November 14, 2007
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 September 30, 2007
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/Patricia Olsen-Goldberg
Patricia Olsen-Goldberg
Controller
QH4-Q2.DOC
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 September 30, 2007
------------------------------------
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) - September 30, 2007 1
Statements of Operations (Unaudited) - For the Three and Six
Months Ended September 30, 2007 and 2006 2
Statement of Changes in Partners' Equity (Unaudited) -
For the Six Months Ended September 30, 2007 3
Statements of Cash Flows (Unaudited) - For the
Six Months Ended September 30, 2007 and 2006 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 13
PART II - OTHER INFORMATION
Items 1-6 14
SIGNATURE 15
CERTIFICATIONS 16
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
BALANCE SHEET
September 30, 2007
(Unaudited)
Assets
Cash and cash equivalents $ 17,079,889
Investments in Local Limited Partnerships (Note 1) 3,326,149
Accounts receivable (Note 1) 1,124,426
---------------
Total Assets $ 21,530,464
===============
Liabilities and Partners' Equity
Due to affiliate $ 148,948
Accrued expenses 44,753
---------------
Total Liabilities 193,701
General, Initial and Investor Limited Partners' Equity 21,336,763
---------------
Total Liabilities and Partners' Equity $ 21,530,464
===============
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 Six Months Ended September 30, 2007 and 2006
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
---------------- ---------------- ---------------- ----------
Revenue
Investment $ 578,940 $ 126,913 $ 597,316 $ 177,380
Other - - - 35,000
---------------- ---------------- ---------------- ----------------
Total Revenue 578,940 126,913 597,316 212,380
---------------- ---------------- ---------------- ----------------
Expenses:
Asset management fees, affiliate 20,593 26,787 41,186 53,572
Provision for valuation allowance on
advances to Local Limited Partnerships
(Note 1) 713 25,943 14,004 75,949
Provision for valuation allowance on
investments in Local Limited
Partnerships (Note 1) - 250,000 - 250,000
General and administrative
(includes reimbursement to affiliate
in the amounts of $40,115 and
$62,864 for the six months ended
September 30, 2007 and 2006,
respectively) 74,230 84,869 145,455 830,052
Amortization 6,833 6,834 13,667 13,668
---------------- ---------------- ---------------- ----------------
Total Expense 102,369 394,433 214,312 1,223,241
---------------- ---------------- ---------------- ----------------
Income (Loss) before equity in income (losses) of Local Limited Partnerships and
gain on sale of investments
in Local Limited Partnerships 476,571 (267,520) 383,004 (1,010,861)
Equity in income (losses) of Local Limited
Partnerships (Note 1) 113,982 (110,485) 16,922 (190,211)
Gain on sale of investments in Local
Limited Partnerships (Note 1) 24,426 12,794,835 99,426 12,794,835
---------------- ---------------- ---------------- ----------------
Net Income $ 614,979 $ 12,416,830 $ 499,352 $ 11,593,763
================ ================ ================ ================
Net Income allocated:
General Partners $ 6,148 $ 715,198 $ 4,994 $ 706,967
Limited Partners 608,831 11,701,632 494,358 10,886,796
---------------- ---------------- ---------------- ----------------
$ 614,979 $ 12,416,830 $ 499,352 $ 11,593,763
================ ================ ================ ================
Net Income Per Limited Partner
Unit (68,043) Units $ 8.95 $ 171.97 $ 7.27 $ 160.00
================ ================ ================ ================
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
For the Six Months Ended September 30, 2007
(Unaudited)
Initial Investor Net
General Limited Limited Unrealized
Partners Partner Partners Losses Total
Balance at March 31, 2007 $ 208,371 $ 5,000 $ 20,624,040 $ (248) $20,837,163
------------- -------------- -------------- -------------- -----------
Comprehensive Income:
Change in net unrealized
losses on investment securities
available for sale - - - 248 248
Net Income 4,994 - 494,358 - 499,352
------------- -------------- -------------- -------------- -----------
Comprehensive Income 4,994 - 494,358 248 499,600
------------- -------------- -------------- -------------- -----------
Balance at September 30, 2007 $ 213,365 $ 5,000 $ 21,118,398 $ - $21,336,763
============= ============== ============== ============== ===========
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 Six Months Ended September 30, 2007 and 2006
(Unaudited)
2007 2006
------------- ---------
Net cash provided by (used for) operating activities $ 513,153 $ (728,487)
Net cash provided by investing activities 697,498 13,873,468
------------- -------------
Net increase in cash and cash equivalents 1,210,651 13,144,981
Cash and cash equivalents, beginning 15,869,238 1,884,202
------------- -------------
Cash and cash equivalents, ending $ 17,079,889 $ 15,029,183
============= =============
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, 2007. 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 Partnership 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 June 30, 2007 and 2006.
Generally, profits, losses, tax credits and cash flows from operations are
allocated 99% to the Limited Partners and 1% to the General Partners. Net
proceeds from a sale or refinancing will be allocated 95% to the Limited
Partners and 5% to the General Partners, after certain priority payments. The
General Partners may have an obligation to fund deficits in their capital
accounts, subject to limits set forth in the Partnership Agreement. However, to
the extent that the General Partner' capital accounts are in a deficit position
certain items of net income may be allocated to the General Partners in
accordance with the Partnership Agreement.
1. Investments in Local Limited Partnerships
The Partnership has limited partnership interests in eight 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%,
except for Leawood Manor where the Partnership's ownership interest is 89%. The
Partnership may have negotiated or may negotiate options with the Local General
Partners to purchase or sell the Partnership's interests in the Local Limited
Partnerships at the end of the Compliance Period at nominal prices. In the event
that Properties are sold to a third party or upon dissolution of the Local
Limited Partnerships, 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
September 30, 2007:
Capital contributions and advances paid to Local Limited Partnerships and purchase
price paid to withdrawing partners of Local Limited Partnerships $ 23,117,139
Cumulative equity in losses of Local Limited Partnerships (excluding cumulative
unrecognized losses of $7,329,071) (14,343,362)
Cumulative cash distributions received from Local Limited Partnerships (2,484,221)
---------------
Investments in Local Limited Partnerships before adjustments 6,289,556
Excess investment costs over the underlying assets acquired:
Acquisition fees and expenses 2,042,689
Cumulative amortization of acquisition fees and expenses (783,239)
---------------
Investments in Local Limited Partnerships before valuation allowance 7,549,006
Valuation allowance on investments in Local Limited Partnerships (4,222,857)
---------------
Investments in Local Limited Partnerships $ 3,326,149
===============
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)
For the six months ended September 30, 2007, the Partnership advanced $14,004 to
one of the Local Limited Partnerships, all of which was reserved. The
Partnership has recorded a valuation allowance for its investments in certain
Local Limited Partnerships in order to appropriately reflect the estimated net
realizable value of these investments.
The Partnership's share of the net losses of the Local Limited Partnerships for
the six months ended September 30, 2007 is $325,850. For the six months ended
September 30, 2007, the Partnership has not recognized $342,772 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.
As of September 30, 2007, $1,124,426 is receivable related to the sale of two
Local Limited Partnerships in the year ended March 31, 2007.
2. Significant Subsidiaries
None of the Local Limited Partnerships invested in by the Partnership represent
more than 20% of the Partnership's total assets or equity as of September 30,
2007 or 2006 or net losses for the three months ended either September 30, 2007
or 2006.
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.
Critical 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 Local Limited Partnerships in which the Partnership invests are Variable
Interest Entities ("VIE"s). The Partnership is involved with the VIEs as a
non-controlling limited partner equity holder. Because the Partnership is not
the primary beneficiary of these VIEs, it accounts for its investments in the
Local Limited Partnerships using the equity method of accounting. As a result of
its involvement with the VIEs, the Partnership's exposure to economic and
financial statement losses is limited to its investments in the VIEs ($3,326,149
at September 30, 2007). The Partnership may be subject to additional losses to
the extent of any financial support that the Partnership voluntarily provides in
the future. 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
other-than-temporary declines in values of its investments in Local Limited
Partnerships. Periodically, the carrying values of the investments are compared
to their respective fair values. If an other-than-temporary decline in carrying
value exists, a provision to reduce the asset to fair value, as calculated based
primarily on remaining tax benefits, will be recorded in the Partnership's
financial statements. Generally, the carrying values of most Local Limited
Partnerships will decline through losses and distributions in amounts sufficient
to prevent other-than-temporary impairments. However, the Partnership may record
similar impairment losses in the future if the expiration of tax credits
outpaces losses and distributions from any of the 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)
Liquidity and Capital Resources
The Partnership had an increase in cash and cash equivalents of $1,210,651 from
$15,869,238 at March 31, 2007 to $17,079,889 at September 30, 2007. The increase
is primarily attributable to the cash provided by operating activity, maturity
of investments securities, cash distributions from Local Limited Partnerships
and proceeds received from the sale of investments in Local Limited
Partnerships, partially offset by advances to Local Limited Partnerships.
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 September 30, 2007, $17,079,889 of cash and cash equivalents has
been designated as Reserves.
To date, professional fees relating to various Property issues totaling
approximately $2,005,000 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
voluntarily provide such funds in order to protect its investment. As of
September 30, 2007, the Partnership has advanced approximately $1,468,000 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 $18,135,000 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 September 30, 2007, 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 six months ended September 30, 2007.
In October 2007, the Partnership distributed $15,548,170, or $226.22 per Unit.
The Partnership was able to make this distribution primarily as a result of the
Partnership's disposition in recent years of thirty-seven Local Limited
Partnership interests, most notably the sale of Mayfair Mansions, located in
Washington, DC.
Results of Operations
Three Month Period
The Partnership's results of operations for three months ended September 30,
2007 resulted in a net income of $614,979 as compared to a net income of
$12,416,830 for the same period in 2006. The decrease in net income is primarily
attributable to a decrease in gain on sale of investments in Local Limited
Partnerships partially offset by an increase in investment income, a decrease in
provision for valuation allowance on investments in Local Limited Partnerships
and a decrease in equity of losses in Local Limited Partnerships. The decrease
in gain on sale of investments in Local Limited Partnerships is due to the
liquidation of investment in one Local Limited Partnership during 2006. The
Partnership had an increase in investment income during the period ended
September 30, 2007 related to the reimbursement of 2006 interest that the
Partnership had lost while its cash was invested in below-market interest
bearing accounts. The decrease in provision for valuation allowance on
investments in Local Limited Partnerships is due to the recording of an
impairment allowance for one property in the prior year.
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)
Results of Operations (continued)
Six Month Period
The Partnership's results of operations for six months ended September 30, 2007
resulted in a net income of $499,352 as compared to a net income of $11,593,763
for the same period in 2006. The decrease in net income is primarily
attributable to a decrease in gain on sale of investments in Local Limited
Partnerships partially offset by a decrease in general and administrative
expenses, an increase in investment income, a decrease in provision for
valuation allowance on investments in Local Limited Partnerships and a decrease
in equity in losses in Local Limited Partnerships. The decrease in gain on sale
of investments in Local Limited Partnerships is due to the liquidation of
investment in one Local Limited Partnership during 2006. General and
administrative expenses decreased due to a decrease in legal expenses,
associated with litigation in which the Partnership was previously involved. The
Partnership had an increase in investment income during the period ended
September 30, 2007 related to the reimbursement of 2006 interest that the
Partnership had lost while its cash was invested in below-market interest
bearing accounts. The decrease in provision for valuation allowance on
investments in Local Limited Partnerships is due to the recording of an
impairment allowance for one property in the prior year.
Portfolio Update
The Partnership was formed on March 30, 1989 under the laws of the Commonwealth
of Massachusetts for the primary purpose of investing, as a limited partner, in
Local Limited Partnerships which own and operate apartment complexes, most of
which benefit from some form of federal, state or local assistance program and
each of which qualifies for low-income housing tax credits. The Partnership's
objectives are to: (i) provide current tax benefits in the form of tax credits
which qualified investors may use to offset their federal income tax liability;
(ii) preserve and protect the Partnership's capital; (iii) provide limited cash
distributions which are not expected to constitute taxable income during
Partnership operations; and iv) provide cash distributions from sale or
refinancing transactions. The General Partners of the Partnership are Arch
Street VIII, Inc., which serves as the Managing General Partner, and Arch Street
IV L.P., which also serves as the Initial Limited Partner. Both of the General
Partners are affiliates of MMA. The fiscal year of the Partnership ends on March
31.
As of September 30, 2007, the Partnership's investment portfolio consisted of
limited partnership interests in eight 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. The
aggregate amount of Tax Credits generated by the Partnership was 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 calendar years
from the date the property is placed in service. Failure to do so would result
in recapture of a portion of the property's Tax Credits. The Compliance Periods
of the eight remaining Properties in which the Partnership has an interest all
expired on or before December 31, 2006.
The Managing General Partner has negotiated an agreement that will ultimately
allow the Partnership to dispose of its interest in one of the Local Limited
Partnerships. The Partnership did not dispose of any Local Limited Partnership
interests during the six months ended September 30, 2007.
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)
The Managing General Partner will continue to closely monitor the operations of
the Properties and will formulate disposition strategies with respect to the
Partnership's remaining Local Limited Partnership interests. 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.
The Partnership is not a party to any pending legal or administrative
proceeding, and to the best of its knowledge, no legal or administrative
proceeding is threatened or contemplated against it.
Property Discussions
A majority of the Properties in which the Partnership has an interest had
stabilized operations and operated above breakeven as of June 30, 2007. 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, a few 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. 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 an IRS audit of 1993 tax return for Bentley Court II
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 (the disallowance of the 1993,
1994 and 1995 Tax Credits applies only to the Limited Partners of the
Partnership that claimed Tax Credits for those years and the recapture applies
to all current Limited Partners of the Partnership). 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 has not retracted its position of
disallowing Tax Credits for 1993, 1994 and 1995, a total of $2,562,173, plus
accrued interest of approximately $3,900,000, or approximately $95 per Unit.
Based on of advice of tax counsel, the Managing General Partner determined to
concede the disallowance of Tax Credits for those three years.
In addition, the Local General Partner received notification that the IRS was
expanding its claims to recapturing $502,472 of Tax Credits taken in 1990, 1991
and 1992, plus accrued interest of approximately $800,000, or approximately $20
per Unit. Based on advice of tax counsel, the Managing General Partner
determined to challenge the IRS's findings with respect to this $502,472 of
recapture, and a trial was held on this issue in November 2005. Last year, the
Tax Court ruled against the Partnership. Upon advice of counsel, this decision
was not appealed by the Managing General Partner.
It is possible that the IRS will further expand its claims for additional
amounts with respect to other years. However, counsel has advised that the
statute of limitations has expired for the tax years 1996, 1997 and 1998. At
this point, there appears to be no possibility of a settlement with the IRS, and
the Managing General Partner anticipates that the IRS will forward the
assessments for disallowance and recapture directly to the affected Limited
Partners and that this could occur in 2007. The accrued interest calculations
above respecting the disallowance and recapture of Tax Credits are estimates
only based upon a rate of 8% simple interest from the dates that the taxes were
deemed to be owed. The Managing General Partner has not included estimates for
penalties because it is not expecting them. However, it is possible that the IRS
will attempt to claim penalties. Tax counsel has advised that Limited Partners
that acquired Units after 1998 will not be affected by these assessments. The
Managing General Partner strongly recommends that Limited Partners consult with
their tax advisors regarding the appropriate treatment of any disallowance or
recapture assessments.
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)
In addition, the Managing General Partner continues to explore an exit strategy
for Bentley Court, the Property owned and operated by Bentley Court II, Limited
Partnership. The Managing General Partner will attempt to dispose of its
interest in the Local Limited Partnership in 2008.
As previously reported, the Partnership's interest in the Local Limited
Partnership that owns Mayfair Mansions, located in Washington, DC, was
terminated upon the July 2006 sale of the Property to an unaffiliated entity.
The Partnership received net sales proceeds of $12,794,835, or $188.04 per Unit,
resulting in taxable income of $17,236,598, or $253.32 per Unit. The Managing
General Partner believed that the Partnership had a claim of up to an additional
$1,500,000 of sale proceeds under the terms of the partnership agreement and
investment documents for this Local Limited Partnership. The Local General
Partners disputed that at least a portion of this amount is due. On behalf of
the Partnership, the Managing General Partner retained counsel and filed suit in
the Superior Court of the District of Columbia (Civil Action No. 0006755-06)
seeking a declaratory judgment and damages. The Local General Partners filed
counter-claims and disputed the Partnership's claims. On January 10, 2007,
representatives of the Managing General Partner and the Local General Partners
reached a settlement during court-ordered mediation with regard to all of the
above referenced legal claims. All pending legal matters were subsequently
dismissed with prejudice. The settlement required an additional distribution to
the Partnership. This payment in the amount of $1,096,411, or $16.11 per Unit,
was received in October 2007 and will result in 2007 taxable income of
$1,096,411 or $16.11 per Unit. As noted in the Portfolio Updates section above,
the Partnership distributed a majority of the initial net sales proceeds in
October 2007. The Managing General Partner, in accordance with and as permitted
by the Partnership Agreement, will retain the remaining sales proceeds in
Reserves for the time being until it deems a subsequent distribution to be
prudent. The Partnership no longer has an interest in this Local Limited
Partnership.
As previously reported, the Managing General Partner anticipated the termination
of the Partnership's interest in the Local Limited Partnership that owned
Oakview Square, located in Chesterfield, Michigan, upon the sale of the
Property. The sale of this Property, presently resulting in net proceeds to the
Partnership of $100,000, or $1.47 per Unit, occurred on February 28, 2007,
effectively terminating the Partnership's interest in this Local Limited
Partnership. In October 2007, the Partnership received additional proceeds of
$74,426, or $1.09, per Unit, upon a reconciliation of tax and utility payments.
This sale will result in 2007 taxable income projected to be approximately
$818,000, or $12.02 per Unit. The Partnership no longer has an interest in this
Local Limited Partnership.
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 anytime after the expiration of the Compliance
Period on December 31, 2006. West Pine generated its final year of Tax Credits
in 2001. The Managing General Partner's pursuit of an exit strategy has led to a
preliminary agreement that would allow for the transfer of the Partnership's
interest in the Local Limited Partnership for $20,000, or $0.29 per Unit. The
Managing General Partner currently expects this transfer to occur by December
31, 2007 and result in 2007 taxable income of approximately $550,000, or $8.08
per Unit.
As previously reported, although occupancy levels at 46th and Vincennes, located
in Chicago, Illinois, improved to acceptable levels throughout the three-month
period ending December 31, 2006, increases in utility costs and bad debt expense
have resulted in unfavorable debt service coverage while working capital levels
remain well below appropriate levels as of June 30, 2007. A site visit by the
Managing General Partner in October 2006 found the Property in need of some
capital improvements. Although advances from the Local General Partner have
enabled the Property to remain current on its loan obligations, the Managing
General Partner believes that the Local General Partner and its affiliated
management company are not adequately performing their responsibilities with
respect 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)
Property Discussions (continued)
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. Based on the results of a fairly recent market valuation, the
Managing General Partner will most likely enter into an agreement, pending HUD's
approval of a Transfer of Physical Assets Application that would allow the
Partnership to transfer, or put, its interest in the Local Limited Partnership.
While a 2007 disposition is possible, the Managing General Partner currently
believes an early 2008 disposition is more likely. The Managing General Partner
does not expect this disposition to result in any proceeds to the Partnership
and currently projects taxable income of approximately $850,000, or $12.50 per
Unit. The Property's Compliance Period ended on December 31, 2005.
As previously reported, the Partnership had entered into a Settlement Agreement
which provided the option subject to various conditions, to purchase the
Partnership's interests in the following Local Limited Partnerships for a price
of $13,300,000: Prince Street Towers, L.P., located in Lancaster, PA; Sencit
Towne House L.P., located in Shillington, PA; Allentown Towne House, L.P.,
located in Allentown, PA; Brookscrossing Apartments, L.P., located in Atlanta,
GA; and Leawood Associates, L.P., located in Leawood, KS. The Settlement
Agreement was not exercised. The Managing General Partner will explore
alternative exit strategies for these Local Limited Partnership interests.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this report, with the participation of
the Partnership's management, the Partnership's principal executive officer and
principal financial officer conducted an evaluation of the Partnership's
disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule
15d-15(e) under the Exchange Act). Based on this evaluation, our PEO and PFO
concluded that our disclosure controls and procedures were effective as of
September 30, 2007, to provide reasonable assurance that information required to
be disclosed in our reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.
(b) Changes in Internal Control over Financial Reporting.
During the quarter ended September 30, 2007, the Partnership completed
implementation of the following control improvements to remediate the material
weaknesses existing as of March 31, 2007:
Controls over Monitoring of Contractual Agreements
o As part of the remediation plan, management initiated changes in processes and
controls including:
o the refund of lost interest;
o restricting authority to the corporate treasury department over the opening,
closing, investment and movement of cash accounts;
o the engagement of the corporate legal department to perform due
diligence on new agreements to assure compliance with existing agreements
and
o the development and implementation of a fiduciary and conflicts policy
that provides guidance to personnel on conflict management.
Controls over Recording Equity in Income/Losses
o Management now performs a more detailed review and analysis of
quarterly financial data and audited financial statements received
from its investees to assure proper accounting in the appropriate
period. Specifically, investee audited financial statements are
reviewed for unusual events (such as a fire) to assure proper
accounting in the appropriate period. Quarterly, where warranted,
commencing in the quarter ended September 30, 2007, management
will expand the scope of line items tested for reasonableness in
comparison to prior year financial statements.
There were no other changes in the Partnership's internal control over financial
reporting identified in connection with the evaluation required by paragraph (d)
of the Securities and Exchange Act Rules 13a-15 or 15d-15 that occurred during
the quarter ended September 30, 2007 that affected, or were reasonably likely to
affect, the Partnership's internal control over financial reporting.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
PART II OTHER INFORMATION
Items 1-5 Not applicable
Item 6 Exhibits and reports on Form 8-K
Exhibits
31.1 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002
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: November 14, 2007 BOSTON FINANCIAL QUALIFIED HOUSING
TAX CREDITS L.P. IV
By: Arch Street VIII, Inc.,
its Managing General Partner
/s/Gary Mentesana
Gary Mentesana
President
Arch Street VIII, Inc.