Sherbert CPA, PC is a full service CPA firm and is a premier provider of accounting, tax, consulting, development, and management services to the real estate tax credit industry. We perform services for clients nationwide.
Investors and creditors often need assurance that the financial statements accurately represent the financial position of an entity. There are several levels of assurance which can be expressed related to the financial statements of an entity.
Sherbert CPA, PC has experienced staff to perform various types of cost certifications and provide the reports that are required to be certified by a CPA.
Benefits to our clients include:
- expertise in the tax credit industry
- maximized tax credits through knowledge, experience, and application of the tax credit sections of the Internal Revenue Code
- a comprehensive analysis of actual project costs to determine which costs to include in the eligible basis in order to maximize tax credits
- the reputation and relationships developed over time with industry investors who have confidence in our reporting
- timely investor equity installments prepared by our knowledgeable and experienced staff
Our experience in the industry allows us to understand the costs that are eligible for tax credits which maximizes the tax credit basis for your project. Cost certifications are required to be performed for several types of real estate projects which include:
- Low Income Housing Tax Credit Cost Certification (8609): submitted to the state agency where project is located.
- HUD Contractor’s Cost Certification: required on HUD financed projects that have a related party General Contractor or where the General Contractor’s contract is a cost plus contract.
- HUD Mortgagor’s Cost Certification: required on HUD financed projects to determine the HUD approved costs.
- Qualified Rehabilitation Expenditure Cost Certification: required by most investors in historic tax credit projects. In addition, certain states have a state historic tax credit that requires a specific cost certification to be submitted to the state for approval and issuance of the state tax credits.
Improper preparation of the partnership tax forms and elections can result in the loss of deductions and/or tax credits. Fortunately, we prepare hundreds of partnership tax returns each year; we have the knowledge and expertise to competently prepare the required tax filings.
Another challenge for partnerships that have tax credit property associated with them is what happens at the end of the compliance period. Historic Rehabilitation Tax Credit projects have a 5 year compliance period, while Low Income Housing Tax Credit projects have a 15 year compliance period.
For Historic Rehabilitation Tax Credit projects, we will analyze the Investor Put Option. We will prepare an analysis using legal agreements and financial projections in order to lay out the tax consequences to the project developer of the put option being exercised.
For Low-Income Housing Tax Credit projects there are numerous options for what can occur at the end of the 15 year compliance period. We will work with the developer on the options available to the project. Options available include: Rights of First Refusal, Re-syndication of the Project for additional Low-Income Housing Tax Credits, and Qualified Contract analysis.
Here’s What You Get…
- If we’ve done an audit of the partnership’s financial statements, we will take the financials from the audit and make any necessary tax basis adjusting entries.
- If there wasn’t an audit, we will obtain the accounting information from you, analyze the information, prepare any adjusting entries that need to be made, and obtain your approval of the financials.
- We then enter the financial information into the tax return and prepare the appropriate tax forms.
- We prepare any of the appropriate tax elections required for the tax return.
- Your tax return will be checked by our computer software to identify potential problems.
- Once prepared, the tax return is detail reviewed by a Tax Manager to insure that all of the appropriate forms, filings, and elections have been made.
- We will then send a draft of the tax return to you as well as to any investors that require it.
- Upon obtaining your and/or the investor’s approval, the tax forms are assembled and made ready for mailing to you or for electronic filing.
- Finally, a Tax Partner will do a final review of the return prior to mailing/electronic filing of the tax return.
DEVELOPMENT AND MONITORING
Many CPA firms will help structure a deal for a developer only to disappear during the construction phase and then re-appear at the end to perform a cost certification or the annual audit and tax returns. We believe it is important for us to stay involved throughout the entire development process; we call this process Development Monitoring.
We make sure you set up your accounting system properly; then, you provide us either quarterly or with each construction draw, a copy of the draw, along with backup invoices, your accounting trial balance (we prefer QuickBooks but can work with any program), and your sources and uses schedule. We take this information and organize it to ensure transactions are accounted for properly, budgets are maintained, and pertinent information is included to perform the cost certification.
Here’s What You Get…
- We will understand the project better, which allows us to better prepare your audits, tax returns, or other professional services that you may need.
- We will be able to re-structure a deal sooner if there are budget overruns or construction delays.
- We have your information organized better, so we can efficiently and effectively prepare the final cost certification.
A large equity contribution is usually based on receipt of the cost certification. With our Development Monitoring process, your cost certification will be prepared sooner. This will allow you to receive your equity sooner in order to pay down debt and save on financing costs. Our typical turnaround time on a cost certification is 1 to 2 months, which is 1 to 4 months quicker than most of our competitors.
AUDIT - HIGHEST LEVEL OF ASSURANCE
An audit provides the highest level of assurance; when conducted in accordance with auditing standards generally accepted in the United States of America, audits require planning and performance to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence regarding the amounts and disclosures in the financial statements. The procedures selected depend on the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making these assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design appropriate audit procedures. Based on our findings, we issue a report on whether the financial statements are fairly stated and free of material misstatements.
An Audit Allows You To…
- Satisfy stakeholders, such as investors and lenders, as to the credibility of published information.
- Facilitate the preparation of tax returns and related required investor tax reporting.
- Comply with banking covenants.
- Comply with operating agreements.
REVIEW - LIMITED ASSURANCE
A review conducted in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants requires primarily the performance of analytical procedures applied to financial information and various inquiries made of the entity’s management. A review does not require an evaluation of the entity’s internal controls and is substantially less in scope than an audit. A review report expresses limited assurance that there are no material modifications that should be made to the financial statements.
Why might a business request a review engagement? Management, lenders, or investors may not require the level of assurance provided by an audit. The limited assurance provided by a review may be sufficient for the users of the financial statements and will require less work and expense than an audit.
COMPILATION - LOWEST LEVEL OF ASSURANCE
In compiling financial statements for an entity, we present information that is the representation of management in the form of financial statements and express no opinion or assurance on these statements. Compilations are the most cost-effective method of reporting, if the lack of assurance expressed is acceptable to the financial statement users.
Why is a compilation necessary? Banks often require compilations from an independent CPA as part of their lending covenants.