Last week the IRS issued Revenue Procedure 2014-49 to modify the rules applicable to LIHTC projects located in a presidentially identified major disaster area that has also been designated by the Federal Emergency Management Agency (“FEMA”) as an area eligible for individual assistance, public assistance, or both. The new Revenue Procedure replaces Revenue Procedure 2007-54 and significantly changes the prior rules governing restoration and emergency housing relief.
First, the maximum period available to owners to restore a building damaged by a major disaster and avoid recapture was changed from (i) the end of the taxable year in which the 24th month anniversary of the major disaster declaration was made to; (ii) the end of the 25th month after the end of the month in which the major disaster declaration was made. As a result, all building owners have the same restoration period regardless of the time of year at which the major disaster occurred.
Second, the maximum tolling period for buildings in the first year of the credit period was also changed from the end of the taxable year in which the 24th month anniversary of the major disaster declaration occurs to the end of the 25th month after the month in which the major disaster was declared. All of the time periods for the restoration and compliance tolling may be reduced in the discretion of the allocating agency.
Third, taxpayers may continue to claim LIHTC based upon the qualified basis at the end of the taxable year immediately preceding the first day of the incident period determined by FEMA rather than the end of the taxable year preceding the President’s disaster declaration. This change could affect the determination of qualified basis for major disaster that occurs at year end.
Fourth, the new rules permit an owner who spends less than the eligible basis cost on restoration expenses to continue to claim LIHTC calculated by reference to the eligible basis immediately before the major disaster. This rule ensures that owners will not suffer a reduction in eligible basis solely because of damage inflicted by a major disaster.
Fifth, the new rules substantially modify the prior rules with respect to emergency housing relief for persons displaced by a major disaster. The Temporary Housing Period available for emergency housing relief is established in the discretion of the Agency but subject to a maximum period ending at the end of the 12th month from the end of the month in which the President declared a major disaster.
During the Temporary Housing Period, an Agency other than the Agency in the jurisdiction in which the disaster occurred may permit owners to provide emergency housing relief to displaced individuals. If an owner chooses to provide emergency housing relief, the owner may select the period of time for which the emergency housing relief is provided, not to exceed the maximum Temporary Housing Period. Displaced individuals are not subject to income restrictions during the Temporary Housing Period but their rent cannot exceed maximum LIHTC rents. The prior self certification of income rules applicable to displaced individuals have been eliminated under Revenue Procedure 2014-49. A unit initially occupied by a displaced individual after the end of the first year of the credit period retains its prior status as a low-income, market rate, or never occupied unit. If the unit is occupied by a displaced individual prior to the end of the first year of the credit period, the unit is treated as a low-income unit for determining qualified basis and meeting the minimum set-aside requirements.
When a displaced individual vacates a unit, that unit retains its status as a low-income, market rate or never occupied unit. If a displaced individual continues occupation of a unit after the expiration of the Temporary Housing Period, the income of the displaced individual is evaluated as a new tenant and the occupied unit is treated as market rate or low-income unit applying standard LIHTC rules. A 60-day period is allowed for correction if a building fails the minimum set aside test due to continued occupancy by displaced individuals.
Owners must maintain records of the name, address and social security numbers of displaced individuals; a statement of circumstances of their displacement status; required agency approvals of the project’s use of displaced individuals and the duration of the Temporary Housing Period in effect for the project.