FEMA Declares Hurricane Matthew-Affected Major Disaster Areas

From Oct. 6 to Oct. 11, as a result of Hurricane Matthew, President Obama and the Federal Emergency Management Agency (FEMA) declared parts of South Carolina, North Carolina, Florida, and Georgia as major disaster areas. Among other federal assistance, these declarations make LIHTC and tax-exempt bond-financed sites in these areas eligible for relief under the Internal Revenue Code.

The IRS’s Revenue Procedures 2014-49 and 2014-50 provide guidance on temporary relief from certain requirements of IRC Section 42 and Section 142, respectively, in the context of a major disaster. When the president issues a declaration of a major disaster (as President Obama has done in Florida, Georgia, and North Carolina), FEMA may designate particular cities, counties, or other local jurisdictions covered by the declaration as eligible for assistance under Rev. Proc. 2014-49.

Under Rev. Proc. 2014-49, for severely damaged, destroyed, or uninhabitable buildings in the first year of the credit period, a state finance agency has the discretion to treat the allocation as a returned credit to the agency or may toll the beginning of the first year of the credit period under Section 42(f)(1). The tolling period must not extend beyond the end of the 25th month following the close of the month of the Major Disaster declaration. Owners may not claim any low-income housing credit during the restoration period of these first-year buildings.

In addition, in determining qualified basis, Rev. Proc. 2014-49 allows: using the building’s qualified basis at the end of the taxable year immediately preceding the first day of the incident period as determined by FEMA; temporarily suspending certain income limitations for displaced individuals; eliminating the need for self-certification of income eligibility; permitting an agency to allow an owner within its jurisdiction to provide emergency housing relief to displaced individuals from other jurisdictions; and modification of the amount of credit allowable to a restored building to provide relief in circumstances where the restoration cost is less than the eligible basis cost.

Rev. Proc. 2014-49 also provides relief for carryover allocation and placed-in-service requirements. If an LIHTC property owner has a carryover allocation for a building located in a major disaster area and the incident period for the major disaster began before the 10 percent deadline in IRC Section 42(h)(1)(E), the allocating agency may grant the owner an extension to meeting the 10 percent requirement. If such an extension is granted, the 10 percent requirement will be deemed satisfied if the property owner incurs more than 10 percent of the reasonably expected basis no later than the expiration of that extension.

If the incident period for a major disaster occurred on or after the date of the carryover allocation, the state housing agency may grant an extension to the two-year placed-in-service period. The IRS will treat the LIHTC property owner as having satisfied the placed-in-service requirement if the owner places the building in service no later than the expiration of that extension.

With regard to Rev. Proc. 2014-50, issuers and operators of qualified residential rental properties financed with tax-exempt bonds are given temporary relief from certain requirements of IRC Section 142(d). If a property owner obtains written approval to house displaced individuals, it may do so for a period not exceeding 12 months from the end of the month of the start of the incident period for the major disaster. Protection is provided to existing tenants from being evicted solely to house a displaced individual.

If a displaced individual has demonstrated low-income qualification, the operator may accept the individual either as a low-income tenant or as a displaced individual. If a displaced individual has not demonstrated low-income qualification and the operator wishes to accept the individual as a tenant, the individual would be treated either as not low-income or as receiving emergency housing relief as a displaced individual.

Rev. Proc. 2014-50 further provides that the income of a displaced individual during the temporary housing period is disregarded and does not change the status of the unit. If a displaced individual takes occupancy of a unit in a bond/LIHTC project during the first year of the credit period, the unit is treated as occupied by a low-income individual. If a displaced individual continues to occupy a unit at the end of the temporary housing period, then the status of the unit and the income of the individual are re-evaluated as though the individual commenced occupancy the day immediately following the end of the temporary housing period.

It’s important to note that under both Rev. Proc. 2014-49 and Rev. Proc. 2914-50, property owners and managers must maintain records, including the name, address, and Social Security number of each displaced individual, as well as a displacement statement.