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ARRA EXCHANGE PROGRAM GRANTS DO NOT REDUCE ELIGIBLE BASIS

Wednesday, February 25, 2009 - 8:00AM

In today's webinar on the American Recovery and Reinvestment Act of 2009, Novogradac & Company noted that it had been told by the Internal Revenue Service that grants received under the credit exchange program were federal grants, and while they were not taxable income and did not reduce depreciable basis, they did reduce eligible basis. The statute states that "basis" is not reduced, and we had argued that the statutory reference to "basis" should mean both eligible and depreciable basis.

We have since received a revised interpretation from Treasury, that upon further reflection, it believes that grants received under the credit exchange program do not reduce eligible basis.

This is a significant interpretative victory for the low-income housing tax credit community, and will be of benefit to affordable housing developments that receive both credit exchange grants and a low-income housing tax credit allocation. We expect that the Internal Revenue Service will issue interpretive guidance to this effect.

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