In light of the three major hurricanes and other natural disasters that have occurred in the U.S. this year, I am happy to write about a piece of good news in the form of Revenue Procedure 2014-49, which provides temporary relief for LIHTC owners from certain requirements of Section 42 after the president has declared a major disaster.
Among the revenue procedure’s provisions are that timelines for carryover allocations and compliance reviews may be extended by state agencies; that projects are not subject to recapture during the restoration period; and that the first year of credit period may be extended for up to 25 months following the declaration. One of the most significant stipulations for management purposes, however, is that state agencies may give owners permission to house displaced individuals for up to a 12-month period following the declaration and disregard their income for that time.
A displaced individual is an individual who is displaced from his or her principal residence as a result of a major disaster, and whose principal residence was located in a major disaster area designated as eligible for individual assistance by FEMA. The revenue procedure defines the temporary housing period as the period, if any, beginning on the first day of the incident period, as determined by FEMA, and ending on the date determined by the agency. In order to house displaced individuals and disregard their income status, the owner must obtain state agency approval in writing and it must include when the temporary housing period ends. Data concerning any displaced individuals housed during this period must also be reported to the state housing agency.
It’s important to note that during the temporary housing period, no existing tenants may be evicted or have their occupancy terminated to provide emergency housing for displaced individuals. The revenue procedure simply authorizes but does not require emergency housing relief. Owners who choose to participate in housing displaced individuals must keep a record of their names, the addresses of their principal residences at the time of the major disaster, their social security numbers, and a self-certification verifying their displacement. In order for the units occupied by displaced individuals to qualify for tax credits, the rents must be restricted as per the Section 42 requirements.
The revenue procedure says that housing displaced individuals satisfies the non-transient use requirements of Section 42. It also says that the Next Available Unit rule does not apply for households containing displaced individuals and that if units are occupied under these circumstances during the first year of the credit period that they will be treated as low income. Otherwise, the unit maintains the previous status before the displaced individual was in occupancy. Furthermore, housing a displaced individual does not cause a reduction in the building’s qualified basis.
If your LIHTC property (or properties) are located in an area affected by these recent events or if you have displaced individuals who apply for housing, regardless of your location, this may also be good news for you. The full contents of Revenue Procedure 2014-49 may be found at: https://www.irs.gov/irb/2014-37_IRB#RP-2014-49.
It’s also important to note other legislative activity related to disaster relief that has recently occurred in the meantime, including President Trump’s signing of a legislative package to provide more than $15 billion in disaster recovery aid; the reintroduction of the Natural Disaster Tax Relief Act of 2017 in the House of Representatives; and HUD’s provision of federal disaster assistance to Puerto Rico, Texas, Florida, and Georgia allowing flexibility in the allocation of CDBG and HOME program funding. HUD has also published Notices 2017-71, 2017-72 and 2017-73 outlining its other efforts.