Forming the Affordable Housing Nonprofit Developer, By Brent C. Shaffer


Given the desire of many to increase the production

of simple, decent housing at low cost, it is ironic that the more affordable the housing, the more elaborate and complex is the task to build it. This truism holds for setting up the affordable housing developer itself. The affordable housing development entity can never be considered as something that can be easily established "off the shelf." Every affordable housing development entity needs to be thought out very carefully before any type of formation document is drafted, any document is filed with the IRS, or any individuals are promised board or officer positions.

This article discusses issues that should be considered

in drafting the affordable housing entity's organizational

documents, applying for tax-exempt status, and setting

up its board and control structure. It assumes that the

corporation is to be set up as a nonprofit corporation,

with a true charitable purpose and not a profit motive,

for the purpose of creating or enhancing affordable

housing, either for sale or for rent. The corporation will

need to qualify as tax-exempt under the Internal Revenue Code in order to attract the maximum amount of equity contributions. In the nonprofit context, corporations

provide the advantages of liability protection to members,

officers, and directors without the countervailing consideration that argues against using for-profit corporations in real estate projects: the taxation of both corporate-level income and personal income (on distributions to the members or shareholders) and capital gains at the corporate-level on appreciated real estate owned by the corporation.

See full legal article for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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