IRS, States Continue Implementing Housing Act LIHTC, Bond Provisions
By Caitlin Jones & A. J. Johnson
12 min read
The Internal Revenue Service and state housing agencies in September took further steps to implement certain low-income housing tax credit (LIHTC) and tax-exempt housing bond program changes made by the new Housing and Economic Recovery Act of 2008.
The IRS on 9/18/08 issued a notice (2008-79) fleshing out and providing guidance on one LIHTC and a handful of bond amendments, as a coalition of organizations and firms requested guidance on aspects of five other credit amendments. (For details of Act’s LIHTC and bond provisions, see Tax Credit Advisor, September 2008, pp. 1, 10.)
Meanwhile, state housing credit agencies (HCAs) continued to implement some of the Act’s LIHTC provisions, while simultaneously trying to salvage jeopardized pending projects with credit awards.
IRS Notice
In Notice 2008-79, the IRS identified nine specific military installations in eight states it said are qualified military installations under one LIHTC amendment made by the Act.
The amendment provides for excluding Basic Housing Allowance (BAH) payments received by military personnel from income in determining whether a household qualifies as low income under the credit program, for eligible LIHTC buildings. To be eligible, a building must be in or adjacent to a county containing a military installation with at least 1,000 Armed Forces personnel assigned to it, and the installation must have had at least a 20% growth in assigned Armed Forces personnel between 12/31/05 and 6/1/08. The provision applies to buildings that receive credits through a credit allocation or by being financed by tax-exempt bonds, but not to bond-financed buildings not receiving credits. The amendment applies to income determinations made after 7/30/08 for buildings placed in service before, on, or after this date. However, the time period for this exclusion ends 12/31/11 for certain buildings, and isn’t available for buildings receiving allocations or bond-financed and placed in service after 2011.
The nine identified qualifying military installations are: the U.S. Air Force Academy, in Colorado; Fort Shafter, Hawaii; Fort Riley, Kansas; Annapolis Naval Station (including the U.S. Naval Academy), Maryland; Fort Jackson, South Carolina; Fort Bliss and Fort Hood, Texas; Dam Neck Training Center Atlantic, Virginia; and Naval Station Bremerton, Washington State.
The IRS said this initial list isn’t intended to be exclusive, and indicated it will add other military installations if it receives information that they qualify.
IRS Notice 2008-79 also specifies the dollar amount of additional 2008 tax-exempt housing bond authority provided by the Act to each of the 50 states, District of Columbia, Puerto Rico, U.S. Virgin Islands, and other U.S. possessions. The amounts range from $96,550,479 for numerous small states up to $1,144,564,324 for California.
States can issue bonds during 2008-2010 from this extra authority to fund certain home loans or to finance low-income rental housing.
The notice also provides clarification to states on how to use, track, carry forward, and report on the use of this extra bond authority; about converting bond authority for use as mortgage credit certificates; and other aspects.
Finally, the notice clarifies that an amendment that provides a temporary exception to the general rule barring Federal Home Loan Bank guarantees of tax-exempt bonds for non-housing purposes, applies both to refunding and “new money” bonds. (IRS Notice 2008-79: http://www. irs.gov/pub/irs-drop/n-08-79.pdf)
Guidance Requested
Separately, 13 organizations and firms in a joint letter to the IRS and U.S. Treasury Department, dated 9/11/08, requested expedited IRS guidance on aspects of five specific LIHTC amendments made by the Act. The letter proposes an interpretation in each area that it asks forthcoming IRS guidance to reflect.
Signing the letter were the: Affordable Housing Tax Credit Coalition/Nixon Peabody LLP; Applegate & Thorne-Thomsen, P.C.; Enterprise Community Partners; Greenberg Traurig, LLP; Holland + Knight; Housing Advisory Group; Local Initiatives Support Corporation; National Association of State and Local Equity Funds; Novogradac & Company LLP; Paul, Hastings, Janofsky & Walker LLP; Reznick Group, P.C.; and Winston & Strawn LLP.
Washington, DC attorney Richard Goldstein, Nixon Peabody partner and counsel to the Affordable Housing Tax Credit Coalition, told the Tax Credit Advisor the groups asked for IRS guidance because questions have arisen about the interpretation or meaning of various aspects of the particular LIHTC amendments, “and we’re not exactly sure how to answer them.” The letter asks the IRS to issue guidance to clarify that:
- Developers of new projects that elected before 7/31/08 to fix or “lock in” the applicable credit percentage for the 70% present value credit be permitted to utilize the minimum 9% credit rate.
- State HCAs, for a temporary transition period, be permitted to designate buildings to receive a 30% boost in eligible basis, without first having to amend their current qualified allocation plan (QAP), provided they issue a written explanation of why they are providing the basis boost to a project.
- Certain specific federal pay- ments (e.g., federal rental assistance payments, HUD Section 236 interest reduction payments) that one amendment says aren’t to be treated as grants, for buildings placed in service after 7/30/08, also applies to payments received before 7/31/08.
- Taxpayers be allowed, until the IRS issues a form, to do away with an outstanding recapture bond they’ve already posted by sending a written statement to the Service saying they intend to make this election and providing a copy of their IRS Form 8693.
- The word “substantially,” in a new exception to the so-called 10-year rule, means a threshold of 20% or more. The 10-year rule generally bars acquisition credits for a building last placed in service or that had a major improvement in the past 10 years. The Act provides an exception for buildings “substantially assisted, financed, or operated” under certain specific federal housing programs or similar state programs. The groups propose that substantially be defined as 20% or more. That is, if 20% of more of a building or its units are assisted, financed, or operated with assistance or funds from one of the specific federal or similar state programs, the building would fall under this exception.
State Actions
State housing credit agencies are moving forward to implement the LIHTC and housing bond provisions of the Act, Barbara Thompson and Garth Rieman of the National Council of State Housing Agencies (NCSHA) told TCA. Thompson, NCSHA’s executive director, said states are “up and running” with the new changes and resources entrusted to them.
Reiman said state agencies are taking different approaches regarding implementation of the Act’s LIHTC provisions, depending in large part on whether they’ve already completed all of their 2008 credit application rounds, or had one round left after 7/30/08, and in part on how far along they are in developing their 2009 QAP. He noted, for instance, that it’s easier for states with a funding round left to allocate the extra 2008 credits received under the Act in their funding remaining round.
Rieman said states are also developing different strategies regarding implementation of the minimum 9% credit rate for projects already awarded awards. He said some states feel some projects don’t need the extra boost, while some plan to increase the rate to 9% but reduce the approved eligible basis amount so the credit amount doesn’t change.
Washington, DC attorney Anthony Freedman, a partner in Holland and Knight LLP, and counsel to a number of state housing finance agencies, said he’s continuing to field “a range of questions” from state agencies on the Act’s bond and LIHTC provisions and how to implement them. “My sense is that the states are very aggressively seeking to implement these provisions, and doing so and seeking to do so as quickly as possible,” he said.
Details on Major States
Officials of the New York, Florida, and Texas state housing credit agencies told TCA how they’re implementing the Act’s LIHTC amendments while trying to save projects with credit awards that are in jeopardy.
Deborah VanAmerongen, Commissioner of the New York State Division of Housing and Community Renewal (DHCR), said DHCR has about $2.8 million of the roughly $4.1 million extra 2008 credits received by New York.
She said DHCR has selected three high-scoring, good projects from its 2008 “wait list” – unsuccessful applicants in its 2008 LIHTC funding round – to receive some of the extra credits. In addition, she said DHCR is considering providing extra credits to other projects – with 2008 or 2007 credit awards – that have an investor lined up but a reduced equity amount that has put them at risk. She noted DHCR has a per-project credit cap of $1.3 million, but that no 2008 awards exceeded $1.1 million.
VanAmerongen, interviewed on 9/16/08, said DHCR will issue a policy within a few weeks specifying the circumstances under which it will consider providing the 30% boost in eligible basis to a project. “We will consider those applications on a case-by-case basis,” she said, noting the policy will be “very similar” to an increase policy DHCR issued in March 2008 that offered extra credits to projects adversely impacted by the change in tax credit market conditions. VanAmerongen said supplemental credits have already been made to four projects under that policy.
VanAmerongen said DHCR has told developers that it will allow them the full 9% credit rate if they need it and haven’t “maxed out” on their eligible basis.
VanAmerongen said DHCR doesn’t plan to amend for 2009 its current QAP, which was extensively revised for 2008.
Florida Plans
The Florida Housing Finance Corporation (FHFC) plans to include its extra 2008 credits in the 2008 final credit awards made on 9/26/08, said FHFC Deputy Development Officer for Multifamily Programs Debbie Blinderman. She expected the extra credits to make possible at least one additional project.
Blinderman also said FHFC is allowing developers with credit awards that haven’t locked in their credit percentage to use the 9% credit rate, but isn’t allocating more credits to them. She noted FHFC is awaiting IRS guidance on whether this is allowable for developers with a locked-in rate.
Blinderman said FHFC won’t be providing the 30% basis boost to any projects in 2008, but will make this part of its 2009 program. She noted this will be raised in forthcoming FHFC workshops soliciting public input on the FHFC’s LIHTC and other rental programs that comprise the corporation’s “Universal Cycle,” for purposes of determining changes to these programs – and to the agency’s QAP – for the 2009 funding round.
To try to save some jeopardized deals with 2007 credit awards, such as because the equity investor has walked or because there is now a funding gap, Blinderman said FHFC has decided to allow these developers, if they don’t want to return their credits, “a little more time to start construction, to firm up their equity and debt commitments, so they can still do their deal.”
She said these developers have been offered an extension until 12/15/08 to submit firm equity and debt letters, and until March 2009 to begin construction. She said so far 11 projects have been granted extensions; no developers have returned credits.
Texas Plans
The board of the Texas Department of Housing and Community Affairs (TDHCA) at its last meeting on September 3-4 made some decisions regarding implementation of certain of the Act’s LIHTC provisions, and to try to save struggling deals. But given the impact of subsequent Hurricane Ike, some decisions and timing may be subject to change, noted TDHCA Director of Multifamily Finance Robbeye Meyer. The board’s next scheduled meeting is 11/13/08.
Meyer said TDHCA doesn’t plan to provide the 30% basis boost to any projects with credits awarded in 2007 or 2008, but will make it available starting in 2009. In fact, proposed requirements to qualify in the boost are one of a number of proposed changes in the agency’s draft 2009 QAP, which was approved by TDHCA’s board at its last meeting and is not out for comment. Approval of the final 2009 QAP is expected at the board’s next scheduled meeting on 11/13/08.
TDHCA held one LIHTC funding round in 2008, with credits awards made 7/30/08. Meyer said TDHCA didn’t include Texas’ extra 2008 credits in those awards.
Meyer noted the board at its last meeting made several decisions designed to help projects with credit awards that are experiencing problems.
For deals that received credit awards in 2007 that hadn’t closed on their syndication as of 9/3/08, sponsors have been given an oppor- tunity to submit a new syndication pricing letter, and TDHCA after evaluation, will allocate them additional credits to make up the shortfall and allow them to go up to the 9% credit rate, without having to go back to the board for approval.
For deals with 2007 awards that haven’t closed and that already locked in their credit rate, Meyer said TDHCA will be modifying the sponsor’s agreement with TDHCA to say they can go up to the 9% rate, but must get affirmation from their tax counsel or the IRS that they can do this.
For deals with credit awards in 2007 that have closed, and for deals receiving credit awards in 2008, sponsors if they wish may also submit new evidence for reevaluation including syndication pricing letters. TDHCA staff will collect updated information on sources and uses on these deals, to present to the board on 11/13/08. But Meyer said the board hasn’t decided whether it will take any action on these deals.
Both sets of deals have until 10/1/08 to submit new pricing letters and supporting evidence.
Other steps that Meyer said TDHCA is taking to try to save deals include:
- Streamlining and speeding approvals of amendments for projects with 2007 credit awards.
- Waiving the agency’s normal per-project credit cap of $1.2 million for projects awarded credits in 2007 or 2008.
