February 18, 2005
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Boston Financial Qualified Housing Tax Credits L.P. IV
Report on Form 10-QSB for the Quarter Ended December 31, 2004
File Number 0-19765
Dear Sir/Madam:
Pursuant to the requirements of section 15(d) of the Securities Exchange Act of
1934, filed herewith a copy of subject report.
Very truly yours,
/s/Stephen Guilmette
Stephen Guilmette
Assistant Controller
QH4-10Q3DOC
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2004
------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ ---------------
Commission file number 0-19765
Boston Financial Qualified Housing Tax Credits L.P. IV
- -----------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3044617
- ------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Arch Street, Boston, Massachusetts 02110-1106
- ----------------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-3911
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements
Balance Sheet (Unaudited) - December 31, 2004 1
Statements of Operations (Unaudited) - For the Three and Nine
Months Ended December 31, 2004 and 2003 2
Statement of Changes in Partners' Equity (Deficiency)
(Unaudited) - For the Nine Months Ended December 31, 2004 3
Statements of Cash Flows (Unaudited) - For the
Nine Months Ended December 31, 2004 and 2003 4
Notes to the Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Controls and Procedures 14
PART II - OTHER INFORMATION
Items 1-6 15
SIGNATURE 16
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
1
BALANCE SHEET
December 31, 2004
(Unaudited)
Assets
Cash and cash equivalents $ 4,569,999
Investments in Local Limited Partnerships (Note 1) 7,522,283
Other assets 309
-------------
Total Assets $ 12,092,591
=============
Liabilities and Partners' Equity
Accrued expenses $ 93,553
Deposit on sale 25,000
-------------
Total Liabilities 118,553
General, Initial and Investor Limited Partners' Equity
Total Partners' Equity 11,974,038
-------------
Total Liabilities and Partners' Equity $ 12,092,591
=============
The accompanying notes are an integral part of these financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended December 31, 2004 and 2003
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31, December 31,December 31,
2004 2003 2004 2003
-------------- -------------- -------------- ---------------
Revenue:
Investment $ 14,326 $ 2,307 $ 22,177 $ 7,007
Other - - 842,215 81,557
-------------- -------------- -------------- ----------------
Total Revenue 14,326 2,307 864,392 88,564
-------------- -------------- -------------- ---------------
Expenses:
Asset management fees, affiliate 45,977 45,121 137,933 135,363
Provision for valuation of advances to
Local Limited Partnerships 6,219 (244) 11,904 8,720
Provision for valuation of investments
in Local Limited Partnerships - 786,891 349,587 786,891
General and administrative
(includes reimbursements to an
affiliate in the amounts of
$209,113 and $124,333 in 2004
and 2003, respectively) 141,302 71,838 354,917 212,213
Amortization 6,018 11,994 26,358 35,982
-------------- -------------- -------------- ---------------
Total Expenses 199,516 915,600 880,699 1,179,169
-------------- -------------- -------------- ---------------
Loss before equity in income (losses) of
Local Limited Partnerships (185,190) (913,293) (16,307) (1,090,605)
Equity in income (losses) of Local
Limited Partnerships (Note 1) 114,898 (69,114) 102,793 (436,042)
-------------- -------------- -------------- ---------------
Net Income (Loss) $ (70,292) $ (982,407) $ 86,486 $ (1,526,647)
============== ============== ============== ===============
Net Income (Loss) allocated:
General Partners $ (703) $ (9,824) $ 865 $ (15,266)
Limited Partners (69,589) (972,583) 85,621 (1,511,381)
-------------- -------------- -------------- ---------------
$ (70,292) $ (982,407) $ 86,486 $ (1,526,647)
============== ============== ============== ===============
Net Income (Loss) per Limited Partner
Unit (68,043 Units) $ (1.02) $ (14.29) $ 1.26 $ (22.21)
=============== ============== =============== ==================
The accompanying notes are an integral part of these financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY (Deficiency)
For the Nine Months Ended December 31, 2004
(Unaudited)
Initial Investor
General Limited Limited
Partners Partners Partners Total
-------------- ------------- ------------- ------------
Balance at March 31, 2004 $ (472,211) $ 5,000 $ 12,354,763 $ 11,887,552
Net Income 865 - 85,621 86,486
------------- ------------- ------------- -------------
Balance at December 31, 2004 $ (471,346) $ 5,000 $ 12,440,384 $ 11,974,038
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Nine Months Ended December 31, 2004 and 2003
(Unaudited)
2004 2003
------------- -------------
Net cash used for operating activities $ (989,889) $ (289,642)
Net cash provided by investing activities 4,999,274 197,837
------------- -------------
Net increase (decrease) in cash and cash equivalents 4,009,385 (91,805)
Cash and cash equivalents, beginning 560,614 589,683
------------- -------------
Cash and cash equivalents, ending $ 4,569,999 $ 497,878
============= =============
The accompanying notes are an integral part of these financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
Notes to the Financial Statements
(Unaudited)
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of the
information and note disclosures required by accounting principles generally
accepted in the United States of America. These statements should be read in
conjunction with the financial statements and notes thereto included with the
Partnership's Form 10-KSB for the year ended March 31, 2004. In the opinion of
the Managing General Partner, these financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Partnership's financial position and results of operations.
The results of operations for the periods may not be indicative of the results
to be expected for the year.
The Managing General Partner of the Partnerships has elected to report results
of the Local Limited Partnerships in which the Partnership has a limited
partnership interest on a 90 day lag basis because the Local Limited
Partnerships report their results on a calendar year basis. Accordingly, the
financial information of the Local Limited Partnerships that is included in the
accompanying financial statements is as of September 30, 2004 and 2003.
1. Investments in Local Limited Partnerships
The Partnership has limited partnership interests in twenty-two Local Limited
Partnerships which were organized for the purpose of owning and operating
multi-family housing complexes, all of which are government-assisted. The
Partnership's ownership interest in each Local Limited Partnership is 99% with
the exception of Leawood Manor, which is 89%. The Partnership may have
negotiated or may negotiate options with the Local General Partners to purchase
or sell the Partnership's interest in the Properties at the end of the
Compliance Period at nominal prices. In the event that Properties are sold to
third parties, proceeds will be distributed according to the terms of each Local
Limited Partnership agreement.
The following is a summary of investments in Local Limited Partnerships at
December 31, 2004:
Capital contributions and advances paid to Local Limited Partnerships and
purchase price paid to withdrawing partners of Local Limited Partnerships $ 43,960,632
Cumulative equity in losses of Local Limited Partnerships (excluding cumulative
unrecognized losses of $14,884,542) (25,838,731)
Cumulative cash distributions received from Local Limited Partnerships (9,026,668)
-------------
Investments in Local Limited Partnerships before adjustments 9,095,233
Excess investment cost over the underlying assets acquired:
Acquisition fees and expenses 3,613,837
Cumulative amortization of acquisition fees and expenses (1,171,950)
-------------
Investments in Local Limited Partnerships before impairment allowance 11,537,120
Impairment allowance on investments in Local Limited Partnerships (4,014,837)
-------------
Investments in Local Limited Partnerships $ 7,522,283
=============
For the nine months ended December 31, 2004, the Partnership advanced $11,904 to
one of the Local Limited Partnerships, all of which was impaired. The
Partnership has recorded an impairment allowance for its investments in certain
Local Limited Partnerships in order to appropriately reflect the estimated net
realizable value of these investments.
<page>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
Notes to the Financial Statements (continued)
(Unaudited)
1. Investments in Local Limited Partnerships (continued)
The Partnership's share of the net losses of the Local Limited Partnerships for
the nine months ended December 31, 2004 is $1,867,497. For the nine months ended
December 31, 2004, the Partnership has not recognized $1,970,290 of equity in
losses relating to certain Local Limited Partnerships in which cumulative equity
in losses and cumulative distributions exceeded its total investments in these
Local Limited Partnerships.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed herein constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The
Partnership intends such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements and is including this statement
for purposes of complying with these safe harbor provisions. Although the
Partnership believes the forward-looking statements are based on reasonable
assumptions, the Partnership can give no assurance that its expectations will be
attained. Actual results and timing of certain events could differ materially
from those projected in or contemplated by the forward-looking statements due to
a number of factors, including, without limitation, general economic and real
estate conditions and interest rates.
Accounting Policies
The Partnership's accounting policies include those that relate to its
recognition of investments in Local Limited Partnerships using the equity method
of accounting. The Partnership's policy is as follows:
The Partnership accounts for its investments in Local Limited Partnerships using
the equity method of accounting because the Partnership does not have control
over the major operating and financial policies of the Local Limited
Partnerships in which it invests. Under the equity method, the investment is
carried at cost, adjusted for the Partnership's share of net income or loss and
for cash distributions from the Local Limited Partnerships; equity in income or
loss of the Local Limited Partnerships is included currently in the
Partnership's operations. Under the equity method, a Local Limited Partnership
investment will not be carried below zero. To the extent that equity in losses
are incurred when the Partnership's carrying value of the respective Local
Limited Partnership has been reduced to a zero balance, the losses will be
suspended and offset against future income. Income from Local Limited
Partnerships, where cumulative equity in losses plus cumulative distributions
have exceeded the total investment in Local Limited Partnerships, will not be
recorded until all of the related unrecorded losses have been offset. To the
extent that a Local Limited Partnership with a carrying value of zero
distributes cash to the Partnership, that distribution is recorded as income on
the books of the Partnership and is included in "Other Revenue" in the
accompanying financial statements.
The Partnership has implemented policies and practices for assessing potential
impairment of its investments in Local Limited Partnerships. Real estate experts
analyze the investments to determine if impairment indicators exist. If so, the
investment is analyzed to consider the Partnership's ability to recover its
carrying value. If an other than temporary impairment in carrying value exists,
a provision to write down the asset to fair value will be recorded in the
Partnership's financial statements.
Liquidity and Capital Resources
The Partnership had an increase in cash and cash equivalents of $4,009,385 from
$560,614 at March 31, 2004 to $4,569,999 at December 31, 2004. The increase is
primarily attributable to cash distributions received from Local Limited
Partnerships partially offset by cash used for operations and advances to a
Local Limited Partnership.
The Managing General Partner originally designated 4% of the Gross Proceeds as
Reserves, as defined in the Partnership Agreement. The Reserves were established
to be used for working capital of the Partnership and contingencies related to
the ownership of Local Limited Partnership interests. The Managing General
Partner may increase or decrease such Reserves from time to time, as it deems
appropriate. At December 31, 2004, $4,569,999 of cash and cash equivalents has
been designated as Reserves.
To date, professional fees relating to various Property issues totaling
approximately $1,467,000 have been paid from Reserves. To date, Reserve funds in
the amount of approximately $304,000 also have been used to make additional
capital contributions to one Local Limited Partnership. In the event a Local
Limited Partnership encounters operating difficulties requiring additional
funds, the Managing General Partner might deem it in its best interest to
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
voluntarily provide such funds in order to protect its investment. As of
December 31, 2004, the Partnership has advanced approximately $1,311,000 to
Local Limited Partnerships to fund operating deficits.
The Managing General Partner believes that the investment income earned on the
Reserves, along with cash distributions received from Local Limited
Partnerships, to the extent available, will be sufficient to fund the
Partnership's ongoing operations. Reserves may be used to fund Partnership
operating deficits, if the Managing General Partner deems funding appropriate.
If Reserves are not adequate to cover the Partnership's operations, the
Partnership will seek other financing sources including, but not limited to, the
deferral of Asset Management Fees paid to an affiliate of the Managing General
Partner or working with Local Limited Partnerships to increase cash
distributions. To date, the Partnership has used approximately $4,931,000 of
operating funds to replenish Reserves.
Since the Partnership invests as a limited partner, the Partnership has no
contractual obligation to provide additional funds to Local Limited Partnerships
beyond its specified investment. Thus, at December 31, 2004, the Partnership had
no contractual or other obligation to any Local Limited Partnership which had
not been paid or provided for.
Cash Distributions
No cash distributions were made during the nine months ended December 31, 2004.
Results of Operations
Three Month Period
The Partnership's results of operations for the three months ended December 31,
2004 resulted in a net loss of $70,292 as compared to a net loss of $982,407 for
the same period in 2003. The change between years is primarily attributable to a
decrease in provision for valuation of investments in Local Limited Partnerships
and a decrease in equity in losses in Local Limited Partnerships partially
offset by an increase in general and administrative expenses. Equity in losses
in Local Limited Partnerships decreased between years due to an increase in
unrecognized losses of Local Limited Partnerships with carrying values of zero.
The increase in general and administrative expenses is primarily due to
increased charges from an affiliate of the General Partner for operational and
administrative expenses necessary for the operation of the Partnership.
Nine Month Period
The Partnership's results of operations for the nine months ended December 31,
2004 resulted in net income of $86,486 as compared to a net loss of $1,526,647
for the same period in 2003. The change between years is primarily attributable
to a decrease in equity in losses in Local Limited Partnerships, an increase in
other income and a decrease in provision for valuation of investments in Local
Limited Partnerships partially offset by an increase in general and
administrative expenses. Equity in losses in Local Limited Partnerships
decreased between years due to an increase in unrecognized losses of Local
Limited Partnerships with carrying values of zero. The increase in other income
is attributable to higher distributions from Local Limited Partnerships with
carrying values of zero. The increase in general and administrative expenses is
primarily due to increased charges from an affiliate of the General Partner for
operational and administrative expenses necessary for the operation of the
Partnership.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Portfolio Update
The Partnership's investment portfolio consists of limited partnership interests
in twenty-one Local Limited Partnerships, each of which owns and operates a
multi-family apartment complex and each of which has generated Tax Credits.
Since inception, the Partnership has generated Tax Credits, net of recapture, of
approximately $1,287 per Limited Partner Unit with an immaterial amount of Tax
Credits expected to be generated during 2004 and 2005. The aggregate amount of
Tax Credits generated by the Partnership is consistent with the objective
specified in the Partnership's prospectus.
Properties that receive low income housing Tax Credits must remain in compliance
with rent restriction and set-aside requirements for at least 15 years from the
date the property is completed. Failure to do so would result in recapture of a
portion of the property's Tax Credits. Between 2003 and continuing through 2006,
the Compliance Period of the twenty-one Properties in which the Partnership has
an interest will expire. The Managing General Partner has negotiated agreements
that will ultimately allow the Partnership to dispose of its interest in ten
Local Limited Partnerships. It is unlikely that the disposition of any of these
Local Limited Partnership interests will generate any material cash
distributions to the Partnership. One Property in which the Partnership had an
investment was sold in the nine months ended December 31, 2004.
The Managing General Partner will continue to closely monitor the operations of
the Properties during the Compliance Period and will formulate disposition
strategies with respect to the Partnership's remaining Local Limited Partnership
interests. It is unlikely that the Managing General Partner's efforts will
result in the Partnership disposing of all of its remaining Local Limited
Partnership interests concurrently with the expiration of each Property's
Compliance Period. The Partnership shall dissolve and its affairs shall be wound
up upon the disposition of the final Local Limited Partnership interest and
other assets of the Partnership. Investors will continue to be Limited Partners,
receiving K-1s and quarterly and annual reports, until the Partnership is
dissolved.
On July 13, 2004, Park G.P., Inc. ("Park") commenced litigation against an
affiliate of the Managing General Partner and its purported general partners
(collectively, "Defendants") in Clay County, Missouri, claiming that Defendants
breached the relevant partnership agreement and their fiduciary duties owed to
Park by, among other things, failing to permit inspection of certain alleged
"books and records" of the affiliate of the Partnership. On or about October 7,
2004, Park sought leave of the court to amend its petition to include claims for
inspection of the alleged "books and records" against the Partnership, five more
affiliates of the Managing General Partner and their purported general partners
(collectively, the "New Defendants"). The Court granted the amendment on
November 15, 2004, and all defendants subsequently moved to dismiss the Amended
Complaint in its entirety. That motion is currently pending. On or about October
8, 2004, Park moved the court for entry of a temporary restraining order
compelling the Defendants and the New Defendants to turn over the alleged "books
and records" in conjunction with a transaction Park was proposing entering into.
On October 12, 2004, the court denied Park's request.
Defendants maintain that Park is not entitled to review the materials requested
and/or use the materials in secondary market transactions because, among other
things, (i) they are not "books and records" of the partnerships, (ii) Park does
not seek to review them for a proper purpose, and (iii) that selective
disclosure of the information to Park would give it an unfair informational
advantage in secondary market transactions, and may violate federal and/or state
securities laws. Defendants accordingly intend on defending against the claims
vigorously. The Managing General Partner has not formed an opinion that an
unfavorable outcome is either probable or remote. Therefore, the Managing
General Partner refrains from expressing an opinion as to the likely outcome of
the case, or the range of any loss.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Portfolio Update (continued)
On August 24, 2004, the Partnership and seven affiliates of the General Partners
(collectively, the "Partnerships"), and their general partners commenced
litigation against Everest Housing Investors 2, LLC and three other
Everest-related entities (collectively, the "Everest entries") in Massachusetts
state court, seeking a declaratory judgment that certain materials the Everest
entities sought to inspect are not "books and records" of the Partnerships and
that the Everest entities are in any case not entitled to inspect said
information under applicable partnership agreements, partnership law or
otherwise. On October 7, 2004, the Everest entities filed an answer and
counterclaimed against the Partnerships and their Managing General Partners,
claiming that they breached applicable partnership agreements, partnership law
and their fiduciary duties to the Everest entities by failing to make the
purported "books and records" available. The Partnerships maintain that the
Everest entities is not entitled to review the materials requested and/or use
the materials in secondary market transactions because, among other things, (i)
the materials requested are not "books and records" of the Partnerships, as that
term is defined in the relevant partnership agreements, (ii) the Everest
entities does not seek to review them for a proper purpose, and (iii) that
selective disclosure of the information to the Everest entries would give it an
unfair informational advantage in secondary market transactions and could
potentially violate federal and/or state securities laws. Because of the
preliminary nature of the Massachusetts litigation, including but not limited to
the fact that no discovery has taken place, no estimate of a potential outcome
can be made at this time.
On September 28, 2004, Anise L.L.C. ("Anise") commenced litigation against the
Partnership and an affiliate of the Managing General Partner, and their
purported general partners (collectively, the "Defendants") in Clay County,
Missouri, claiming that the Defendants were tortuously interfering with Anise's
contracts to purchase units in the Partnership and in the affiliate of the
Managing General Partner. Following the Defendants' motion to dismiss the
petition, filed on November 9, 2004, plaintiff dismissed the petition on its own
volition without prejudice on November 18, 2004.
Property Discussions
Most of the Properties in which the Partnership has an interest have stabilized
operations and operate above break-even. Some Properties generate cash flow
deficits that the Local General Partners of those Properties fund through
project expense loans, subordinated loans or operating escrows. However, some
Properties have had persistent operating difficulties that could either: i) have
an adverse impact on the Partnership's liquidity; ii) result in their
foreclosure; or iii) result in the Managing General Partner deeming it
appropriate for the Partnership to dispose of its interest in the Local Limited
Partnership prior to the expiration of the Compliance Period. Also, the Managing
General Partner, in the normal course of the Partnership's business, may arrange
for the future disposition of its interest in certain Local Limited
Partnerships. The following Property discussions focus only on such Properties.
As previously reported, the Local General Partner of Hampton Lane, located in
Buena Vista, Georgia, and Greentree Village, located in Greenville, Georgia,
expressed to the Managing General Partner some concerns over the long-term
financial health of these Properties. In response to these concerns and to
reduce possible future risk, the Managing General Partner entered into a put
agreement with the Local General Partner in which the Partnership has the right
to ultimately transfer ownership of the Local Limited Partnerships to the Local
General Partner for a nominal price after the expiration of the Compliance
Period. The plan includes provisions to minimize the risk of recapture. The
Properties have generated all of their total Tax Credits and the Compliance
Periods end on December 31, 2004 and December 31, 2005 for Hampton Lane and
Greentree Village, respectively. The Managing General Partner has not yet
transferred any of the Partnership's interest in these Local Limited
Partnerships.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Property Discussions (continued)
As previously reported, the Managing General Partner negotiated an agreement
with an unaffiliated entity to have the ability to transfer its interest to the
unaffiliated entity or its designee with respect to the following Local Limited
Partnerships: Orocovix IV, located in Orocovix, Puerto Rico, Canfield Crossing,
located in Milan, Michigan, Orchard View, located in Gobles, Michigan and
Whitehills II, located in Howell, Michigan. Although these Properties do not
share a common Local General Partner, they are all Rural Housing Section 515
("FMHA") properties. The Managing General Partner has the right to put its
interest in any of the Local Limited Partnerships at any time in exchange for a
contingent note that grants the Partnership 50% of all future net cash receipts
from such Local Limited Partnership interest. The Compliance Period ended on
December 31, 2004 for Orocovix IV, Canfield Crossing and Whitehills II and will
end on December 31, 2005 for Orchard View.
As previously reported, in June of 1998, the Managing General Partner was
informed that the Local General Partner of Bentley Court, located in Columbia,
South Carolina was indicted on various criminal charges and pled guilty on
certain counts. The Managing General Partner replaced the Local General Partner
and the site management company. Furthermore, an IRS audit of the 1993 tax
return for the Local Limited Partnership questioned the treatment of certain
items and had findings of non-compliance in 1993. The IRS then expanded the
scope of the audit to include the 1994 and 1995 tax returns. As a result, the
IRS disallowed the Property's Tax Credits for each of these years. On behalf of
the Partnership, the Managing General Partner retained counsel to appeal the
IRS's findings in order to minimize the loss of Tax Credits. This administrative
appeal has been unsuccessful and the IRS continues to take the position of
disallowing Tax Credits for 1993, 1994 and 1995, a total of approximately
$2,562,000, or $38 per Unit, not including interest. In addition, the Local
General Partner received formal notification that the IRS was expanding its
claims to recapturing approximately $500,000 of Tax Credits deducted in 1990,
1991 and 1992, or $7 per Unit, not including interest. In 2004, the Managing
General Partner filed a Petition for Readjustment with the United States Tax
Court (Case No. 5393-04) in order to further appeal the IRS's position. It is
possible that the IRS will further expand its claims for additional amounts with
respect to other years. However, the Managing General Partner's counsel has
advised that the statute of limitations expired for the tax years 1996, 1997 and
1998. The Managing General Partner is currently considering its options
including Tax Court and possible settlement with the IRS. In addition, the
Managing General Partner is considering using Partnership Reserves to place a
$1,000,000 or greater cash bond with the IRS to serve as a source of possible
settlement of all or a portion of the claims. By so doing, after the date of the
cash bond, no interest would accrue on that portion of the IRS's claims. If the
settlement reached with the IRS were less than the bonded amount, the
Partnership would recover the difference. Absent a successful litigation or a
settlement, it is anticipated that the IRS will contact Limited Partners
directly for any adjustments that need to be made to returns for those years. It
is also possible that the Managing General Partner may decide to use additional
Partnership Reserves or sell the Bentley Court Property to generate proceeds
that may be used in connection with the tax liabilities described above.
As previously reported, on April 28, 2000, the Managing General Partner, on
behalf of the Partnership, filed suit against the former Local General Partner
of Bentley Court and certain affiliates of the former Local General Partner
alleging mismanagement of the Local Limited Partnership. During May 2001, the
former Local General Partner authorized the release of funds held in escrow in
the amount of approximately $640,000 to the Partnership that was used to
reimburse the Partnership for advances made in previous years. Previously, weak
market conditions had caused Bentley Court to be unable to establish a
stabilized occupancy. However, strong occupancy enabled the Property to operate
above breakeven during 2003 and during the first nine months of 2004,with
appropriate debt service coverage and working capital levels. Previously, both
the Local General Partner and the Managing General Partner had advanced the
Property funds to enable it to stay current on its financial obligations.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Property Discussions (continued)
As previously reported, in February 1997, due to concerns about the Property's
long-term viability, the Managing General Partner consummated a transfer of 50%
of the Partnership's interest in capital and profits of BK Apartments, located
in Jamestown, North Dakota, to the Local General Partner. The Property generated
its final year of Tax Credits in 2001, and the Partnership retained its full
share of the Property's Tax Credits through such time period. The Local General
Partner subsequently transferred its general partner interest to a new,
nonprofit general partner. The Managing General Partner also has the right to
put the Partnership's remaining interest to the new Local General Partner any
time after December 1, 2001. In addition, the new Local General Partner has the
right to call the remaining interest after the Compliance Period has expired.
The Property operated above break-even during 2003.
As previously reported, although the neighborhood in which 46th & Vincennes is
located (Chicago, Illinois) has improved in the last few years, potential
tenants are reluctant to occupy the Property due to its location and curb
appeal. As a result, maintaining occupancy, and therefore revenues, continues to
be an issue and debt service coverage and working capital are below appropriate
levels. A site visit by the Managing General Partner found the Property in need
of some minor improvements but in overall fair condition. However, the Managing
General Partner believes that the Local General Partner and its affiliated
management company are not adequately performing their responsibilities with
respect to the Property. The Managing General Partner has expressed these
concerns to the Local General Partner and will continue to closely monitor the
Property's operations. Advances from the Local General Partner have enabled the
Property to stay current on its loan obligations.
As previously reported, during 1994, the Local General Partner of Dorsett
Apartments, located in Philadelphia, Pennsylvania, transferred its interest in
the Local Limited Partnership. The IRS subsequently conducted a compliance audit
of the Property and took the position that the Property is subject to recapture
due to non-compliance issues. The Managing General Partner disagrees with the
IRS and is working to resolve the matter. In the opinion of the Managing General
Partner, there is a risk that the Property and the Partnership could suffer
significant Tax Credit recapture. However, it is not possible to quantify the
potential amount at this time. Further, the Property has suffered from poor
location and security issues. Vandalism caused an increase in maintenance and
repair expenses and negatively affected the Property's occupancy levels and
tenant profile, causing debt service coverage and working capital to drop below
appropriate levels. In 2003, the Managing General Partner and the Local General
Partner began to pursue disposition options of the Partnership's interest in the
Property. On September 21, 2004, the Property was sold. The Partnership received
$25,000 in sales proceeds in October 2004 and is scheduled to receive an
additional $50,000 in April 2005. The Partnership will continue to have an
interest in this Local Limited Partnership until January 1, 2005, by which time
the Property's Compliance Period will have expired and the Partnership's
interest will be fully transferred. The Managing General Partner, in accordance
with and as permitted by the Partnership Agreement, retained the entire amount
of net proceeds in Reserves. The sale resulted in taxable income of
approximately $174,000, or $3 per Unit.
As previously reported, the Managing General Partner negotiated an agreement to
transfer the Local General Partner interest in West Pine, located in Findlay,
Pennsylvania, to an affiliate of the Allegheny County Housing Authority ("ACHA")
contingent upon receiving approval from the U.S. Department of Housing and Urban
Development ("HUD"). HUD approval was received and the Local General Partner
interest was transferred on October 17, 2003. In addition, the ACHA had informed
the Managing General Partner of its interest in acquiring the Partnership's
interest in the Local Limited Partnership, pending their assumption of the Local
General Partner interest. Concurrent with the replacement of the Local General
Partner, another ACHA affiliate acquired 30% of the Partnership's Limited
Partner interest in the Local Limited Partnership. As part of this transaction,
the Partnership acquired a put option for the remaining 70% exercisable for $1
upon the expiration of the Compliance Period, December 31, 2006. West Pine
generated its final year of Tax Credits in 2001.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Property Discussions (continued)
Willow Ridge, located in Prescott, Arizona, has experienced operating
difficulties during the last few quarters. Despite relatively strong occupancy,
the Property operated below break-even during 2003 and the Local General
Partnership has not made any debt service payments in 2004. The Property
generated all of its total Tax Credits by 2001 and its Compliance Period expired
on December 31, 2004. In order to minimize the Partnership's risk, the Managing
General Partner agreed to allow an unaffiliated entity to be admitted as a
co-Local General Partner. This admittance required the approval of the U.S.
Department of Housing and Urban Development, which was received in October 2004.
The co-Local General Partner is required to cure the mortgage arrearages. In
addition, the Partnership received the right to put its interest in the Property
at any time after December 31, 2004 in exchange for a contingent note that
grants the Partnership 50% of all future net cash receipts from such Local
Limited Partnership interest.
Carolina Woods, located in Greensboro, North Carolina, has experienced
decreasing occupancy since early 2003. The Local General Partner replaced its
own management agent affiliate with a third party local management agent. The
new management agent has evicted several tenants for non-payment. Revenues have
decreased and the Property has experienced operating deficits. The Local General
Partner has advanced funds as necessary to ensure the Property remains current
on its debt service obligations. The Property's Compliance Period expired on
December 31, 2004 and therefore poses minimal risk to the Partnership. The
Managing General Partner is working with the Local General Partner to develop an
exit strategy for the Partnership's interest in the Property.
Lakeside Square, located in Chicago, Illinois, has enjoyed very strong
operations for a number of years. In 2003, the Local General Partner requested
approval for a refinancing of the Property. In return for the Partnership's
approval, the Managing General Partner obtained a put option to transfer the
Partnership's interest at any time after December 31, 2006 for $300,000. As part
of the agreement, the Local General Partner received a call option to be
exercised any time after December 31, 2006.The Partnership received Refinancing
Proceeds, as defined in the Local Limited Partnership Agreement, of $4,922,665
from the refinancing, which closed on August 31, 2004. The Managing General
Partner, in accordance with and as permitted by the Partnership Agreement,
retained the entire amount of net proceeds in Reserves.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
CONTROLS AND PROCEDURES
Controls and Procedures
Based on the Partnership's evaluation as of the end of the period covered by
this report, the Partnership's executive vice president has concluded that the
Partnership's disclosure controls and procedures are effective to ensure that
information required to be disclosed in the reports that the Partnership files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
There have been no significant changes in the Partnership's internal controls or
in other factors that could significantly affect those controls subsequent to
the date of their evaluation.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
PART II OTHER INFORMATION
Item 1 Legal proceedings as discussed in Part I are incorporated herein by
reference.
Items 2-5 Not applicable
Item 6 Exhibits and reports on Form 8-K
(a) Exhibits
31.1 Certification of Jenny Netzer pursuant to section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Jenny Netzer pursuant to section
906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended December 31, 2004
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: February 18, 2005 BOSTON FINANCIAL QUALIFIED HOUSING
TAX CREDITS L.P. IV
By: Arch Street VIII, Inc.,
its Managing General Partner
/s/Jenny Netzer
Jenny Netzer
Executive Vice President
MMA Financial, LLC