Notice 2020-53

Notice 2020-53

I.

PURPOSE

In response to the ongoing Coronavirus Disease 2019 (COVID–19) pandemic,

this notice provides temporary relief from certain requirements under § 42 of the Internal

Revenue Code (Code) for qualified low-income housing projects and under §§ 142(d)

and 147(d) of the Code for qualified residential rental projects. Section IV of this notice

describes the Agencies, Issuers, Operators, and Owners eligible for the relief granted in

section V of this notice, which provides relief pursuant to § 7508A(a) of the Code, and

section VI of this notice, which provides relief pursuant to § 1.42–13(a) of the Income

Tax Regulations. In this notice, the terms “Agency,” “Issuer”, “Operator,” and “Owner”

have the same meanings as described in section 5 of Rev. Proc. 2014-49, 2014-37

I.R.B. 535, or section 4 of Rev. Proc. 2014-50, 2014-37 I.R.B. 540.

II.

BACKGROUND

A. Qualified low-income housing projects

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)(1)(A) provides that the qualified basis of any qualified low-income

building for any taxable year is an amount equal to (i) the applicable fraction

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(determined as of the close of the taxable year) of (ii) the eligible basis of the building

(determined under § 42(d)(4)). Sections 42(c) and 42(d) define applicable fraction and

eligible basis. Section 42(d)(1) and (2) define the eligible basis of a new building and an

existing building, respectively.

Section 42(c)(2) defines a qualified low-income building as any building which is

part of a qualified low-income housing project at all times during the “compliance period”

(that is, the period of 15 taxable years beginning with the first taxable year of the credit

period) and to which the amendments made by section 201(a) of the Tax Reform Act of

1986 (Pub. L. No. 99–514) apply

respectively.

Section 42(c)(2) defines a qualified low-income building as any building which is

part of a qualified low-income housing project at all times during the “compliance period”

(that is, the period of 15 taxable years beginning with the first taxable year of the credit

period) and to which the amendments made by section 201(a) of the Tax Reform Act of

1986 (Pub. L. No. 99–514) apply. To qualify as a low-income housing project, one of

the § 42(g) minimum set-aside tests, as elected by the taxpayer, must be satisfied.

Under § 42(d)(4)(A) and (B), the eligible basis for a qualified low-income building

includes the adjusted basis of the property (of a character subject to the allowance of

depreciation) used in common areas or provided as comparable amenities to all

residential rental units in the building.

Section 42(e) provides general rules under which rehabilitation expenditures

incurred by taxpayers related to a low-income building may be treated as a separate

new building. Under § 42(e)(3)(A)(ii), to qualify as a separate new building, the

rehabilitation expenditures with respect to a low-income building during a 24-month

period (§ 42(e) 24-month minimum rehabilitation expenditure period) must be at least

the greater of two statutory criteria.

Section 42(g) sets forth three alternative minimum set-aside tests for low-income

housing projects. The Owner of a project must elect one and satisfy that chosen test

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each taxable year. Once a taxpayer elects to use a particular set-aside test, the

election is irrevocable.

Section 42(h)(1)(E) provides general rules for carryover allocations of the low-

income housing credit. A carryover allocation is defined in § 1.42-6(a)(1) of the Income

Tax Regulations as an allocation that meets the requirements of § 42(h)(1)(E) (relating

to carryover allocations for single buildings) or § 42(h)(1)(F) (relating to carryover

allocations for multiple building projects)

cable.

Section 42(h)(1)(E) provides general rules for carryover allocations of the low-

income housing credit. A carryover allocation is defined in § 1.42-6(a)(1) of the Income

Tax Regulations as an allocation that meets the requirements of § 42(h)(1)(E) (relating

to carryover allocations for single buildings) or § 42(h)(1)(F) (relating to carryover

allocations for multiple building projects).

Under § 42(h)(1)(E)(i), if a qualified building is placed in service not later than a

statutorily specified date, the building is relieved of a requirement concerning the timing

of the allocation. Section 42(h)(1)(E)(ii) provides in part, for purposes of § 42(h)(1)(E)(i),

that the term “qualified building” means any building which is part of a project if the

taxpayer’s basis in the project (as of the date that is 1 year after the date that the

allocation was made) is more than 10 percent of the taxpayer’s reasonably expected

basis in the project (as of the close of the second calendar year following the calendar

year in which an allocation is made) (10-percent test).

In general, under § 42(j)(1), if (1) a building is beyond the first year of the credit

period, and (2) at the end of the taxable year, the building’s qualified basis with respect

to the taxpayer is less than the qualified basis with respect to the taxpayer at the end of

the preceding taxable year, then the credits, if any, for the year of the reduction are

determined using the reduced qualified basis, and the taxpayer’s Federal income tax

liability for the year of the reduction is increased by the credit recapture amount

prescribed in § 42(j)(2).

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Section 42(j)(4)(E) provides generally that a building is not subject to recapture

by reason of a casualty loss to the extent the loss is restored by reconstruction or

replacement within a reasonable period established by the Secretary of the Treasury or

his delegate (Secretary)

bility for the year of the reduction is increased by the credit recapture amount

prescribed in § 42(j)(2).

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Section 42(j)(4)(E) provides generally that a building is not subject to recapture

by reason of a casualty loss to the extent the loss is restored by reconstruction or

replacement within a reasonable period established by the Secretary of the Treasury or

his delegate (Secretary).

Section 42(m)(1) requires an Agency to allocate housing credit dollar amounts

among candidate proposed housing projects. The allocation must be pursuant to a

qualified allocation plan (QAP) that has been approved by the governmental unit of

which the Agency is a part. A QAP not only sets forth selection criteria by which an

Agency makes these allocations but also provides a procedure that the Agency must

follow in monitoring for noncompliance with the provisions of § 42, including monitoring

for noncompliance with habitability standards through regular site visits.

Section 1.42-5 provides the general requirements of Agencies’ compliance-

monitoring responsibilities under their monitoring procedures that must be part of any

QAPs. Among the requirements, an Agency must perform physical inspections and

low-income certification review.

Section 1.42-5(c)(1)(iii) requires, generally, that the Owner of a low-income

housing project certify at least annually to the Agency that, for the preceding 12-month

period, the Owner has received an annual income certification from each low-income

tenant, and the documentation to support that certification.

Under § 1.42-13(a), the Secretary may provide guidance to carry out the

purposes of § 42 through various publications in the Internal Revenue Bulletin.

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B. Qualified residential rental projects financed by bonds

Generally, under § 103 of the Code, private activity bonds that are not qualified

bonds within the meaning of § 141 of the Code are not tax-exempt

support that certification.

Under § 1.42-13(a), the Secretary may provide guidance to carry out the

purposes of § 42 through various publications in the Internal Revenue Bulletin.

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B. Qualified residential rental projects financed by bonds

Generally, under § 103 of the Code, private activity bonds that are not qualified

bonds within the meaning of § 141 of the Code are not tax-exempt. Section 141(e)

provides in part that the term “qualified bond” means any private activity bond if such

bond is an exempt facility bond, and § 142(a) provides in part that the term “exempt

facility bond” means any bond issued as part of an issue 95 percent or more of the net

proceeds of which are to be used to provide qualified residential rental projects. To be

a qualified residential rental project, a residential rental housing project must meet the

requirements in § 142(d).

Section 142(d)(1) provides that the term "qualified residential rental project"

means any project for residential rental property if, at all times during the qualified

project period, such project meets the requirements under § 142(d)(1)(A) or (B)

(§ 142(d) set-aside requirements), whichever is elected by the Issuer at the time of the

issuance of the issue with respect to such project.

Section 142(d)(2)(A) provides that the term "qualified project period" means the

period beginning on the first day on which 10 percent of the residential units in the

project are occupied and ending on the latest of (i) the date that is 15 years after the

date on which 50 percent of the residential units in the project are occupied, (ii) the first

day on which no tax-exempt private activity bond issued with respect to the project is

outstanding, or (iii) the date on which any assistance provided with respect to the

project under section 8 of the United States Housing Act of 1937 terminates.

Rev. Proc. 2004-39, 2004-2 C.B

is 15 years after the

date on which 50 percent of the residential units in the project are occupied, (ii) the first

day on which no tax-exempt private activity bond issued with respect to the project is

outstanding, or (iii) the date on which any assistance provided with respect to the

project under section 8 of the United States Housing Act of 1937 terminates.

Rev. Proc. 2004-39, 2004-2 C.B. 49, sets forth procedures for determining

whether a residential rental project complies with the applicable § 142(d) set-aside

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requirements during the qualified project period. Under section 5.02 of Rev. Proc.

2004-39, for a period of up to 12 months beginning on the issue date of bonds issued to

acquire an existing residential rental project (12-month transition period), a failure to

satisfy the § 142(d) set-aside requirements will not cause the acquired project to fail to

be a qualified residential rental project.

Section 147(d)(1) provides, with certain exceptions, that a private activity bond

shall not be a qualified bond if issued as part of an issue and any portion of the net

proceeds of such issue is to be used for the acquisition of any property (or an interest

therein) unless the first use of such property is pursuant to such acquisition. The private

activity bonds to which § 147(d) applies include bonds to finance qualified residential

rental projects.

Section 147(d)(2) provides that § 147(d)(1) shall not apply with respect to any

building (and the equipment therefor) if the rehabilitation expenditures with respect to

such building, equal or exceed 15 percent of the portion of the cost of acquiring such

building (and equipment) financed with the net proceeds of the issue.

Section 147(d)(3)(C) provides that the term “rehabilitation expenditures” shall not

include any amount which is incurred after the date 2 years after the later of (i) the date

on which the building was acquired, or (ii) the date on which the bond was issued

(§ 147(d) 2-year rehabilitation expenditure period)

acquiring such

building (and equipment) financed with the net proceeds of the issue.

Section 147(d)(3)(C) provides that the term “rehabilitation expenditures” shall not

include any amount which is incurred after the date 2 years after the later of (i) the date

on which the building was acquired, or (ii) the date on which the bond was issued

(§ 147(d) 2-year rehabilitation expenditure period).

C. Postponement of certain deadlines by reason of Presidentially declared

disasters

Section 7508A provides the Secretary with authority to postpone the time for

performing certain acts under the internal revenue laws for a taxpayer determined by

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the Secretary to be affected by a Federally declared disaster as defined in

§ 165(i)(5)(A). Pursuant to § 7508A(a), a period of up to one year may be disregarded

in determining whether the performance of certain acts is timely under the internal

revenue laws.

On March 13, 2020, the President of the United States issued an emergency

declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act

(Stafford Act), 42 U.S.C. 5121 et seq., in response to the ongoing COVID-19 pandemic

(Emergency Declaration).1 The Emergency Declaration instructed the Secretary of the

Treasury “to provide relief from tax deadlines to Americans who have been adversely

affected by the COVID-19 emergency, as appropriate, pursuant to 26 U.S.C. 7508A(a).”

Subsequent to the Emergency Declaration, the President issued major disaster

declarations under the authority of the Stafford Act with respect to all 50 States, the

District of Columbia, and 5 territories (Major Disaster Declarations).2

In the context of a Presidentially-declared Major Disaster, Rev. Proc. 2014-49

provides temporary relief from certain requirements of § 42 for Agencies and Owners of

low-income housing projects. Under section 8 of Rev. Proc

disaster

declarations under the authority of the Stafford Act with respect to all 50 States, the

District of Columbia, and 5 territories (Major Disaster Declarations).2

In the context of a Presidentially-declared Major Disaster, Rev. Proc. 2014-49

provides temporary relief from certain requirements of § 42 for Agencies and Owners of

low-income housing projects. Under section 8 of Rev. Proc. 2014-49, in the case of a

casualty loss suffered due to a Major Disaster that has reduced a low-income building’s

qualified basis, the Agency that has jurisdiction over the building must determine what

constitutes a reasonable restoration period. The reasonable restoration period

established by the Agency must not extend beyond the end of the 25th month following

the close of the month of the Major Disaster declaration (25-month reasonable

restoration period).

1 See https://www.whitehouse.gov/wp-content/uploads/2020/03/LetterFromThePresident.pdf.

2 See https://www.fema.gov/coronavirus/disaster-declarations.

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Rev. Proc. 2014-49 also provides emergency housing relief for individuals who

are displaced by a Major Disaster from their principal residences in certain Major

Disaster Areas. See Rev. Proc. 2014-49, sections 12–14.

In the context of a Presidentially-declared Major Disaster, Rev. Proc. 2014-50

provides temporary relief from certain requirements under § 142(d) for qualified

residential rental projects financed with exempt facility bonds issued by State and local

governments under § 142. Rev. Proc. 2014-50 also provides emergency housing relief

for individuals who are displaced by a Major Disaster from their principal residences in

certain Major Disaster Areas. See Rev. Proc. 2014-50, sections 5–7.

III.

NOTICE 2020-23 AND RELIEF UNDER SECTION 42

On April 9, 2020, the Department of the Treasury and the Internal Revenue

Service issued Notice 2020-23, 2020-18 I.R.B

§ 142. Rev. Proc. 2014-50 also provides emergency housing relief

for individuals who are displaced by a Major Disaster from their principal residences in

certain Major Disaster Areas. See Rev. Proc. 2014-50, sections 5–7.

III.

NOTICE 2020-23 AND RELIEF UNDER SECTION 42

On April 9, 2020, the Department of the Treasury and the Internal Revenue

Service issued Notice 2020-23, 2020-18 I.R.B. 742, which provided certain relief to

affected taxpayers and postponed due dates until July 15, 2020, with respect to certain

tax filings and payments, certain time-sensitive government actions, and all time-

sensitive actions listed in Rev. Proc. 2018-58, 2018-50 I.R.B. 990 (Dec. 10, 2018), that

were due to be performed on or after April 1, 2020, and before July 15, 2020. See

Notice 2020-23 and Rev. Proc. 2018-58. Among the relief granted, Notice 2020-23

(referencing Rev. Proc. 2018-58) postponed until July 15, 2020, the time to perform

certain time-sensitive actions for purposes of § 42 that are due to be performed on or

after April 1, 2020, and before July 15, 2020. These time-sensitive actions listed in Rev.

Proc. 2018-58 include, among others:

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Statute or

Regulation

Act Postponed

§ 42(h)(1)(E) and (F)

The taxpayer’s basis in the building project, as of the date which is one

year after the date that the allocation was made, must be more than

10 percent of the taxpayer’s reasonably expected basis in the project.

§ 42(e)(3)(A)(ii)

The taxpayer has a 24-month measuring period in which the requisite

amount of rehabilitation expenditures has to be incurred in order to qualify

for treatment as a separate new building.

§ 1.42-5(c)

The taxpayer must make certain certifications at least annually to the

Agency.

Rev. Proc. 2018-58, section 15, 2018–50 I.R.B. at 1015.

Thus, in addition to other postponements (including other postponements for

purposes of § 42 listed in Rev. Proc

e requisite

amount of rehabilitation expenditures has to be incurred in order to qualify

for treatment as a separate new building.

§ 1.42-5(c)

The taxpayer must make certain certifications at least annually to the

Agency.

Rev. Proc. 2018-58, section 15, 2018–50 I.R.B. at 1015.

Thus, in addition to other postponements (including other postponements for

purposes of § 42 listed in Rev. Proc. 2018-58), Notice 2020-23 postponed until July 15,

2020, the time to perform the following time-sensitive actions for purposes of § 42 that

are due to be performed on or after April 1, 2020, and before July 15, 2020:

• The 10-percent test under § 42(h)(1)(E)(ii);

• The 24-month minimum rehabilitation expenditure period under § 42(e); and

• The income recertification requirement under § 1.42-5(c)(1)(iii).

IV.

SCOPE OF THE RELIEF GRANTED IN THIS NOTICE

Sections V.A though E and VI.A through D of this notice apply to low-income

housing projects under § 42, to qualified residential rental projects under § 142(d), and

to Agencies, Issuers, Owners, and Operators that have responsibilities with respect to

those projects. Section V.F of this notice applies to bonds for qualified residential rental

projects that would be qualified bonds (as defined in § 141(e)) if the requirements of

§ 147(d)(2) were satisfied. The persons described in this section IV have been

determined by the Secretary to be persons affected by the COVID-19 emergency for the

purposes of the relief described in section V of this notice. In addition, the recipients of

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relief described in section VI of this notice have been determined by the Secretary to be

sufficiently affected by the COVID–19 pandemic to merit the relief that is provided here

under the authority of § 1.42–13(a).

V.

GRANT OF RELIEF PURSUANT TO SECTION 7508A

A

VID-19 emergency for the

purposes of the relief described in section V of this notice. In addition, the recipients of

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relief described in section VI of this notice have been determined by the Secretary to be

sufficiently affected by the COVID–19 pandemic to merit the relief that is provided here

under the authority of § 1.42–13(a).

V.

GRANT OF RELIEF PURSUANT TO SECTION 7508A

A. THE 10-PERCENT TEST FOR CARRYOVER ALLOCATIONS

For purposes of § 42(h)(1)(E)(ii), if the last day for an Owner of a building with a

carryover allocation to meet the 10-percent test is on or after April 1, 2020, and before

December 31, 2020, the last day for the Owner to meet the 10-percent test is postponed

to December 31, 2020.

B. THE § 42(e) 24-MONTH MINIMUM REHABILITATION EXPENDITURE PERIOD

For purposes of § 42(e)(3)(A)(ii), if the 24-month minimum rehabilitation

expenditure period for a building originally ends on or after April 1, 2020, and before

December 31, 2020, the last day for the Owner to incur the minimum rehabilitation

expenditures with respect to the building is postponed to December 31, 2020.

C. REASONABLE PERIOD FOR RESTORATION OR REPLACEMENT IN THE

EVENT OF CASUALTY LOSS

For purposes of § 42(j)(4)(E), if a low-income building has suffered a casualty

loss and the reasonable period to restore by reconstruction or replacement ends on or

after April 1, 2020, and before December 31, 2020, the last day for the Owner of the

building to restore the loss by reconstruction or replacement is postponed to December

31, 2020.

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D. REASONABLE RESTORATION PERIOD IN THE EVENT OF PRIOR MAJOR

DISASTER

For purposes of section 8.02 of Rev. Proc

loss and the reasonable period to restore by reconstruction or replacement ends on or

after April 1, 2020, and before December 31, 2020, the last day for the Owner of the

building to restore the loss by reconstruction or replacement is postponed to December

31, 2020.

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D. REASONABLE RESTORATION PERIOD IN THE EVENT OF PRIOR MAJOR

DISASTER

For purposes of section 8.02 of Rev. Proc. 2014-49, if a low-income building, due

to a prior Major Disaster, has suffered a casualty loss that would have reduced its

qualified basis and if the reasonable restoration period determined by the Agency for

the building ends on or after April 1, 2020, and before December 31, 2020, the last day

for the Owner of the building to complete the repair and restoration is postponed to

December 31, 2020.

E. THE 12-MONTH TRANSITION PERIOD TO MEET SET-ASIDES FOR

QUALIFIED RESIDENTIAL RENTAL PROJECTS

For purposes of section 5.02 of Rev. Proc. 2004-39, the last day of a 12-month

transition period for a qualified residential rental project that ends on or after April 1,

2020, and before December 31, 2020, is postponed to December 31, 2020.

F. THE § 147(d) 2-YEAR REHABILITATION EXPENDITURE PERIOD FOR

BONDS USED TO PROVIDE QUALIFIED RESIDENTIAL RENTAL PROJECTS

If a bond is used to provide a qualified residential rental project and if the

§ 147(d) 2-year rehabilitation expenditure period for the bond ends on or after April 1,

2020, and before December 31, 2020, the last day of that period is postponed to

December 31, 2020.

VI.

GRANT OF RELIEF PURSUANT TO § 1.42-13(a)

A. INCOME RECERTIFICATIONS

An Owner of a low-income building is not required to perform income

recertifications under § 1.42-5(c)(1)(iii) in the period beginning on April 1, 2020, and

ending on December 31, 2020. The Owner must resume the income recertifications as

due under § 1.42-5(c)(1)(iii) after December 31, 2020.

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B

er 31, 2020.

VI.

GRANT OF RELIEF PURSUANT TO § 1.42-13(a)

A. INCOME RECERTIFICATIONS

An Owner of a low-income building is not required to perform income

recertifications under § 1.42-5(c)(1)(iii) in the period beginning on April 1, 2020, and

ending on December 31, 2020. The Owner must resume the income recertifications as

due under § 1.42-5(c)(1)(iii) after December 31, 2020.

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B. COMPLIANCE-MONITORING

For purposes of § 1.42-5, an Agency is not required to conduct compliance-

monitoring inspections or reviews in the period beginning on April 1, 2020, and ending

on December 31, 2020. The Agency must resume compliance-monitoring inspections

or reviews as due under § 1.42-5 after December 31, 2020.

C. COMMON AREAS AND AMENITIES

If an amenity or common area in a low-income building or project is temporarily

unavailable or closed during some or all of the period from April 1, 2020 to

December 31, 2020, in response to the COVID-19 pandemic, and not because of other

noncompliance for § 42 purposes, this temporary closure does not result in a reduction

of the eligible basis of the building.

D. EMERGENCY HOUSING FOR MEDICAL PERSONNEL AND OTHER

ESSENTIAL WORKERS

If individuals who are medical personnel or other essential workers (as defined

by State or local governments) provide services during the COVID-19 pandemic, then,

for purposes of providing emergency housing from April 1, 2020, to December 31, 2020,

under Rev. Proc. 2014-49 or under Rev. Proc. 2014-50, Agencies, Issuers, Owners,

and Operators of low-income housing projects may treat these individuals as if they

were Displaced Individuals (defined under section 5.02 of Rev. Proc. 2014-49 or

Section 4.04 of Rev. Proc. 2014-50, as applicable). That is, Agencies, Issuers, Owners,

and Operators may provide emergency housing for these individuals pursuant to the

provisions of the applicable revenue procedure. See sections 12, 13, and 14 of Rev.

Proc. 2014-49 and sections 5, 6, and 7 of Rev. Proc. 2014-50.

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VII

ndividuals (defined under section 5.02 of Rev. Proc. 2014-49 or

Section 4.04 of Rev. Proc. 2014-50, as applicable). That is, Agencies, Issuers, Owners,

and Operators may provide emergency housing for these individuals pursuant to the

provisions of the applicable revenue procedure. See sections 12, 13, and 14 of Rev.

Proc. 2014-49 and sections 5, 6, and 7 of Rev. Proc. 2014-50.

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VII.

EFFECTIVE DATE

This notice is effective as of July 1, 2020.

VIII.

EFFECT ON OTHER DOCUMENTS

Notice 2020-23, Rev. Proc. 2004-39, Rev. Proc. 2014-49, and Rev. Proc. 2014-

50 are amplified.

IX.

DRAFTING INFORMATION

The principal authors of this notice are Dillon Taylor and Michael J. Torruella

Costa, Office of the Associate Chief Counsel (Passthroughs and Special Industries),

and Timothy L. Jones and David White, Office of the Associate Chief Counsel (Financial

Institutions and Products). For further information regarding this notice, contact Dillon

Taylor or Michael J. Torruella Costa at (202) 317-4137 (not a toll-free number); contact

Timothy L. Jones or David White at (202) 317-6980 (not a toll-free number).