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EXCEL - IDEA: XBRL DOCUMENT - WNC HOUSING TAX CREDIT FUND IV L P SERIES 2Financial_Report.xls
EX-32.1 - CERTIFICATION - WNC HOUSING TAX CREDIT FUND IV L P SERIES 2wnc42_ex321.htm
EX-31.2 - CERTIFICATION - WNC HOUSING TAX CREDIT FUND IV L P SERIES 2wnc42_ex312.htm
EX-32.2 - CERTIFICATION - WNC HOUSING TAX CREDIT FUND IV L P SERIES 2wnc42_ex322.htm
EX-31.1 - CERTIFICATION - WNC HOUSING TAX CREDIT FUND IV L P SERIES 2wnc42_ex311.htm


 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q
 
(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2014

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: 0-26869
 
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
 
California
 
33-0563307
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
17782 Sky Park Circle, Irvine, CA 92614
( Address of principle executive offices )
(714) 662-5565
(Telephone number)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No þ
 
 


 
 
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)

INDEX TO FORM 10 – Q

For the Quarterly Period Ended December 31, 2014
 
PART I. FINANCIAL INFORMATION
   
       
 
3
       
   
 
     
3
         
   
 
     
4
         
   
 
     
5
         
   
 
     
6
         
   
7
         
 
16
         
 
18
         
 
18
         
PART II. OTHER INFORMATION
   
         
 
19
     
 
19
     
 
19
     
 
20
     
 
20
     
 
20
     
 
20
     
 
21
 
 
 

 
 
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)

(Unaudited)
 
    December 31, 2014     March 31, 2014  
ASSETS                
                 
Cash
  $ 12,559     $ 40,557  
Investments in Local Limited Partnerships, net (Note 2)
    -       -  
Other assets
    87,127       54,080  
                 
         Total Assets
  $ 99,686     $ 94,637  
                 
 LIABILITIES AND PARTNERS' EQUITY (DEFICIT)                
Liabilities:
           
 Accrued fees and expenses due to
           
  General Partner and affiliates (Note 3)
  $ 365,058     $ 292,423  
                 
         Total Liabilities
    365,058       292,423  
                 
                 
Partners’ Equity (Deficit):
               
  General Partner
    163,689       164,365  
  Limited Partners (20,000 Partnership Units
               
   authorized; 15,573 and 15,588, respectively, Partnership Units Issued and outstanding, respectively)
    (429,061 )     (362,151 )
 
               
     Total Partners’ Equity (Deficit)
    (265,372 )     (197,786 )
                 
Total Liabilities and Partners’ Equity (Deficit)
  $ 99,686     $ 94,637  
                 
                 
 
See accompanying notes to condensed financial statements
 
 
3

 
 
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)


For the Three and Nine Months Ended December 31, 2014 and 2013
(Unaudited)
 
   
2014
   
2013
 
   
Three Months
   
Nine Months
   
Three Months
   
Nine Months
 
                         
Reporting fees
  $ -     $ 2,000     $ -     $ 2,000  
                                 
Operating expenses:
                               
  Asset management fees (Note 3)
    4,321       12,963       4,321       12,783  
  Legal and accounting fees
    1,280       22,433       2,400       40,239  
  Outsourcing expenses
    650       3,005       650       2,787  
  Write off of other assets
    17,823       17,823       -       -  
  Other
    47       13,364       607       4,965  
                                 
    Total operating expenses
    24,121       69,588       7,978       60,774  
                                 
Loss from operations
    (24,121 )     (67,588 )     (7,978 )     (58,774 )
                                 
Interest income
    -       2       4       13  
                                 
Net loss
  $ (24,121 )   $ (67,586 )   $ (7,974 )   $ (58,761 )
                                 
Net loss allocated to:
                               
  General Partner
  $ (241 )   $ (676 )   $ (80 )   $ (588 )
                                 
  Limited Partners
  $ (23,880 )   $ (66,910 )   $ (7,894 )   $ (58,173 )
                                 
Net loss per Partnership Unit
  $ (2 )   $ (4 )   $ (1 )   $ (4 )
                                 
Outstanding weighted Partnership Units
    15,573       15,573       15,588       15,588  
 
See accompanying notes to condensed financial statements
 
 
4

 
 
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)


For the Nine Months Ended December 31, 2014
(Unaudited)
 
   
General
   
Limited
       
   
Partner
   
Partners
   
Total
 
                   
Partners’ equity (deficit) at March 31, 2014
  $ 164,365     $ (362,151 )   $ (197,786 )
                         
Net loss
    (676 )     (66,910 )     (67,586 )
                         
Partners’ equity (deficit) at December 31, 2014
  $ 163,689     $ (429,061 )   $ (265,372 )
 
See accompanying notes to condensed financial statements
 
 
5

 
 
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)


For the Nine Months Ended December 31, 2014 and 2013
(Unaudited)
 
   
2014
   
2013
 
Cash flows from operating activities:
           
  Net loss
  $ (67,586 )   $ (58,761 )
    Adjustments to reconcile net loss to net cash used in operating activities:
               
       Increase in other assets
    (50,870 )     (17,823 )
Decrease in accrued expenses
    -       (166 )
     Write off of other assets
    17,823       -  
      Increase in accrued fees and expenses due to
               
           General Partner and affiliates
    72,635       23,196  
                 
              Net cash used in operating activities
    (27,998 )     (53,554 )
                 
Net decrease in cash
    (27,998 )     (53,554 )
                 
Cash, beginning of period
    40,557       94,108  
                 
Cash, end of period
  $ 12,559     $ 40,554  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
                 
Taxes paid
  $ -     $ -  
 
See accompanying notes to condensed financial statements
 
 
6

 
 
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)


For the Quarterly Period Ended December 31, 2014
(Unaudited)
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

The accompanying condensed unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q for quarterly reports under Section 13 or 15(d) of the Securities Exchange Act of 1934.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the nine months ended December 31, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2015.  For further information, refer to the financial statements and footnotes thereto included in the Partnership's annual report on Form 10-K for the fiscal year ended March 31, 2014.

Organization

WNC Housing Tax Credit Fund IV, L.P., Series 2 (the “Partnership”) is a California Limited Partnership formed under the laws of the State of California on September 27, 1993. The Partnership was formed to acquire limited partnership interests in other limited partnerships ("Local Limited Partnerships") which own multi-family housing complexes (“Housing Complexes”) that are eligible for Federal low income housing tax credits (“Low Income Housing Tax Credits”). The local general partners (the “Local General Partners”) of each Local Limited Partnership retain responsibility for maintaining, operating and managing the Housing Complex. Each Local Limited Partnership is governed by its agreement of limited partnership (the “Local Limited Partnership Agreement”).

The general partner of the Partnership is WNC Tax Credit Partners IV, L.P. (the “General Partner”). The general partner of the General Partner is WNC & Associates, Inc. (“Associates”).  The chairman and the president of Associates own all of the outstanding stock of Associates. The business of the Partnership is conducted primarily through the General Partner, as the Partnership has no employees of its own.

The Partnership shall continue in full force and effect until December 31, 2050, unless terminated prior to that date, pursuant to the partnership agreement or law.

The financial statements include only activity relating to the business of the Partnership, and do not give effect to any assets that the partners may have outside of their interests in the Partnership, or to any obligations, including income taxes, of the partners.

The Partnership Agreement authorized the sale of up to 20,000 units of limited partnership interest (“Partnership Units”) at $1,000 per Partnership Unit. The offering of Partnership Units has concluded, and 15,600 Partnership Units representing subscriptions in the amount of $15,241,000, net of volume discounts of $359,000, had been accepted. The General Partner has a 1% interest in operating profits and losses, taxable income and losses, cash available for distribution from the Partnership and Low Income Housing Tax Credits of the Partnership.  The investors (the “Limited Partners”) in the Partnership will be allocated the remaining 99% of these items in proportion to their respective investments. As of December 31, 2014 and March 31, 2014, a total of 15,573 and 15,588 Partnership units remain outstanding, respectively.
 
 
7

 
 
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)

NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED

For the Quarterly Period Ended December 31, 2014
(Unaudited)
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The proceeds from the disposition of any of the Local Limited Partnership Housing Complexes will be used first to pay debts and other obligations per the respective Local Limited Partnership Agreement.  Any remaining proceeds will then be paid to the Partnership. The sale of a Housing Complex may be subject to other restrictions and obligations. Accordingly, there can be no assurance that a Local Limited Partnership will be able to sell its Housing Complex. Even if it does so, there can be no assurance that any significant amounts of cash will be distributed to the Partnership. Should such distributions occur, the Limited Partners will be entitled to receive distributions equal to their capital contributions and their return on investment (as defined in the Partnership Agreement) and the General Partner would then be entitled to receive proceeds equal to their capital contributions from the remainder.  Any additional sale or refinancing proceeds will be distributed 90% to the Limited Partners (in proportion to their respective investments) and 10% to the General Partner.

Risks and Uncertainties

An investment in the Partnership and the Partnership’s investments in Local Limited Partnerships and their Housing Complexes are subject to risks.  These risks may impact the tax benefits of an investment in the Partnership, and the amount of proceeds available for distribution to the Limited Partners, if any, on liquidation of the Partnership’s investments.  Some of those risks include the following:

The Low Income Housing Tax Credits rules are extremely complicated. Noncompliance with these rules results in the loss of future Low Income Housing Tax Credits and the fractional recapture of Low Income Housing Tax Credits already taken. In most cases the annual amount of Low Income Housing Tax Credits that an individual can use is limited to the tax liability due on the person’s last $25,000 of taxable income. The Local Limited Partnerships may be unable to sell the Housing Complexes at a price which would result in the Partnership realizing cash distributions or proceeds from the transaction.  Accordingly, the Partnership may be unable to distribute any cash to its Limited Partners. Low Income Housing Tax Credits may be the only benefit from an investment in the Partnership.

The Partnership has invested in a limited number of Local Limited Partnerships. Such limited diversity means that the results of operation of each single Housing Complex will have a greater impact on the Partnership. With limited diversity, poor performance of one Housing Complex could impair the Partnership’s ability to satisfy its investment objectives.  Each Housing Complex is subject to mortgage indebtedness. If a Local Limited Partnership failed to pay its mortgage, it could lose its Housing Complex in foreclosure. If foreclosure were to occur during the first 15 years (the “Compliance Period”), the loss of any remaining future Low Income Housing Tax Credits, a fractional recapture of prior Low Income Housing Tax Credits, and a loss of the Partnership’s investment in the Housing Complex would occur. The Partnership is a limited partner or a non-managing member of each Local Limited Partnership. Accordingly, the Partnership will have very limited rights with respect to management of the Local Limited Partnerships. The Partnership will rely totally on the Local General Partners. Neither the Partnership’s investments in Local Limited Partnerships, nor the Local Limited Partnerships’ investments in Housing Complexes, are readily marketable. To the extent the Housing Complexes receive government financing or operating subsidies, they may be subject to one or more of the following risks: difficulties in obtaining tenants for the Housing Complexes; difficulties in obtaining rent increases; limitations on cash distributions; limitations on sales or refinancing of Housing Complexes; limitations on transfers of interests in Local Limited Partnerships; limitations on removal of Local General Partners; limitations on subsidy programs; and possible changes in applicable regulations. Uninsured casualties could result in loss of property and Low Income Housing Tax Credits and recapture of Low Income Housing Tax Credits previously taken. The value of real estate is subject to risks from fluctuating economic conditions, including employment rates, inflation, tax, environmental, land use and zoning policies, supply and demand of similar Housing Complexes, and neighborhood conditions, among others.
 
 
8

 
 
 
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)

NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED

For the Quarterly Period Ended December 31, 2014
(Unaudited)
 
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The ability of Limited Partners to claim tax losses from the Partnership is limited. The IRS may audit the Partnership or a Local Limited Partnership and challenge the tax treatment of tax items. The amount of Low Income Housing Tax Credits and tax losses allocable to Limited Partners could be reduced if the IRS were successful in such a challenge. The alternative minimum tax could reduce tax benefits from an investment in the Partnership.  Changes in tax laws could also impact the tax benefits from an investment in the Partnership and/or the value of the Housing Complexes.

Anticipated future and existing cash resources of the Partnership are not sufficient to pay existing liabilities of the Partnership. However, substantially all of the existing liabilities of the Partnership are payable to the General Partner and/or its affiliates. Though the amounts payable to the General Partner and/or its affiliates are contractually currently payable, the Partnership anticipates that the General Partner and/or its affiliates will not require the payment of these contractual obligations until capital reserves are in excess of the aggregate of then existing contractual obligations and then anticipated future foreseeable obligations of the Partnership. The Partnership would be adversely affected should the General Partner and/or its affiliates demand current payment of the existing contractual obligations and or suspend services for this or any other reason.

All of the Low Income Housing Tax Credits anticipated to be realized from the Local Limited Partnerships have been realized. The Partnership does not anticipate being allocated any Low Income Housing Tax Credits from the Local Limited Partnerships in the future.

No trading market for the Partnership Units exists or is expected to develop. Limited Partners may be unable to sell their Partnership Units except at a discount and should consider their Partnership Units to be a long-term investment. Individual Limited Partners will have no recourse if they disagree with actions authorized by a vote of the majority of Limited Partners.

The Partnership currently has insufficient working capital to fund its operations. Associates has agreed to continue providing advances sufficient enough to fund the operations and working capital requirements of the Partnership through February 28, 2016.

Exit Strategy

The Compliance Period for a Housing Complex is generally 15 years following construction or rehabilitation completion. Associates was one of the first in the industry to offer syndicated investments in Low Income Housing Tax Credits.  The initial programs have completed their Compliance Periods.

Upon the sale of a Local Limited Partnership Interest or Housing Complex after the end of the Compliance Period, there would be no recapture of Low Income Housing Tax Credits.  A sale prior to the end of the Compliance Period could result in recapture if certain conditions are not met. The Compliance Period has ended for all remaining Local Limited Partnerships as of December 31, 2014.

With that in mind, the General Partner is continuing its review of the Housing Complexes. The review considers many factors, including extended use requirements (such as those due to mortgage restrictions or state compliance agreements), the condition of the Housing Complexes, and the tax consequences to the Limited Partners from the sale of the Housing Complexes.
 
 
9

 
 
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)

NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED

For the Quarterly Period Ended December 31, 2014
(Unaudited)
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Upon identifying those Housing Complexes with the highest potential for a successful sale, refinancing or syndication, the Partnership expects to proceed with efforts to liquidate them. The objective is to maximize the Limited Partners’ return wherever possible and, ultimately, to wind down the Partnership. Local Limited Partnership interests may be disposed of any time by the General Partner in its discretion. While liquidation of the Housing Complexes continues to be evaluated, the dissolution of the Partnership was not imminent as of December 31, 2014.

Upon management of the Partnership identifying a Local Limited Partnership for disposition, costs incurred by the Partnership in preparation for the disposition are deferred. Upon the sale of the Local Limited Partnership interest, the Partnership nets the costs that had been deferred against the proceeds from the sale in determining the gain or loss on sale of the Local Limited Partnership.

On February 24, 2012, the Partnership filed preliminary consent solicitation materials with the Securities and Exchange Commission (“SEC”) regarding the adoption of a plan of liquidation. Definitive materials were filed with the SEC and disseminated to Limited Partners on March 12, 2012. The Partnership sought approval to have a formal plan of liquidation of selling its limited partnership interests or selling the underlying Housing Complexes of each of the Local Limited Partnerships. On May 8, 2012, the Partnership received the majority vote in favor of the plan for dissolution. Therefore, the Partnership is engaging third party appraisers to appraise several or all of the Local Limited Partnerships in this Partnership. The appraisal is one of the preliminary steps that need to be completed in order to move forward with the approved liquidation plan. The expense incurred for the appraisals, or any other disposition related expenses the Partnership incurs, are being capitalized and will remain on the condensed balance sheet until the respective Local Limited Partnership is sold. At the time of disposition the capitalized costs will be netted with any cash proceeds that are received in order to calculate the gain or loss on the disposition.

As of March 31, 2014, the Partnership sold its Local Limited Partnership Interest in E.W., Crossing II Limited Dividend Housing Association LP, Comanche Retirement Village Ltd, Candleridge Apartment of Waukee L.P. II, Mountainview Apartments, LP, Chadwick Limited Partnership, Broken Bow Apartments I, LP, Sidney Apartments I, LP, Autumn Trace Associates, Hickory Lane Associates, Honeysuckle Court Associates, Walnut Turn Associates, Ltd, Southcove Associates, Hereford Seniors Community, Ltd, Palestine Seniors Community, Ltd, Garland Street, LP, Pecan Grove, LP, Lamesa Seniors Community, Ltd, Laredo Heights Apartments and Apartment Housing of E. Brewton, Ltd.

 
10

 
 
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)

NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED

For the Quarterly Period Ended December 31, 2014
(Unaudited)
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As of December 31, 2014 the Partnership has identified two Local Limited Partnerships for disposition as listed in the table below. The Compliance Periods for both of these Local Limited Partnerships have expired so there is no risk of recapture to the investors in the Partnership.

 
Local Limited Partnership
 
Debt at 12/31/13
   
Appraisal value
   
Estimated sales price
   
Estimated
sales expenses
 
Klimpel Manor (**)
  $ 1,675,407     $ 2,715,000       *     $ 83,977  
Pioneer Street Associates
  $ 1,286,779     $ 3,920,000       *     $ 3,150  

*In the process of negotiating with the potential purchaser of the Local Partnership interests. The purchase prices are still under negotiation.

** The Local General Partner prevented a sale from moving forward and the Partnership filed suit to force the sale. The Partnership contends the Klimpel Manor should be dissolved and its affairs wound up at the earliest reasonable time. During the quarter ended December 31, 2014, an affiliate of the General Partner acquired the General Partner Interests in Klimpel Manor. The change in General Partner will allow the Partnership to sell its Limited Partnership Interests. An update appraisal is being prepared at which time it will be determined the fair sale price.
 
The proceeds from the disposition of any of the Housing Complexes will be used first to pay debts and other obligations per the respective Local Limited Partnership Agreement.  Any remaining proceeds will then be paid to the partners of the Local Limited Partnership, including the Partnership, in accordance with the terms of the particular Local Limited Partnership Agreement. The sale of a Housing Complex may be subject to other restrictions and obligations. Accordingly, there can be no assurance that a Local Limited Partnership will be able to sell its Housing Complex. Even if it does so, there can be no assurance that any significant amounts of cash will be distributed to the Partnership, as the proceeds first would be used to pay Partnership obligations and funding of reserves.
 
 
 
11

 
 
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)

NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED

For the Quarterly Period Ended December 31, 2014
(Unaudited)
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Method of Accounting for Investments in Local Limited Partnerships

The Partnership accounts for its investments in Local Limited Partnerships using the equity method of accounting, whereby the Partnership adjusts its investment balance for its share of the Local Limited Partnerships’ results of operations and for any contributions made and distributions received. The Partnership reviews the carrying amount of an individual investment in a Local Limited Partnership for possible impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of such investment may not be recoverable.  Recoverability of such investment is measured by the estimated value derived by management, generally consisting of the sum of the remaining future Low Income Housing Tax Credits estimated to be allocable to the Partnership and the estimated residual value to the Partnership. If an investment is considered to be impaired, the Partnership reduces the carrying value of its investment in any such Local Limited Partnership. The accounting policies of the Local Limited Partnerships, generally, are expected to be consistent with those of the Partnership. Costs incurred by the Partnership in acquiring the investments are capitalized as part of the investment account and were amortized over 30 years (see Note 2).

“Equity in losses of Local Limited Partnerships” for the periods ended December 31, 2014 and 2013 has been recorded by the Partnership. Management’s estimate for the three and nine-month periods is based on either actual unaudited results reported by the Local Limited Partnerships or historical trends in the operations of the Local Limited Partnerships. Equity in losses of Local Limited Partnerships allocated to the Partnership are not recognized to the extent that the investment balance would be adjusted below zero. If the Local Limited Partnerships report net income in future years, the Partnership will resume applying the equity method only after its share of such net income equals the share of net losses not recognized during the period(s) the equity method was suspended.

In accordance with the accounting guidance for the consolidation of variable interest entities, the Partnership determines when it should include the assets, liabilities, and activities of a variable interest entity (VIE) in its financial statements, and when it should disclose information about its relationship with a VIE. The analysis that must be performed to determine which entity should consolidate a VIE focuses on control and economic factors. A VIE is a legal structure used to conduct activities or hold assets, which must be consolidated by a company if it is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and (2) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. If multiple unrelated parties share such power, as defined, no party will be required to consolidate the VIE. Further, the guidance requires continual reconsideration of the primary beneficiary of a VIE.

Based on this guidance, the Local Limited Partnerships in which the Partnership invests meet the definition of a VIE because the owners of the equity at risk in these entities do not have the power to direct their operations. However, management does not consolidate the Partnership's interests in these VIEs, as it is not considered to be the primary beneficiary since it does not have the power to direct the activities that are considered most significant to the economic performance of these entities. The Partnership currently records the amount of its investment in these Local Limited Partnerships as an asset on its balance sheets, recognizes its share of partnership income or losses in the statements of operations, and discloses how it accounts for material types of these investments in its financial statements. The Partnership's balance in investment in Local Limited Partnerships, plus the risk of recapture of tax credits previously recognized on these investments, represents its maximum exposure to loss. The Partnership's exposure to loss on these Local Limited Partnerships is mitigated by the condition and financial performance of the underlying Housing Complexes as well as the strength of the Local General Partners and their guarantee against credit recapture to the investors in the Partnership.
 
 
12

 

WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)

NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED

For the Quarterly Period Ended December 31, 2014
(Unaudited)
 
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Distributions received by the Partnership are accounted for as a reduction of the investment balance.  Distributions received after the investment has reached zero are recognized as income. As of December 31, 2014, all of the investment balances had reached zero.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Actual results could materially differ from those estimates.
 
Cash and Cash Equivalents
 
The Partnership considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.  The Partnership had no cash equivalents for all periods presented.
 
Reporting Comprehensive Income
 
The Partnership had no items of other comprehensive income for all periods presented.
 
Income Taxes
 
The Partnership has elected to be treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns.  The Partnership’s federal tax status as a pass-through entity is based on its legal status as a partnership. Accordingly, the Partnership is not required to take any tax positions in order to qualify as a pass-through entity. The Partnership is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Partnership has no other tax positions which must be considered for disclosure. Income tax returns filed by the Partnership are subject to examination by the Internal Revenue Service for a period of three years. While no income tax returns are currently being examined by the Internal Revenue Service, tax years since 2011 remain open.
 
Net Loss Per Partnership Unit
 
Net loss per Partnership Unit includes no dilution and is computed by dividing loss allocated to Limited Partners by the weighted average number of Partnership Units outstanding during the period.  Calculation of diluted net loss per Partnership Unit is not required.
 
Revenue Recognition
 
The Partnership is entitled to receive reporting fees from the Local Limited Partnerships. The intent of the reporting fees is to offset (in part) administrative costs incurred by the Partnership in corresponding with the Local Limited Partnerships. Due to the uncertainty of the collection of these fees, the Partnership recognizes reporting fees as collections are made.
 
 
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WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)

NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED

For the Quarterly Period Ended December 31, 2014
(Unaudited)
 
NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS

As of December 31, 2014 and March 31, 2014, the Partnership owns Local Limited Partnership interests in 2 Local Limited Partnerships. The Local Limited Partnerships each own one Housing Complex consisting of an aggregate of 189 apartment units. The Local General Partners of the Local Limited Partnerships manage the day to day operations of the entities. Significant Local Limited Partnership business decisions require approval from the Partnership. The Partnership, as a Limited Partner, is generally entitled to 99%, as specified in the Local Limited Partnership governing agreements, of the operating profits and losses, taxable income and losses, and Low Income Housing Tax Credits of the Local Limited Partnerships.

Selected financial information for the nine months ended December 31, 2014 and 2013 from the unaudited combined condensed financial statements of the Local Limited Partnerships in which the partnership has invested is as follows:

COMBINED CONDENSED STATEMENTS OF OPERATIONS
 
             
   
2014
   
2013
 
             
Revenue
  $ 936,000     $ 912,000  
Expenses:
               
  Interest expense
    157,000       162,000  
  Depreciation and amortization
    188,000       196,000  
  Operating expenses
    589,000       544,000  
                 
Total expenses
    934,000       902,000  
                 
Net income
  $ 2,000       10,000  
                 
Net income (loss) allocable to the Partnership
  $ 2,000     $ 9,000  
                 
Net income (loss) recorded by the Partnership
  $ -     $ -  

Certain Local Limited Partnerships have incurred significant operating losses and/or have working capital deficiencies.  In the event these Local Limited Partnerships continue to incur significant operating losses, additional capital contributions by the Partnership may be require to sustain operations of such Local Limited Partnerships.
 
 
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WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)

NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED

For the Quarterly Period Ended December 31, 2014
(Unaudited)
 
NOTE 3 - RELATED PARTY TRANSACTIONS

Under the terms of the Partnership Agreement, the Partnership has paid or is obligated to the General Partner or its affiliates for the following items:

(a)  
An annual asset management fee equal to the greater amount of (i) $2,000 for each apartment complex, or (ii) 0.275% of gross proceeds.  In either case, the fee will be decreased or increased annually based on changes to the Consumer Price Index.  However, in no event will the maximum amount exceed 0.2% of the Invested Assets of the Partnership, as defined. “Invested Assets” means the sum of the Partnership’s investment in Local Limited Partnership interests and the Partnership’s allocable share of mortgage loans on and other debt related to the Housing Complexes owned by such Local Limited Partnerships. Asset management fees of $12,963 and $12,783 were incurred during the nine months ended December 31, 2014 and 2013, respectively. The Partnership paid the General Partner and its affiliates $0 and $1,459 of those fees during the nine months ended December 31, 2014 and 2013, respectively.

(b)  
Subordinated Disposition Fee.  A subordinated disposition fee is an amount equal to 1% of the sales price of real estate sold. Payment of this fee is subordinated to the Limited Partners receiving a preferred return of 16% through December 31, 2003 and 6% thereafter (as defined in the Partnership Agreement) and is payable only if the General Partner or its affiliates render services in the sales effort. No such fees were earned during the periods presented.

(c)  
The Partnership reimburses the General Partner or its affiliates for operating expenses incurred by the Partnership and paid for by the General Partner or its affiliates on behalf of the Partnership. Operating expense reimbursements paid were $30,000 and $54,108 during the nine months ended December 31, 2014 and 2013, respectively.

The accrued fees and expenses due to the General Partner and affiliates consist of the following at:

   
December 31,
2014
   
March 31,
2014
 
             
Expenses paid by the General Partner or affiliates on behalf of the Partnership
  $ 116,848     $ 57,176  
Asset management fee payable
    248,210       235,247  
   Total
  $ 365,058     $ 292,423  
 
The General Partner and/or its affiliates do not anticipate that these accrued fees will be paid until such time as capital reserves are in excess of future foreseeable working capital requirements of the Partnership.
 
 
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Forward-Looking Statements

With the exception of the discussion regarding historical information, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other discussions elsewhere in this Form 10-Q contain forward looking statements.  Such statements are based on current expectations subject to uncertainties and other factors which may involve known and unknown risks that could cause actual results of operations to differ materially from those projected or implied. Further, certain forward-looking statements are based upon assumptions about future events which may not prove to be accurate.

Risks and uncertainties inherent in forward looking statements include, but are not limited to, the Partnership’s future cash flows and ability to obtain sufficient financing, level of operating expenses, conditions in the Low Income Housing Tax Credit property market and the economy in general, as well as legal proceedings.  Historical results are not necessarily indicative of the operating results for any future period.

Subsequent written and oral forward looking statements attributable to the Partnership or persons acting on its behalf are expressly qualified in their entirety by cautionary statements in this Form 10-Q and in other reports filed with the SEC.

The following discussion and analysis compares the results of operations for the three and nine months ended December 31, 2014 and 2013, and should be read in conjunction with the condensed unaudited financial statements and accompanying notes included within this report.

Financial Condition

The Partnership’s assets at December 31, 2014 consisted of $13,000 in cash and $87,000 in other assets.  Liabilities at December 31, 2014 consisted of $365,000 of accrued fees and expenses due to General Partner and affiliates.

Results of Operations

Three Months Ended December 31, 2014 Compared to Three Months Ended December 31, 2013. The Partnership’s net loss for the three months ended December 31, 2014 was $24,000, reflecting an increase of $16,000 from the $8,000 net loss for the three months ended December 31, 2013. Legal and accounting expenses decreased by $1,000 for the three months ended December 31, 2014 due to the timing of the work performed. There was an $18,000 increase in write off of other assets for the three months ended December 31, 2014. Capitalized costs from the potential disposition of Local Limited Partnerships were expensed during the prior year due to the length of time it has taken to dispose of the properties.

Nine Months Ended December 31, 2014 Compared to Nine Months Ended December 31, 2013. The Partnership’s net loss for the nine months ended December 31, 2014 was $68,000, reflecting an increase of $9,000 from the $59,000 of net loss for the nine months ended December 31, 2013. The legal and accounting expenses decreased by $18,000 for the nine months ended December 31, 2014 due to the timing of the work performed. Other expenses increased by $8,000 for the nine months ended December 31, 2014 mainly due to the timing of the data entry management performed for the Partnership. There was an $18,000 increase in write off of other assets for the nine months ended December 31, 2014. Capitalized costs from the potential disposition of Local Limited Partnerships were expensed during the prior year due to the length of time it taken to dispose of the properties.
 
 
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Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations, continued

Liquidity and Capital Resources

Nine Months Ended December 31, 2014 Compared to Nine Months Ended December 31, 2013.  The net cash used during the nine months ended December 31, 2014 was $28,000 compared to $54,000 net cash used for the nine months ended December 31, 2013. During the nine months ended December 31, 2014, the Partnership paid $0 and $30,000 to the General Partner or and affiliate for accrued asset management fees and reimbursement of operating expenses paid on behalf of the Partnership, respectively, compared to $1,000 and $54,000 paid during the nine months ended December 31,2013. Reimbursement of accrued asset management fees and operating expenses are paid after management reviews the cash position of the Partnership.

During the nine months ended December 31, 2014 accrued payables, which consist primarily of related party management fees and advances due to the General Partner, increased by $73,000.  The General Partner does not anticipate that these accrued fees will be paid in full until such time as capital reserves are in excess of future foreseeable working capital requirements of the Partnership.

The Partnership expects its future cash flows, together with its net available assets at December 31, 2014, to be insufficient to meet all currently foreseeable future cash requirements. Associates has agreed to continue providing advances sufficient enough to fund the operations and working capital requirements of the Partnership through February 28, 2016.

Recent Accounting Changes

In January 2014, the FASB issued an amendment to the accounting and disclosure requirements for investments in qualified affordable housing projects. The amendments provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The amendments permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received, and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments are effective for interim and annual periods beginning after December 15, 2014 and should be applied retrospectively to all periods presented. Early adoption is permitted. The adoption of this update is not expected to materially affect the Partnership's financial statements.
 
 
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NOT APPLICABLE

Item 4.  Controls and Procedures

(a)           Disclosure controls and procedures

As of the end of the period covered by this report, the Partnership’s General Partner, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of Associates, carried out an evaluation of the effectiveness of the Partnership’s “disclosure controls and procedures” as defined in Securities Exchange Act of 1934 Rule 13a-15 and 15d-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Partnership’s disclosure controls and procedures were not effective to ensure that material information required to be disclosed in the Partnership’s periodic report filings with SEC is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms, consistent with the definition of “disclosure controls and procedures” under the Securities Exchange Act of 1934.

The Partnership must rely on the Local Limited Partnerships to provide the Partnership with certain information necessary to the timely filing of the Partnership’s periodic reports. Factors in the accounting at the Local Limited Partnerships have caused delays in the provision of such information during past reporting periods, and resulted in the Partnership’s inability to file its periodic reports in a timely manner.

Once the Partnership has received the necessary information from the Local Limited Partnerships, the Chief Executive Officer and the Chief Financial Officer of Associates believe that the material information required to be disclosed in the Partnership’s periodic report filings with SEC is effectively recorded, processed, summarized and reported, albeit not in a timely manner. Going forward, the Partnership will use the means reasonably within its power to impose procedures designed to obtain from the Local Limited Partnerships the information necessary to the timely filing of the Partnership’s periodic reports.

(b)           Changes in internal controls

There were no changes in the Partnership’s internal control over financial reporting that occurred during the quarter ended December 31, 2014 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
 
 
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Part II.
   
Item 1.
 
 
The Partnership has a Local Limited Partnership interest in Klimpel Manor, Ltd. (“Klimpel Manor”), a California Limited Partnership. Klimpel Manor owns and operates an apartment complex.
 
On June 4, 2013, the Partnership filed with the District Court for Orange County, California a Complaint for Dissolution and Winding Up of Limited Partnership, Appointment of Receiver, Accounting, and Declaratory Relief, against Klimpel Manor Apartments, the general partner of Klimpel Manor (“Klimpel Manor G.P.”).
 
The first cause of action is for dissolution and winding up of the Local Limited Partnership pursuant to Corporations Code Sec. 15908.02(a), because it is not reasonably practicable to carry on the activities of the Local Limited Partnership in conformity with the Limited Partnership Agreement. Among other things, the Partnership is entitled to dissolution of the Local Limited Partnership and a winding up because Klimpel Manor, G.P. has a conflict of interest with the Partnership and the limited partner, Klimpel Manor, G.P. is not acting in the best interests of the Partnership and the limited partner as it is not using good judgment in the manner it is operating the Local Limited Partnership. Klimpel Manor, G.P. has bitter and antagonistic feelings towards the Partnership which causes the general partner to be unable to operate the Local Limited Partnership in a reasonable manner. Therefore, the Partnership has the right to elect to dissolve the Local Limited Partnership pursuant to Section 15.1 of the Limited Partnership Agreement. Additional causes of action are appointment of receiver, accounting, and declaratory relief.
 
A brief description of the factual basis underlying the legal proceeding is as follows: Klimpel Manor, G.P. was sent written notice on February 20, 2013 and again on April 19, 2013 of the Partnership’s election to dissolve and wind up the affairs of the Local Limited Partnership. Klimpel Manor, G.P. ignored the Partnership’s election to dissolve and wind up the affairs of the Local Limited Partnership, and failed and refused to consent to dissolution of the Local Limited Partnership. Throughout 2012, and on several occasions in 2013, the Partnership advised Klimpel Manor G.P. of opportunities to sell the apartment complex, which is the primary asset of the Local Limited Partnership, for a price equal to or in excess of its present fair market value. On each occasion, Klimpel Manor G.P. refused to consider selling the apartment complex because the general partner did not believe that its present fair market value would return sufficient revenue for Klimpel Manor G.P. to recover what it considered to be a reasonable return on its capital investment.
 
The Partnership contends the Klimpel Manor should be dissolved and its affairs wound up at the earliest reasonable time. Klimpel Manor G.P. should be removed and a receiver should be appointed to take control over Klimpel Manor. The assets of Klimpel Manor should be sold at the earliest reasonable time, and a final accounting should be prepared of the books and records of Klimpel Manor. Since the filing, the Partnership has been in discussions with the Local Limited Partner to settle the matter whereby the General Partner will resign making way for the sale of the Partnership’s Local Limited Partnership interest in Klimpel Manor.
   
Item 1A.
   
 
No material changes in risk factors as previously disclosed in the Partnership’s Form 10-K.
   
Item 2.
   
 
NONE
 
 
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Item 3
Defaults Upon Senior Securities
   
 
NONE
   
Item 4.
 
NOT APPLICABLE
   
Item 5
   
 
NONE
   
Item 6.
   

31.1
Certification of the Principal Executive Officer pursuant to Rule 13a-14 and 15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.  (filed herewith)

31.2
Certification of the Principal Financial Officer pursuant to Rule 13a-14 and 15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.  (filed herewith)

32.1
Section 1350 Certification of the Chief Executive Officer.  (filed herewith)

32.2
Section 1350 Certification of the Chief Financial Officer.  (filed herewith)

101
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Balance Sheets at December 31, 2014 and March 31, 2014, (ii) the Condensed Statements of Operations for the three and nine months ended December 31, 2014 and 2013, (iii) the Condensed Statement of Partners’ Equity (Deficit) for the nine months ended December 31, 2014, (iv) the Condensed Statements of Cash Flows for the nine months ended December 31, 2014 and 2013, and (v) the Notes to Condensed Financial Statements.

Exhibits 32.1, 32.2 and 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibits shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or Securities Exchange Act of 1934.
 
 
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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.

WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
 
 
By:  WNC Tax Credit Partners IV, L.P. General Partner


By: /s/ Wilfred N. Cooper, Jr.

Wilfred N. Cooper, Jr.
President and Chief Executive Officer of WNC & Associates, Inc.

Date: February 13, 2015


By:  /s/ Melanie R. Wenk

Melanie R. Wenk
Senior Vice President - Chief Financial Officer of WNC & Associates, Inc.

Date: February 13, 2015


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