On July 1, 2020, the IRS released an advanced copy of proposed regulations concerning low-income housing tax credit (LIHTC) housing finance agency (HFA) monitoring requirements and Notice 2020-53, which provides COVID-19 related relief to issuers, owners, operators, and tenants of tax credit properties. Following is a detailed discussion of both documents.
Low-Income Housing Tax Credit Compliance-Monitoring Regulations - Proposed Rule
This document contains proposed regulations relating to the compliance monitoring duties of housing finance agencies (HFAs) under §42 of the Internal Revenue Code. These proposed regulations would relax the minimum compliance monitoring sampling requirement for purposes of physical inspections and review of tenant files that were published in the Federal Register on February 26, 2019.
The 2019 regulation required HFAs to inspect no fewer units than the number specified for projects of the relevant size in HUD REAC inspections. This increased the sample size for smaller projects and decreased it for larger projects. All QAPs were to be amended to incorporate these new requirements no later than December 31, 2020.
This proposed regulation is the result of comments provided by industry groups, including HFAs, and trade groups (including the National Council for State Housing Finance Agencies). A major concern of the HFAs was that the 2019 regulation ended Agencies’ ability to use samples of 20 percent of the low-income units in a project when the applicable REAC number is larger. The 2019 requirement increased the number of units that HFAs must examine, increasing Agency costs for additional staff and related expenditures.
The IRS implemented the 2019 regulation in order to ensure an increased statistical confidence that results from the use of the REAC numbers to determine sample sizes for smaller projects. However, the Service agrees that the magnitude of the increased costs and burdens on HFAs outweighs any benefit that may have been derived from the 2019 protocol. For this reason, the IRS is proposing to return to the sample-size requirements that applied under Temporary Regulations issued in 2016. Thus, under the proposed regulation, the minimum number of low-income units that must be included in the random samples of units and files to be reviewed is the lesser of the applicable REAC number or 20% of the low-income units in the project, rounded up to the next whole number.
Example of Impact
Proposed Applicability Date
This proposed regulation would apply after the date the regulation is published as a final regulation in the Federal Register. However, HFAs may rely on the proposed regulation beginning on February 26, 2019, until December 31 of the calendar year following the year that contains the date these regulations are published as final regulations. For example, if the final regulation is published in November 2020, and changes from the proposed regulation, HFAs will be able to use the requirements outlined in the proposed regulation until December 31, 2021.
IRS Notice 2020-53, COVID-19 Relief for LIHTC Projects
In response to the COVID-19 pandemic, this notice provides temporary relief from certain requirements under §42 of the Internal Revenue Code and §§142(d) and 147(d) of the Code for properties with tax-exempt bonds.
Background
On March 13, 2020, the President issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act in response to the ongoing COVID-19 pandemic. This emergency declaration instructed the Treasury Department "to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency, as appropriate…" The emergency declaration applies to all 50 states, Washington DC and the five territories.
Revenue Procedure 2014-49 provides temporary relief from certain requirements of §42 for Agencies and Owners of LIHTC projects. Revenue Procedure 2014-50 does the same thing for properties financed with tax-exempt bonds.
Prior Relief Actions
On April 9, 2020, the IRS issued Notice 2020-23, which provided certain relief to low-income housing projects and postponed due dates until July 15, 2020, with respect to certain tax filings and payments, certain time-sensitive government actions, and all time-sensitive actions listed in Revenue Procedure 2018-58 that were due to be performed by April 1, 2020, but before July 15, 2020. These time-sensitive actions include, among others:
Scope of Relief Granted in This Notice
Effective Date: this Notice is effective as of July 1, 2020
Owners and operators of LIHTC and tax-exempt bond projects should consult with their HFAs or Issuing Agencies in order to determine if any requirements in addition to those outlined in this Notice will be implemented.
Subscribe to our news articles to stay up to date.
We care about the protection of your data. Read our Privacy Policy.