IRS Issues Relief for LIHTC Projects

The IRS recently issued Notice 2021-12, which grants additional relief in three primary areas related to the Low Income Housing Tax Credit (LIHTC):

1. Deadlines related to the credit
2. Operational provisions
3. Deadlines associated with qualified residential rental projects

Some notable provisions from IRS Notice 2021-12 include the following:

Relief for deadlines related to the credit

1) 10-percent test for carryover allocation

If the last day for an Owner of a building with a carryover allocation to meet the 10-percent test falls on or after April 1, 2020 and before September 30, 2021, the last day for the Owner to meet the 10-percent test is postponed to the earlier of one year from the original due date or September 30, 2021. Meeting the 10-percent test is critical to preserving a LIHTC allocation from the relevant Agency.

2) 24-month minimum rehabilitation expenditure period

If the 24-month minimum rehabilitation expenditure period for a building originally ends on or after April 1, 2020 and before September 30, 2021, the last day for the Owner to incur the minimum rehabilitation expenditures with respect to the building is postponed to the earlier of one year from the original end date or September 30, 2021. An extension of this expenditure period may provide additional Qualified Basis within your LIHTC project.

3) Placed in service deadline

If the deadline for a low-income building to be placed in service is the close of calendar year 2020, the last day for the Owner of the building to place the building in service is postponed to December 31, 2021. This extension will help preserve the Owner’s LIHTC allocation.

4) Extension to satisfy occupancy obligations

If the close of the first year of the credit period with respect to a building is on or after April 1, 2020 and on or before June 30, 2021, then the qualified basis for the building for the first year of the credit period is calculated by taking into account any increase in the number of low-income units by the close of the 6-month period following the close of that first year. This provision will help Owners meet qualified occupancy projections and avoid deferring 1^st year credits and / or claiming a portion of their LIHTC over the 15 year compliance.

However, this provision does not appear to provide relief related to the minimum set-aside requirement, which, if not met at the close of the first year of the credits, the Owner will likely need to defer the 1^st year credits.

It’s also not clear how this provision will impact the Owner’s computation of the 1^st year applicable fraction, which is done using a weighted average based on qualified occupancy during the Owner’s 12-month year. Ideally, this period would be extended through June 30, 2021, creating an 18-month period to determine the 1^st year applicable fraction; however, the IRS Notice does not explicitly provide this. For now, the conservative 12-month approach is suggested.

5) Correction period

If a correction period that was set by the Agency as a result of its compliance monitoring responsibilities ends on or after April 1, 2020 and before September 30, 2021, then the correction period is extended by a year, but not beyond December 31, 2021. This could be beneficial for Projects with compliance issues prior to April 1, 2020 and helpful in preserving the intended credit stream.

Relief for Operational Provisions

1) Income recertifications

An Owner of a low-income building is not required to perform income recertifications in the period beginning on April 1, 2020 and ending on September 30, 2021. The Owner must resume the income recertifications as due not later than October 1, 2021. Move-in and initial tenant income certifications are still required.

2) Compliance monitoring

The Agency is not required to conduct compliance-monitoring inspections or reviews in the period beginning on April 1, 2020 and ending on September 30, 2021. The Agency must resume compliance-monitoring inspections or reviews as due not later than October 1, 2021. This relief only applies to the Agency and does not affect Owner’s compliance requirements during this period.