NATIONAL TAX CREDIT PARTNERS, L.P.
55 Beattie Place, P.O. Box 1089
Greenville, SC 29602
May 10, 2005
Correspondence Filing Via Edgar and Overnight Delivery
United States Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 0409
450 Fifth Street, NW
Washington, D.C. 20549
Attn: Mr. Steven Jacobs
Re: National Tax Credit Partners, L.P.
Form 10-KSB for the year ended December 31, 2004 File No. 0-18541
Ladies and Gentlemen:
This letter responds to the comments of the staff of the Securities and Exchange
Commission (the "Staff") addressed to National Tax Credit Partners, L.P., a
California limited partnership (the "Partnership"), in a letter dated April 26,
2005. The Partnership's response to the Staff's comments are set forth below and
are numbered to correspond to the numbering of the Staff's comments in the
Staff's letter.
* * * * *
Form 10-KSB for the year ended December 31, 2004
Financial Statements and Notes
Report of Independent Registered Public Accounting Firm
1.Comment: Please file the report(s) of the independent accountants
referenced by the principal accountants in their report, as required
by Rule 2-05 of Regulation S-X.
Response: The Partnership's auditors have advised us that their Report
of Independent Registered Public Accounting Firm should not have
referenced reliance on the audits of other auditors. The Partnership's
auditors have provided a revised Report of Independent Registered
Public Accounting Firm for inclusion with an amended Form 10-KSB to be
filed with the Securities and Exchange Commission.
Note 1 - Organization and Summary of Significant Accounting Policies
Recent Accounting Pronouncements
2. Comment: You determined that nine of the entities in which the
Partnership holds an interest at December 31, 2004 are VIEs and the
Partnership is not the Primary Beneficiary of any of these entities.
In a supplemental response, please tell us how you determined nine of
the entities were VIEs and the remaining ten entities, of which the
Partnership holds an interest of greater than fifty-percent in four
of them after December 15, 2004, were not VIEs. In your response,
please address the authority and obligations of the general
partner(s) of the Local Limited Partnerships, and your relationship
with the general partners. Finally, please quantify the equity
investment at risk for each Local General Partner, net of any upfront
fees received.
Response: The Partnership first became involved with the local
limited partnerships in the late 1980's and early 1990's. The
Partnership historically has used the equity method of accounting for
its investments in local limited partnerships. The individuals
involved with the creation of the Partnership are no longer employed
by National Partnership Investments Corp ("NAPICO"), the general
partner of the Partnership. With the exception of one general partner
that is wholly-owned by NAPICO and serves as the general partner of
seven local limited partnerships, the general partners of the local
limited partnerships are not affiliated with the Partnership or
NAPICO. Accordingly, the Partnership's initial consideration of the
requirements of FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities (FIN 46R) was based
primarily on documents related to the formation of the Partnership
and the local limited partnerships in its adoption of FIN 46R and
financial information available as of December 31, 2003 and 2004.
There may be other facts and circumstances related to the
Partnership's involvement with the local limited partnerships that
might be relevant in making determinations required by FIN 46R;
however, the Partnership necessarily based its determination upon
those written documents available and other information that is
currently available to the Partnership.
The Partnership's determination that the local limited partnerships
are variable interest entities ("VIE") was made based on
consideration of paragraphs 5, 9 and 10 of FIN 46R. The Partnership
specifically determined that four of the local limited partnerships
are VIEs based on paragraph 5(b)(1) and that five of the local
limited partnerships are VIEs based on paragraphs 5(a),9 and 10.
With respect to the four local limited partnerships that were
determined to be VIEs under paragraph 5(b)(1), the group of equity
holders at risk was comprised only of its limited partners (the group
that contributed the capital necessary to fund the acquisition of
properties owned by local limited partnerships). The general partners
were not considered to have equity at risk because their capital
contributions were insignificant. Based on the terms of the related
local limited partnership agreements, the limited partners were not
deemed to have the right to make decisions that have a significant
effect on the operations or success of the local limited partnership.
Therefore, these four local limited partnerships were determined to
be VIEs and no further evaluation under paragraph 5 was necessary.
With respect to five local limited partnerships that were determined
to be VIEs under paragraphs 5(a),9 and 10, the Partnership determined
based on review of the audited financial statements of the local
limited partnerships and other available financial information, that
each of the local limited partnerships had insufficient equity
investment at risk to permit the local limited partnerships to
finance their activities. Accordingly, these five local limited
partnerships were determined to be VIEs.
The Partnership's determination that ten of the local limited
partnerships are not VIEs was made based on consideration of
paragraphs 5, 9 and 10 of FIN 46R.
With respect to these ten local limited partnerships, the Partnership
determined that the capital contributions of the general partners and
the limited partners were significant and therefore the group of
equity holders at risk was comprised of both the general partner and
the limited partner. The Partnership further determined that the
general partner controls and manages the day-to-day activities of the
local limited partnerships and therefore the group of equity holders
at risk were deemed to have the right to make decisions that have a
significant effect on the operations or success of the local limited
partnership.
The Partnership noted that each general partner's relationship with
the local limited partnerships involves the following significant
activities related to its rights and obligations under the related
limited partnership agreements:
o The general partner shall manage and conduct the business of
the local limited partnerships;
o Employees of the general partner (or its affiliates) are
actively involved in managing the operations of the local
limited partnerships
o The general partner has the obligation to fund any recourse
obligations of the local limited partnerships
o The general partner is authorized to borrow funds, execute
and issue mortgage notes and other evidences of indebtedness
o The general partner shall operate the local limited
partnerships and shall cause the management agents to manage
the properties in such a manner that the properties will be
eligible to receive applicable tax credits
o The general partner shall promptly take any and all action
which may be necessary or appropriate to perfect and
maintain the local limited partnerships, as a limited
partnership under state law, and to develop, maintain, and
operate the respective local limited partnerships in
accordance with provisions of the local limited partnership
agreement and applicable Federal, state and local laws and
regulations
o The general partner shall cause the local limited
partnerships to obtain and maintain at all times, insurance
in such amounts and at terms customary for a project similar
to the local limited partnerships
o The general partner is responsible for obtaining a
management agent for the respective local limited
partnerships
In addition, the local limited partnership agreements each state that
the Partnership, as limited partner, shall not take part in the
management of the local limited partnership's business or transact
any business for the local limited partnership, nor have any power to
sign for or to bind the local limited partnership or to subject the
local limited partnership to any liability or obligation.
The Partnership next considered paragraph 5(b)(2) and determined
based on review of each of the local limited partnership agreements
that the group of equity holders at risk do not lack the ability to
absorb expected losses, are not protected from the expected losses
and are not guaranteed a return.
The Partnership next considered paragraph 5(b)(3) and determined
based on review of each of the local limited partnership agreements
that the group of equity holders at risk do receive the expected
residual returns and are not subject to caps on expected returns.
The Partnership next considered paragraph 5(c) and determined based
on review of each of the local limited partnership agreements that
the general partner is generally the equity holder who is involved in
the partnership activity of real estate development and operations
and also benefits through the receipt of fees for services provided
to the local limited partnerships and the right to receive
distributions from the local limited partnerships. Therefore the
Partnership does not believe that substantially all of the activities
of the respective local limited partnerships involve, and are
performed on behalf of, the investor (the limited partner) that has
disproportionately few voting rights.
The Partnership next considered paragraph 5(a), 9 and 10 and
determined based on review of the audited financial statements of the
local limited partnership and other available financial information
with respect to the local limited partnerships, that each of the
local limited partnerships had sufficient equity investment at risk,
as demonstrated by the ability of the local limited partnership to
finance its activities without additional subordinated financial
support.
The Partnership concluded, based on its qualitative consideration of
the factors discussed above, that the ten local limited partnerships
are not VIEs.
The Partnership's approach to the quantification of the equity
investment at risk for each general partner of the local limited
partnerships consisted of reviewing the partnership agreements for
the determination of the capital contribution of the respective
partners. The Partnership considered payments to the general partners
of certain fees as defined in the local limited partnership
agreements that could be considered a reduction of the capital
contributed; however these fees were generally in consideration of
services performed by the general partner or covenants provided by
the general partner to fund development deficits and operating
deficits within a defined time period at the inception of each local
limited partnership, and were determined to be reasonable in relation
to the nature of the services provided. Therefore, the Partnership
concluded that these fees should not be considered a reduction of
capital contributed by the general partner.
3. Comment: You refer to the Partnership's maximum exposure to loss at
December 31, 2004 relative to determining the primary beneficiary for
the identified VIEs. In a supplemental response, please tell us
whether you evaluated the Partnership's expected losses and residual
returns and equity investment at risk as applicable at the time the
Partnership became involved with the Local Limited Partnerships, as
opposed to its equity at risk at December 31, 2004. Additionally,
please address whether you included the Partnership's rights to tax
credits in the expected cash flows.
Response: The Partnership refers to the maximum exposure to loss at
December 31, 2004 as a result of its involvement with unconsolidated
VIEs in order to comply with the disclosure requirements of paragraph
24(c) of FIN 46R and not for purposes of determining the primary
beneficiary for the identified VIEs.
The Partnership evaluated the equity investment at risk based on the
provisions of the local limited partnership agreements in place and
any subsequent amendments to such local limited partnership
agreements. As provided in paragraph 38 of FIN 46R, the Partnership
was unable to obtain all of the information necessary to make its
determination at the date the Partnership first became involved with
the local limited partnerships. The local limited partnership
agreements are considered "living" documents that capture changes in
structure and terms of the respective local limited partnerships.
Accordingly, the Partnership's evaluation of equity investment at
risk was considered to be performed as of the date on which FIN 46R
was first applied, or December 31, 2004. Although the Partnership has
not performed a quantitative analysis to determine the relative
exposures of the Partnership and the general partners to the expected
losses of the respective local limited partnerships, the Partnership
generally believes that at December 31, 2004 it would have the
greatest exposure based on provisions in the local limited
partnership agreements that provide for allocations and distributions
in accordance with ownership interest. The Partnership considered
this factor, together with other factors in paragraph 17 of FIN 46R,
in the determination of the primary beneficiary of those local
limited partnerships determined to be VIEs.
The Partnership determined that the tax credit allocation period for
each of the nineteen local limited partnerships had expired at
December 31, 2004 and investors were fully allocated their portion of
tax credits. In addition, in the event the amount of tax credits
allocated to investors were less than the amount originally provided
to the investors, the general partner would have the responsibility
to make the investor whole. Therefore if a quantitative analysis of
the relative exposures of the Partnership to the expected losses and
residual returns had been performed at December 31, 2004, the
Partnership's rights to tax credits would not have been a factor in
the expected cash flows.
* * * * *
As requested by the Staff, the Partnership acknowledges that: (a) the
Partnership is responsible for the adequacy and accuracy of the disclosure in
its filings; (b) Staff comments or changes to disclosure in response to Staff
comments do not foreclose the Commission from taking any action with respect to
the filings; and (c) the Partnership may not assert Staff comments as a defense
in any proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
If you have further questions regarding the information provided, please contact
the undersigned or Stephen Waters. Mr. Waters can be reached directly at (864)
239-1554 or by fax at (864) 239-5824.
Sincerely,
/s/ David R. Robertson
David R. Robertson
President and Chief Executive Officer
National Partnership Investments Corp.,
the general partner of National Tax
Credit Partners, L.P.
cc: Stephen B. Waters