The Housing Assistance Act of 2008 (the "Act") eliminated the requirement of posting a recapture bond (or the alternative of creating a Treasury Direct Account ("TDA") and pledging securities to the Treasury) upon the disposition of an interest in low-income housing tax credit ("LIHTC") property. For a disposition where it can be reasonably anticipated that the property will remain compliant with the LIHTC requirements, no recapture occurs on the disposition. Instead, the transferor remains subject to the risk of direct tax liability in the event of a subsequent recapture event during the compliance period. If it cannot be reasonably anticipated that the property will remain compliant, the transferor is subject to recapture on the disposition.

The provision is effective for dispositions occurring after July 30, 2008 (the date of enactment of the Act). However, the Act also provided that a taxpayer that disposed of property on or prior to the date of enactment could elect to have the provision apply retroactively. The Treasury has issued Revenue Procedure 2008-60, describing the method for making such an election.

The Revenue Procedure applies to taxpayers that disposed of an LIHTC building on or prior to July 30, 2008 (except for those who opted to use a TDA, but did not fund it within the prescribed time period). Those taxpayers may make the election to have the Act apply retroactively by submitting a letter to the Internal Revenue Service setting forth: (1) the taxpayer's name, address and ID number, and (2) a statement affirming that the taxpayer reasonably expects that the building will continue to be operated as a qualified LIHTC building during the remainder of the compliance period. The letter must also contain the following statement: "Under Penalties of perjury, I declare that I have examined this letter and the representations made therein, and to the best of my knowledge and belief, they are true, correct and complete." Finally, the taxpayer must attach to the letter a copy of the Form 8693 (LIHTC Disposition Bond) that was approved by the IRS for the building (signature page only). The letter must be sent to:

Internal Revenue Service

Box 331

Attn: LIHC Unit, DP 607 South

Philadelphia Campus

Bensalem, PA 19020

The revenue procedure applies to elections made on or after October 2, 2008. If a taxpayer submitted an election request by any method after the effective date of the Act, but prior to October 2, 2008, and such an election request does not satisfy all of the requirements of this revenue procedure, the taxpayer's election will nevertheless be valid if it corrects the election to comply with these procedures by December 31, 2008.

If the election is made, the taxpayer is treated as if Section 42, as in effect on the date of the disposition, contained no provision for posting a recapture bond, and as if no surety bond or TDA had been established for that disposition. Obviously, the bond or TDA still exists, but this means that it is no longer either required or reachable by the Treasury. The taxpayer can terminate or otherwise act on the TDA without concern of triggering recapture. The taxpayer can also terminate a recapture bond, or fail to renew a periodic bond, without concern of triggering recapture, although the ability of the taxpayer to obtain a refund from the surety for an early termination, or to avoid a payment owed to the surety, will be governed by the terms of the particular surety agreement.

Investors in LIHTC deals that have, at their own cost, posted recapture bonds, or created TDAs, for dispositions on or prior to July 30, 2008, should consider making this election. In the case of a TDA, the election should almost always be beneficial. In the case of a recapture bond, it would depend on the term of the bond and the provisions of the surety agreement, as to whether premium costs can be saved.

In the case of a "guaranteed" investment, or other situation where a syndicator or other person has posted a recapture bond on behalf of the taxpayer, the question requires more consideration to the specific documents and circumstances. In the context of a syndicator seeking to reduce costs by making this election, in addition to the refund and termination issues under the surety agreement, two additional questions must be considered: (1) which party must make the election and sign the letter, and (2) what are the relative rights of the investor and the syndicator under the fund agreement and related documents. These two additional questions are not addressed by the revenue procedure. The answers may depend, in part, on how the bond was filed, or the TDA created, and on the specific language in the fund agreement regarding the requirement of posting a recapture bond.