[author: John A. Eliason]

Foley partner John Eliason recently interviewed Ellen Neubauer, the Section 1603 cash grant program administrator at the U.S. Department of Treasury. During the interview, they discussed:

• The concern that Treasury is trying to limit development fees to three percent to five percent of costs. "Not true," remarked Ellen. There has been no change in policy with respect to development fees. Development fees are allowable in appropriate cases, although it is correct that the fees and their magnitudes can be scrutinized if paid, for example, between affiliates. Each case is fact-specific and the amount allowed will vary depending on the circumstances.
• Whether a person with “grandfathered” property has participated in the joint venture development of a project in a manner satisfying published Treasury guidance. Ellen noted that the rules applicable to determining whether a person is a “partner” for federal income tax purposes during project development is relevant when making this determination. In particular, we discussed the “disguised sale rules” and the rebuttable presumption that exists if a contribution of property by a partner is followed by a distribution of cash or property to the contributing partner.
• The extent to which loan origination costs can be included in cash grant basis of a project. For the treatment of this and other items that do not have clear guidance, Ellen suggested that the applicant should include with its application a summary of any items in question and an explanation as to the reasoning behind the applicant’s treatment of them. “Additional input from the applicant on uncertain items is helpful to us,” Ellen provided.
• The September 30, 2012 deadline for the cash grant application. “We’re ready, but don’t wait until the last minute,” Ellen cautioned.