IRS Suspends Certain Tax Credit Requirements in Missouri Due to Severe Weather, Flooding

The IRS recently issued Notice 2011-47, which grants certain tax credit sites relief from some Section 42 requirements in the wake of devastation caused by severe storms and tornadoes in Missouri that began on April 19.

The notice detailed the IRS's suspension of income limitations and non-transient requirements for tax credit sites that have received approval from the Missouri Housing Development Commission (MHDC) to rent vacant units to individuals displaced by natural disasters. Other rules and requirements of Section 42 will continue to apply during the temporary housing period. If you believe the notice may apply to your site, the owner must obtain approval from the MHDC for the relief described in the notice. The MHDC will determine the appropriate period of temporary housing for each site, not to extend beyond June 30, 2012.

Status of Units

A displaced individual temporarily occupying a unit during the first year of the credit period will be considered a qualified low-income resident for purposes of determining the site's qualified basis under Section 42, and for meeting the site's 20-50 test or 40-60 test as elected by the owner under Section 42(g)(1). After the end of the temporary housing period established by the MHDC, a displaced individual will no longer be deemed a qualified low-income resident.

During the temporary housing period, the status of a vacant unit after the first year of the credit period doesn't change if it becomes temporarily occupied by a displaced individual. That is, the unit retains the same status it had before the displaced individual moved in, whether its status is market rate or low income for purposes of Section 42.

Displaced individuals temporarily occupying vacant units won't be treated as low-income residents under Section 42(i)(3)(A)(ii). However, even if it houses a displaced individual, a low-income or market-rate unit that was vacant before the effective date of this notice will continue to be treated as a vacant low-income or market-rate unit.

Similarly, a unit that was never previously occupied before the effective date of this notice will continue to be treated as a unit that has never been previously occupied even if it houses a displaced individual.

Thus, the fact that a vacant unit becomes occupied by a displaced individual won't affect the building's applicable fraction under Section 42(c)(1)(B) for purposes of determining the building's qualified basis, nor will it affect the 20-50 test or 40-60 test of Section 42(g)(1).

If the income of occupants in low-income units exceeds 140 percent of the applicable income limitation, the temporary occupancy of a unit by a displaced individual won't trigger the available unit rule. In addition, during the temporary housing period, the site owner isn't required to make attempts to rent to low-income individuals the low-income units that house displaced individuals.