IRS Posts on Issues Regarding Projects in QCTs and Localities Failing to Approve Projects
Notice 2016-77 relates to allocations of low-income housing credits to projects and serves as a reminder to taxpayers that a project located in a qualified census tract is not described in § 42(m)(1)(B)(ii)(III) of the Code unless the project’s development contributes to a concerted community revitalization plan. The allocation preference only applies if the concerted community revitalization plan contains other components in addition to the LIHTC development by the allocation date.
This Notice was issued in light of state QAPs which may grant preference to projects merely because they are located in a QCT or states which interpret the project itself as the concerted community revitalization plan. The concern here being that by merely placing a project in a QCT, it may exacerbate concentrations of poverty in the area.
§ 42(m)(1)(B)(ii)(III) specifically requires state QAPs to have a preference for projects located in a QCT that also benefit a concerted community revitalization plan and the IRS in this notice states that the project in and of itself does not qualify as a concerted community revitalization plan even if the project is projected to benefit the area by way of its existence.
Revenue Ruling 2016-29 relates to allocations of low-income housing credits to projects and clarifies that § 42(m)(1)(A)(ii) of the Code neither requires nor encourages State housing credit allocating agencies to reject the proposed development of a low-income housing project that does not obtain the approval of the locality where the project is proposed to be developed.
The ruling describes a scenario in which a state’s QAP awards points to projects with local support and requires approval from a locality in order to allocate credits to a project. The ruling explains that such a state would be misconstruing § 42(m)(1)(A)(ii), which does not require a localities approval but instead merely requires that the locality have a chance to comment on the proposed project.
In the example given, the IRS also illustrates that such a QAP has lead to most projects being placed in high minority, low-opportunity areas, which violates fair housing law.
The ruling goes on to state further that § 42(m)(1)(A)(ii) “does not require or encourage allocating agencies to bestow veto power over LIHTC projects either on local communities or on local officials” and that an allocating agency should exercise its own judgment in such matters.
