81 FR 9333 - Amendments to the Low-Income Housing Credit Compliance-Monitoring Regulations
DEPARTMENT OF THE TREASURY
Internal Revenue Service Federal Register Volume 81, Issue 37 (February 25, 2016)
Internal Revenue Service
Federal Register Volume 81, Issue 37 (February 25, 2016)
| Page Range | 9333-9338 | |
| FR Document | 2016-04005 |
[Federal Register Volume 81, Number 37 (Thursday, February 25, 2016)] [Rules and Regulations] [Pages 9333-9338] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-04005] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9753] RIN 1545-BL84 Amendments to the Low-Income Housing Credit Compliance-Monitoring Regulations AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final and temporary regulations. ----------------------------------------------------------------------- SUMMARY: This document contains final and temporary regulations relating to the compliance-monitoring duties of a State or local housing credit agency for purposes of the low-income housing credit. The final and temporary regulations revise and clarify the requirement to conduct physical inspections and review low-income certifications and other documentation. The final and temporary regulations will affect State or local housing credit agencies. The text of these temporary regulations also serves as the text of the proposed regulations (REG-150349-12) set forth in the notice of proposed rulemaking on this subject in the Proposed Rules section in this issue of the Federal Register. DATES: Effective date: These regulations are effective on February 25, 2016. Applicability date: For dates of applicability, see Sec. 1.42- 5T(h)(2). FOR FURTHER INFORMATION CONTACT: Jian H. Grant, (202) 317-4137, and Martha M. Garcia, (202) 317-6853 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background This document amends 26 CFR part 1 to revise and clarify rules relating to section 42 of the Internal Revenue Code (Code). On March 5, 2012, the Treasury Department and the IRS published Notice 2012-18, 2012-10 IRB 438. Notice 2012-18 informed State and local housing credit agencies participating in a physical inspections pilot program of an alternative method for satisfying certain inspection and review responsibilities under Sec. 1.42-5(c)(2) for projects for which the Department of Housing and Urban Development (HUD) conducted physical inspections.\1\ Notice 2012-18 also requested comments on various issues relating to Sec. 1.42-5. The Treasury Department and the IRS received written and electronic comments in response. After consideration of all of the comments received, the Treasury Department and the IRS are issuing these final and temporary regulations. --------------------------------------------------------------------------- \1\ Notice 2014-15, 2014-12 IRB 661, extended permission through December 31, 2014, for State and local housing credit agencies to use the alternative method in Notice 2012-18. --------------------------------------------------------------------------- This document also updates the authority citation of 26 CFR part 1. The Omnibus Budget Reconciliation Act of 1989 (Pub. L. 101-239) re- designated section 42(m) of the Code as section 42(n). The updates in this document reflect that re-designation. General Overview Section 42 provides rules for determining the amount of the low- income housing credit, which section 38 allows as a credit against income tax. Section 42(a) provides that the amount of the low-income housing credit for any taxable year in the credit period is an amount equal to the applicable percentage of the qualified basis of each qualified low-income building. Section 42(c)(2) defines a qualified low-income building as any building that is part of a qualified low- income housing project at all times during the compliance period (the period of 15 taxable years beginning with the first taxable year of the credit period). Section 42(g)(1) defines a qualified low-income housing project as any project for residential rental property if the project meets one of the following tests, as elected by the taxpayer: (A) At least 20 percent of the residential units in the project are rent-restricted and occupied by individuals whose income is 50 percent or less of area median gross income; or (B) At least 40 percent of the residential units in the project are rent-restricted and occupied by individuals whose income is 60 percent or less of area median gross income. In general, under section 42(i)(3)(A), a low-income unit is a residential unit that is rent-restricted and the occupants of which meet the applicable income limit elected by the taxpayer as described in section 42(g)(1)(A) or (B). Under section 42(i)(3)(B)(i), a unit is not treated as a low-income unit unless it is suitable for occupancy and used other than on a transient basis. Under section 42(i)(3)(B)(ii), the suitability of a unit for occupancy must be determined under regulations prescribed by the Secretary taking into account local health, safety, and building codes. Failure of one or more units to qualify as low-income units may result in a project's ineligibility for the low-income housing credit, reduction in the amount of the credit, and/or recapture of previously allowed credits. Under section 42(m)(1), the owners of an otherwise-qualifying building are not entitled to low-income housing credits that are allocated to the building unless, among other requirements, the allocation is pursuant to a qualified allocation plan (QAP). A QAP provides standards by which a State or local housing credit agency or its Authorized Delegate within the meaning of Sec. 1.42-5(f)(1) (``Agency'') will make these allocations. A QAP also provides a procedure that an Agency must follow in monitoring for compliance with the provisions of section 42. A plan fails to be a QAP unless, in addition to other requirements, it-- provides a procedure that the agency (or an agent or other private contractor of such agency) will follow in monitoring for noncompliance with the provisions of [section 42] and in notifying the Internal Revenue Service of such noncompliance which such agency becomes aware of and in monitoring for noncompliance with habitability standards through regular site visits. Section 42(m)(1)(B)(iii). Section 1.42-5 (the compliance-monitoring regulations) describes some of the provisions that must be part of any QAP. As part of its compliance-monitoring responsibilities, an Agency must perform physical inspections and low-income certification review. The compliance-monitoring regulations specifically provide that, for each low-income housing project, an Agency must conduct on-site inspections of all buildings by the end of the second calendar year following the year the last building in the project is placed in service (the all-buildings requirement). In addition, prior to the amendments in this document, the regulations provided that, for at least 20 percent of the project's low-income units (the 20-percent rule), the Agency must both inspect the units and review the low-income certifications, the documentation supporting the certifications, and the rent records for the tenants in those same units (the same-units requirement). The [[Page 9334]] regulations provide that the Agency must also conduct on-site inspections and low-income certification review at least once every 3 years after the initial on-site inspection. Further, the regulations require the Agency to randomly select which low-income units and tenant records to inspect and review (the random-selection rule). The regulations also require the Agency to choose the low-income units and tenant records in a manner that will not give owners of low-income housing projects advance notice that a unit and tenant records for a particular year will or will not be inspected and reviewed (the no- notice rule). However, an Agency may give an owner reasonable notice that an inspection of the building and low-income units or tenant record review will occur so that the owner may notify tenants of the inspection or assemble tenant records for review (for example, 30-day notice of inspection or review). Summary of Comments and Explanation of Provisions Use of the REAC Protocol, Physical Inspections, and Low-Income Certification Reviews Notice 2012-18 asked whether the 20-percent rule for both physical inspections and low-income certification review is appropriate, including whether this percentage appropriately balances the IRS's compliance concerns against the desirability of reducing the inspection burden on Agencies, tenants, and building owners; whether the percentage should vary depending on the type of inspection the Agencies are performing; and whether the percentage should vary with the number of units in a building. Notice 2012-18 also asked whether the regulations should provide an exception from the inspection provisions of Sec. 1.42-5(d) for inspections done under the HUD Real Estate Assessment Center protocol (REAC protocol) similar to the exception under Sec. 1.42-5(d)(3) for inspections performed by the Rural Housing Service under the section 515 program. Notice 2012-18 had permitted use of the REAC protocol by participants in an inter-Departmental physical inspections pilot program that sought to align the section 42 physical inspection requirements with the physical inspection requirements under HUD programs. Several commenters asserted that the 20-percent rule is appropriate. Others claimed that it is overly burdensome for larger properties (30 units or more). Several commenters suggested that the regulations permit an Agency to satisfy the physical inspection requirement by using the REAC protocol. These commenters generally suggested that availability of the REAC protocol for physical inspections would promote flexibility and lessen burden. Allowing an Agency to use the REAC protocol for purposes of the section 42 physical inspection requirements would eliminate the need for multiple Federal inspections on the same property if the property also benefits from HUD programs. Additionally, for larger properties, the minimum number of low-income units that an Agency must inspect under the REAC protocol may be fewer than under the 20-percent rule. In response to the comments received, the final and temporary regulations authorize the IRS to specify in guidance published in the Internal Revenue Bulletin the minimum number of low-income units for which an Agency must conduct physical inspections and low-income certification review. Rev. Proc. 2016-15, which is being issued concurrently with these regulations, provides that, in a low-income housing project, the minimum number of low-income units that must undergo physical inspection is the lesser of 20 percent of the low- income units in the project, rounded up to the nearest whole number of units, or the number of low-income units set forth in the Low-Income Housing Credit Minimum Unit Sample Size Reference Chart in the revenue procedure. The revenue procedure applies the same rule to determine the minimum number of units that must undergo low-income certification review. An Agency is free to conduct physical inspections or low-income certification review on a larger number of low-income units if it believes that to be appropriate. The Treasury Department and the IRS, however, are concerned about application of this 20 percent rule in some situations. For projects with a relatively smaller number of low-income units, physical inspection or low-income certification review of a randomly chosen 20 percent of those units may not produce a sufficiently accurate estimate of the remaining units' overall compliance with habitability or low- income requirements. Accordingly, not later than when these temporary regulations are finalized, the Treasury Department and the IRS intend to consider whether Rev. Proc. 2016-15 should be replaced with a revenue procedure that does not permit use of the 20 percent rule in those circumstances. In response to Notice 2012-18's request for comments on whether the IRS should provide an exception from the inspection provisions of Sec. 1.42-5(d) for inspections done under the REAC protocol, commenters generally supported creating such an exception. The final and temporary regulations, however, do not fully adopt this suggestion. Instead, the regulations authorize the IRS to provide in guidance published in the Internal Revenue Bulletin exceptions from, or alternative means of satisfying, the inspection provisions of Sec. 1.42-5(d). Rev. Proc. 2016-15 provides that the REAC protocol is among the inspection protocols that satisfy both Sec. 1.42-5(d) and the physical inspection requirements of Sec. 1.42-5T(c)(2)(ii) and (iii). The revenue procedure contains a rigorous definition of which inspection regimes it will treat as being the REAC protocol for this purpose. Comments are requested on all aspects of the provisions in the revenue procedure that define ``performed under the REAC protocol'' for purposes of satisfying Sec. Sec. 1.42-5(d) and 1.42-5T(c)(2)(ii) and (iii). Because vacant low-income units contribute to a building's qualified basis, both occupied and vacant low-income units in a low- income housing project must be included in the population of units from which units are selected for inspection. This is the case even if the vacant unit or units may be temporarily unsuitable for occupancy as a result of work that is being done to repair or rehabilitate the unit or units. See Sec. 1.42-5(e)(4). Potential inspection of vacant units is the rule for all compliance-monitoring inspections that do not use the REAC protocol, and Rev. Proc. 2016-15 therefore requires similar treatment when an Agency conducts a physical inspection under the REAC protocol. Some commenters recommended using a risk-based assessment model in place of the 20-percent rule. Such a model would determine the frequency of inspections and the number of low-income units to inspect based on the probability of noncompliance of a low-income housing project. The probability of noncompliance would be determined for this purpose by the degree of compliance of the project over one or more prior years. The final and temporary regulations do not adopt this approach. However, in response to the request for comments on these temporary regulations, commenters wishing to renew this suggestion should provide both greater detail regarding the suggested risk-based procedure and a thorough justification for that procedure, including why a multi-year approach fits within the compliance requirements of section 42. [[Page 9335]] Several commenters suggested modifying the 20-percent rule by requiring more units for the initial physical inspection than for the subsequent physical inspections on the ground that a comprehensive initial physical inspection establishes a baseline of compliance for a low-income housing project. By contrast, some commenters suggested requiring more units for the subsequent physical inspections, asserting that the quality of compliance of a low-income housing project often decreases after the initial physical inspection. These comments, however, did not provide sufficient analysis to justify increasing the number of units to be inspected in either the initial or a subsequent inspection. Without a reasonable basis for doing so, requiring more units for either the initial or subsequent inspections would unreasonably increase the administrative burden on Agencies, owners, and tenants of low-income housing projects. The final and temporary regulations, therefore, do not adopt these suggestions. Commenters wishing to renew either of these suggestions should provide both greater detail and a thorough justification for the suggestion. On the question of whether the required percentage of low-income units should vary depending on the type of compliance review (physical inspection or low-income certification review), one commenter recommended against a varying percentage, stating that there is no compelling reason for the required percentage to vary. A second commenter suggested that, in order to assess tenant eligibility, an Agency should review more than 20 percent of the low-income certifications because noncompliance relating to tenant eligibility may be harder to detect than noncompliance relating to habitability. The final and temporary regulations adopt the first commenter's suggestion. Just as an Agency may always physically inspect more than the minimum number of units, if an Agency deems it appropriate, the Agency may always review more than the minimum number of low-income certifications in a project to assess tenant eligibility. Commenters wishing to renew comments on this issue should provide both greater detail and a thorough justification for their suggestion. Two commenters suggested that the regulations not impose an all- buildings requirement for physical inspection, but merely require an Agency to apply the physical inspection and low-income certification review requirements on a project-wide basis. According to these commenters, an all-buildings requirement can make the inspection process overly burdensome, particularly in rural areas where projects often consist of small buildings such as single-unit buildings, duplexes, or triplexes. The final and temporary regulations do not fully adopt this suggestion. The regulations continue to require that Agencies comply with the all-buildings requirement unless guidance published in the Internal Revenue Bulletin pursuant to Sec. 1.42- 5T(a)(iii) provides otherwise. Rev. Proc. 2016-15 does provide for such an exception. Under Rev. Proc. 2016-15, the all-buildings requirement does not apply to an Agency that uses the REAC protocol, under HUD oversight, to satisfy the physical inspection requirement (although the REAC protocol itself may require inspection of all buildings in certain cases). The rigor with which Rev. Proc. 2016-15 defines the REAC protocol justifies this exception. Among the requirements set forth in the revenue procedure is the requirement that a physical inspection performed under the REAC protocol utilize the standards adopted, and inspectors certified, by HUD. Inspections performed under the REAC protocol or by the Rural Housing Service under the section 515 program require federal agency oversight. Thus, such oversight substitutes for an all-buildings requirement for inspection. Similar to inspections performed by the Rural Housing Service under the section 515 program, inspections performed under the REAC protocol are not subject to an all-buildings requirement. A physical inspection that the revenue procedure treats as being performed under the REAC protocol also involves the use of the most recent REAC UPCS inspection software, which has a strong statistical basis. Therefore, under the revenue procedure, the REAC protocol is an acceptable method for satisfying both Sec. 1.42-5(d) and the physical inspection requirement of Sec. 1.42-5T(c)(2)(ii) and (iii). If, in the future, the Treasury Department and the IRS become persuaded that there are one or more additional suitable alternatives to the all-buildings requirement, they may provide one or more additional exceptions to that requirement. A commenter suggested that the regulations permit an Agency to treat multiple buildings with a common owner and plan of financing as a single low-income housing project, regardless of whether the owner has elected this treatment under section 42(g)(3)(D). The final and temporary regulations do not adopt this suggestion. Section 42(c)(2)(A) defines a ``qualified low-income building'' as, in part, any building that is part of a qualified low-income housing project at all times throughout the compliance period. Section 42(g) defines a ``qualified low-income housing project'' as any project for residential rental property if the project meets the requirements of section 42(g)(1)(A) or (B), whichever is elected by the taxpayer. The scope of the term ``qualified low-income housing project'' for purposes of physical inspections should be the same as for other purposes under section 42. Decoupling of the Physical Inspection and Low-Income Certification Review Requirements (Ending the Same-Units Requirement) Notice 2012-18 asked for comments on whether permitting physical inspection and low-income certification review of different low-income units (that is, ending the same-units requirement) would simplify the inspection process. The notice also asked for comments on whether ending the requirement would impair the value of the data obtained. One commenter asserted that the current rule of requiring physical inspection and low-income certification review of the same low-income units is effective in finding noncompliance on a particular unit. Most commenters, however, believed that decoupling of the physical inspection and low-income certification review requirements would reduce the administrative burden, better preserve the surprise element, and likely increase the coverage of compliance-monitoring. In response to these comments, the final and temporary regulations end the same-units requirement by decoupling the physical inspection and low-income certification review. Therefore, an Agency is no longer required to conduct physical inspection and low-income certification review on the same units. Because the units no longer need to be the same, an Agency may choose a different number of units for physical inspection and for low-income certification review, provided the Agency chooses at least the minimum number of low-income units in each case. If an Agency chooses to select different low-income units for physical inspections and low-income certification review, the Agency must select the units for physical inspection or low-income certification review separately and in a random manner. Further, because the units no longer need to be the same, an Agency may choose to conduct physical inspection and low-income certification review at different times. For example, if HUD requires a physical inspection only two years after a joint HUD/low-income [[Page 9336]] housing credit inspection, that second inspection may be used for both HUD and low-income housing credit purposes without accelerating the next low-income housing credit file review. (Thereafter, physical inspections performed every third year might take place a year before the every-three-year file reviews.) Also, an Agency may choose to conduct physical inspections in the summer but complete the low-income certification review in the winter when physical inspections may be difficult to conduct due to weather conditions. The inspections and reviews, however, must satisfy the applicable timeliness requirements of Sec. 1.42-5T(c)(2)(ii)(A)(1) and (2). In addition, to make meaningful the physical inspection and low- income certification review, the final and temporary regulations retain the random-selection rule and strengthen the no-notice rule. Accordingly, if an agency decides to decouple the physical inspection and low-income certification review, the Agency may not allow selection of a low-income unit for physical inspection (or low-income certification review) to influence the likelihood that the same unit will be selected (or will not be selected) for low-income certification review (or physical inspection). Whether or not an Agency is selecting the same units for inspection and for low-income certification review, the Agency may give an owner reasonable notice that an inspection of the building and low-income units or review of low-income certifications will occur. This notice enables the owner to notify tenants of the inspection or to assemble low-income certifications for review. The regulations provide that reasonable notice is generally no more than 30 days, but they also provide a very limited extension for certain extraordinary circumstances beyond an Agency's control such as natural disasters and severe weather conditions. Thus, under the final and temporary regulations, if an Agency chooses to select the same units for physical inspections and low- income certification review, the Agency may conduct physical inspections and low-income certification review either at the same time or separately. However, once the Agency informs the owner of the identity of the units for which physical inspections or low-income certification review will occur, the Agency must conduct the physical inspections and low-income certification review within the reasonable- notice time frame described in the preceding paragraph. Comments are requested on these aspects of the regulations. For example, comments are requested on whether the same maximum amount of notice is reasonable for physical inspections and low-income certification review. Comments are also requested on whether, for physical inspections, the reasonable-notice time frame should be shortened. For example, under the REAC protocol, an inspector provides a 15-day notice of an upcoming HUD inspection to the owner and/or manager of the building and same-day notice of which units are to be inspected. Possible Changes in the Minimum Size of Samples The Treasury Department and the IRS believe the methods in Rev. Proc. 2016-15 reasonably balance the burden on Agencies, tenants, and building owners while adequately monitoring compliance. However, additional comments may be submitted on other possible methods, including stratified sampling procedures and estimation methodologies. To be useful, any such comments should include substantial detail regarding the procedures to be adopted and should provide thorough justification as to whether the suggested methods effectively reduce burden without negatively impacting the confidence that can be placed in the results obtained from the resulting samples. Revision to Frequency and Form of Certification The final and temporary regulations revise the rules currently in Sec. 1.42-5(c)(3) to clarify that a monitoring procedure must require that the owner certifications in Sec. 1.42-5(c)(1) be made to and reviewed by the Agency at least annually covering each year of the 15- year compliance period. Effective/Applicability Dates The temporary regulations apply on February 25, 2016 and expire on February 22, 2019. Agencies using the REAC protocol as part of the physical inspections pilot program may rely on the temporary regulations for on-site inspections and low-income certification review occurring between January 1, 2015 and February 25, 2016. Statement of Availability of IRS Documents IRS Revenue Procedures, Revenue Rulings notices, notices and other guidance cited in this document are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402, or by visiting the IRS Web site at http://www.irs.gov. Special Analyses Certain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed by Executive Order 13563. Therefore, a regulatory impact assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. Drafting Information The principal authors of these regulations are Jian H. Grant and Martha M. Garcia, Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the Treasury Department and the IRS participated in their development. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1 is amended as follows: PART 1--INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by removing the entries for Sec. Sec. 1.42-1T and 1.42-2T and by adding and revising entries in numerical order to read as follows: Authority: 26 U.S.C. 7805 * * * Section 1.42-1T also issued under 26 U.S.C. 42(n). Section 1.42-2 also issued under 26 U.S.C. 42(n). Section 1.42-5T also issued under 26 U.S.C. 42(n). 0 Par. 2. Section 1.42-5 is amended by: 0 1. Adding paragraph (a)(2)(iii). 0 2. Revising paragraphs (c)(2)(ii) and (iii) and (c)(3). 0 3. Revising the paragraph heading of paragraph (h), redesignating the text of paragraph (h) as paragraph (h)(1) and adding a paragraph (h)(1) heading, and adding paragraph (h)(2). 0 4. Adding paragraph (i). The additions and revisions read as follows: [[Page 9337]] Sec. 1.42-5 Monitoring compliance with low-income housing credit requirements. (a) * * * (2) * * * (iii) [Reserved]. For further guidance, see Sec. 1.42- 5T(a)(2)(iii). * * * * * (c) * * * (2) * * * (ii) [Reserved]. For further guidance, see Sec. 1.42-5T(c)(2)(ii). (iii) [Reserved]. For further guidance, see Sec. 1.42- 5T(c)(2)(iii). (3) [Reserved]. For further guidance, see Sec. 1.42-5T(c)(3). * * * * * (h) Effective/applicability dates--(1) In general.* * * (2) [Reserved]. For further guidance, see Sec. 1.42-5T(h)(2). (i) [Reserved]. For further guidance, see Sec. 1.42-5T(i). 0 Par. 3. Section 1.42-5T is added to read as follows: Sec. 1.42-5T Monitoring compliance with low-income housing credit requirements (temporary). (a)(1) through (a)(2)(ii) [Reserved]. For further guidance, see Sec. 1.42-5(a)(1) through (a)(2)(ii). (iii) Effect of guidance published in the Internal Revenue Bulletin. Guidance published in the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(b) of this chapter) may provide-- (A) Exceptions to the requirements referred to in Sec. 1.42- 5(a)(2)(i) and the requirements described in this section; or (B) Alternative means of satisfying those requirements. (b) through (c)(2)(i) [Reserved]. For further guidance, see Sec. 1.42-5(b) through (c)(2)(i). (ii) Require that, with respect to each low-income housing project, the Agency conduct on-site inspections and review low-income certifications (including in that term the documentation supporting the low-income certifications and the rent records for tenants). (iii) Require that the on-site inspections that the Agency must conduct satisfy both the requirements of Sec. 1.42-5(d) and the requirements in paragraph (c)(2)(iii)(A) through (D) of this section, and require that the low-income certification review that the Agency must perform satisfies the requirements in paragraphs (c)(2)(iii)(A) through (D) of this section. Paragraph (c)(2)(iii)(A) through (D) of this section provides rules determining how these on-site inspection requirements and how these low-income certification review requirements may be satisfied by an inspection or review, as the case may be, that includes only a sample of the low-income units. (A) Timing. The Agency must conduct on-site inspections of all buildings in the low-income housing project and must review low-income certifications of the low-income housing project-- (1) By the end of the second calendar year following the year the last building in the low-income housing project is placed in service; and (2) At least once every 3 years thereafter. (B) Number of low-income units. The Agency must conduct on-site inspections and low-income certification review of not fewer than the minimum number of low-income units required by guidance published in the Internal Revenue Bulletin. See Sec. 601.601(d)(2)(ii)(b) of this chapter. (C) Selection of low-income units for inspection and low-income certifications for review--(1) Random selection. The Agency must select in a random manner the low-income units to be inspected and the units whose low-income certifications are to be reviewed. The Agency is not required to select the same low-income units of a low-income housing project for on-site inspections and low-income certification review, and an Agency may choose a different number of units for on-site inspections and for low-income certification review, provided the Agency chooses at least the minimum number of low-income units in each case. If the Agency chooses to select different low-income units for on-site inspections and low-income certification review, the Agency must select the units for on-site inspections or low-income certification review separately and in a random manner. (2) Advance notification limited to reasonable notice. The Agency must select the low-income units to inspect and low-income certifications to review in a manner that will not give advance notice that a particular low-income unit (or low-income certifications for a particular low-income unit) for a particular year will or will not be inspected (or reviewed). However, the Agency may give an owner reasonable notice that an inspection of the building and low-income units or review of low-income certifications will occur. The notice is to enable the owner to notify tenants of the inspection or to assemble low-income certifications for review. (3) Meaning of reasonable notice. For purposes of paragraph (c)(2)(iii)(C)(ii) of this section, reasonable notice is generally no more than 30 days. The notice period begins on the date the Agency informs the owner of the identity of the units for which on-site inspections or low-income certification review will or will not occur. Notice of more than 30 days, however, may be reasonable in extraordinary circumstances that are beyond an Agency's control and that prevent an Agency from carrying out within 30 days an on-site inspection or low-income certification review. Extraordinary circumstances include, but are not limited to, natural disasters and severe weather conditions. In the event of extraordinary circumstances that result in a reasonable-notice period longer than 30 days, an Agency must conduct the on-site inspection or low-income certification review as soon as practicable. (4) Applicability of reasonable notice limitation when the same units are chosen for inspection and file review. If the Agency chooses to select the same units for on-site inspections and low-income certification review, the Agency may conduct on-site inspections and low-income certification review either at the same time or separately. The Agency, however, must conduct both the inspections and review within the reasonable-notice period described in paragraph (c)(2)(iii)(C)(2) and (3) of this section. (D) Method of low-income certification review. The Agency may review the low-income certifications wherever the owner maintains or stores the records (either on-site or off-site). (3) Frequency and form of certification. A monitoring procedure must require that the certifications and reviews of Sec. 1.42-5(c)(1) and (c)(2)(i) be made at least annually covering each year of the 15- year compliance period under section 42(i)(1). The certifications must be made under penalty of perjury. A monitoring procedure may require certifications and reviews more frequently than every 12 months, provided that all months within each 12-month period are subject to certification. (c)(4) through (h)(1) [Reserved]. For further guidance, see Sec. 1.42-5(c)(4) through (h)(1). (2) Effective/applicability dates of the REAC inspection protocol. The requirements in paragraphs (a)(2)(iii), (c)(2)(ii) and (iii), and (c)(3) of this section apply beginning on February 25, 2016. Agencies using the REAC inspection protocol of the Department of Housing and Urban Development as part of the Physical Inspections Pilot Program may rely on these provisions for on-site inspections and low-income certification review occurring between January 1, 2015 and February 25, 2016. Otherwise, for the rules that apply before February 25, 2016, see Sec. 1.42-5 as [[Page 9338]] contained in 26 CFR part 1 revised as of April 1, 2015. (i) Expiration date. The applicability of this section expires on February 22, 2019. John Dalrymple. Deputy Commissioner for Services and Enforcement. Approved: January 29, 2016. Mark J. Mazur, Assistant Secretary of the Treasury (Tax Policy). [FR Doc. 2016-04005 Filed 2-23-16; 4:15 pm] BILLING CODE 4830-01-P
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(h) Subject local housing credit agencies Under section 42(i)(3)(B)(i), a unit is
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inspections.1 Notice 2012–18 also health, safety, and building codes.
[FR Doc. 2016–03881 Filed 2–24–16; 8:45 am]
requested comments on various issues Failure of one or more units to qualify
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relating to § 1.42–5. The Treasury as low-income units may result in a
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written and electronic comments in housing credit, reduction in the amount
DEPARTMENT OF THE TREASURY response. After consideration of all of of the credit, and/or recapture of
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Internal Revenue Service Under section 42(m)(1), the owners of
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26 CFR Part 1 entitled to low-income housing credits
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1989 (Pub. L. 101–239) re-designated
section 42(m) of the Code as section allocation plan (QAP). A QAP provides
Amendments to the Low-Income
42(n). The updates in this document standards by which a State or local
Housing Credit Compliance-Monitoring
reflect that re-designation. housing credit agency or its Authorized
Regulations
Delegate within the meaning of § 1.42–
AGENCY: Internal Revenue Service (IRS), General Overview 5(f)(1) (‘‘Agency’’) will make these
Treasury. Section 42 provides rules for allocations. A QAP also provides a
ACTION: Final and temporary determining the amount of the low- procedure that an Agency must follow
regulations. income housing credit, which section 38 in monitoring for compliance with the
allows as a credit against income tax. provisions of section 42. A plan fails to
SUMMARY: This document contains final Section 42(a) provides that the amount be a QAP unless, in addition to other
and temporary regulations relating to of the low-income housing credit for requirements, it—
the compliance-monitoring duties of a any taxable year in the credit period is provides a procedure that the agency (or an
State or local housing credit agency for an amount equal to the applicable agent or other private contractor of such
purposes of the low-income housing percentage of the qualified basis of each agency) will follow in monitoring for
credit. The final and temporary qualified low-income building. Section noncompliance with the provisions of
regulations revise and clarify the [section 42] and in notifying the Internal
42(c)(2) defines a qualified low-income
requirement to conduct physical Revenue Service of such noncompliance
building as any building that is part of which such agency becomes aware of and in
inspections and review low-income a qualified low-income housing project monitoring for noncompliance with
certifications and other documentation. at all times during the compliance habitability standards through regular site
The final and temporary regulations will period (the period of 15 taxable years visits.
affect State or local housing credit beginning with the first taxable year of Section 42(m)(1)(B)(iii).
agencies. The text of these temporary the credit period).
regulations also serves as the text of the Section 1.42–5 (the compliance-
Section 42(g)(1) defines a qualified monitoring regulations) describes some
proposed regulations (REG–150349–12) low-income housing project as any
set forth in the notice of proposed of the provisions that must be part of
project for residential rental property if any QAP. As part of its compliance-
rulemaking on this subject in the the project meets one of the following
Proposed Rules section in this issue of monitoring responsibilities, an Agency
tests, as elected by the taxpayer: must perform physical inspections and
the Federal Register. (A) At least 20 percent of the low-income certification review.
DATES: residential units in the project are rent- The compliance-monitoring
Effective date: These regulations are restricted and occupied by individuals regulations specifically provide that, for
effective on February 25, 2016. whose income is 50 percent or less of each low-income housing project, an
Applicability date: For dates of area median gross income; or Agency must conduct on-site
applicability, see § 1.42–5T(h)(2). (B) At least 40 percent of the inspections of all buildings by the end
FOR FURTHER INFORMATION CONTACT: Jian residential units in the project are rent- of the second calendar year following
H. Grant, (202) 317–4137, and Martha restricted and occupied by individuals the year the last building in the project
M. Garcia, (202) 317–6853 (not toll-free whose income is 60 percent or less of is placed in service (the all-buildings
numbers). area median gross income. requirement). In addition, prior to the
SUPPLEMENTARY INFORMATION:
In general, under section 42(i)(3)(A), a amendments in this document, the
low-income unit is a residential unit regulations provided that, for at least 20
Background that is rent-restricted and the occupants percent of the project’s low-income
This document amends 26 CFR part 1 of which meet the applicable income units (the 20-percent rule), the Agency
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to revise and clarify rules relating to limit elected by the taxpayer as must both inspect the units and review
section 42 of the Internal Revenue Code described in section 42(g)(1)(A) or (B). the low-income certifications, the
(Code). On March 5, 2012, the Treasury 1 Notice 2014–15, 2014–12 IRB 661, extended
documentation supporting the
Department and the IRS published permission through December 31, 2014, for State
certifications, and the rent records for
Notice 2012–18, 2012–10 IRB 438. and local housing credit agencies to use the the tenants in those same units (the
Notice 2012–18 informed State and alternative method in Notice 2012–18. same-units requirement). The
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![Federal Register / Vol. 81, No. 37 / Thursday, February 25, 2016 / Rules and Regulations 9337
§ 1.42–5 Monitoring compliance with low- be, that includes only a sample of the inspections or low-income certification
income housing credit requirements. low-income units. review will or will not occur. Notice of
(a) * * * (A) Timing. The Agency must conduct more than 30 days, however, may be
(2) * * * on-site inspections of all buildings in reasonable in extraordinary
(iii) [Reserved]. For further guidance, the low-income housing project and circumstances that are beyond an
see § 1.42–5T(a)(2)(iii). must review low-income certifications Agency’s control and that prevent an
* * * * * of the low-income housing project— Agency from carrying out within 30
(c) * * * (1) By the end of the second calendar days an on-site inspection or low-
(2) * * * year following the year the last building income certification review.
(ii) [Reserved]. For further guidance, in the low-income housing project is Extraordinary circumstances include,
see § 1.42–5T(c)(2)(ii). placed in service; and but are not limited to, natural disasters
(2) At least once every 3 years and severe weather conditions. In the
(iii) [Reserved]. For further guidance,
thereafter. event of extraordinary circumstances
see § 1.42–5T(c)(2)(iii). (B) Number of low-income units. The
(3) [Reserved]. For further guidance, that result in a reasonable-notice period
Agency must conduct on-site longer than 30 days, an Agency must
see § 1.42–5T(c)(3). inspections and low-income conduct the on-site inspection or low-
* * * * * certification review of not fewer than income certification review as soon as
(h) Effective/applicability dates—(1) the minimum number of low-income practicable.
In general.* * * units required by guidance published in (4) Applicability of reasonable notice
(2) [Reserved]. For further guidance, the Internal Revenue Bulletin. See limitation when the same units are
see § 1.42–5T(h)(2). § 601.601(d)(2)(ii)(b) of this chapter. chosen for inspection and file review. If
(i) [Reserved]. For further guidance, (C) Selection of low-income units for the Agency chooses to select the same
see § 1.42–5T(i). inspection and low-income units for on-site inspections and low-
■ Par. 3. Section 1.42–5T is added to certifications for review—(1) Random income certification review, the Agency
read as follows: selection. The Agency must select in a may conduct on-site inspections and
random manner the low-income units to low-income certification review either
§ 1.42–5T Monitoring compliance with low- be inspected and the units whose low-
income housing credit requirements
at the same time or separately. The
income certifications are to be reviewed. Agency, however, must conduct both
(temporary). The Agency is not required to select the the inspections and review within the
(a)(1) through (a)(2)(ii) [Reserved]. For same low-income units of a low-income reasonable-notice period described in
further guidance, see § 1.42–5(a)(1) housing project for on-site inspections paragraph (c)(2)(iii)(C)(2) and (3) of this
through (a)(2)(ii). and low-income certification review, section.
(iii) Effect of guidance published in and an Agency may choose a different (D) Method of low-income
the Internal Revenue Bulletin. Guidance number of units for on-site inspections certification review. The Agency may
published in the Internal Revenue and for low-income certification review, review the low-income certifications
Bulletin (see § 601.601(d)(2)(ii)(b) of this provided the Agency chooses at least wherever the owner maintains or stores
chapter) may provide— the minimum number of low-income the records (either on-site or off-site).
(A) Exceptions to the requirements units in each case. If the Agency (3) Frequency and form of
referred to in § 1.42–5(a)(2)(i) and the chooses to select different low-income certification. A monitoring procedure
requirements described in this section; units for on-site inspections and low- must require that the certifications and
or income certification review, the Agency reviews of § 1.42–5(c)(1) and (c)(2)(i) be
(B) Alternative means of satisfying must select the units for on-site made at least annually covering each
those requirements. inspections or low-income certification year of the 15-year compliance period
(b) through (c)(2)(i) [Reserved]. For review separately and in a random under section 42(i)(1). The certifications
further guidance, see § 1.42–5(b) manner. must be made under penalty of perjury.
through (c)(2)(i). (2) Advance notification limited to A monitoring procedure may require
(ii) Require that, with respect to each reasonable notice. The Agency must certifications and reviews more
low-income housing project, the Agency select the low-income units to inspect frequently than every 12 months,
conduct on-site inspections and review and low-income certifications to review provided that all months within each
low-income certifications (including in in a manner that will not give advance 12-month period are subject to
that term the documentation supporting notice that a particular low-income unit certification.
the low-income certifications and the (or low-income certifications for a (c)(4) through (h)(1) [Reserved]. For
rent records for tenants). particular low-income unit) for a further guidance, see § 1.42–5(c)(4)
(iii) Require that the on-site particular year will or will not be through (h)(1).
inspections that the Agency must inspected (or reviewed). However, the (2) Effective/applicability dates of the
conduct satisfy both the requirements of Agency may give an owner reasonable REAC inspection protocol. The
§ 1.42–5(d) and the requirements in notice that an inspection of the building requirements in paragraphs (a)(2)(iii),
paragraph (c)(2)(iii)(A) through (D) of and low-income units or review of low- (c)(2)(ii) and (iii), and (c)(3) of this
this section, and require that the low- income certifications will occur. The section apply beginning on February 25,
income certification review that the notice is to enable the owner to notify 2016. Agencies using the REAC
Agency must perform satisfies the tenants of the inspection or to assemble inspection protocol of the Department of
requirements in paragraphs (c)(2)(iii)(A) low-income certifications for review. Housing and Urban Development as part
through (D) of this section. Paragraph (3) Meaning of reasonable notice. For of the Physical Inspections Pilot
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(c)(2)(iii)(A) through (D) of this section purposes of paragraph (c)(2)(iii)(C)(ii) of Program may rely on these provisions
provides rules determining how these this section, reasonable notice is for on-site inspections and low-income
on-site inspection requirements and generally no more than 30 days. The certification review occurring between
how these low-income certification notice period begins on the date the January 1, 2015 and February 25, 2016.
review requirements may be satisfied by Agency informs the owner of the Otherwise, for the rules that apply
an inspection or review, as the case may identity of the units for which on-site before February 25, 2016, see § 1.42–5 as
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![9338 Federal Register / Vol. 81, No. 37 / Thursday, February 25, 2016 / Rules and Regulations
contained in 26 CFR part 1 revised as of bascule draw bridge and has a vertical SUMMARY: The Coast Guard has issued a
April 1, 2015. clearance in the closed position of 12 temporary deviation from the operating
(i) Expiration date. The applicability feet above mean high water. schedule that governs the CONRAIL
of this section expires on February 22, The current operating schedule is Railroad Bridge across the Mantua
2019. open on signal if at least six hours Creek, mile 1.4, at Paulsboro, NJ. This
notice is given as set out in 33 CFR deviation is necessary to complete
John Dalrymple.
117.551. Under this temporary bridge construction. This deviation
Deputy Commissioner for Services and deviation, the bridge will remain in the allows the bridge to remain in the
Enforcement.
closed-to-navigation position from 6 closed-to-navigation position.
Approved: January 29, 2016. a.m. on February 22, 2016 to 6 p.m. on DATES: This deviation is effective from
Mark J. Mazur, June 1, 2016. midnight on March 1, 2016 to midnight
Assistant Secretary of the Treasury (Tax The Chester River is used by a variety on April 1, 2016.
Policy). of vessels including small U.S. ADDRESSES: The docket for this
[FR Doc. 2016–04005 Filed 2–23–16; 4:15 pm] government and public vessels, small deviation, [USCG–2016–0114] is
BILLING CODE 4830–01–P commercial vessels, and recreational available at http://www.regulations.gov.
vessels. The Coast Guard has carefully Type the docket number in the
considered the nature and volume of ‘‘SEARCH’’ box and click ‘‘SEARCH’’.
DEPARTMENT OF HOMELAND vessel traffic on the waterway in Click on Open Docket Folder on the line
SECURITY publishing this temporary deviation. associated with this deviation.
During the closure times there will be
FOR FURTHER INFORMATION CONTACT: If
Coast Guard limited opportunity for vessels able to
safely pass through the bridge in the you have questions on this temporary
33 CFR Part 117 closed position to do so. Vessels able to deviation, call or email Mr. Hal R. Pitts,
safely pass through the bridge in the Bridge Administration Branch Fifth
[Docket No. USCG–2016–0112] District, Coast Guard, telephone 757–
closed position may do so, after
receiving confirmation from the bridge 398–6222, email Hal.R.Pitts@uscg.mil.
Drawbridge Operation Regulation; SUPPLEMENTARY INFORMATION: CONRAIL,
Chester River, Chestertown, MD tender that it is safe to transit through
the bridge. The bridge will be able to that owns and operates the CONRAIL
AGENCY: Coast Guard, DHS. open for emergencies if at least six Railroad Bridge, has requested a
ACTION:Notice of deviation from hours notice is given and there is no temporary deviation from the current
drawbridge regulation. immediate alternate route for vessels to operating regulations to complete
pass. The Coast Guard will also inform construction of the new bridge and the
SUMMARY: The Coast Guard has issued a the users of the waterways through our remote operating system. The bridge is
temporary deviation from the operating Local and Broadcast Notices to Mariners a vertical lift drawbridge and has a
schedule that governs the S213 (MD213) of the change in operating schedule for vertical clearance in the closed position
Bridge across the Chester River, mile the bridge so that vessel operators can of 2.5 feet above mean high water.
26.8, at Chestertown, MD. This arrange their transit to minimize any The current operating schedule is set
deviation is necessary to perform bridge impact caused by the temporary out in 33 CFR 117.729(a). Under this
maintenance and repairs. This deviation deviation. temporary deviation, the bridge will
allows the bridge to remain in the In accordance with 33 CFR 117.35(e), remain in the closed-to-navigation
closed-to-navigation position. the drawbridge must return to its regular position from midnight on March 1,
DATES: This deviation is effective operating schedule immediately at the 2016 to midnight on April 1, 2016 and
without actual notice from February 25, end of the effective period of this will open on signal if at least four hours
2016 through 6 p.m. on June 1, 2016. temporary deviation. This deviation notice is given by telephone at (856)
For the purposes of enforcement, actual from the operating regulations is 231–2282.
notice will be used from February 22, authorized under 33 CFR 117.35. The Mantua Creek is used by a variety
2016 at 9 a.m., until February 25, 2016. of vessels including small U. S.
Dated: February 22, 2016. government and public vessels, small
ADDRESSES: The docket for this Hal R. Pitts, commercial vessels, tug and barge traffic
deviation, [USCG–2016–0112] is Bridge Program Manager, Fifth Coast Guard and recreational vessels. The Coast
available at http://www.regulations.gov. District. Guard has carefully considered the
Type the docket number in the [FR Doc. 2016–04006 Filed 2–24–16; 8:45 am] nature and volume of vessel traffic on
‘‘SEARCH’’ box and click ‘‘SEARCH’’. BILLING CODE 9110–04–P the waterway in publishing this
Click on Open Docket Folder on the line temporary deviation.
associated with this deviation. Vessels able to safely pass through the
FOR FURTHER INFORMATION CONTACT: If DEPARTMENT OF HOMELAND bridge in the closed position may do so
you have questions on this temporary SECURITY at any time. The bridge will be able to
deviation, call or email Mr. Hal R. Pitts, open for emergencies if at least four
Bridge Administration Branch Fifth Coast Guard hours notice is given by telephone at
District, Coast Guard, telephone 757– (856) 231–2282 and there is no
398–6222, email Hal.R.Pitts@uscg.mil. 33 CFR Part 117 immediate alternate route for vessels to
SUPPLEMENTARY INFORMATION: The [Docket No. USCG–2016–0114] pass. The Coast Guard will also inform
Maryland Department of Transportation the users of the waterways through our
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State Highway Administration, that Drawbridge Operation Regulation; Local and Broadcast Notices to Mariners
owns and operates the S213 (MD213) Mantua Creek, Paulsboro, NJ of the change in operating schedule for
Bridge, has requested a temporary AGENCY: Coast Guard, DHS. the bridge so that vessel operators can
deviation from the current operating arrange their transit to minimize any
ACTION:Notice of deviation from
regulations to perform a bridge stringer impact caused by the temporary
drawbridge regulation.
replacement project. The bridge is a deviation.
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Document Created: 2018-02-02 14:34:58
Document Modified: 2018-02-02 14:34:58
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Rules and Regulations | |
| Action | Final and temporary regulations. | |
| Dates | Effective date: These regulations are effective on February 25, 2016. | |
| Contact | Jian H. Grant, (202) 317-4137, and Martha M. Garcia, (202) 317-6853 (not toll-free numbers). | |
| FR Citation | 81 FR 9333 | |
| RIN Number | 1545-BL84 | |
| CFR Associated | Income Taxes and Reporting and Recordkeeping Requirements |
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