TEMPORARY IRS RELIEF OPENS UP LOW-INCOME HOUSING UNITS TO DISPLACED HURRICANE VICTIMS

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TEMPORARY IRS RELIEF OPENS UP LOW-INCOME HOUSING UNITS TO DISPLACED HURRICANE VICTIMS

Posted by Kim Chen on October 21st, 2018

IR 2018-204
In the wake of Hurricanes Michael and Florence, IRS announced that it has provided temporary relief from certain low-income housing tax credit (LIHTC) requirements in order to allow owners and operators of low-income housing projects located anywhere in the U.S. and its possessions to provide temporary emergency housing to individuals who are displaced by a major disaster from their principal residences, regardless of those displaced individuals’ income.
Background—LIHTC. The LIHTC is allowed annually over a 10-year credit period beginning with the tax year the qualified building is placed in service, or, under an irrevocable election, the next tax year. (Code Sec. 42(f)(1)) The credit equals the qualified building’s qualified basis times the applicable percentage (Code Sec. 42(a)) prescribed by IRS for the month placed in service or elected in agreement with the housing credit agency. (Code Sec. 42(b)(2)(A)) The building owner can’t claim a credit amount in excess of the allocation received from the state or housing credit agency for that year. (Reg. § 1.42-1T(e)(1))
Background—tax-exempt bonds. Gross income generally doesn’t include interest on any state or local bond. (Code Sec. 103(a)) The exclusion doesn’t apply, however, to any private activity bond unless it is one of the qualified bonds under Code Sec. 141(e), such as exempt facility bonds. An exempt facility bond is a bond issued as part of a bond issue if 95% or more of the net proceeds of the issue are to be used to provide listed types of projects or facilities including qualified residential rental projects. (Code Sec. 142(a)) A qualified residential rental project must satisfy a number of requirements set out in Code Sec. 142(d), including occupancy requirements by low-income tenants.
Prior guidance. In 2014, IRS issued Rev Proc 2014-49, 2014-37 IRB 535, which modified and expanded provisions contained in Rev Proc 2007-54, 2007-31 IRB 293 (which had established temporary relief from certain requirements of Code Sec. 42 for owners and agencies in major disaster areas).Rev Proc 2014-49 also provides emergency housing relief for individuals who are displaced by a major disaster from their principal residences in certain major disaster areas. (For more details, see “IRS expands temporary disaster relief provisions for low income housing credit”.)
Also in 2014, IRS issued Rev Proc 2014-50, 2014-37 IRB 540, which provided temporary relief from certain requirements of Code Sec. 142 (relating to exempt facility bonds) for bond issuers and operators responsible for ensuring that a qualified residential rental project meets the requirements to be treated as such. Rev Proc 2014-50 also provided temporary relief from certain other requirements in order allow qualified residential rental projects to provide emergency housing relief for individuals who are displaced by a major disaster. (For more details, see “Relief from exempt bond rules for residential rental projects following major disasters”.)
The above-described relief authorizes owners and operators, in conjunction with agencies and issuers, to disregard the income limits, transience rules, and certain other restrictions that normally apply to low-income housing units when providing temporary emergency housing to displaced individuals. As a result, owners and operators can offer temporary emergency housing to displaced individuals who lived in a county or other local jurisdiction designated for individual assistance by the Federal Emergency Management Agency (FEMA).
Currently eligible areas. In the news release, IRS announced that areas where temporary emergency housing may currently be provided under the terms described above include parts of Florida, Georgia, North Carolina, South Carolina and Virginia. IRS noted that FEMA may also add other locations in the future. Emergency housing can be provided for up to a year after the close of the month in which the major disaster was declared by the President.
This relief automatically applies as soon as the President declares a major disaster and FEMA designates any locality for individual or public assistance. For that reason, individuals affected by some other recent major disasters may also qualify for emergency housing relief. (For a list of 2018 disasters, as of Oct. 16, 2018, see “Disaster victims in Georgia and Virginia, and additional victims in Florida, North Carolina, and South Carolina, qualify for tax relief”.)
IRS also reminded owners and operators of low-income housing projects that, while they are allowed to offer temporary housing to qualified disaster victims, they are not required to do so.