IRS Notice 2022-52 further extends housing credit program deadlines

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(Updated from guidance published 2/3/2022)

The Internal Revenue Service has issued a notice in response to labor and supply chain disruptions causing construction delays at housing credit properties. The new guidance (IRS Notice 2022-52) modifies and amplifies prior guidance (IRS Notice 2022-05, issued in January) providing temporary relief from many key housing credit program deadlines.

The new notice provides new or updated guidance regarding placed-in-service deadlines, casualty loss restoration timelines, compliance correction periods, and temporary physical unit inspection waivers. All other items from the original IRS Notice 2022-05 remain unchanged.

 

Development period deadlines

 

10% Test (No change)

Original Deadline

New Deadline

April 1, 2020 – Dec. 31, 2020

+ 2 Years

Jan. 1, 2021 – Before Dec. 31, 2022

Dec. 31, 2022

 

Minimum Rehab Expenditures (No change)

Original Deadline

New Deadline

April 1, 2020 – Dec. 31, 2021

+18 months

Jan. 1, 2022 – June 30, 2022

June 30, 2023

July 1, 2022 – Dec. 31, 2022

+12 months

Jan. 1, 2023 – Dec. 30, 2023

Dec. 31, 2023

Bond-financed properties: April 1, 2020 – Dec. 31, 2023

Earlier of +18 months or Dec. 31, 2023

 

Placed-In-Service Deadline (Updated)

Original Deadline

New Deadline

Dec. 31, 2020

Dec. 31, 2022

Dec. 31, 2021, and original 10% test deadline was before April 1, 2020

Dec. 31, 2023

Dec. 31, 2021 and original 10% test deadline was April 1, 2020 – Dec. 31, 2020

Dec. 31, 2023

Dec. 31, 2022

Dec. 31, 2024

Dec. 31, 2023 Dec. 31, 2024

 

Initial year credit considerations (No change)

Initial year credit calculation: IRS Notice 2022-05 recognized the ongoing impact of the pandemic and extended relief to properties in lease-up during 2022. Acting like an initial year basis boost, if a building’s first credit year is 2020, 2021, or 2022, the notice indicated that the qualified basis is calculated by taking into account any low-income units leased through June 30 following the close of that first year. This provision has not been modified in the latest notice.

The guidance from earlier this year alleviated the need for property owners with less than 100% units leased at year-end to defer credits to avoid the two-thirds credit issue. The rule does not increase the credits calculated in the first year, but it is valuable for starting credits on buildings sooner. For example, if there is a building that has a weighted average occupancy of 33% in Year 1 but is only 70% occupied at the end of the year, an owner would consider deferring the credits to avoid a two-thirds credit on the remaining 30% of the building. With this relief provision and assuming the remaining 30% of the building is rented by June 30 of the subsequent year, the building will not have two-thirds credits going forward.

Casualty loss (Updated)

Restoration period for casualty loss: For all casualty losses that occurred after the president’s disaster declaration on March 13, 2020, any deadline to restore a property that was originally on or after April 1, 2020, will be extended by 24 months (up from the previous notice's 18 months), but not later than Dec. 31, 2023 (extended from the previous notice's 2022). The state agency may notably supersede the IRS Notice and may require a shorter extension, or no extension.

For tax credit calculation purposes, if the property is restored within the restoration deadlines noted, the property must utilize the qualified basis from the year prior to the casualty’s occurrence in each of the taxable years between the casualty and restoration.

Tax credit compliance guidance – Treas. Reg. Section 1.42-5

Compliance correction period (Updated): With respect to compliance under Treasury Regulation Section 1.42-5, the IRS has issued the following extensions. The state agency may supersede the IRS Notice and may require a shorter extension, or no extension.

Compliance Correction Period (Updated)

Original Deadline

New Deadline

April 1, 2020 – before Dec. 31, 2022

+1 year, not beyond Dec. 31, 2023

Jan. 1, 2023 – Dec. 31, 2023

Dec. 31, 2023

 

Tenant file reviews: In an effort to reduce the near-term compliance reporting burden, state agencies are not required to review tenant files between April 1, 2020, and Dec. 31, 2021. However, tenant file review must resume by Jan. 1, 2022. The reasonable notice period through the end of 2022 is expanded to 30 days but reverts to a 15-day notice period beginning Jan. 1, 2023. This provision has not been updated by the new notice.

Physical unit inspections (Updated): Due to concerns over COVID-19 transmission, state agencies will not require physical unit inspections between April 1, 2020, and June 30, 2022. The waiver period can be extended should the need arise as determined by each agency, but not beyond Dec. 31, 2023.

Common area closure: Any temporary full or partial unavailability or closure of an amenity or common area in a housing credit property between April 1, 2020, and Dec. 31, 2022, will not result in a reduction of eligible basis, but only if due to COVID-19. This provision has not been updated by the new notice.

Conclusion

The notice provides much-needed relief to alleviate some continuing issues being felt by housing credit property owners and state agencies in the wake of the pandemic as labor and supply chain disruptions persist. These rules are very fact-specific, so consult with your trusted advisors to determine how they may apply to your project.

Contact

Beth Mullen, CPA, Partner, Affordable Housing practice leader

916.930.5750

Matthew Barcello, Managing Director, Tax Credit Investment Services, Project Finance & Consulting

617.603.4514

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This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.