What Is Next for the National Housing Trust Fund?

By Michael J. Novogradac, CPA

With so many eyes on unemployment numbers that topped 10 percent nationwide last fall, it is no surprise that job creation became and remains a national focus. On December 16, 2009 the U.S. House of Representatives passed the Jobs for Main Street Act, H.R. 2847, with the intent that it would create or save jobs by directing $75 billion in targeted investments for highways and transit, school renovation, hiring teachers, police, and firefighters, small business, job training and affordable housing – key drivers of economic growth that, according to House Speaker Nancy Pelosi, "have the most bang for the buck."

The jobs bill, labeled by some members of Congress as a second stimulus measure, squeaked by in the House, 217 to 212, and at this writing faces a tough uphill climb in the Senate, particularly in light of the recent election of Republican Scott Brown from Massachusetts. Thirty-eight Democrats joined all of the House Republicans in voting against the legislation.

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HFAs Prepare for HUD's Tenant Data Collection Initiative

By Jennifer Dockery, Staff Writer, Novogradac & Company LLP

Congress included as part of the Housing and Economic Recovery Act (HERA) a provision that requires the U.S. Department of Housing and Urban Development (HUD) to collect from state housing finance agencies (HFAs) data about the residents of the HFAs low-income housing tax credit (LIHTC)-funded units. Since the bill was passed in July 2008, HUD and the HFAs have been working on the best way to collect that data. In March 2009, the Federal Register published a HUD notice that sought comments from interested parties about the implementation of the Tenant Data Collection Initiative (TDCI). The agency plans to issue the final requirements for the program soon.

"We've been working with HUD ... for more than a year now," said Garth Rieman, director of housing advocacy and strategic initiatives at the National Council of State Housing Agencies (NCSHA).

 

 

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Investor Secures Guidance from the IRS Regarding Application of the NMTC Cure Period

By Laurel Tinsley, Husch Blackwell Sanders LLP

Almost since the inception of the new markets tax credit (NMTC) program, industry participants have debated whether the cure period described in Treasury Regulation Section 1.45D-1(e)(6) is available to correct a qualified community development entity's (QCDE) failure to invest "substantially all" (defined as meaning at least 85 percent) of the proceeds of a qualified equity investment (QEI) in qualified low-income community investments (QLICIs) within the 12-month period specified in Treasury Regulations Section 1.45D-1(c)(5)(iv) and thereby avoid a potential recapture or disallowance of NMTCs. Fortunately, guidance provided by the Internal Revenue Service in a new private letter ruling may shed some light on this debate.

Background
Cure period regulations provide that, "[i]f a qualified equity investment fails the substantially all requirement under paragraph (c)(5)(i) of this section, the failure is not a recapture event under paragraph (e)(2)(ii) of this section if the CDE [community development entity] corrects the failure within 6 months after the date the CDE becomes aware (or reasonably should have become aware) of the failure."

 

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History and the Hill: Virginia Tax Fund Case a Victory for the Historic Tax Credit Industry

By John Leith-Tetrault, National Trust Community Investment Corporation

It is often said that holiday gifts sometimes come in strange packages. A long awaited U.S. Tax Court ruling, issued December 21, 2009 in Virginia Tax Credit Fund 2001 vs. Commissioner, was indeed an unexpected gift and a significant victory for the historic tax credit (HTC) industry that sent many tax lawyers, syndicators and investors home for the holidays with a sigh of relief. After all, it's not every day that one of the IRS' so-called "Dirty Dozen" tax scams is overturned in such a resounding fashion. Because of the high profile of the case, many in the industry had speculated that the court would decide against the Virginia Tax Credit Fund. However, by the time the case was tried, the IRS had dropped its initial argument that the transaction was abusive.

Here are the facts: Two Virginia state historic tax credit funds formed in the 2001 offered investors the opportunity to purchase a small (1 percent in the aggregate) interest in the funds and exit with significant capital losses in less than 12 months. Investor returns were comprised of a discounted price (74 cents) for the Virginia state HTC and the exit benefits of selling partnership interests for a de minimis amount on the original purchase price. The IRS argued that the partners owed $7 million in underpayments because the investors were not true partners and that the purported allocation of credits was a "disguised sale" under Section 707 of the IRC.

 

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Q&A	Passive Loss Issues In Connection with Solar Investments

By Stephen B. Tracy, CPA, Novogradac & Company LLP

Question: Can individuals (and solar developers) use investment tax credits and depreciation deductions from an investment in a solar project to decrease their federal income tax liability?

Answer: Yes, but only after considering the passive loss and at-risk rules.

 

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There is cautious optimism that much delayed affordable rental housing production will occur in 2010, although more should be done to mitigate vulnerabilities in the low-income housing tax credit (LIHTC) program and address issues surrounding investor demand, according to a new report from Harvard University's Joint Center for Housing Studies. A paper released on January 8, "The Disruption of the Low-Income Housing Tax Credit Program: Causes, Consequences, Responses, and Proposed Correctives," examines the experience to date with two programs created by the Recovery Act — the Tax Credit Assistance Program (TCAP) and the Section 1602 program, which provides cash grants in lieu of LIHTCs. The report discusses the current situation and assesses several proposals for reform. A link to the paper from the Joint Center for Housing Studies is available online at www.taxcredithousing.com, by clicking on Reports & Research in the Resources menu.

 

On December 14, the Ohio Housing Finance Agency (OHFA) issued compliance guidance for owners and managers of projects financed using the Tax Credit Assistance Program (TCAP), the low-income housing tax credit cash grant exchange program and the Neighborhood Stabilization Program. The guidance outlines OHFA's current interpretation of compliance requirements for all three programs. The guidance memo is available for download at www.taxcredithousing.com or www.ohiohome.org/compliance. Questions regarding the guidance memo can be directed to Brian Carnahan at bcarnahan@ohiohome.org or by telephone at (614) 728-5608.

 

On December 22, the U.S. Department of Housing and Urban Development's Office of Policy Development and Research (PD&R) announced that it had recently added to the HUD USER web site the overall scores of the physical inspections that HUD's Real Estate Assessment Center completes of HUD-assisted and subsidized properties each year, including housing owned by public housing authorities and private housing providers. HUD reports that approximately 20,000 such inspections are conducted annually to ensure that assisted families have housing that is decent, safe, sanitary and in good repair. The HUD USER web site, www.huduser.org, provides a full historical view of the results of those inspections and separate datasets are available for public housing and for multifamily assisted properties. The results represent the inspections conducted from 2001 through September 2009.

 

The YWCA Greater Los Angeles secured $70 million in new markets tax credits (NMTCs) to finance a new downtown facility that will provide job and placement opportunities to area youth. The new campus is the first development funded by the Los Angeles Development Fund (LADF), established in 2007 to manage the city's NMTC program. LADF made a $20 million equity investment in the $73 million undertaking; Enterprise allocated $15.5 million and LISC invested $15 million. In addition, Bank of America Merrill Lynch invested $20 million in NMTCs from its sub-allocation and provided construction and permanent loans. The 155,000-square-foot building will enable the YWCA to consolidate into one central location the six sites currently being used for Job Corps' housing and services. Features will include a commercial kitchen for culinary training, a dining hall, classrooms, a health suite and an exterior courtyard. Four floors will be residential, with 200 dormitory-style rooms, lounges, laundry facilities and study rooms for 400 Job Corps trainees.

 

Government, entertainment and sports leaders joined experts and survivors on January 8 as the Family Violence Prevention Fund broke ground on its new international conference center and exhibition hall. Building 100, on the Main Post grounds of San Francisco, Calif.'s historic Presidio, will become a hub for hosting activities designed to prevent violence. Bank of America is providing the historic tax credit investment for the global conference and education center, which when complete in two years will feature an exhibit hall, multifunctional classrooms and a training hub. Fundraising began in 2003 when a group of 350 businessmen, and sports and entertainment personalities each pledged to donate $1,000 every year on Father's Day. House Speaker Nancy Pelosi's, D-Calif., office secured a federal investment of $1.5 million for the center's programs and an additional $2 million for the rehabilitation of Building 100. Corporate sponsors and institutions playing a significant role include the Open Square Foundation, Blue Shield of California, the David B. Gold Foundation, the Richard and Rhoda Goldman Fund and Macy's. The groundbreaking ceremony featured Pelosi, actress Nicole Kidman, Los Angeles Dodgers manager Joe Torre and actress Joan Chen among the speakers.

 

On January 8, President Barack Obama announced the award of $2.3 billion in Recovery Act Advanced Energy Manufacturing Tax Credits for clean energy manufacturing projects. One hundred eighty three projects in 43 states will create tens of thousands of high quality clean energy jobs and the domestic manufacturing of advanced clean energy technologies, including solar, wind, and efficiency and energy management technologies, according to the Department of Energy (DOE). A list of the 183 projects selected for tax credits and more information about the Section 48C Advanced Energy Manufacturing Tax Credit can be found online at www.energytaxcredits.com.