In response to the COVID-19 pandemic, the IRS issued Notice 2020-53 in July 2020. This Notice provided temporary relief from certain requirements under §42 of the Internal Revenue Code and §§142(d) and 147(d) of the Code for properties with tax-exempt bonds. In response to the continuing presence of the pandemic, the IRS has issued Notice 2021-12, extending that relief and also providing temporary relief from additional §42 requirements not previously addressed in 2020-53.
Background
On March 13, 2020, the President issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act in response to the ongoing COVID-19 pandemic. This emergency declaration instructed the Treasury Department "to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency, as appropriate…" The emergency declaration applies to all 50 states, Washington DC, and the five territories.
Revenue Procedure 2014-49 provides temporary relief from certain requirements of §42 for Agencies and Owners of LIHTC projects. Revenue Procedure 2014-50 does the same thing for properties financed with tax-exempt bonds.
Prior Relief Actions
On April 9, 2020, the IRS issued Notice 2020-23, which provided certain relief to low-income housing projects and postponed due dates until July 15, 2020, with respect to certain tax filings and payments, certain time-sensitive government actions, and all time-sensitive actions listed in Revenue Procedure 2018-58 that were due to be performed by April 1, 2020, but before July 15, 2020. These time-sensitive actions include, among others:
- The time to show that 10% of project basis has been established;
- The 24-month rehab period; and
- Annual Owner Certifications to the HFA.
Scope of Relief Granted in This Notice
- The 10% Test for Carryover Allocations: If the last day for an Owner of a building with a carryover allocation to meet the 10% test is on or after April 1, 2020, and before September 30, 2021, the last day for the owner to meet the 10% test is postponed to the earlier of one year from the original due date or September 30, 2021.
- The 24-Month 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 test is postponed to the earlier of one year from the original end date or September 30, 2021.
- 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.
- Reasonable Period for Restoration or Replacement in the Event of Casualty Loss: If a low-income building has suffered a casualty loss and the reasonable period to restore by reconstruction or replacement ends on or after April 1, 2020, and before December 31, 2020, the last day for the Owner of the building to restore the loss by reconstruction or replacement is December 31, 2020.
- Reasonable Restoration Period in the Event of Prior Major Disaster: if a low-income building, not due to a pre-COVID-19-pandemic Major Disaster, has suffered a casualty loss that would have reduced its qualified basis and if the reasonable restoration period determined by the Agency for the building ends on or after April 1, 2020, then the last day of the reasonable restoration period is postponed by a period of one year from the original end date but not beyond December 31, 2021. The allocating agency may require a shorter extension or no extension at all.
- Extension to Satisfy Occupancy Obligations: If the close of the first year of the credit period 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 six-month period following the close of that first year.
- E.g.: assume the deadline for meeting a project’s minimum set-aside and qualifying all low-income units to avoid the "2/3" unit rule was December 31, 2020. The revised deadline is June 30, 2021.
- Correction Period: If a correction period for non-compliance that was set by the HFA 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.
- E.g.: The HFA discovered noncompliance on March 1, 2020, and gave the owner until June 1, 2020, to correct the noncompliance. The non-compliance was not corrected and the HFA reported it to the IRS as non-corrected noncompliance. The owner now has until June 1, 2021, to correct the noncompliance. The HFA may submit an amended 8823 to the IRS, citing this Notice and providing for the extended correction period. Keep in mind that the HFA may require a shorter extension or no extension at all.
- The 12-Month Transition Period to Meet Set-Aside for Qualified Residential Rental Projects: the last day of a 12-month transition period for tax-exempt bond projects that ends on or after April 1, 2020, and before September 30, 2021, is postponed to September 30, 2021.
- The §147(d) Two-Year Rehabilitation Expenditure Period for Bonds Used to Provide Qualified Residential Rental Projects: If a bond is used to provide a qualified residential rental project and if the two-year rehabilitation period for the bonds ends on or after April 1, 2020, and before September 30, 2021, the last day of that period is postponed to the earlier of one year from the original due date or September 30, 2021.
- Grant of Relief Pursuant to §1.42.13(a):
- 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 after September 30, 2021.
- E.g., a recertification that is due on September 1, 2021 does not have to be performed. The next recertification will be due on September 1, 2022, keeping in mind that HFAs may have their own requirement in this area.
- Compliance Monitoring: An 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 under 1.42-5 after September 30, 2021.
- Common Areas & Amenities: If an amenity or common area in a low-income building or project is temporarily unavailable or closed during some or all of the period from April 1, 2020 to September 30, 2021, in response to the COVID-19 pandemic, and not due to other §42 noncompliance, this temporary closure will not result in a reduction of the eligible basis of the building.
- 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 after September 30, 2021.
- Guidance Permitting Agencies to Conduct Telephonic Hearings: QAP hearings due on or after April 1, 2020, and before September 30, 2021, may be held by teleconference. The teleconference must be accessible to the residents of the locality where the Agency has jurisdiction by calling a toll-free telephone number.
- Emergency Housing for Medical Personnel & Other Essential Workers: If individuals who are medical personnel or other essential workers (as defined by State or local governments) provide services during the COVID-19 pandemic, then, for purposes of providing emergency housing from April 1, 2020 to September 30, 2021, for both LIHTC and tax-exempt bond projects, HFAs, Owners, and Operators of low-income housing projects may treat these individuals as if they were Displaced Individuals under Revenue Procedures 2014-49 or 2014-50.
Owners and operators of LIHTC and tax-exempt bond projects should consult with their HFAs or Issuing Agencies in order to determine if any requirements in addition to those outlined in this Notice will be implemented.