The Low-Income Housing Tax Credit (Housing Credit) is impacted by regulations issued by several agencies. The Housing Credit falls under the jurisdiction of the Internal Revenue Service (IRS), so many Housing Credit regulations are issued by the IRS. However investment in the Housing Credit is also driven through the Community Reinvestment Act, so bank regulators also play a major role in influencing Housing Credit investment, as well as several other agencies, including the Department of Housing and Urban Development and the Federal Housing Finance Agency. Learn more about some of the key regulatory issues impacting the Housing Credit below.
Regulatory Issues Resource Center
IRS Guidance in Response to the COVID-19 Crisis
On July 1, the IRS released guidance that provides regulatory relief for the Housing Credit, which will address many of the obstacles to building and preserving affordable housing that have arisen as a result of the COVID-19 crisis, at a time when affordable housing is needed more than ever. The AHTCC advocated with both the Administration and Congress to urge expedited issuance of this guidance and commends the IRS for its action.
The COVID-19 crisis has caused numerous disruptions to affordable housing development and operations, putting at risk the affordable homes which will be a foundation for our nation’s recovery. The new IRS guidance covers many of the regulatory accommodations requested by the National Council of State Housing Agencies (NCSHA) and supported by AHTCC and our partners, and will provide needed deadline extensions, including 10 percent test and rehabilitation expenditures deadlines, compliance and review moratoriums, and other flexibilities needed in order to take into account other challenges that have emerged, like social distancing policies. See the details of the guidance on our blog.
On the same day, the IRS also proposed regulations to relax previous compliance monitoring regulations that were due to be implemented in 2021. The previous regulations would have increased the number of units state agencies need to monitor, creating additional burden and negatively impacting the provision of affordable housing. For more information on the new regulations, see the NCSHA blog.
Issues Relating to Amending Tax Returns and Forms 8609
The AHTCC has been pursuing a solution to address issues that have arisen related to when Housing Credits could be claimed relative to the receipt of the Low-Income Housing Credit Allocation and Certification (Form 8609), which could create delays that ultimately impact the amount of tax credit equity available for affordable housing properties.
Please note that, by providing these materials, the AHTCC is not providing tax advice, and each company will have to consult with its attorneys and accountants to weigh benefits and risks and draw its own conclusions when determining a path forward.
Prior to 2018, Housing Credits earned in a prior year could be claimed by amending a previously filed return upon receipt of the Forms 8609, even if the receipt of the forms was after the extended due date for the partnership return. Due to the new Bipartisan Budget Act regime, returns must be adjusted through an Administrative Adjustment Request (AAR), and investors claim the Housing Credits included in an AAR on the return for the year in which the AAR is filed rather than the year in which the Housing Credits were generated. The new regime could ultimately impact the amount of tax credit equity available for affordable housing properties, at a time when affordable housing is needed more than ever.
Learn more in the resources below.
On June 25, the AHTCC held a webinar featuring leading industry experts to provide an overview of the above issue and an approach to consider.
- Michael Gaber, Executive Vice President, WNC, Inc., and President of the Board of Directors, Affordable Housing Tax Credit Coalition
- Glenn Graff, Attorney, Applegate & Thorne-Thomsen
- Beth Mullen, Partner, Affordable Housing Industry Leader, CohnReznick
- Michael Novogradac, Managing Partner, Novogradac & Co.
The AHTCC has worked with the IRS and many of our members, including leading affordable housing accounting and law firms, in asking the IRS to allow a partnership to claim Housing Credits prior to the receipt of Forms 8609 based on a “reasonable cause” approach, if the failure to have Forms 8609 is due to reasonable cause and not due to willful neglect consistent with Section 42(l)(1). Learn more about this approach in our memo, AHTCC Considerations for Amending Returns and Forms 8609 and see a summary on our blog.
On April 8, the IRS released a COVID-19 related revenue procedure that allows once again the amending of Bipartisan Budget Act (BBA) partnership tax returns once Form 8609s are received for 2018 tax returns, as long as the partnership files an amended return by September 30, 2020. The guidance impacts properties that took advantage of the extended filing date for 2018 returns, but does not provide a long-term solution.
Learn more on our blog.
Community Reinvestment Act Reform
An estimated 73 percent of Housing Credit investment comes from banks motivated by CRA requirements, meaning any changes to CRA could have significant effects on investment in the Housing Credit – and ultimately on our ability to build and preserve affordable housing.
Office of the Comptroller of the Currency Updates
While the Office of the Comptroller of the Currency (OCC) only oversees roughly 20 percent of banks, those banks represent 70 percent of financial institution assets and the vast majority of institutions that invest in the Housing Credit (see analysis from Novogradac and Co.) The other two CRA regulators are the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve.
The OCC released its final rule on CRA reform (see the press release) in late May 2020, just six weeks after it received more than 7,000 comments in response to its proposed rule. While the final rule includes some improvements from the OCC and FDIC proposed rule that the AHTCC and our partners recommended – including new specifications about the use of multipliers, the treatment of Housing Credit investments, and the expansion of deposit-based assessment areas – several of the overarching concerns we noted in our comments on the proposal remain. Most significantly, the final rule repeals the separate investment test, includes a ratio evaluation approach with a very expansive list of CRA-eligible activities, and does not provide benchmarks for the overall CRA evaluation measure or a specific community development minimum, which the rule states will be released after another Notice of Proposed Rulemaking. The FDIC did not join the OCC in issuing a final rule. See our blog for more information.
On December 12, the OCC and FDIC released a Notice of Proposed Rulemaking (NPR) on CRA reform, which was officially published in the Federal Register on January 9. Comments on the proposed rule were initially due on March 9, but the comment period was extended to April 8.
The AHTCC submitted comments, above all urging that any changes to CRA preserve the incentive it provides for investment in the Housing Credit and maintain our current ability to produce homes that are affordable to low-income households. Learn more about our comments on our blog.
In September 2019, the AHTCC and 27 community development stakeholders signed a letter urging regulators to act cooperatively and thoughtfully as they look to modernize the Community Reinvestment Act (CRA). Sent to the Chairwoman of Federal Deposit Insurance Corporation (FDIC), the Chairman of the Federal Reserve Board of Governors (Federal Reserve), and the Comptroller of the Currency, the letter calls on the three regulators to issue uniform CRA regulations.
On August 28, 2018, the Office of the Comptroller of the Currency (OCC) released an Advance Notice of Proposed Rulemaking (ANPR) to seek stakeholder comments on CRA reform, with comments due by November 19.
The AHTCC submitted comments urging that any changes to the CRA continue to support robust investment in the Housing Credit, to ensure that our nation’s primary affordable housing delivery mechanism is at least as efficient and effective as it is today. Read more on our blog.
Federal Deposit Insurance Corporation Updates
On December 12, 2019, the Federal Deposit Insurance Corporation (FDIC) joined the Office of the Comptroller of the Currency (OCC) in releasing a Notice of Proposed Rulemaking (NPR) on Community Reinvestment Act (CRA) modernization. However, it is notable that the FDIC did not join the OCC in issuing a final rule. On the day the OCC released its final rule, FDIC Chairman Jelena McWilliams said in a statement that the agency was “not prepared to finalize the CRA proposal at this time.” The agency has not publicly indicated its path forward.
Federal Reserve Updates
The Federal Reserve did not join the OCC in its advanced notice of proposed rulemaking, the OCC and FDIC in their notice of proposed rulemaking, nor the OCC in its final rule, though the Federal Reserve has been engaged in the CRA reform process:
- June 2020: During a House Financial Services Committee hearing on Monetary Policy and the State of the Economy, Federal Reserve Board of Governors Chairman Jerome Powell indicated that the Federal Reserve will release its own proposal to reform the CRA, explaining that it aims to have broad support from intended beneficiaries and that it is still working to finalize its approach.
- January 2020: At an Urban Institute event, Federal Reserve Governor Lael Brainard provided an overview of an approach the Federal Reserve may consider. In her speech, she emphasized the Federal Reserve’s aim to develop a test grounded in empirical analysis, proposing a tailored metrics approach with separate retail and community development tests. She did not, however, provide details about how individual activities would be counted or weighted.
- June 2019: Federal Reserve report summarized feedback from 29 round tables it held with bankers and community groups across the nation on the topic of CRA modernization. Some of the feedback was related to issues raised by the AHTCC in comments submitted to the OCC the year prior, which included proposals to provide increased weighting for investment in rural, underserved, and Native American areas; flexibility for banks to further serve underserved areas beyond their defined assessment areas; the ability to account for the impact of investments in the CRA credit calculation; and significant concern about the proposed single metric system.
- March 2019: Federal Reserve Governor Lael Brainard discussed ideas to update CRA to more effectively mobilize community and economic development. Brainard suggested expanding assessment areas for community development activities beyond those for retail activities, developing a comprehensive community development test, accounting for online retail activity, tailoring requirements based on bank size and activities, collecting additional data, and providing consistency across regulators.
OCC Tax Equity Finance Proposed Rule
The AHTCC has submitted comments on the Office of the Comptroller of the Currency’s (OCC) recent notice of proposed rulemaking (NPR) on the Activities and Operations of National Banks and Federal Savings Associations (see the OCC’s press release). While the majority of the NPR related to the energy sector, a section on a Tax Equity Finance Transaction rule (TEF Regulation) could allow an additional authority to invest in the Housing Credit beyond national banks’ Public Welfare Investment Authority and federal savings associations’ Community Development Investment Authority. In our comments, the AHTCC requested that the OCC clarify that the TEF Regulation is separate and apart from the Public Welfare Investment Authority and Community Development Investment Authority, and that the proposal is an addition but not a substitute for the existing authority. The comment window is now closed.