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, 2007
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19765
Boston Financial Qualified Housing Tax Credits L.P. IV
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3044617
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Arch Street, Boston, Massachusetts 02110-1106
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-3911
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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 .
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X .
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
Balance Sheet (Unaudited) - December 31, 2007 1
Statements of Operations (Unaudited) - For the Three and Nine
Months Ended December 31, 2007 and 2006 2
Statement of Changes in Partners' Equity (Unaudited) -
For the Nine Months Ended December 31, 2007 3
Statements of Cash Flows (Unaudited) - For the
Nine Months Ended December 31, 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 3A(T). Controls and Procedures 14
PART II - OTHER INFORMATION
Items 1-6 15
SIGNATURE 16
CERTIFICATIONS 17
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
BALANCE SHEET
December 31, 2007
(Unaudited)
Assets
Cash and cash equivalents $ 2,782,965
Investments in Local Limited Partnerships (Note 1) 2,370,178
---------------
Total Assets $ 5,153,143
===============
Liabilities and Partners' Equity
Due to affiliate $ 109,436
Accrued expenses 336,614
---------------
Total Liabilities 446,050
General, Initial and Investor Limited Partners' Equity 4,707,093
---------------
Total Liabilities and Partners' Equity $ 5,153,143
===============
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, 2007 and 2006
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31, December 31, December 31,
2007 2006 2007 2006
---------------- ---------------- ---------------- ----------
Revenue
Investment $ 51,733 $ 161,901 $ 649,049 $ 339,281
Other - - - 35,000
---------------- ---------------- ---------------- ----------------
Total Revenue 51,733 161,901 649,049 374,281
---------------- ---------------- ---------------- ----------------
Expenses:
Asset management fees, affiliate 20,593 26,787 61,779 80,359
Provision for valuation allowance on
advances to Local Limited Partnerships
(Note 1) 1,334 5,802 15,338 81,751
Provision for valuation allowance on
investments in Local Limited
Partnerships (Note 1) 761,000 - 761,000 250,000
General and administrative
(includes reimbursement to affiliate
in the amounts of $51,805 and
$60,773 for the nine months ended
December 31, 2007 and 2006,
respectively) 346,776 144,988 492,231 975,040
Amortization (11,599) 6,834 2,068 20,502
---------------- ---------------- ---------------- ----------------
Total Expense 1,118,104 184,411 1,332,416 1,407,652
---------------- ---------------- ---------------- ----------------
Loss before equity in losses of Local Limited
Partnerships and gain on sale of investments
in Local Limited Partnerships (1,066,371) (22,510) (683,367) (1,033,371)
Equity in losses of Local Limited
Partnerships (Note 1) (81,570) (48,087) (64,648) (238,298)
Gain on sale of investments in Local
Limited Partnerships (Note 1) 66,441 1,050,000 165,867 13,844,835
---------------- ---------------- ---------------- ---------------
Net Income (Loss) $ (1,081,500) $ 979,403 $ (582,148) $ 12,573,166
================ ================ ================ ================
Net Income (Loss) allocated:
General Partners $ (10,815) $ 9,830 $ (5,821) $ 716,797
Limited Partners (1,070,685) 969,573 (576,327) 11,856,369
---------------- ---------------- ---------------- ----------------
$ (1,081,500) $ 979,403 $ (582,148) $ 12,573,166
================ ================ ================ ================
Net Income (Loss) Per Limited Partner
Unit (68,043) Units $ (15.74) $ 14.25 $ (8.47) $ 174.25
=============== ================ =============== ===============
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 Nine Months Ended December 31, 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
------------- -------------- -------------- --------------- -----------
Cash distribution (155,482) - (15,392,688) - (15,548,170)
------------- -------------- -------------- -------------- ------------
Comprehensive Income (Loss):
Change in net unrealized
losses on investment securities
available for sale - - - 248 248
Net Loss (5,821) - (576,327) - (582,148)
------------- -------------- -------------- -------------- ------------
Comprehensive Income (Loss) (5,821) - (576,327) 248 (581,900)
------------- -------------- -------------- ------------- ------------
Balance at December 31, 2007 $ 47,068 $ 5,000 $ 4,655,025 $ - $ 4,707,093
============= ============== ============== ============== ============
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, 2007 and 2006
(Unaudited)
2007 2006
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Net cash provided by (used for) operating activities $ 449,866 $ (853,790)
Net cash provided by investing activities 2,012,031 14,367,665
Net cash used for financing activities (15,548,170) -
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Net increase (decrease) in cash and cash equivalents (13,086,273) 13,513,875
Cash and cash equivalents, beginning 15,869,238 1,884,202
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Cash and cash equivalents, ending $ 2,782,965 $ 15,398,077
============= =============
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 September 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 Partners' 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 seven 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
December 31, 2007:
Capital contributions and advances paid to Local Limited Partnerships and
purchase price paid to withdrawing partners of Local Limited Partnerships $ 22,805,028
Cumulative equity in losses of Local Limited Partnerships (excluding cumulative
unrecognized losses of $6,998,455) (14,079,622)
Cumulative cash distributions received from Local Limited Partnerships (2,609,221)
- --------------
Investments in Local Limited Partnerships before adjustments 6,116,185
Excess investment costs over the underlying assets acquired:
Acquisition fees and expenses 2,004,230
Cumulative amortization of acquisition fees and expenses (765,046)
---------------
Investments in Local Limited Partnerships before valuation allowance 7,355,369
Valuation allowance on investments in Local Limited Partnerships (4,985,191)
- --------------
Investments in Local Limited Partnerships $ 2,370,178
===============
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 nine months ended December 31, 2007, the Partnership advanced $15,338 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 nine months ended December 31, 2007 is $716,576. For the nine months ended
December 31, 2007, the Partnership has not recognized $651,928 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.
The Partnership's interest in one of its investments in Local Limited
Partnerships was sold during the nine months ended December 31, 2007, resulting
in gain on sale of $165,867.
2. Significant Subsidiaries
The following Local Limited Partnerships invested in by the Partnership
represent more than 20% of the Partnership's total assets or equity as of
December 31, 2007 or 2006 or net losses for the three months ended either
December 31, 2007 or 2006. The following financial information represents the
performance of these Local Limited Partnerships for the three months ended
September 30, 2007 and 2006:
Prince Street Towers, L.P. A Limited Partnership 2007 2006
--------------- -- ---------
Revenue $ 453,238 $ 451,543
Net Loss $ (70,078) $ (64,405)
Sencit Towne House, L.P.
Revenue $ 538,217 $ 494,849
Net Income (Loss) $ 37,525 $ (84,855)
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 use of
words like "anticipate," "estimate," "intend," "project," "plan," "expect,"
"believe," "could," and similar expressions are intended to identify such
forward-looking statements. 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 and current expectations, 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 ($2,370,178
at December 31, 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 a decrease in cash and cash equivalents of $13,086,273 from
$15,869,238 at March 31, 2007 to $2,782,965 at December 31, 2007. The decrease
is primarily attributable to a cash distribution paid to the general and limited
partners, partially offset by proceeds received from the sale of investments in
Local Limited Partnerships, the maturity of investment securities and cash
distributions received from 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 December 31, 2007, $2,782,965 of cash and cash equivalents has
been designated as Reserves.
To date, professional fees relating to various Property issues totaling
approximately $2,010,000 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
December 31, 2007, the Partnership has advanced approximately $1,470,000 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 $3,845,000 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, 2007, the Partnership had
no contractual or other obligation to any Local Limited Partnership which had
not been paid or provided for.
Cash Distributions
A cash distribution of $15,548,170, or $226.22 per Unit, was made during the
nine months ended December 31, 2007. The Partnership was able to make this
distribution primarily as a result of the Partnership's disposition in recent
years of thirty-one 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 December 31, 2007
resulted in a net loss of $1,081,500 as compared to net income of $979,403 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, an
increase in provision for valuation allowance on investments in Local Limited
Partnerships, an increase in general and administrative expenses and a decrease
in investment income. The decrease in gain on sale of investments in Local
Limited Partnerships is due to the sale of investment in one Local Limited
Partnership during 2006. Provision for valuation allowance on investments
increased due to the Partnership recording an impairment allowance for its
investments in certain Local Limited Partnerships. General and administrative
expenses increased due to an increase in legal expenses. The decrease in
investment income is due to a decrease in the average balance of funds held for
investment.
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)
Nine Month Period
The Partnership's results of operations for nine months ended December 31, 2007
resulted in a net loss of $582,148 as compared to net income of $12,573,166 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 and an
increase in provision for valuation allowance on investments in Local Limited
Partnerships partially offset by a decrease in general and administrative
expenses, an increase in investment income and decrease in equity in losses of
Local Limited Partnerships. The decrease in gain on sale of investments in Local
Limited Partnerships is due to the sale of investment in one Local Limited
Partnership during 2006. Provision for valuation allowance on investments
increased due to the Partnership recording an impairment allowance for its
investments in certain Local Limited Partnerships. 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 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 equity in losses of
Local Limited Partnerships is primarily due to an increase in unrecognized
losses by the Partnership of Local Limited Partnerships with carrying values of
zero.
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.
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 seven remaining Properties in which the Partnership has an interest all
expired on or before December 31, 2006. The Partnership disposed of one Local
Limited Partnership interest during the nine months ended December 31, 2007.
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.
On November 29, 2007, the Partnership and its General Partners were sued in
Superior Court for the County of Los Angeles, California by a Limited Partner
named Danford Baker and companies named Everest Housing Investors 2, LP and
Everest Management, LLC with which Mr. Baker is affiliated (collectively
"Everest"). In the lawsuit, Everest seeks a declaration and injunction requiring
the Partnership and its General Partners to honor votes obtained in Everest's
consent solicitation seeking to remove the General Partners and replace them
with an Everest affiliate in the event that Everest obtains votes of holders of
a majority of outstanding Limited Partner Units of the Partnership in favor of
Everest's proposal. The Partnership and its General Partners have not yet been
served with this lawsuit.
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 Partnership and its General Partners believe that Everest's consent
solicitation is invalid and not in the best interests of the Partnership or its
Limited Partners, and they intend to vigorously defend this lawsuit once they
have been served. Because the complaint was not served by the deadline for
service, it is the Partnership and its General Partners' position that the
complaint is no longer valid.
On January 22, 2008, the Partnership and its General Partners were named in a
lawsuit filed in District Court of Johnson County, Kansas by a Limited Partner
named McDowell Investments, L.P. ("McDowell"). In the lawsuit, McDowell alleges
that the Partnership and its General Partners violated the Partnership's
Partnership Agreement and/or breached fiduciary duties by, among other things;
(i) allegedly selling substantially all of the assets of the Partnership without
a vote of the Limited Partners; (ii) allegedly selling the Partnership assets to
persons formerly affiliated with the Partnership or its General Partners; and
(iii) allegedly increasing the cash reserves owned by the Partnership to benefit
affiliates of the Partnership or its General Partners. In connection with the
lawsuit, McDowell claims to seek to enjoin the sale of Leawood Manor Apartments,
which is real estate property owned by one of the Local Limited Partnerships of
which the Partnership owns the majority of limited partnership interests. The
Partnership and its General Partners deny these allegations and intend to
vigorously defend against them. The Local Limited Partnership that owns Leawood
Manor Apartments and its general partner also were named in the lawsuit. Those
entities have filed a motion to be dismissed from the action.
Additionally, on January 29, 2008, the Partnership and its General Partners
filed suit against McDowell in Superior Court for Suffolk County, Massachusetts
alleging, among other things, that McDowell has damaged the Partnership by
intentionally and unlawfully interfering with efforts of the Local Limited
Partnership that owns Leawood Manor Apartments to sell that real estate.
Property Discussions
A majority of the Properties in which the Partnership has an interest had
stabilized operations and operated above breakeven as of September 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 the 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.
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)
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.
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 in 2006 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, which resulted 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
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)
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 culminated in the transfer of the
Partnership's interest in the Local Limited Partnership for $20,000, or $0.29
per Unit, on December 2, 2007. The Managing General Partner, in accordance with
and as permitted by the Partnership Agreement, will retain the sales proceeds in
Reserves for the time being until it deems a subsequent distribution to be
prudent. This transaction will result in 2007 taxable income projected to be
approximately $550,000, or $8.08 per Unit. The Partnership no longer has an
interest in this Local Limited Partnership.
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
resulted in unfavorable debt service coverage while working capital levels
remained well below appropriate levels as of June 30, 2007. For the three month
period ending September 30, 2007, occupancy declined to 85%, while working
capital levels and debt service coverage remained well below appropriate levels
throughout the same time period. A representative of the Managing General
Partner visited the Property in December 2007 to reassess the management agent
and physical condition and noted slight improvement in overall appearance of the
Property but not enough to earn an acceptable rating. 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 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. The Managing General Partner currently
believes an early to mid 2008 disposition is possible, as HUD is currently
reviewing the TPA application. 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.
In accordance with the terms of their respective Partnership Agreements, the
Managing General Partner, effective November 28, 2007, transferred the
Partnership's interest in the Local Limited Partnerships that owned Prince
Street Towers, L.P., located in Lancaster, Pennsylvania, Sencit Towne House
L.P., located in Shillington, Pennsylvania, and Allentown Towne House, L.P.,
located in Allentown, Pennsylvania. The interests in the aforementioned
Partnerships were transferred to MMA Lancaster North, L.P., MMA Sencit
Townhouse, L.P. and MMA Allentown Towne House, L.P., respectively (together, the
"Transferee Partnerships"). The Partnership is the sole limited partner of each
of the Transferee Partnerships. An affiliate of the Partnership is the general
partner of each of the Transferee Partnerships and has obtained a 1% interest in
each of the Transferee Partnerships in exchange for a promissory note in favor
of the Partnership.
In processing these transactions, the Managing General Partner acted out of
necessity, due to the impending expiration of the Partnership's ability to
transfer its interest in the above-mentioned Local Limited Partnerships without
the Local General Partner's consent. As previously disclosed, these Local
Limited Partnership interests were originally expected to be sold as part of a
settlement agreement between the Partnership, Boston Financial Qualified Housing
Tax Credits L.P. III, , Boston Financial Qualified Housing Tax Credits L.P. V,
Boston Financial Tax Credit Fund VII, A Limited Partnership, and certain of
their affiliates on the one hand, and on the other hand, Everest Housing
Investors 2, LP, certain of its affiliates, Park GP, Inc., Bond Purchase, L.L.C,
Anise, L.L.C., and Paco Development, L.L.C. (together, the "Everest and Park
Parties"). When the Everest and Park Parties failed to exercise their option to
purchase these Local Limited Partnership interests, the above-described
transfers were carried out. The Managing General Partner may now have
flexibility in being able to dispose of the Partnership's
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)
interest in the Local Limited Partnerships without the Local General Partners'
consent, expediting the Managing General Partner's ability to liquidate the
assets of, and dissolve, the Partnership. It is possible that such Local General
Partner may contest this right to free transferability.
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
Item 3A(T). 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 principal
executive officer and principal financial officer concluded that our disclosure
controls and procedures were effective as of December 31, 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.
Changes in Internal Control over Financial Reporting.
During the fiscal quarter ended December 31, 2007, there has been no change in
our internal control over financial reporting that has materially affected, or
is reasonably likely to materially affect, our 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
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: February 14, 2008 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.