10-Q 1 wnc_10q.htm QUARTERLY REPORT Blueprint
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2016
 
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: 000-28370
 
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
 
California
33-0596399
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
17782 Sky Park Circle, Irvine, CA 92614
( Address of principle executive offices )
(714) 622-5565
( 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 X       No ____
 
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 X       No ____
 
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___ Accelerated filer___ Non-accelerated filer___X__ Smaller reporting company___
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ___   No _X__
 
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)
 
INDEX TO FORM 10-Q
 
For the Quarterly Period Ended June 30, 2016
 
PART I. FINANCIAL INFORMATION
 
 
 
Item 1. Financial Statements
 
 
 
    Condensed Balance Sheets
 
              As of June 30, 2016 and March 31, 2016
3
 
 
    Condensed Statements of Operations
 
              For the Three Months Ended June 30, 2016 and 2015
4
 
 
    Condensed Statement of Partners' Equity
 
              For the Three Months Ended June 30, 2016
5
 
 
    Condensed Statements of Cash Flows
 
              For the Three Months Ended June 30, 2016 and 2015
6
 
 
    Notes to Condensed Financial Statements
7
 
 
Item 2. Management's Discussion and Analysis of Financial
16
             Condition and Results of Operations
 
 
 
Item 3. Quantitative and Qualitative Disclosures about Market Risks
18
 
 
Item 4. Controls and Procedures
18
 
 
PART II. OTHER INFORMATION
 
 
 
Item 1. Legal Proceedings
19
 
 
Item 1A. Risk Factors
19
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
19
 
 
Item 3. Defaults Upon Senior Securities
19
 
 
Item 4. Mine Safety Disclosures
19
 
 
Item 5. Other Information
19
 
 
Item 6. Exhibits
19
 
 
Signatures
20
 
 
 
2
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)
 
CONDENSED BALANCE SHEETS
(Unaudited)
 
 
 
 
June 30, 2016
 
 
March 31, 2016
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
Cash and cash equivalents
  $201,164 
  $242,810 
Investments in Local Limited Partnerships, net (Note 2)
    - 
    - 
Other assets
    600 
    1,850 
 
       
       
       Total Assets
  $201,764 
  $244,660 
 
       
       
 
       
       
 
LIABILITIES AND PARTNERS' EQUITY
 
 
       
       
Liabilities:
       
       
 Accrued fees and expenses due to General Partner
       
       
   and affiliates (Note 3)
  $21,691 
  $51,973 
 
       
       
       Total Liabilities
    21,691 
    51,973 
 
       
       
 
       
       
Partners’ equity:
       
       
  General Partner
       
       
  Limited Partners (20,000 Partnership Units
    87,073 
    87,199 
     authorized;15,533 and 15,543 Partnership Units, respectively, issued and outstanding)
    93,000 
    105,488 
 
       
       
     Total partners’ equity
    180,073 
    192,687 
 
       
       
         Total liabilities and partners’ equity
  $201,764 
  $244,660 
 
       
       
 
See accompanying notes to condensed financial statements
 
3
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)
 
CONDENSED STATEMENTS OF OPERATIONS
 
For the Three Months Ended June 30, 2016 and 2015
(Unaudited)
 
 
 
 
2016
 
 
2015
 
 
 
Three Months
 
 
Three Months
 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
  Reporting fees
  $- 
  $2,000 
 
       
       
    Total operating income
    - 
    2,000 
 
       
       
Operating expenses:
       
       
  Asset management fees (Note 3)
    2,298 
    2,972 
  Legal and accounting fees
    4,331 
    4,000 
  Write off of other assets
    1,250 
    - 
  Other
    4,753 
    913 
 
       
       
    Total operating expenses
    12,632 
    7,885 
 
       
       
Loss from operations
    (12,632)
    (5,885)
 
       
       
Gain on sale of Local Limited Partnership
    - 
    623,705 
 
       
       
Interest income
    18 
    1 
 
       
       
Net income (loss)
  $(12,614)
  $617,821 
 
       
       
Net income (loss) allocated to:
       
       
  General Partner
  $(126)
  $6,178 
 
       
       
  Limited Partners
  $(12,488)
  $611,643 
 
       
       
Net income (loss) per Partnership Unit
  $(1)
  $39 
 
       
       
Outstanding weighted Partnership Units
    15,533 
    15,558 
 
See accompanying notes to condensed financial statements
 
4
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)
 
CONDENSED STATEMENT OF PARTNERS’ EQUITY
 
For the Three Months Ended June 30, 2016
(Unaudited)
 
 
 
General
 
 
Limited
 
 
 
 
 
 
Partner
 
 
Partners
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
Partners’ equity at March 31, 2016
  $87,199 
  $105,488 
  $192,687 
 
       
       
       
Net loss
    (126)
    (12,488)
    (12,614)
 
       
       
       
Partners’ equity at June 30, 2016
  $87,073 
  $93,000 
  $180,073 
 
       
       
       
 
See accompanying notes to condensed financial statements
 
5
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A California Limited Partnership)
 
CONDENSED STATEMENTS OF CASH FLOWS
 
For the Three Months Ended June 30, 2016 and 2015
(Unaudited)
 
 
 
 
2016
 
 
2015
 
Cash flows from operating activities:
 
 
 
 
 
 
  Net income (loss)
  $(12,614)
  $617,821 
       Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
       
       
       Decrease in other assets
    1,250 
    52,806 
       Increase (decrease) in accrued fees and expenses
       
       
          due to General Partner and affiliates
    (30,282)
    12,186 
       Increase in sales proceeds receivable
    - 
    (680,813)
 
       
       
          Net cash provided by (used in) operating
       
       
          activities
    (41,646)
    2,000 
 
       
       
Net increase (decrease) in cash and cash equivalents
    (41,646)
    2,000 
 
       
       
Cash and cash equivalents, beginning of period
    242,810 
    12,559 
 
       
       
Cash and cash equivalents, end of period
  $201,164 
  $14,559 
 
       
       
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)
 
NOTES TO CONDENSED FINANCIAL STATEMENTS
 
For the Quarterly Period Ended June 30, 2016
(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 three months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2017. 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, 2016.
 
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 June 30, 2016 and March 31, 2016, a total of 15,533 and 15,543 Partnership Units, respectively, remain outstanding.
 
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 June 30, 2016
(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 its 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 June 30, 2016
(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.
 
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.
 
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 June 30, 2016.
 
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 June 30, 2016
(Unaudited)
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
 
Upon identifying those Housing Complexes with the highest potential for a successful sale, refinancing or re-syndication, the Partnership expects to proceed with efforts to liquidate them. The objective is to wind down the Partnership as Low Income Housing Tax Credits are no longer available. 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 June 30, 2016.
 
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. Deferred disposition costs are included in other assets on the condensed balance sheets.
 
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 on March 12, 2012.  Materials were disseminated to the 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 the remaining 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, 2016, 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, Apartment Housing of E. Brewton, Ltd. and Klimpel Manor, Ltd.
 
As of June 30, 2016 the Partnership has identified Pioneer Street Associates for disposition. The Compliance Period for the Local Limited Partnership has expired so there is no risk of recapture to the investors in the Partnership.
 
Local Limited Partnership
 
Debt at 12/31/15
 
 
Appraisal value
 
 
 Discounted cash flow analysis value(*)
 
 
Estimated sales price
 
 
Estimated
sale
expenses
 
Estimated sale date
Pioneer Street Associates
  $1,134,518 
  $1,600,000 
  $697,000-$758,300 
  $700,000 
  $600 
10/31/2016
 
(*) The Limited Partnership Agreement with Pioneer Street Associates gives the Partnership limited force rights for disposition. Therefore it appears reasonable to base a sale price for the Limited Partnership interest on a discounted cash flow analysis. This analysis utilizes an 8% cap rate for the anticipated year of disposition, which was assumed to be 2020. The range of $697,000 to $758,300 represents a discount of 20% to 18%, respectively.
 
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 Local Limited Partnership obligations and funding of reserves.
 
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 June 30, 2016
(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 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 being amortized over 30 years (see Note 2).
 
“Equity in losses of Local Limited Partnerships” for the periods ended June 30, 2016 and 2015 has been recorded by the Partnership. Management’s estimate for the three-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 (see Note 2).
 
 
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 June 30, 2016
(Unaudited)
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
 
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.
 
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 all periods presented, 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 $201,164 and $242,810 of cash equivalents as of June 30, 2016 and March 31, 2016, respectively.
 
Reporting Comprehensive Income
 
The Partnership had no items of other comprehensive income for all periods presented.
 
 
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 June 30, 2016
(Unaudited)
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
 
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 2013 remain open.
 
Net Income (Loss) Per Partnership Unit
 
Net income (loss) per Partnership Unit includes no dilution and is computed by dividing income (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.
 
13
 
 
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 June 30, 2016
(Unaudited)
 
NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS
 
As of June 30, 2016 and March 31, 2016, the Partnership owns a Local Limited Partnership interest in 1 Local Limited Partnership, which owns one Housing Complex consisting of an aggregate of 112 apartment units. The Local General Partner of the Local Limited Partnership manages the day to day operations of the entity. 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 Partnership.
 
Selected financial information for the three months ended June 30, 2016 and 2015 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
 
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
Revenue
  $199,000 
  $190,000 
Expenses:
       
       
    Interest expense
    21,000 
    22,000 
   Depreciation and amortization
    37,000 
    39,000 
   Operating expenses
    134,000 
    117,000 
 
       
       
      Total expenses
    192,000 
    178,000 
 
       
       
 Net income
  $7,000 
  $12,000 
 
       
       
Net income allocable to the Partnership
  $7,000 
  $12,000 
 
       
       
Net income 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 required to sustain operations of such Local Limited Partnerships.
 
 
14
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 June 30, 2016
(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 the following fees:
 
(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. Fees of $2,298 and $2,972 were incurred during the three months ended June 30, 2016 and 2015, respectively. No payments were made during either of the three months ended June 30, 2016 and 2015.
 
(b)
A subordinated disposition fee in 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 fee was 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 were $41,664 and $0 during the three months ended June 30, 2016 and 2015, respectively.
 
The accrued fees and expenses due to the General Partner and affiliates consist of the following at:
 
 
 
June 30, 2016
 
 
March 31, 2016
 
 
 
 
 
 
 
 
Expenses paid by the General Partner or affiliates on behalf of the Partnership
  $5,206 
  $37,786 
Asset management fees payable
    16,485 
    14,187 
     Total
  $21,691 
  $51,973 
 
       
       
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.
 
 
15
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
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 Securities and Exchange Commission.
 
The following discussion and analysis compares the results of operations for the three months ended June 30, 2016 and 2015, 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 June 30, 2016 consisted of $201,000 in cash and cash equivalents, and $1,000 of other assets. Liabilities at June 30, 2016 consisted of $22,000 of accrued fees and expenses due to the General Partner and affiliates.
 
Results of Operations
 
Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015. The Partnership’s net loss for the three months ended June 30, 2016 was $13,000, reflecting a decrease of $631,000 from the $618,000 net income for the three months ended June 30, 2015. The change was primarily due to the decrease of $624,000 in gain on sale of Local Limited Partnerships for the three months ended June 30, 2016. The gain on sale of Local Limited Partnerships will vary from period to period depending on the value of such Housing Complexes, and the closing dates of transactions. Asset management fees decreased by $1,000 during the three months ended June 30, 2016. The fees are calculated based on the value of invested assets which decreased due to the sales of Local Limited Partnerships.  Reporting fees decreased by $2,000 for the three months ended June 30, 2016. These fees vary as Local Limited Partnerships pay the reporting fees to the Partnership when the Local Limited Partnerships’ cash flows will allow for the payment. Other expenses increased by $4,000 for the three months ended June 30, 2016 compared to June 30, 2015. The change was largely due to the consulting service performed for the three months ended June 30, 2016. Write off of other assets increased by $1,000 during the three months ended June 30, 2016. Capitalized costs from the potential disposition of Local Limited Partnerships were expensed due to the length of time it has taken to dispose of the properties.
 
Liquidity and Capital Resources
 
Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015. Net cash and cash equivalents used during the three months ended June 30, 2016 was $42,000 compared to net cash and cash equivalents of $2,000 provided during the three months ended June 30, 2015. During the three months ended June 30, 2016 the Partnership reimbursed $42,000 to the General Partner or an affiliate for operating expenses paid on behalf of the Partnership, compared to no such payment during the three months ended June 30, 2015. The reimbursements of operating expenses and accrued asset management fees are paid after management reviews the cash position of the Partnership. In addition, reporting fees decreased by $2,000 for the three months ended June 30, 2016 as discussed above.
 
16
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued
 
During the three months ended June 30, 2016, accrued payables, which consist primarily of related party asset management fees due to the General Partner or affiliates, decreased by $30,282. 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.
 
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 did not materially affect the Partnership’s financial statements.
 
In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis”. This will improve certain areas of consolidation guidance for reporting organizations that are required to evaluate whether to consolidate certain legal entities such as limited partnerships, limited liability corporations and securitization structures. ASU 2015-02 simplifies and improves GAAP by: eliminating the presumption that a general partner should consolidate a limited partnership, eliminating the indefinite deferral of FASB Statement No. 167, thereby reducing the number of Variable Interest Entity (VIE) consolidation models from four to two (including the limited partnership consolidation model) and clarifying when fees paid to a decision maker should be a factor to include in the consolidation of VIEs. ASU 2015-02 is effective for periods beginning after December 15, 2015. The adoption of this update did not materially affect the Partnership’s financial statements.
 
 
17
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risks
 
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 June 30, 2016 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
 
18
 
 
Part II.
Other Information
 
 
Item 1.
Legal Proceedings
 
 
 
NONE
 
 
Item 1A.
Risk Factors
 
 
 
No material changes in risk factors as previously disclosed in the Partnership’s Form 10-K.
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
NONE
 
 
Item 3
Defaults Upon Senior Securities
 
 
 
NONE
 
 
Item 4.
Mine Safety Disclosures
 
NOT APPLICABLE
 
 
Item 5
Other Information
 
 
 
NONE
 
 
Item 6.
Exhibits
 
 
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14 or 15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)
 
 
31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14 or 15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of. (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 June 30, 2016 and March 31, 2016, (ii) the Condensed Statements of Operations for the three months ended June 30, 2016 and June 30, 2015, (iii) the Condensed Statements of Partners’ Equity for the three months ended June 30, 2016, (iv) the Condensed Statements of Cash Flows for the three months ended June 30, 2016 and June 30, 2015 and (v) the Notes Condensed to 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.

 
 
19
 
 
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: August 24, 2016
 
 
By: /s/ Melanie R. Wenk
 
Melanie R. Wenk
Senior Vice President - Chief Financial Officer of WNC & Associates, Inc.
 
Date: August 24, 2016
 
 
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