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IRS Delays Low-Income Housing Credit Deadline, Updates Rules (2)

July 1, 2020, 5:13 PMUpdated: July 1, 2020, 10:00 PM

The IRS pushed back deadlines for builders seeking low-income housing tax credits who might have run into work stoppages because of the coronavirus pandemic.

The agency also reversed earlier requirements for state monitors of buildings’ compliance, following vocal opposition from a state housing agency organization.

The relief announced Wednesday (Notice 2020-53) extends to the end of the year certain deadlines builders have to meet to qualify for the tax credit, under tax code Section 42.

“For those projects that were underway with development that had to stop, it does give extra time to meet those requirements,” said Molly Bryson, who leads Ballard Spahr LLP’s tax credits team. She said the effects of the pandemic on the market have been varied in her experience, though the deadline delays are certainly helpful in cases in which developers are rehabilitating a unit where the tenant still lives, as they likely weren’t able to enter.

“Certain investors over the last three months, during this period of uncertainty, perhaps may have slowed down their internal processes or have not closed as many deals as they would otherwise because of the working from home,” Bryson said.

A group of low-income housing tax credit market participants led by the firm Novogradac & Co. LLP requested such relief in May, though the group asked for yearlong deadline extensions, rather than delays to the end of 2020. The group also asked for an extension of the deadline by which projects must be placed in service to receive the credit, but that didn’t make it into the notice, said Dirk Wallace, a partner at the firm who signed the letter.

“If the placed-in-service deadline is not extended, some owners may have to return credits,” he said. Still, he added, “we welcome any relief.”

The agency also issued proposed rules (REG-123027-19; RIN 1545-BP59) that ease earlier compliance monitoring requirements imposed on state housing agencies under final rules (T.D. 9848) issued in February 2019.

Those final rules effectively increased the sample of units state compliance monitors had to inspect, particularly in smaller buildings with few units, raising costs for state housing agencies and potentially increasing the fees they charge building owners, the rules said, citing trade groups for these agencies. In the new proposals, the agency reverted to a requirement that 20% of the units be inspected.

“The comments on the final regulations, however, have demonstrated the magnitude of the increased costs and burdens that this requirement imposes on Agencies,” officials wrote in the new proposed rules. “As a result of these comments, the Treasury Department and the IRS have greater awareness of the many practical challenges Agencies experience in using samples greater than 20 percent while carrying out their compliance-monitoring responsibilities.”

The National Council of State Housing Agencies had called on the IRS to rescind the final rules in May of last year.

“We believe that any benefit the increase in monitoring would provide is far outweighed by the considerable strain this would put on Housing Credit agencies, owners, tenants, and affordable housing resources,” Garth Rieman, an NCSHA director, wrote IRS officials in a May 6, 2019 letter.

—With assistance from Colleen Murphy and Siri Bulusu.

(Updates throughout.)

To contact the reporter on this story: Lydia O'Neal in Washington at loneal@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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