Modified Chairman’s Mark Includes Provisions to Strengthen LIHTC

Published by Mark Shelburne, Peter Lawrence on Friday, December 1, 2017 - 12:00am

[Editor’s note: The bill as passed by the Senate Dec. 2 does not include these provisions. Read more here.]

With the uncertainty surrounding tax reform, the affordable housing community can take some solace from some of the specific provisions of the Senate version of the Tax Cuts and Jobs Act that is being considered by the Senate this week. This version of the Senate tax reform bill not only retains the low-income housing tax credit (LIHTC) and tax-exempt private activity bonds, it also includes several provisions of the Affordable Housing Credit Improvement Act of 2017 (AHCIA), co-sponsored by Senate Finance Committee Chairman Orrin Hatch, R-Utah, and Sen. Maria Cantwell, D-Wash. The chairman’s mark aims to strengthen and preserve the LIHTC by including the following AHCIA proposals.

Reconstruction or Replacement Period After Casualty Loss

As currently drafted, the Senate tax reform bill would change the tax code to allow an LIHTC property owner up to 25 months to restore a property after experiencing a casualty loss before being either at risk of recapture or unable to claim LIHTCs. Currently, property owners have to do so within the calendar year. This would extend existing policy for casualty losses in presidential declared disaster areas to all casualty losses.

Modification of Rights Relating to Building Purchase

The bill would replace non-profits’ right of first refusal (ROFR) with a purchase option, based in the current law price of existing debt and exit taxes. Supporters of this provision consider purchase options a less problematic way of gaining control of a property. There is a not a consensus among practitioners on either the steps required to take a ROFR or the assets to which it applies (e.g., reserves). One of the unresolved issues is whether a bona fide offer is necessary. The lack of clarity has resulted in disputes and even litigation.

Determination of Community Revitalization Plan to be Made by Housing Credit Agency

In December 2016 the IRS issued Notice 2016-77 addressing the requirement in Section 42(m)(1)(B)(ii)(III) where qualified allocation plans must give a preference to proposed developments located in qualified census tracts which contribute to a concerted community revitalization plan (CCRP). Under Notice 2016-77 the “preference fails to apply unless... a [CCRP] exists that contains more components than the LIHTC project itself.”

A provision in the current draft of the bill would expand on this guidance by giving state agencies the ability to determine if a property contributes to a concerted community revitalization plan. Factors agencies would consider include whether the plan:

  • is geographically specific;
  • outlines clear implementation and goals for outcomes;
  • includes a strategy to secure commitments to support non-housing infrastructure, amenities, and services; and
  • demonstrates the need for community revitalization.  

Prohibition of Local Approval and Contribution Requirements

The General Accountability Office (GAO) is conducting a series of reports on the LIHTC. The second installment, released in the summer of 2016, was titled “Low-Income Housing Tax Credit: Some Agency Practices Raise Concerns and IRS Could Improve Noncompliance Reporting and Data Collection.” One area where the GAO noted allocators could improve was requiring letters of support from local governments. The concern is the practice may exacerbate fair housing shortcomings.

The bill would remove the ability of agencies to require LIHTC applications have local support. The provision would still allow developers to obtain county or municipal dollars, however those without this funding could not be penalized. Some qualified application plans (QAPs) mandate or incentivize local support, thereby making them easier to block.

Qualified Allocation Plan Selection Criteria

The legislation as currently written would add addressing the affordable housing needs of Native Americans to the list of the 10 current law QAP selection criteria.

Affordable Housing Tax Credit

The bill proposes a new name for the tax credit in an effort to remove some of the stigma that can be associated with the program.

These were not the only provisions of the AHCIA, but they were the ones with no consequential fiscal impact.