Expressing impatience with the progress of HUD's overhaul of its previous participation disclosure rules, Congress passed H.R. 1675 eliminating 2530 disclosure requirements for passive investors in low-income housing tax credit (LIHTC) projects.

Approved by the House in April and by the Senate on May 24, the new legislation suspends all filing requirements under HUD's 2530 process for "limited liability corporate investors who own or expect to own an interest in entities which are allowed or are expected to be allowed low-income housing tax credits under Section 42 of the Internal Revenue Code of 1986." The new legislation does not define the term "limited liability corporate investor." However, at a minimum the new law exempts a corporation that invests directly or indirectly in a Section 42 project to obtain low-income housing tax credits from the 2530 filing requirements. It is also clear that if the project's owner is a limited partnership, the corporation's control must be limited as necessary to maintain limited liability status under state law.

The legislation's effect is less clear for investors that are limited partnerships or limited liability companies. Limited partnership and limited liability company entities (but not their corporate partners or members who are making passive equity investments for low-income tax credit purposes) may have to continue relying on HUD's March 26, 2007 memorandum discussed below. Nonetheless, Congress' intent is to eliminate the red tape that previously discouraged passive investors from participating in LIHTC projects. As noted by the bill's sponsor, Rep. Melissa Bean, in the Congressional Record, "Limited liability corporate investors have no operational control over properties and pose no risk to the Department. The investors are simply providing much needed capital to build affordable housing for low-income Americans, and such investment should not be inadvertently discouraged by outdated, burdensome regulations."

The exemption created by H.R. 1675 is more favorable to LIHTC investors than the policy change recently announced by HUD in a March 26, 2007 memorandum, "Active Partners Performance (APPS)-Passive Investor Previous Participation and Certification." The March 26 memorandum retains 2530 filing requirements for "passive investors," but allows these entities to indicate "no previous participation" with respect to HUD projects where they wield no "operational or policy control or influence." The new legislation would eliminate any concern, at least with respect to corporations, that HUD might consider certain consent and approval rights customarily held by LIHTC investors to constitute "policy control or influence" over a project, thereby triggering full 2530 disclosure requirements.

H.R. 1675 also restores, at least temporarily, the paper filing of 2530 certificates. The legislation requires HUD to suspend mandatory electronic filing until it completes draft regulations that "eliminate the unnecessary burdens and disincentives for program participants" created by the existing APPS procedures. HUD has required electronic filing since July 1, 2006.

The legislation has been delivered to the White House for the President's signature. Once it is signed, corporate investors may take immediate advantage of the new legislation. Until further guidance is available from HUD, limited partnership and limited liability company investors are encouraged to approach the 2530 process in accordance with HUD's March 26, 2007 memorandum.