Hi Les,

I have a client that has a Section 8 Voucher program as well as other programs. They are in a building that they are considering selling with a leaseback provision for 10 years. Depreciation has been allocated to the various programs over the years for the building through an indirect cost rate, including the Section 8 program.

I’ve read 2 CFR 200.465 that states that nothing can be allocated back to the program except those costs that would otherwise be allowed prior to the sale and that has been calculated.

However, I need some guidance on the applicability of item (d) in that subsection. I’ve attached the CFR. The main question is the amount paid for “profit.” Obviously, the buyer has to cover the costs and make some money and is calculating that at 9% – so would we have to absorb that portion of the rent payment into local funds and not recover it through the indirect cost rate? How do we know, as the lessor, what the profit percentage actually ends up being? Currently, we’ve calculated only the costs of the rent that were previously in the indirect cost rate, and it seems to me that we are not allowing anything outside of that.

Is this purchase something AHACPA might contract with and assist this entity with as far as providing guidance? Like I said, they have Section 8, and it’s a major program with them, but there are also several other federal and state passthrough agencies involved.

Thank you,
Lori Cannon
Sherman, Texas
903.815.6610
Lori@LoriAnnCannonCPA.com