On December 27, 2016, the IRS issued Notice 2016-77. This Notice relates to the issue of satisfying the required Qualified Allocation Plan (QAP) preference relating to Community Revitalization Plans.
Background
Section 42 (m) of the Internal Revenue Code (the “Code”) requires that every Low-Income Housing Tax Credit (LIHTC) allocation be made pursuant to a QAP. The code specifies certain preferences and selection criteria that each QAP must contain. Three preferences are required, and one of these is that the QAP must give “preference in allocating housing credit dollar amounts among selected projects to… projects which are located in qualified census tracts… and the development of which contributes to a concerted community revitalization plan…” (emphasis added).
Qualified Census Tracts (QCTs) are HUD-designated areas with either a high percentage of households below a certain income level or with a poverty rate above a certain level.
The IRS Position
The IRS has determined that in some cases, HFAs have given preference to projects in QCTs without regard to whether the projects contribute to a concerted community revitalization plan (CRP). In some cases, if an LIHTC project benefitted a particular neighborhood, HFAs treated the project itself as a CRP.
There is a reason that a preference is granted only to projects that contribute to a concerted community revitalization project. The project itself cannot be a CRP.
The notice states that the position of Treasury and the IRS is that unless there is a plan with more elements than the project itself no later than the allocation date, the preference fails to apply, indicating that if the allocation would not have occurred without the preference, the allocation itself may be invalid.
The IRS is requesting comments regarding guidance that should be issued relating to the preference. Comments are due to the IRS no later than February 10, 2017. Comments may be emailed to Notice.comments@irscounsel.treas.gov. When emailing comments, include “Notice 2016-77” in the subject line.