IRS Issues Guidance on Extra Housing Credit, Special Bond Authority for Certain 2008 Disaster Areas

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Tax Credit Advisor, January 2009: The Internal Revenue Service has issued new guidance for determining the amount of additional low-income housing tax credit (LIHTC) authority and special new tax-exempt bond authority available for use in qualified disaster-stricken areas in the Midwest, Texas, and Louisiana. These are Midwest counties hit in 2008 by various natural disasters (e.g., storms, floods), and counties in Texas and Louisiana damaged by Hurricane Ike. All were part of disaster areas declared by the Federal Emergency Management Agency.

IRS Notice 2008-109, to be published in the Internal Revenue Bulletin of 12/15/08, implements provisions of the recent financial rescue act (H.R. 1424). (For details, see Tax Credit Advisor, November 2008, p. 1.)

The notice implements provisions of the act that authorize additional per capita housing credits for each of calendar years 2008, 2009, and 2010 for certain Midwestern states, with this extra annual amount equal to $8 times the aggregate population contained in the disaster counties within each of these states. Other provisions authorize a special new type of tax-exempt private activity bond Ð called Midwestern Disaster Bonds Ð for eligible Midwestern states, equal in amount to $1,000 times the portion of the state’s population within the qualified disaster counties. Extra housing credits not awarded during the year can’t be carried forward.

The notice identifies the qualified individual “Midwestern Disaster Area” counties and specifies the aggregate population for these counties within each eligible state. The states and their aggregate disaster area population are: Arkansas (957,100); Illinois (1,515,271); Indiana (3,098,222); Iowa (2,615,995); Missouri (1,414,492); Nebraska (1,136,088); and Wisconsin (3,830,112). The act also mentioned Kansas, Michigan, and Minnesota. However, the IRS notice indicates no counties in these states met all the requirements for eligibility.

The extra credit and the special bond authority may only be used to finance eligible projects within the qualified disaster counties identified in the notice.

Hurricane Ike Areas

The notice also names numerous counties in Texas and parishes in Louisiana that qualify as Hurricane Ike disaster area counties and parishes. As with the Midwestern Disaster Area counties, the act and notice authorize extra per capita housing credit authority for each of 2008, 2009, and 2010 that may be expended in these eligible Texas counties and Louisiana parishes.

The act and notice also authorize a special new type of private activity bonds, identical to the Midwestern Disaster Bonds but called Hurricane Ike Bonds.

The amount of additional credit authority and Hurricane Ike Bond authority available for use within the eligible counties or parishes in each state, however, is based only on the aggregate population of five counties in Texas (Brazoria, Chambers, Galveston, Jefferson, Orange) and two parishes in Louisiana (Calcasieu, Cameron). These aggregate population estimates are 931,635 for Texas and 191,926 for Louisiana. The maximum extra per capita credit authority available for each of 2008, 2009, and 2010 for each state is the product of this population estimate times $16. The Hurricane Ike Bond authority is this population estimate times $2,000.

Eligible Activities

Midwestern Disaster Bonds and Hurricane Ike Bonds may be issued by states and municipalities to fund the acquisition, construction, or renovation of low-income rental housing, nonresidential real estate, and public utility property. The bonds must be issued before 2013.

Less stringent income targeting set-aside requirements apply to such bond-financed low-income rental projects. Either 20% of the project’s units must be rented to households at or below 60% of area median income (AMI) or 40% rented to households at or below 70%.

Midwestern and Hurricane Ike Bond authority doesn’t count against each state’s regular annual tax-exempt private activity bond volume cap. (IRS Notice 2008-109: http://www.irs.gov/pub/irs-drop/n-08-109.pdf).