Disaster Relief Rules
Revenue Procedure 2014-49
This IRS Revenue Procedure provides temporary relief from certain requirements of §42 of the Internal Revenue Code (the LIHTC Program) for Agencies and owners if certain areas have been impacted by a major disaster. It also provides emergency housing relief for individuals who are displaced by a Major Disaster from their principal residences in certain Major Disaster Areas.
This procedure makes some substantive changes to Revenue Procedure 2007-54, which was the last major IRS guidance relative to tax credit properties and disaster areas. Key changes are (1) changes the reasonable restoration period for recapture relief and the tolling period for severely damaged, destroyed, or uninhabitable buildings in the first year of the credit period; (2) in determining qualified basis, uses the building’s qualified basis at the end of the taxable year immediately preceding the first day of the incident period as determined by FEMA, rather than at the end of the taxable year preceding the President’s Major Disaster declaration; (3) incorporates a temporary suspension of certain income limitations for Displaced individuals; (4) eliminates the need for self-certification of income eligibility; (5) permits an Agency to allow an owner within its jurisdiction to provide emergency housing relief to Displaced Individuals from other jurisdictions; (6) describes the consequences of providing emergency housing relief in the first year of the credit period and after the first year of the credit period; and (7) modifies the safe harbor relating to the amount of credit allowable to a restored building to provide relief in circumstances where the restoration cost is less than the eligible basis cost.
The procedure applies when the President has declared a Major Disaster. It applies to Displaced Individuals and to all §42 buildings, including those financed by Tax-Exempt Bonds. It also applies to all Agencies and owners both inside and outside States containing a Major Disaster Area.
Relief for Carryover Allocations
If an owner has a carryover allocation of credits for a building in a Major Disaster Area and the incident period for the Major Disaster began prior to the deadline for placing the building in service, the Agency may grant the owner an extension. If the Agency grants an extension (details of this process are explained below), the IRS will treat the owner as having satisfied the 10 percent of basis requirement of §42(h)(1)(E)(ii) if the owner meets the 10 percent requirement no later than the expiration of the Agency extension.
If the Major Disaster occurs on or after the date of the carryover allocation, the Agency may grant the owner an extension relative to the placed in service date for the building. In this case, the IRS will treat the owner as having satisfied the placed in service requirement of §42 if the owner places the building in service no later than the expiration of the extension.
If either the 10 percent requirement or placed in service requirement is not met by the end of the extension period, the credit will be returned to the Agency.
Procedure to Obtain Carryover Allocation Relief
Owners may not receive relief from Carryover Allocation rules unless the Agency that provided the allocation grants the relief.
Agencies may make the determination on an individual Project basis or determine that all owners or a particular group of owners in the Major Disaster Area need the relief provided by the revenue procedure. The extension may not be for more than six months after the date the owner would otherwise be required to meet the 10% of total development cost requirement. The extension may not extend beyond December 31 of the year following the end of the two-year period for placing a project in service, but can be for a shorter time period.
Recapture Relief
Generally, if, after the first year of the credit period, a building’s qualified basis is less than the qualified basis at the end of the prior tax year, credits for the applicable tax year will be reduced and recapture will result for prior tax years.
If a building’s qualified basis is reduced due to a casualty loss, a building is not subject to recapture if restored within a reasonable period of time. The HFA will determine what is reasonable in the case of a Major Disaster, but the extension may not extend beyond the end of the 25th month following the close of the month of the Major Disaster declaration. For example, if a major disaster is declared in October 2014, the deadline for restoration of qualified basis may extend no longer than November 2016.
In these cases, the qualified basis of the building allowable during the restoration period will be the building’s qualified basis at the end of the taxable year immediately preceding the first day of the incident period for the Major Disaster.
If the building is not restored within the reasonable restoration period determined by the HFA, the credit amount allowable will be based on the building’s qualified basis at the end of each year of the credit period. The HFA must report the failure to restore on IRS Form 8823.
Compliance Monitoring Relief
Agencies may extend the compliance monitoring due date for up to one year after a building has been restored and placed back in service. E.g., HFA compliance monitoring due in 2014, but building is down due to a disaster in a federally declared disaster area. Building is restored and placed back in service back in service May 1, 2015. State review will be due no later than May 1, 2016. However, if the State discovers that the building is out of compliance due to a Major Disaster, the Agency must report the noncompliance on Form 8823 and describe how the disaster contributed to the noncompliance.
Buildings in the First Year of the Credit Period
If a building is severely damaged or destroyed in a Major Disaster Area during the first year of the credit period, Agencies have the discretion to either (1) treat the allocation as a returned credit to the Agency, or (2) toll the beginning of the first year of the credit period. The tolling period shall not extend beyond the end of the 25th month following the close of the month of the Major Disaster declaration. Owners may not claim any credit during the restoration period. Agencies will report this relief as part of the 8610 process.
Amount of Credit Allowable to a Restored Building
Owners will receive no additional credits for the costs associated with restoring a building’s qualified basis.
If money is spent on rehab and not on restoration, additional credits may be awarded.
Emergency Housing Relief
LIHTC projects may be used to house individuals displaced due to a Disaster Area declaration, but only with State Agency approval. This approval must specify the date on which the Temporary Housing Period for the Project ends. This period cannot exceed 12 months from the end of the month in which the President declared the Major Disaster.
- Protection of Existing Tenants:
- No existing tenant whose income is, or is treated as, at or below the §42 income limit may have occupancy terminated solely to provide emergency housing for a Displaced Individual.
- Rent Restrictions:
- Gross rents for low-income units that house displaced individuals may not exceed the maximum gross rent that would apply under §42.
Implementation of Emergency Housing Relief
The IRS Revenue Procedure authorizes, but does not require, provision of emergency housing relief to displaced persons. Owners are not required to provide such relief, nor are agencies required to permit it. If an owner chooses to provide relief, such relief may be provided for less than the full Temporary Housing Period.
If a displaced individual qualifies as low-income under §42, the owner may rent to the individual as a low-income resident or provide temporary housing relief based on the guidance of the Revenue Procedure.
Units occupied by displaced individuals will not be considered “transient” units for purposes of §42.
Occupancy by displaced individuals may be disregarded for purposes of the available unit rule. However, the rule still applies to buildings where residents qualified under §42 exceed 140% of the applicable income limit.
If a project is in the first year of the credit period and a unit is occupied by a displaced individual, the units is treated as low-income for (1) determination of qualified basis; and (2) meeting the elected minimum set-aside test.
Treatment of Units After the First Year of the Credit Period
If a Displaced Individual begins occupancy of a unit during the Temporary Housing Period, but after the first year of the credit period, the unit will retain the status it had immediately before that occupancy. Therefore, if the unit is a low-income unit, a market-rate unit, or a unit never previously occupied, it retains that status while occupied by a displaced individual, regardless of the income of the displaced individual.
Treatment of a Unit Vacated by a Displaced Individual
If a displaced individual vacates a unit before the end of the Temporary Housing Period, the unit retains the status it had prior to occupancy by the displaced individual, even if the next tenant does not occupy the unit until after the end of the Temporary Housing Period.
Income Qualifications when Temporary Housing Period Ends
If a displaced person continues to occupy a unit in a project at the end of the temporary housing period, the status of the unit will be re-evaluated as though the individual moved into the project on the day immediately following the end of the temporary housing period. In other words, if the displaced person is not a qualified low-income tenant, the unit will be considered a market unit on the day after the end of the temporary housing period.
If a project falls below the required minimum set-aside as a result of this determination, a 60-day period is allowed for correction.
Emergency Housing Relief – Recordkeeping
For each displaced individual, the following information must be kept in a statement signed by the displaced individual under penalty of perjury:
- The name of the displaced individual;
- The address of the principal residence at the time of the major disaster of the displaced individual;
- The displaced individual’s social security number; and
- A statement that he or she was displaced from his or her principal residence as a result of a major disaster and that his or her principal residence was located in a city, county or other local jurisdiction that is covered by the President’s declaration of a major disaster and that is designated as eligible for Individual Assistance by FEMA due to the major disaster.
The owner must maintain a record of the Agency’s approval of the Project’s use for displaced individuals and of the approved Temporary Housing Period.
The owner must report to the Agency at the end of the Temporary Housing Period a list of the names of the displaced individuals and the dates those individuals began occupancy. The owner must also provide the dates the individuals ceased occupancy and, if applicable, the date each unit occupied by a displaced individual became occupied by a subsequent tenant.