In response to IRS’ request for comments, NCSHA recommended various Housing Credit and bond related issues be included in the Services’ 2018-2019 Priority Guidance Plan.
The IRS’s Priority Guidance Plan identifies projects IRS intends to work on in the next year. The 2018-2019 plan describes the items the Service plans to work on during the period from July 1, 2018, to June 30, 2019. This year, the IRS has requested comments on the plan and the National Council for State Housing Agencies or NCSHA responded.
The following is a summary of the specific Housing Credit-related recommendations.
Income Averaging Recommendations
NCSHA indicated that State Allocation Agencies do not need extensive guidance in this area but indicated a few areas where further clarification is needed. (Note: These same recommendations are indicated in a letter NCSHA submitted to the IRS on June 13, 2018 which is discussed in this article.)
The first of such areas is in regards to the Available Unit Rule specifically requesting the IRS to establish rules for determining the next available unit designation in cases when more than one tenant in units of different income level designation invoke the rule at the same time. In the June 13th letter, NCSHA illustrates an example specifically describing a property where a household living in a 30% unit and a household living in a 70% unit both invoke the Available Unit Rule and the next available unit is a market rate unit. It indicates the IRS needs to clarify whether this vacated market rate unit should be filled with a 30% or 70% household. Further, it indicates that until the IRS provides more guidance, they (NCSHA) are providing guidance to state agencies directing them to designate the vacated market rate unit at the lowest designation, which in this scenario would be 30%.
The second area NCSHA urges the IRS to provide guidance on is establishing the calculation method for determining income limits for the allowable income levels as HUD only publishes the 50% and 60% figures. Without such guidance, HUD is unable to perform these calculations and issue the limits for 20%, 30% and 40% AMGI levels. This means state agencies will likely attempt to perform these calculations which could result in incorrect methodology being applied and/or mathematical errors further complicating matters.
And finally, the IRS urges the IRS to revise the instructions for the newly revised 8609 and to make revisions to the 8823 form so it too reflects the new minimum set-aside option.
Completion of Compliance Monitoring Regulations
Back in February 2016, proposed and temporary regulations on this matter were issued by Treasury and the IRS. In its comments, NCSHA encouraged this item to be retained in the 2018-2019 plan as it was on the previous year’s plan so they can be finalized.
One of the items it requests the IRS to review is its previous decision made in the proposed and temporary regulations requiring State Monitoring Agencies to base their monitoring requirements on the total number of units in each building versus each project when the Line 8b election is made (making the project a multiple building project). In its comments, NCSHA requests that the IRS change this to consider multiple buildings with a common owner and financing plan as a single project for monitoring purposes regardless of the Line 8b election as it would streamline monitoring without sacrificing oversight especially on scattered site single-family homes, duplexes or tri-plexes.
Housing Credit Disaster Relief Clarifications
Earlier this year, NCSHA submitted formal comments to the IRS on Notice 2018-17 regarding improvements to Revenue Procedure 2014-49 and 2014-50 both of which relate to disaster relief. In its comments on this year’s priority plan, NCSHA requests the IRS add these items to the plan specifically encouraging the IRS to provide additional guidance on treatment of residents returning to an affected property following a natural disaster; clarify compliance requirements for units not affected by natural disaster; and provide guidance on the issue of destroyed records following a natural disaster.
Over Income Tenants in Acquisition/Rehab and Resyndicated Properties
NCSHA urges the IRS to provide guidance on the treatment of existing tenants in affordable housing (usually financed with HUD, USDA or other federal/state financing) that are required and rehabbed with Housing Credits and for existing Housing Credit properties undergoing resyndication. This item is strongly encouraged by NCSHA due to the increased number of credit applications received by State Allocation Agencies involving these types of properties.
Specifically, NCSHA indicates that the continued qualification of existing households who were initially qualified but now are over-income is a significant issue. Under current law, over-income tenants in a Housing Credit properties may continue to occupy a Housing Credit unit as long as the next available unit is rented to a tenant who is currently income qualified. NCSHA recommends that IRS clarify how these tenants should be treated for income qualification purposes in the case of an acquisition and rehabilitation of an existing affordable development and/or a Housing Credit resyndication.
Casualty Loss Occurring in Non-Presidentially Declared Disaster Area
NCSHA recommends the IRS reconsider its current guidance concerning this type of casualty loss thereby allowing for greater flexibility when recapturing credits to the extent the loss is restored within a reasonable period of time.
Current IRS policy provides relief from recapture and credit loss due to a casualty if that casualty resulted from a disaster that is part of a presidentially declared disaster area. However, casualty loss unrelated to a presidentially declared disaster is not treated the same. In these cases, the current rules require the property to be restored and put back into service by the end of the calendar year to avoid recapture regardless of when the casualty loss event occurred. In its comments, NCSHA recommends amending this policy to provide relief to owners experiencing such loss towards the end of the year more time to restore the property and ensure that it is rented to qualified tenants without suffering a penalty.