Resolution Trust Corporation

This briefing report looks at whether a tax credit would facilitate the sale of distressed property held by the Resolution Trust Corporation (RTC). The tax credit would be earned in five equal installments, and it would have a present value of up to 80 percent of the purchase price plus the cost of necessary rehabilitation of the applicable RTC property. Specifically, GAO evaluates the cost effectiveness of a tax credit program that would begin on January 1, 1992, and have a cap of $1 billion. GAO also discusses RTC's strategies to dispose of properties by lowering their prices and using other alternatives.

GAO found that: (1) the government would lose about $127 million on a present-value basis with the proposed $1-billion tax credit program; (2) although the tax credit would increase sales revenue to RTC, the lost revenues to the Department of the Treasury would exceed the increase in sales; (3) although a private study concluded that the proposed RTC tax credit would have a benefit-to-cost ratio of almost two to one compared to the alternative of holding property in inventory for 5 years for eventual sale, this alternative was not a realistic basis on which to analyze the tax credit, since the current RTC policy is to sell properties soon after acquisition by setting price to market value; (4) RTC programs in place to dispose of its real estate properties include reducing prices to reflect current market values and providing seller financing; (5) if Congress decides to enact the RTC tax credit program, the tax credit should be reduced from 80 percent to 30 percent of the present value of the purchase price and the number of years to claim the tax credit should be increased from 5 to 10 years; and (6) to protect the financial interest of RTC, the tax credit proposal should provide for full recapture of the tax credits and penalties if RTC forecloses properties previously sold with tax credits attached to them and limit the fees that the syndicators would be able to receive from the sale of tax credit participations to private investors.