Rev. Rul. 2021-20, Rev. Proc. 2021-43: Guidance concerning low-income housing tax credit

Revenue ruling and revenue procedure concerning the low-income housing tax credit under section 42(b)(3)

Guidance concerning low-income housing tax credit

The IRS today released advance versions of a revenue ruling and a revenue procedure concerning the low-income housing tax credit under section 42(b)(3).

  • Rev. Rul. 2021-20 [PDF 131 KB] provides guidance regarding whether the minimum 4% applicable percentage under section 42(b)(3) (the “4% floor”) applies to certain low-income buildings.
  • Rev. Proc. 2021-43 [PDF 73 KB] provides safe harbors for when a tax-exempt obligation described in section 42(h)(4)(A) or an allocation of a low-income housing credit dollar amount is more than de minimis for purposes of Rev. Rul. 2021-20.

Background

Section 201(a) of the “Taxpayer Certainty and Disaster Tax Relief Act of 2020” (Act), enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub. L. No. 116- 260, 134 Stat. 1182, 3056 (December 27, 2020), added to the Code a new section 42(b)(3), which provides a 4% minimum credit rate for buildings to which the 9% floor in section 42(b)(2) does not apply and which are placed in service by the taxpayer after December 31, 2020.

The amendments to section 42(b)(3) apply to: (1) any building which receives an allocation of housing credit dollar amount after December 31, 2020, and (2) in the case of any building any portion of which is financed with an obligation described in section 42(h)(4)(A), “any such building if any such obligation which so finances such building is issued after December 31, 2020.” 

IRS guidance

The IRS in Rev. Rul. 2021-20 considered three factual situations in an effort to determine whether the 4% floor applies under the Act.

In Situation 1, a state agency issued to the taxpayer a draw-down bond that qualifies as an issue of exempt facility bonds prior to 2021 (with draws occurring in a subsequent year). Reg. section 1.150-1(c)(4)(i) treats bonds issued pursuant to a draw-down loan as part of a single issue.

In Situation 2, the state agency issued to the taxpayer exempt facility bonds in 2020 to finance the construction of a qualified low-income building. In a subsequent year, the agency issued a different issue of exempt facility bonds (not pursuant to a draw-down loan), in a de minimis amount  

In Situation 3, the state agency allocated to the taxpayer (under a binding commitment), housing credit dollar amounts in 2020 for the acquisition of an existing building, with an additional housing credit amount for the rehabilitation of the building into a qualified low-income building. The state agency also allocated a de minimis allocation of low-income housing credit dollar amount after December 31, 2020.

The revenue ruling concludes:

  • The 4% floor does not apply to the building in Situation 1, which is financed in part with a draw-down exempt facility bond issue that was issued in 2020 and on which one or more draws are taken after December 31, 2020.
  • The 4% floor does not apply to the building in Situation 2, which is financed in part with proceeds of an exempt-facility bond issue that was issued in 2020 and in part with proceeds of a different exempt-facility bond issue that is issued in a de minimis amount after December 31, 2020.
  • The 4% floor under does not apply to the building in Situation 3, which receives an allocation of housing credit dollar amount in 2020 and a de minimis additional allocation after December 31, 2020.

The related revenue procedure—Rev. Proc. 2021-43—provides safe harbors for determining whether an exempt facility bond issue that is issued after December 31, 2020, or an allocation of a housing credit dollar amount that is made after December 31, 2020, is more than de minimis for purposes of the conclusions in Rev. Rul. 2021-20 with regard to Situations 2 and 3.


For more information, contact a tax professional in KPMG’s Washington National Tax:

Susan Reaman | +1 202 533 3541 | sreaman@kpmg.com