[Federal Register Volume 64, Number 5 (Friday, January 8, 1999)]
[Proposed Rules]
[Pages 1143-1148]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-174]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-114664-97]
RIN 1545-AV44
Compliance Monitoring and Miscellaneous Issues Relating to the
Low-Income Housing Credit
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed amendments to various existing
final regulations concerning the low-income housing tax credit
including the procedures for compliance monitoring by state and local
housing agencies (Agencies), the requirements for making carryover
allocations, and the rules for Agencies' correction of administrative
errors or omissions. In addition, regulations are being proposed
involving the independent verification of information on sources and
uses of funds submitted by taxpayers to Agencies. These amendments and
proposed regulations affect owners of low-income housing projects who
have claimed the credit and the Agencies who administer the credit.
This document also provides notice of a public hearing on these
proposed regulations.
DATES: Written and electronic comments must be received by May 6, 1999.
Outlines of topics to be discussed at the public hearing scheduled for
May 27, 1999, must be received by April 8, 1999.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-114664-97), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-
114664-97), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC. Alternatively, taxpayers may submit
comments electronically via the Internet by selecting the ``Tax Regs''
option on the IRS Home Page, or by submitting comments directly to the
IRS Internet site at http://www.irs.ustreas.gov/prod/tax__regs/
comments.html. The public hearing will be held in room 2615, Internal
Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Paul
Handleman, (202) 622-3040; concerning submissions, the hearing, and/or
to be placed on the building access list to attend the hearing, LaNita
Van Dyke, (202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in Secs. 1.42-5 and 1.42-
13 previously have been reviewed and approved by the Office of
Management and Budget for review under control numbers 1545-1291 and
1545-1357, respectively; all of these paperwork requirements will be
consolidated under control number 1545-1357. The new collections of
information contained in this notice of proposed rulemaking have been
submitted to the Office of Management and Budget for review in
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(d)).
Comments on the collections of information should be sent to the
Office of Management and Budget, Attn: Desk Officer for the Department
of the Treasury, Office of Information and Regulatory Affairs,
Washington, DC 20503, with copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224.
Comments on the collections of information should be received by March
9, 1999.
Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the IRS, including whether the
information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information (see below);
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
The requirement for the collections of information in this notice
of proposed rulemaking is in Secs. 1.42-5, 1.42-13, and 1.42-17. The
information is required by the IRS to verify compliance with the
requirements of section 42. The collections of information are
mandatory. The likely respondents/recordkeepers are individuals, state
and local governments, businesses or other
[[Page 1144]]
for-profit institutions, nonprofit institutions, and small businesses
or organizations.
Estimated total annual reporting and recordkeeping burden for
Sec. 1.42-5: 102,500 hours. For Sec. 1.42-5, the estimated annual
burden per respondent varies from .5 hour to 3 hours for taxpayers and
250 to 5,000 hours for Agencies, with an estimated average of 1 hour
for taxpayers and 1,500 hours for Agencies.
Estimated number of respondents for Sec. 1.42-5 : 20,000 taxpayers
and 55 Agencies.
Estimated total annual reporting and recordkeeping burden for
Sec. 1.42-13: 289 hours. For Sec. 1.42-13, the estimated annual burden
per respondent varies from .5 hour to 10 hours for taxpayers and
Agencies, with an estimated average of 3.5 hours for taxpayers and 3
hours for Agencies.
Estimated number of respondents for Sec. 1.42-13: 43 taxpayers and
43 Agencies.
Estimated total annual reporting and recordkeeping burden for
Sec. 1.42-17: 2,110 hours. For Sec. 1.42-17, the estimated annual
burden per respondent varies from .5 hour to 2 hours for taxpayers and
.5 hour to 5 hours for Agencies, with an estimated average of 1 hour
for taxpayers and 2 hours for Agencies.
Estimated number of respondents for Sec. 1.42-17: 2,000 taxpayers
and 55 Agencies.
Estimated annual frequency of responses: once a year.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information a valid control number
assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
On March 28, 1997, the General Accounting Office (GAO) submitted a
report to Congress, ``Tax Credits: Opportunities to Improve Oversight
of the Low-Income Housing Program,'' (GAO/GGD/RCED-97-55), recommending
certain revisions to existing Agency procedures for compliance with the
low-income housing credit and requirements under qualified allocation
plans for verifying taxpayers' sources and uses of funds for low-income
housing projects. Consistent with these proposals, the proposed
regulations amend existing regulation Sec. 1.42-5 to require Agencies:
(i) to report annually their compliance monitoring activities to the
IRS; (ii) to conduct on-site habitability inspections of low-income
housing projects; and (iii) to review local government reports on
building code violations. In addition, the proposed regulations provide
that qualified allocation plans require taxpayers to submit independent
verification on sources and uses of funds for low-income projects.
The proposed regulations also contain amendments to the Income Tax
Regulations (26 CFR part 1) including Sec. 1.42-6 (carryover
allocations), Sec. 1.42-11 (provision of services), Sec. 1.42-12
(effective dates and transitional rules), and Sec. 1.42-13 (correction
of administrative errors and omissions) that are issued under the
authority granted by section 42(n).
Explanation of Provisions
Compliance Monitoring
Section 42(m)(1)(B)(iii) provides that an allocation plan is not
qualified unless it contains a procedure that the Agency (or an agent
of, or private contractor hired by, the Agency) will follow in
monitoring compliance with the provisions of section 42. The Agency is
to notify the IRS of any noncompliance of which the Agency becomes
aware.
Section 42(m)(1)(B)(iii) is effective on January 1, 1992, and
applies to all buildings for which the low-income housing credit
determined under section 42 is, or has been, allowable at any time.
Allocation plans must have complied with the requirements of Sec. 1.42-
5 by June 30, 1993. Section 42(m)(1)(B)(iii) and Sec. 1.42-5 do not
require monitoring for whether a low-income housing project is in
compliance with the requirements of section 42 prior to January 1,
1992. However, if an Agency becomes aware of noncompliance that
occurred prior to January 1, 1992, the Agency is required to notify the
IRS of that noncompliance.
The current compliance monitoring regulations require an Agency, at
a minimum, to review tenant income certifications and rent charges of
projects using one of the following three monitoring options: (1)
Review the owners' annual income certifications, including the
documentation supporting the certifications for at least 50 percent of
the Agency's low-income projects, and tenant rent records in at least
20 percent of the low-income units in these projects; (2) make annual
on-site inspections of at least 20 percent of the projects, and review
the low-income certification, the documentation supporting the
certification, and rent record for each tenant in at least 20 percent
of the low-income units in those projects; or (3) obtain from all
project owners tenant income and rent records for each low-income unit
and, for at least 20 percent of the projects, review the annual tenant
income certification, backup income documentation, and rent record for
each low-income tenant in at least 20 percent of the low-income units
in those projects.
The GAO report recommended that an Agency conduct regular on-site
inspections of projects and obtain building code inspection reports
performed by the local government unit. The GAO found that desk audits
(monitoring options 1 and 3 above) failed to detect violations
involving the physical condition of buildings. In addition, site visits
allow an Agency to directly assess the compliance status of projects
and the physical condition of buildings. Consistent with these
proposals, the proposed regulations remove the three monitoring options
and require, at least once every three (3) years, that each Agency
conduct on-site inspections of all buildings in each low-income housing
project and, for each tenant in at least 20 percent of the project's
low-income units selected by the Agency, review the low-income
certification, the documentation supporting such certification, and the
rent record. The proposed regulations also require, at a minimum, by
the end of the calendar year following the year the last building in a
project is placed in service, that the Agency conduct on-site
inspections of the projects and review the low-income certification,
the documentation supporting such certification, and the rent record
for each tenant in the project. As part of the inspection requirements,
the proposed regulations also require the Agency to determine whether
the project is suitable for occupancy, taking into account local
health, safety, and building codes. Agencies may delegate this
determination only to a state or local government unit responsible for
making building code inspections. The three-year inspection requirement
is proposed to be effective on the date the final regulations are
published in the Federal Register. The placed-in-service year
inspection requirement is proposed to be effective for buildings placed
in service on or after the date the final regulations are published in
the Federal Register.
The current compliance monitoring regulations require the owner of
a project, at a minimum, to certify annually that for the preceding 12-
[[Page 1145]]
month period each building in the project was suitable for occupancy,
taking into account local health, safety, and building codes. Based on
the GAO recommendation, the proposed regulations revise this
certification by also requiring the owner of the project to certify
that for the preceding 12-month period the state or local government
unit responsible for making building code inspections did not issue a
report of a violation for the project. If the governmental unit issued
a report of a violation, the owner will be required to attach a copy of
the report of the violation to the annual certification submitted to
the Agency.
The proposed regulations also adopt the GAO recommendation that
Agencies report annually to the IRS on compliance monitoring
activities. It is anticipated Form 8610, ``Annual Low-Income Housing
Credit Agencies Report,'' will be revised to require an Agency to
confirm annually that it has satisfied the new compliance monitoring
requirements involving: (1) the once every three-year on-site
inspections and review of the low-income certification, the
documentation supporting such certification, and the rent record for
each tenant in at least 20 percent of the low-income units selected by
the Agency; and (2) the on-site inspections relating to the placed-in-
service year and review of the low-income certification, the
documentation supporting such certification, and the rent record for
each low-income tenant in the project.
The current compliance monitoring regulations require Agencies to
report a correction of noncompliance or failure to certify if the
correction occurs within the correction period defined in Sec. 1.42-
5(e)(4). The proposed regulations clarify that the Agency is required
to file Form 8823, ``Low-Income Housing Credit Agencies Report of
Noncompliance,'' with the IRS reporting the correction of the
noncompliance or failure to certify regardless of when the correction
occurs during the compliance period. This requirement is proposed to be
effective on the date the final regulations are published in the
Federal Register.
Sources and Uses of Funds
The GAO report recommended that IRS regulations be amended to
establish clear requirements to ensure independent verification of
taxpayer's key information on sources and uses of funds submitted to an
Agency. Without assurance of reliable and complete cost and financing
information, Agencies are vulnerable to providing more (or fewer) tax
credits to projects than are actually needed. Under section
42(m)(2)(A), the housing credit dollar amount allocated to a project
should not exceed the amount the Agency determines is necessary for the
financial feasibility of the project and its viability as a qualified
low-income housing project throughout the credit period. In making this
determination, section 42(m)(2)(B) requires that the Agency must
consider: (i) the sources and uses of funds and the total financing
planned for the project, (ii) any proceeds or receipts expected to be
generated by reason of tax benefits, (iii) the percentage of the
housing credit dollar amount used for project costs other than the
costs of intermediaries, and (iv) the reasonableness of the
developmental and operational costs of the project. The requirement in
section 42(m)(2)(B)(iii) is not to be applied so as to impede the
development of projects in hard-to-develop areas.
In its report, the GAO determined that an Agency must make three
critical judgments in awarding credits: (1) The reasonableness of
developer costs because the Agency is to award no more credits to a
project than a specified percentage of certain Agency-approved project
development costs; (2) the reasonableness of the financing arrangements
for the project because the Agency is required to base an award of
credit on the financial need of a project subject to the limit computed
on Agency-approved development costs; and (3) criteria for pricing the
credit (for example, use of an appropriate rate to convert credits into
an equity investment amount).
So that an Agency may more accurately determine the amount of
credits to be awarded, the GAO proposed three alternative
recommendations: (1) an examination or audit, which would provide a
reasonable basis for an independent public accountant to issue an
opinion on the overall reliability of a project's financial information
taken as a whole; (2) a review, which would consist of inquiries and
application of analytical procedures that might bring to the
accountant's attention significant matters affecting a project's
financial information but would not provide assurance that the
accountant would become aware of all significant matters that would be
disclosed in an audit; or (3) agreed-upon procedures, which would
provide an accountant with a basis to issue a report of findings based
on the specified procedures but not a basis to issue an opinion on the
reliability of the financial information.
Because the first alternative provides the most reliable
independent verification on sources and uses of funds, the proposed
regulations require that a taxpayer must obtain an opinion by a
certified public accountant, based upon the accountant's audit or
examination, on the financial determinations and certifications
provided by the taxpayer to the Agency, including the costs that may
qualify for inclusion in eligible basis under section 42(d) and the
amount of the credit under section 42. This opinion must be submitted
to the Agency before the Agency issues the Form 8609, ``Low-Income
Housing Credit Allocation Certification.'' This requirement is proposed
to be effective on the date the final regulations are published in the
Federal Register.
Buildings Qualifying for Carryover Allocations
The proposed regulations amend the carryover allocation regulations
by requiring the Agency to file a form (to be prescribed by the IRS)
that summarizes the carryover allocation document described in
Sec. 1.42-6(d)(2) with the Agency's Form 8610 for the year the
allocation is made. The new form will be filed with the Form 8610 in
lieu of the original carryover allocation document. Taxpayers must
continue to file a copy of the carryover allocation document with the
Form 8609 for the building for the first year the credit is claimed.
Correction of Administrative Errors and Omissions
Housing credit agencies may correct administrative errors and
omissions with respect to allocations and recordkeeping if the
correction occurs within a reasonable period of time after discovery of
the error or omission. The current administrative error and omission
regulations define an administrative error or omission as a mistake
that results in a document that inaccurately reflects the intent of the
Agency at the time the document is originally completed or, if the
mistake affects a taxpayer, a document that inaccurately reflects the
intent of the Agency and the affected taxpayer at the time the document
is originally completed. However, an administrative error or omission
does not include a misinterpretation of the applicable rules and
regulations under section 42. Agencies must obtain prior approval from
the Secretary to correct an administrative error or omission if the
correction is not made before the close of the calendar year of the
error or omission and the correction: (1) is a numerical change to the
housing credit dollar amount allocated for the building or project; (2)
affects the determination of any component of the state's housing
[[Page 1146]]
credit ceiling under section 42(h)(3)(C); or (3) affects the state's
unused housing credit carryover that is assigned to the Secretary under
section 42(h)(3)(D).
The proposed regulations would provide automatic approval for
correcting an administrative error or omission in an allocation
document (a Form 8609, or a carryover allocation document under the
requirements of section 42(h)(1)(E) or (F) and Sec. 1.42-6(d)(2)) that
either did not accurately reflect the number of buildings constructed
by the affected taxpayer, or transposed the information for one or more
buildings with other buildings in a project.
If the automatic approval provision applies to the administrative
error or omission, the proposed regulations require the Agency to amend
the allocation document. If correcting the administrative error or
omission requires adding a Building Identification Number (B.I.N.) to
the amended allocation document, the proposed regulations require that
the Agency must include any B.I.N.(s) already existing for the
buildings in the document and, if possible, number the additional
B.I.N.(s) sequentially from the existing B.I.N.(s). In addition, the
Agency must file the amended allocation document with an amended Form
8610. This provision is proposed to be effective on the date the final
regulations are published in the Federal Register.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It also has been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regulations. It is hereby certified
that the collections of information in these regulations will not have
a significant economic impact on a substantial number of small
entities. This certification is based upon the fact that any burden on
taxpayers is minimal. Furthermore, an Agency is not a ``small entity''
for purposes of the Regulatory Flexibility Act (5 U.S.C. chapter 6).
Accordingly, a Regulatory Flexibility Analysis under the Regulatory
Flexibility Act is not required. Pursuant to section 7805(f) of the
Internal Revenue Code, this notice of proposed rulemaking will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) that are submitted timely to the IRS. The IRS and
Treasury specifically request comments on the clarity of the proposed
rule and how it may be made easier to understand. All comments will be
available for public inspection and copying.
A public hearing has been scheduled for Thursday, May 27, 1999, at
10 a.m. in room 2615, Internal Revenue Building, 1111 Constitution
Avenue, NW., Washington DC. Due to building security procedures,
visitors must enter at the 10th Street entrance, located between
Constitution and Pennsylvania Avenues, NW. In addition, all visitors
must present photo identification to enter the building. Because of
access restrictions, visitors will not be admitted beyond the immediate
entrance area more than 15 minutes before the hearing starts. For
information about having your name placed on the building access list
to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section
of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing.
Persons that wish to present oral comments at the hearing must
submit written and electronic comments and an outline of the topics to
be discussed and the time to be devoted to each topic (signed original
and eight (8) copies) by April 8, 1999.
A period of 10 minutes will be allotted to each person for making
comments.
An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed. Copies of the
agenda will be available free of charge at the hearing.
Drafting information. The principal author of these regulations is
Paul F. Handleman, Office of the Assistant Chief Counsel (Passthroughs
and Special Industries), IRS. However, other personnel from the IRS and
Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.42-17 also issued under 26 U.S.C. 42(n); * * *
Par. 2. Section 1.42-5 is amended by:
1. Revising paragraphs (c)(1)(v), (c)(1)(vi) and (c)(2)(ii).
2. Removing the language ``If a monitoring procedure includes the
review provision described in paragraph (c)(2)(ii)(B) of this section,
the'' from the second sentence in paragraph (c)(2)(iii) and adding
``The'' in its place.
3. Removing the language ``paragraph (c)(2)(ii)(A), (B), and (C) of
this section'' from the first sentence in paragraph (c)(4)(i) and
adding ``paragraph (c)(2)(ii) of this section'' in its place.
4. Removing the language ``An Agency chooses the review requirement
of paragraph (c)(2)(ii)(A) of this section and some of the buildings
selected for review are'' from the first sentence in the example in
paragraph (c)(4)(iii) and adding ``An Agency selects for review'' in
its place.
5. Adding paragraph (c)(5).
6. Revising the last sentence in paragraph (d).
7. Removing the language ``(c)(2)(ii)(A), (B), or (C) of this
section (whichever is applicable)'' from paragraph (e)(2) and adding
the language ``(c)(2)(ii) of this section'' in its place.
8. Adding a sentence at the end of paragraph (e)(3)(i).
9. Removing the language ``paragraph (e)(3) of this section'' in
the third sentence in paragraph (f)(1)(i) and adding ``paragraphs
(c)(5) and (e)(3) of this section'' in its place.
10. Adding two sentences at the end of paragraph (h).
The revisions and additions read as follows:
Sec. 1.42-5 Monitoring compliance with low-income housing credit
requirements.
* * * * *
(c) * * *
(1) * * *
(v) All units in the project were for use by the general public (as
defined in Sec. 1.42-9) and used on a nontransient basis (except for
transitional housing for the homeless provided under section
42(i)(3)(B)(iii) or single-room-occupancy units rented on a month-by-
month basis under section 42(i)(3)(B)(iv));
(vi) Each building in the project was suitable for occupancy,
taking into account local health, safety, and building codes, and the
State or local government unit responsible for making
[[Page 1147]]
building code inspections did not issue a report of a violation for any
building in the project. If a report of a violation was issued by the
governmental unit, the owner must attach a copy of the report of the
violation to the annual certification submitted to the Agency under
paragraph (c)(1) of this section;
(2) * * *
(ii) Require that with respect to each low-income housing project--
(A) The Agency conduct on-site inspections of all buildings in the
project by the end of the calendar year following the year the last
building in the project is placed in service and review the low-income
certification, the documentation supporting such certification, and the
rent record for each low-income tenant; and
(B) At least once every three (3) years, the Agency conduct on-site
inspections of all buildings in the project, and, for each tenant in at
least 20 percent of the project's low-income units selected by the
Agency, review the low-income certification, the documentation
supporting such certification, and the rent record; and
* * * * *
(5) Agency reports of compliance monitoring activities. The Agency
must report its compliance monitoring activities annually on Form 8610,
``Annual Low-Income Housing Credit Agencies Report.''
(d) * * * In addition, in connection with the on-site inspections
required by paragraph (c)(2)(ii) of this section, the Agency must
determine whether the project is suitable for occupancy, taking into
account local health, safety, and building codes. Notwithstanding
paragraph (f) of this section, this determination may be delegated only
to a State or local government unit responsible for making building
code inspections.
(e) * * *
(3) * * *
(i) * * * For noncompliance or failure to certify that is corrected
after the end of the correction period, the Agency is required to file
Form 8823 with the Service reporting the correction of the
noncompliance or failure to certify regardless of when the correction
occurs during the 15-year compliance period under section 42(i)(1).
* * * * *
(h) * * * In addition, the requirement in paragraph (c)(2)(ii)(A)
of this section (involving on-site inspections relating to the placed-
in-service year and review of the low-income certifications, the
documentation supporting such certifications, and the rent records) is
effective for buildings placed in service on or after the date the
final regulations are published in the Federal Register. The
requirements in paragraph (c)(1)(vi) of this section (involving whether
a State or local government unit responsible for making building code
inspections issued a report or a violation for the project), paragraph
(c)(2)(ii)(B) of this section (the low-income certifications, the
documentation supporting such certifications, and the rent records),
paragraph (c)(5) of this section (involving the requirement to report
the Agency's compliance monitoring activities to the Service),
paragraph (d) of this section (involving habitability requirements),
and paragraph (e)(3) of this section (involving the requirement to
report corrected noncompliance or failure to certify after the end of
the correction period) are effective on the date the final regulations
are published in the Federal Register.
Par. 3. Section 1.42-6 is amended by removing the first sentence in
paragraph (d)(4)(ii) and adding two sentences in its place to read as
follows:
Sec. 1.42-6 Buildings qualifying for carryover allocations.
* * * * *
(d) * * *
(4) * * *
(ii) Agency. The Agency must retain the original carryover
allocation document made under paragraph (d)(2) of this section and
file the form (to be prescribed by the IRS) that summarizes the
carryover allocation document. This form is filed with the Agency's
Form 8610 that accounts for the year the allocation is made. * * *
* * * * *
Par. 4. Section 1.42-11 is amended by revising the last sentence in
paragraph (b)(3)(ii)(A) to read as follows:
Sec. 1.42-11 Provision of services.
* * * * *
(b) * * *
(3) * * *
(ii) * * * (A) * * * For a building described in section
42(i)(3)(B)(iii) (relating to transitional housing for the homeless) or
section 42(i)(3)(B)(iv) (relating to single room occupancy), a
supportive service includes any service provided to assist tenants in
locating and retaining permanent housing.
* * * * *
Par. 5. Section 1.42-12 is amended by adding paragraph (c) to read
as follows:
Sec. 1.42-12 Effective dates and transitional rules.
* * * * *
(c) The rule set forth in Sec. 1.42-6(d)(4)(ii) relating to the
requirement that state and local housing agencies file the form to be
prescribed by the Internal Revenue Service that summarizes the
carryover allocation document is effective for forms the due date of
which are on or after the date that is 60 days after the date final
regulations are published in the Federal Register.
Par. 6. Section 1.42-13 is amended by:
1. Revising the introductory text of paragraph (b)(3)(iii).
2. Adding paragraphs (b)(3)(vi), (b)(3)(vii), and (b)(3)(viii).
3. Adding a sentence at the end of paragraph (d).
The revisions and additions read as follows:
Sec. 1.42-13 Rules necessary and appropriate; housing credit agencies'
correction of administrative errors and omissions.
* * * * *
(b) * * *
(3) * * *
(iii) Secretary's prior approval required. Except as provided in
paragraph (b)(3)(vi) of this section, an Agency must obtain the
Secretary's prior approval to correct an administrative error or
omission, as described in paragraph (b)(2) of this section, if the
correction is not made before the close of the calendar year of the
error or omission and the correction--
* * * * *
(vi) Secretary's automatic approval. The Secretary grants automatic
approval to correct an administrative error or omission described in
paragraph (b)(2) of this section if--
(A) The correction is not made before the close of the calendar
year of the error or omission and the correction is a numerical change
to the housing credit dollar amount allocated for the building or
multiple-building project;
(B) The administrative error or omission resulted in an allocation
document (the Form 8609, ``Low-Income Housing Credit Allocation
Certification,'' or the allocation document under the requirements of
section 42(h)(1)(E) or (F) and Sec. 1.42-6(d)(2)) that either did not
accurately reflect the number of buildings constructed by the affected
taxpayer (for example, the affected taxpayer built 10 buildings instead
of 8 buildings having the same total number of units), or transposed
the information for one or more buildings with other buildings in the
multiple-building project;
(C) The administrative error or omission does not affect the
Agency's ranking of the building(s) or project and the total amount of
credit the Agency allocated to the building(s) or project;
[[Page 1148]]
(D) The Agency corrects the administrative error or omission no
later than one year after the building(s) were placed in service by the
affected taxpayer; and
(E) The Agency corrects the administrative error or omission by
following the procedures described in paragraph (b)(3)(vii) of this
section.
(vii) How Agency corrects errors or omissions subject to automatic
approval. An Agency corrects an administrative error or omission
described in paragraph (b)(3)(vi) of this section by--
(A) Amending the allocation document described in paragraph
(b)(3)(vi)(B) of this section to correct the administrative error or
omission. The Agency will indicate on the amended allocation document
that it is making the ``correction under Sec. 1.42-13(b)(3)(vii)''. If
correcting the allocation document requires including any additional
B.I.N.(s) in the document, the document must include any B.I.N.(s)
already existing for the buildings. If possible, the additional
B.I.N.(s) should be sequentially numbered from the existing B.I.N.(s);
(B) Amending, if applicable, the form to be prescribed by the
Service that summarizes the allocation document (see Sec. 1.42-6
(d)(4)(ii)) and attaching a copy of this form to an amended Form 8610,
``Annual Low-Income Housing Credit Agencies Report,'' for the year the
allocation was made. The Agency will indicate on the forms that it is
making the ``correction under Sec. 1.42-13(b)(3)(vii)'';
(C) Amending, if applicable, the Form 8609 and attaching the
original of this amended form to an amended Form 8610 for either the
year the allocation was made or the year the building was placed in
service by the affected taxpayer. The Agency will indicate on the forms
that it is making the ``correction under Sec. 1.42-13(b)(3)(vii)'';
(D) Filing the amended Form 8610 with the Service. When completing
the amended Form 8610, the Agency should follow the specific
instructions for the Form 8610 under the heading ``Amended Report'';
and
(E) Mailing a copy of any amended allocation document and any
amended Form 8609 to the affected taxpayer.
(viii) Other approval procedures. The Secretary may grant automatic
approval to correct other administrative errors or omissions as
designated in one or more documents published either in the Federal
Register or in the Internal Revenue Bulletin (see Sec. 601.601(d)(2) of
this chapter).
* * * * *
(d) * * * Paragraphs (b)(3)(vi), (vii), and (viii) of this section
are effective on the date the final regulations are published in the
Federal Register.
Par. 7. Section 1.42-17 is added to read as follows:
Sec. 1.42-17 Qualified Allocation Plan.
(a) Requirements--(1) In general. [Reserved]
(2) Selection criteria. [Reserved]
(3) Agency evaluation. Section 42(m)(2)(A) requires that the
housing credit dollar amount allocated to a project should not exceed
the amount the Agency determines is necessary for the financial
feasibility of the project and its viability as a qualified low-income
housing project throughout the credit period. In making this
determination, the Agency must consider--
(i) The sources and uses of funds and the total financing planned
for the project. The taxpayer must certify to the Agency the full
extent of all federal, state, and local subsidies that apply (or which
the taxpayer expects to apply) to the project. The taxpayer must also
certify to the Agency all other sources of funds and all development
costs for the project. The taxpayer's certification should be
sufficiently detailed to enable the Agency to ascertain the nature of
the costs that will comprise the total financing package, including
subsidies and the anticipated syndication or placement proceeds to be
raised. Development cost information, whether or not includible in
eligible basis under section 42(d), that should be provided to the
Agency includes, but is not limited to, site acquisition costs,
construction contingency, general contractor's overhead and profit,
architect and engineer's fees, permit and survey fees, insurance
premiums, real estate taxes during construction, title and recording
fees, construction period interest, financing fees, organizational
costs, rent-up and marketing costs, accounting and auditing costs,
working capital and operating deficit reserves, syndication and legal
fees, developer fees, and other costs;
(ii) Any proceeds or receipts expected to be generated by reason of
tax benefits;
(iii) The percentage of the housing credit dollar amount used for
project costs other than the costs of intermediaries. This requirement
should not be applied so as to impede the development of projects in
hard-to-develop areas under section 42(d)(5)(C); and
(iv) The reasonableness of the developmental and operational costs
of the project.
(4) Timing of Agency evaluation. The financial determinations and
certifications required under paragraph (a)(3) of this section must be
made at each of the following times:
(i) The time of the application for the housing credit dollar
amount.
(ii) The time of the allocation of the housing credit dollar
amount.
(iii) The date the building is placed in service.
(iv) After the building is placed in service, and before the Agency
issues the Form 8609, ``Low-Income Housing Credit Allocation
Certification.''
(5) Special rule for final determinations and certifications. For
the Agency's evaluation under paragraph (a)(4)(iv) of this section, the
taxpayer must obtain an opinion by a certified public accountant, based
upon the accountant's audit or examination, on the financial
determinations and certifications in paragraphs (a)(3)(i) through (iii)
of this section, including the costs that may qualify for inclusion in
eligible basis under section 42(d) and amount of the credit under
section 42.
(6) Bond financed projects. A project qualifying under section
42(h)(4) is not entitled to any credit unless the governmental unit
that issued the bonds (or on behalf of which the bonds were issued), or
the Agency responsible for issuing the Form(s) 8609 to the project,
makes determinations under rules similar to the rules in paragraphs
(a)(3), (4), and (5) of this section.
(b) Effective date. This section is effective on the date final
regulations are published in the Federal Register.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 99-174 Filed 1-7-99; 8:45 am]
BILLING CODE 4830-01-U
