderly,
and in my estimation,
limited only to
what are going to be the partnership's capital gains
associated with the sale.
That's it.
-: What would be the consequences
were we to conclude
that the investor's consent was required?
That the judge got that part of the decision wrong.
How would that then play out?
What would happen?
-: If I understand your question,
is if the judge...
If you conclude that the judge got the consent issue wrong,
what would happen?
-: [Justice Wolohojian] Yeah.
-: It would eviscerate the ROFR.
Just like if we end up with a purchase price
that includes the potential exit taxes-
-: Well, I was thinking more mechanically.
The whole case comes out the other way automatically?
What happens?
-: If they have a consent right
over TDC proposing to sell the property
and issuing the disposition notice,
they have a veto power.
And it's just like what we saw in Homeowner's Rehab,
it will create a set of circumstances
where this ROFR and potentially others,
they can never be exercised
because they will not consent to a sale
at a below market purchase price.
I may think they're unreasonable in a lot of ways,
but most reasonable people wouldn't, right?
If you can force a sale
at market value of 50 or $60 million
and then you can get all of that profit,
you're not going to consent to a purchase
even if it included their exit taxes, right?
Because they don't, right?
They wanna force the sale of the property
so that they can take all the equity out of the community
that has built up in it over the last 20 plus years
while it's been in the program.
That's the aim, that's the goal.
So we know from Homeowner's Rehab,
there's one distinction that's without a difference
in our case and Homeowner's Rehab,
there was a carve out
that mentioned in the applicable provisions,
you know, the consent right.
It referenced the option agreement.
Here our agreement doesn't reference the option agreement,
but that's a distinction without a difference
because all of the other analysis in Homeowner's Rehab
applies here.
And to your question,
what would happen is they would have a veto right.
There would be never a circumstance
under which they would consent
because it's a below market purchase price.
And it is the antithetical notion to congressional intent
to establish perpetuity
of affordable housing and income restricted rents
for income qualifying residents
if we make it cost prohibitive
for the nonprofit to reacquire the property
at the end of the 15 year compliance period
when the credits are beyond risk of recapture.
-: So we would reverse the summary judgment
and the litigation would continue?
-: I apologize, I couldn't hear you.
-: So we would reverse the summary judgment
and the litigation would continue?
-: If you granted them a consent right-
-: No, if we said they did have a consent right.
We're not, you know...
If they had the right to consent to the terms
before the sale occurred.
-: We probably would not have...
Yeah, we would not have ROFR that we can exercise,
so we wouldn't have a claim anymore-
-: On this one?
Yep. -: Yep.
-: [Justice Wolohojian] Maybe some future sale
or something but-
-: Oh, in all likelihood...
Oh, if you're asking what's going to happen in that event,
if we lose our ROFR-
-: No, I'm asking actually
what the mechanical litigation consequences would be.
-: Oh, I see.
I think in the mechanical litigation consequences,
what would happen is there would be a determination
that they have a consent right.
We were not allowed to exercise the ROFR
because we were not allowed to propose a sale,
we were not allowed to issue a disposition notice.
And then the properties would ultimately be sold,
marketed to a third party
on the market- -: On who knows, yeah.
-: Because that's what got us here.
Because they told us,
go sell the property, market it for sale,
we have a right to force you to do it.
And we did.
We complied with our obligations under the agreement.
And we got eight offers.
And then the general partner proposed
on behalf of the partnership
pursuant to its exclusive authority
to sell to one of them,
that triggered the disposition notice,
that triggered the exercise of the ROFR.
So they claimed, when the case started,
we lied to them.
20 years ago, there was a fraud committed,
the tenants didn't tell them about the ROFR,
but we found out that the ROFR's been on title.
We found out that their closing attorneys
and the people that were representing them at the time
knew about the ROFR,
instructed it to be recorded against title,
said where it should be filed.
So that went away,
but then it came back apparently in the arguments
that we're seeing here on an appeal.
I guess the piece related to all of this
is this case was originally at some point
went up to the First Circuit Court of Appeals, right?
And the First Circuit looked at the ROFR.
And they determined
there was no federal question jurisdiction
relative to the ROFR.
And they confirmed that the ROFR
is intended to be an efficient and orderly process
for the non-profit
to acquire the property at the end of the compliance period.
And it's subject to three requirements, and that's it.
It can only be available
at the end of the compliance period.
It has to be to a qualifying non-profit organization,
both of which my client satisfy.
And then it has to be the minimum purchase price.
It can be more, but it can't be less.
And so my respectful submission to this court
is if the court were to affirm the Superior Court
on the interpretation
"taxes attributable to a sale should include exit taxes,"
you are expanding the contractual language
of the minimum purchase price.
And that would result in TDC
having to shoulder the burden of taxes
that we say in no certain circumstances
are due to property operations, excess benefits,
their potential use whether they claimed them or not
from their exit from the partnership.
And last thing on the gains and the losses.
As the partnership
is going through the liquidation and dissolution process,
there's going to be other distributions
when you're liquidating remaining assets.
They're gonna get more loss allocations.
They might get gain allocations.
That's why we don't know at the time of the sale
what their actual exit tax might be
because it's not calculatable
on the day of the sale under the ROFR.
Which is why the District Court put us in this conundrum,
because if they have a consent right,
and we can't determine
the purchase price on the day of the sale,
we'll never get there.
So we would respectfully request
that the court reverse on the issue of the exit taxes
and what taxes attributable to a sale are,
and affirm on the consent issues,
and let us move on
so that we can potentially get back into the District Court,
get the case resolved
because this is having real economic impact on the ground
and has delayed for four and a half years
my client's ability to get a community center built
through the equity that it has established in this property
and should stay with this community.
Thank you.
-: Okay, thank you.
Attorney Dolan.
-: May I please the court.
My name is Louis Dolan.
I represent
the appellees and cross appellants in this matter.
The appellees, as you know,
are the limited partners in the limited partnership
that owns this property in the south end of Boston.
They are also investors
in some 1800 affordable housing projects
throughout the Commonwealth
and throughout the United States.
-: So can I ask you to start with
the definition of exit tax distributions
that were expressly set forth in the LPA
and then the less than clear language of the ROFR
which talks about attributable to the sale?
-: The point about the taxes
being attributable to the sale,
Section 2.5 of limited partnership agreement.
Please keep in mind that this partnership
is what is known as a single purpose entity.
That means it has one asset, not several assets.
Its single purpose
is to own and operate this property.
It may have some cash on hand,
it may have some reserves
that are typically transferred with the property,
it may have some office furniture, things like that,
but its substantial asset is this property.
And therefore as a result,
and you're asking exactly the right question,
Section 2.5 of the limited partnership agreement
says, this partnership agreement shall dissolve...
This partnership shall dissolve
upon the happening of the sale of the property.
And that makes good business sense
because the sole reason
that the partnership exists in the first place
is for operations of the property.
The reason that these taxes arise
because of and are directly attributable to
the sale of the property,
as the district...
Excuse me, Superior Court found
relying on our expert report
and also relying on numerous points in the record
where the partnership's own accountants at CohnReznick
did precisely the same-
-: So the LPA actually has a defined term,
it's called "exit tax distribution.
Attorney Dolan: Yes.
-: What is that?
-: That is the distribution
that is to be made upon the dissolution of partnership,
the exit taxes- -: Right.
And my point is that the ROFR,
instead of saying "exit tax distribution" as a defined term,
talks about all federal and state taxes
attributable to the sale.
Attorney Dolan: Correct.
-: So given that there is a defined term,
"exit tax distribution,"
in the overarching agreement,
isn't it odd
that the ROFR does not use that same defined term?
-: Especially when the ROFR says
that it's incorporating the defined terms
from the partnership agreement.
-: The right of first refusal
has to comply with minimum requirements
under 42i7 B2 of the internal revenue code.
That language, as the Superior Court found,
indicates all taxes attributable to the sale,
which include and incorporate
exit taxes and taxes on gain from the sale.
And what has happened here in this case,
we didn't reap a windfall
in terms of the losses that were allocated to us
over the life of this partnership,
we bargained for the losses that we received-
-: So you are saying exit tax distributions
is a subset of all the potential taxes
attributable to the sale?
Attorney Dolan: Yes. -: Okay.
-: Exit taxes- -: So that would explain
why you wouldn't use the same defined term
because all- -: All means all.
-: There's more than just the exit tax distributions,
there's this potential capital gain you're talking about.
-: There could be capital gains,
there are gains on the sale,
which is what would happen in this instance.
Once the debt is assumed,
there is gain that is recognized on that sale.
And certainly the Department of Treasury,
which has revisited this section of the code
many, many times over,
over the years since 1986, 1987
when it was adopted and has not changed it,
knows how to change and make an exception
in the portion of the tax code
that says all taxes- -: Can I ask you to address
your opposing counsel's argument
regarding, I think it was that you can't tell
what the actual taxes
that the limited partnerships will incur
as a result of the dissolution of the partnership
until a later point in time so that the...
Is it TDC?
The TDCs of the world can't set the purchase price
because if exit taxes is included in that purchase price,
that's something that's in the future will be determined.
-: That's fundamentally incorrect.
And it happens every day in this business
that taxes are calculated
including exit taxes that would be due on sale.
And what happens as a practical matter,
again, to use the analogy,
it's similar to selling your home.
When you get a settlement sheet in from a title company.
And on that settlement sheet
there are buyers' columns and sellers columns.
And the taxes are calculated on those sheets,
and the taxes are paid by the buyer, right?
Of this property.
Because it's called the minimum purchase price, right?
That is the price
that the buyer must pay to the partnership.
And that is calculable with respect to exit taxes
because what we do,
the exit tax calculation is a very simple formula.
Everybody in this courtroom
knows what it is because their own account-
-: Some of us might not.
(judges laugh)
-: I wouldn't go that far.
-: I apologize.
Everybody on this side- -: There's a few people
in the court room who know- -: Everybody on this side
knows what it is
because the record is replete with citations
where their accountants calculated the exit tax
using precisely the same methodology
that we did and that our expert did.
And it is taking the negative capital account, right?
Which is reported
in the federal tax return from the prior year.
Calculating the effective tax rate that this partner has
and coming up with those numbers.
So it is not a complex calculation,
it is a calculation that is routinely done,
and routinely done as a part of closings on these projects.
-: What is the code provision
that applies to when the exit taxes liability
is accrued, created, whatever the right verb is for that?
-: Your Honor, to my knowledge,
there is no specific internal revenue code provision
that addresses that
other than 42i7 B2,
which speaks to all taxes attributable to the sale.
And that says "all federal, state and local taxes."
-: That tracks the language in the right of first refusal.
-: I would phrase that slightly differently, Your Honor,
the right of first refusal tracks that language.
-: Okay, fair enough- -: Yes.
Because the right of first refusal came subsequent to-
-: So does it refer to "attributable to the sale"
or does it say "attributable to the dissolution"
or does it say something else?
When does it...
Is there anything in the code that would tell us
that from the federal government standpoint,
the exit taxes
are triggered by dissolution, sale or something else?
-: I don't believe
that there's anything in the code specifically on that,
but what the Superior Court judge found
was it relied on this court's prior presidential opinion
in Homeowner's Rehab from 2019,
where the court went through
and demonstrated a very fine knowledge
of how this program works,
and included within that opinion
the report from the United States'
Department of Housing and Urban Development,
which works hand in hand with the Department-
-: Okay, but I don't think we were offering a tax opinion
for these investors
as to when they need to calculate or report
or pay, account for, whatever, their exit taxes.
Did we?
-: In that case, there is certainly...
And it's not the holding of that decision,
but there is certainly reliance on the hard report,
including in footnote five citing 42i7 B2,
which specifically says
exit taxes are part of the minimum purchase price
because they are part of all taxes attributable to the sale.
And Your Honor,
this court cited that report
seven separate times in that opinion.
It relied on it,
it found that report authoritative.
The Superior Court found that thinking and that decision...
Again, it wasn't the direct holding
but authoritative
in the absence of other direct authority on point
throughout the country.
Justice Kafker: Can I get you-
-: So we take that, right?
We take industry knowledge in this situation,
which is now coming up on nearly 40 years
for the most important housing tax credit program,
housing program in the United States
and in this Commonwealth-
-: Could you take a shot at...
So my colleagues have focused on the precise language.
Can you take a step back
and explain to me sort of the policy reason why,
'cause your opposing counsel stands up
and says, look, you're making it much more expensive
for these type of development corporation,
Tenants' Development Corporations
to take over and continue this program.
Tell me why you getting cashed out
is not only consistent with the precise statutory language
but with the statutory intent here,
'cause it's making this more expensive,
I just wanna understand why.
Because they're saying you're getting a windfall,
and I'm trying to understand
whether this is what Congress intended or not.
-: There is absolutely no windfall in this.
So if you go back to the original intent in the legislature
and Senator Mitchell
who was one of the sponsors of this bill back in the 1980s,
what he specifically said remains true today.
And Your Honor, I think you picked up on this point earlier
in your conversation with opposing counsel.
What Senator Mitchell said
is this is an uneconomic activity in general,
investing in affordable housing,
and we need to make it attractive
for investors to invest and put private capital to work.
And that's what we have done here.
Now, if you want-
-: So let's take the next step.
They're saying you guys, it was successful,
you've cashed out.
You've been able to depreciate
or write off a lot of taxes in the past.
Now, why at this stage here at the sale
where you've already gotten more than your investment out
did Congress intend for you to continue to benefit from this
even though it's gonna raise the price of the purchase
for people like your opponents here-
Attorney Dolan: Let me-
-: Who are gonna continue the activity-
Attorney Dolan: Yes.
Let me answer that-
-: That Congress wanted to maintain.
-: Let me answer that very directly.
Because the tax liability
that we're talking about currently,
the exit tax liability is approximately $8.5 million.
That wipes out the lion's share of our benefits
received over 15 years.
And so if you simply take away
the vast majority of those benefits
that we have patiently been collecting and gathering
for 15...
It's going on probably closer to 20 years at this point.
And say you actually don't get those benefits?
What private investor
is going to say that makes good sense
for me as an investment,
unless they're simply doing it
out of the goodness of their heart?
There are some that will do that,
but to meet the mission and the statutory purpose and intent
of attracting private capital,
you simply can't do that.
So let me,
if I also could flip the script here a little bit-
-: How do we know that?
Is that in the record somehow?
-: I'm sorry, which?
-: This policy argument that you're making.
That if you don't have the exit tax liability
be part of the minimum purchase price,
that the investors that Congress was trying to woo
would not have the benefit of the tax credits
that they were initially given.
That it would essentially wipe them out,
is what you're arguing.
-: Let me be very clear,
it would not completely wipe out all of the benefits,
but it would take away the lion's share of those.
-: But regardless of what percentage of the benefits,
where is that in the record?
-: In the policy argument?
-: [Justice Wendlandt] Yeah.
-: The policy argument, I believe,
is in part in response to the amicus briefs
who try to raise a number of policy arguments,
which are simply incorrect.
-: Your point is, it's Mitchell.
It's that we wouldn't...
People like your clients
are not in it to, like his clients,
to promote low income housing,
they're in it for the money.
And they're not gonna put their money in
unless they're gonna get their money out of it, right?
It comes down to Mitchell's overall conception
of what the statute was about.
-: Well, to say that we're in it for the money
is a pretty rough cut.
I would say, Your Honor,
I mean we do have a mission
of supporting affordable housing.
And there are any number of these projects,
these properties throughout the country
that we have actually put in more money
than we are required to
because the project, the properties need it.
And so we're not just in it for the money,
but we are in it and entitled to
and have bargained from day one
to receive an economic benefit.
And so if I could for just a minute,
let me flip the script here
and talk a little bit about this windfall, right?
So what would happen in the circumstance
of this $8.5 million?
At this particular time,
this property is worth on the order of 50 to 60 million,
based on appraised values given by reputable local brokers
as of a couple of years ago.
Whether that number is exactly current, I don't know,
but let's just say it's in that ballpark.
The economics of the transaction
that the TDC parties are proposing
would be that their affiliate nonprofit entity
assumes the debt
of approximately, if my numbers are correct, 17 million,
pay nothing else,
and for that, get a property
that's worth something on the order of 55.
So where is the windfall in that whole equation?
Is it wiping out the tax benefits?
-: But it just depends upon the situation, right?
I mean the numbers could be different in a different-
-: Of course.
Of course, they're very different in different projects.
And the concept here
that we have reaped a windfall, right?
And they're grateful
that we've had all of these additional losses.
The additional losses that we've taken
have happened because of poor property operations, right?
This is not something
that we are sitting back saying,
oh this is great, we get more losses.
We would far prefer to see-
-: What was the value of the tax credits that you got?
-: It's on the order of 10 million.
-: Okay.
-: And what percentage...
Did you put...
Did your predecessors put in the full...
Pay the full amount?
I mean there's a 99% thing somewhere.
Were your predecessors the source of all the money
for the building of the building?
-: They put in
all but a thousand dollars of the initial capital,
which was on the order of,
initially it was $10.7 million.
That number increased slightly over time
to about 11 million.
And that came in through the AMTAX entity
that is still the partner in the partnership
for who we acquired their interests.
So that is correct.
We created a secondary market for their interests
out of a bankruptcy proceeding,
if I recall correctly.
And then let me,
if I could just take one moment more,
I know I'm over time,
but one moment more to address just in general
some of the cases that opposing counsel has cited.
Those cases involve
the determination of fair market value of a property
so that interests within the partnership
can be transferred.
They do not deal with the situation
where there is a direct sale of the property,
which is the sine qua non for this partnership,
and without which this partnership no longer exists.
So those cases, they're out there,
they certainly are,
but they're very different.
And with that,
unless there are other questions, I'll thank you.