Compliance Corner: IRS announces tax relief for LIHTC projects

On July 1, 2020, in response to the ongoing COVID-19 pandemic, the Internal Revenue Service (IRS) released Notice 2020-53, that provides some areas of relief for owners of Low Income Housing Tax Credit (LIHTC) developments. You can read the entire IRS Notice here.

I’ve examined the IRS notice and in this write-up I call out the areas that affect our clients the most. Read on to further understand the intent of each area:  

1. Owners are not required to perform income recertifications (April 1-Dec. 31, 2020)

This is the biggest area of relief the IRS has provided thus far. This provision began on April 1, 2020 and will expire on Dec. 31, 2020.

It is important to note the language used in the notice is “income.” The notice does not provide relief from other required recertification documentation. This may include but is not limited to: annual student status certification, lease renewal (if required) and lease addendums, etc.

It should also be noted that some State Housing Finance Agencies (HFAs) might also require additional documentation for the tenant file. To ensure a successful tenant file audit in the future, it is extremely important that your team understands what is required.

2. HFAs are not required to conduct compliance monitoring inspections and audits (April 1-Dec. 1, 2020)

HFAs are not required to conduct compliance monitoring inspections and audits. This area of relief will expire on Dec. 1, 2020. The important call out in this area of relief is what is not said. The notice does not say audits and inspections will be forgiven or forgotten. It also does not say that HFAs are not to conduct audits and inspections. Many HFAs have decided to move forward with a hybrid version of monitoring. It is important to understand what your HFA is going to require and how they intend to make up any monitoring activities that were temporarily suspended. 

3. Closure of common areas does not result in reduction of eligible basis or loss of credits  (April 1-Dec. 31, 2020) 

The IRS determined that common areas in a low-income development ordered to close by a local, state or federal ordinance to decrease the spread of COVID-19, will not face a reduction of eligible basis or a loss of credits. As long as the common area was still in good repair but simply closed to help decrease the spread of COVID-19, the development owner would be held harmless. Common areas may include but are not limited to: community buildings, housing authority offices, playgrounds, basketball courts, picnic areas, etc. The provision includes any building or area built with Low Income Housing Tax Credit funds and will expire on Dec. 31, 2020.

4. Emergency housing for medical personnel and essential workers providing services during COVID-19 pandemic (April 1-Dec, 31, 2020)

Last but not least, the IRS has stated that individuals who are medical personnel or other essential workers (as defined by state or local governments) and providing services during the COVID-19 pandemic, may be treated as if they were displaced individuals for purposes of providing emergency housing from April 1-Dec. 31, 2020.

If you know an essential worker who may qualify for emergency housing, we encourage you to reach out to us or your compliance consultant to discuss the documentation requirements of this provision.

For additional clarification or questions, please contact me at crystal@travois.com.

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