IRS Proposed Regulations Reduce Minimum Number of Units for Property Inspection; Notice Provides COVID-19 LIHTC Relief

Wednesday, July 1, 2020 - 11:30am

The Internal Revenue Service today released an advance copy of proposed regulations concerning low-income housing tax credit (LIHTC) compliance issues, returning to a previous standard of required inspection of the lesser of the applicable Real Estate Assessment Center (REAC) number of 20 percent of the low-income units in the development. The IRS also issued Notice 2020-53, which provides COVID-19-related relief to issuers, owners, operators and tenants of residential rental properties financed with LIHTCs.

The compliance regulations returns the required number of units to be inspected to the amount required before temporary regulations that were finalized in 2019. Those regulations mandated that agencies inspect at least as many units as the number specified for properties of the relevant size in the REAC numbers, which sometimes exceeded 20 percent. The proposed regulations allow agencies to inspect the lesser of the applicable REAC number or 20 percent. The regulations allow agencies to rely on the proposed regulations from Feb. 26, 2019, until Dec. 31 of the calendar year after the regulations are published as final regulations. Comments on the proposed regulations will be accepted until 60 days after the regulations are published in the Federal Register.

Notice 2020-53 allows certain time-sensitive actions–such as the 10 percent test for carryover allocations, the 24-month minimum rehabilitation expenditure period and reasonable period of casualty loss restoration or replacement–that were due from April 1, 2020, through Dec. 30, 2020, to have a new deadline of Dec. 31, 2020. Owners of properties are not required to perform certain income rectifications or adjust the eligible basis of a building due to temporary closure of common areas or amenities due to the pandemic and state agencies are not required to conduct compliance monitoring of those properties. The notice also allows medical personnel and other essential workers providing services during the COVID-19 pandemic to be treated as displaced individuals, eligible for housing in low-income properties.

The IRS relief provisions will be discussed during the Novogradac 2020 Affordable Housing Friday Forums, which resume July 10 and in the Novogradac Online Property Compliance Workshop, Aug. 11.