IRS Issues New Memos on LIHTC Casualty, Reporting Issues

By
3 min read

Tax Credit Advisor, May 2009: The Internal Revenue Service has issued two new Chief Counsel Memoranda relating to the federal low-income housing tax credit (LIHTC). Each was released 3/27/09 and is dated 2/20/09.

A Chief Counsel Memorandum can’t be relied upon legally by anyone other than the individual party to which it is addressed. But it sheds light on the Service’s interpretation of particular tax law provisions.

Memo No. 200913012

This memo addresses questions about the relief available for LIHTC projects that are damaged or destroyed by a casualty event (e.g., fire, flood) that causes a reduction in the property’s qualified basis amount. In this situation, the owner generally won’t be subject to recapture of a portion of the previously claimed housing credits, if the property is fully repaired or rebuilt (and the reduction in eligible basis restored) within a reasonable time period as specified by the U.S. Treasury Department.

IRS Revenue Procedure 2007-54 also says that the owner may continue claiming credits during a reasonable restoration period, as determined by the housing credit agency, if the casualty loss is the result of a qualified major disaster. The new memo says this ongoing credit allowance isn’t permissible for projects not falling under Rev. Proc. 2007-54.

In addition, a taxpayer that fails to complete the restoration by the specified deadline will be subject to credit recapture and the loss of credits.

The memo also indicated that a taxpayer could claim credits for tax year 2007, for 25 low-income units in a building damaged by a casualty event on 3/15/07, and placed back in service on 10/17/07. The IRS said this treatment would apply if 10/15/07 is within the specified restoration period, and if either (1) each unit is occupied by a low-income tenant by 12/31/07, or (2) the owner, by no later than 10/15/07, began “continual and verifiable measures to rent restored vacant units to low-income tenants.” The memo also added that no credits would be allowed for 2007 if the restoration isn’t completed by 12/31/07, even if the reasonable period extended into 2008.

Memo No. 200913013

This memo clarifies that a housing credit agency that fails to file a required annual report on time (Form 8610, Annual Low-Income Housing Credit Agencies Report) will be liable only for a single $100 penalty each year, and not also liable for additional penalties for not filing supporting forms and information pertaining to the underlying projects awarded or allocated housing credits that year.

The memo also noted that the IRS can impose a $100 penalty for an inaccurate or incomplete Form 8610, even if it is filed on time. It also specifies other potential consequences from an inaccurate filing.

(Memos: http://www.irs.gov/pub/irs-wd)