Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance regarding several provisions of the Housing Assistance Tax Act of 2008 (P.L. 110-289) pertaining to tax-exempt bonds and the low-income housing credit. One provision, Act sec. 3021, provides a temporary $11 billion increase in the annual private activity bond volume cap under Code Sec. 146 for qualified housing issues and, under new Code Sec. 143(k)(12), temporarily allows the use of qualified mortgage bonds to refinance certain subprime mortgage loans. A second provision, Act sec. 3005, excludes basic housing allowances paid to military members at certain military bases for purposes of applicable low-income set-aside income limitations with respect to the low-income housing credit and exempt facility bonds. A third provision, Act sec. 3023, gives temporary authority to Federal Home Loan Banks to guarantee certain tax-exempt bonds.

Additional Bond Volume Cap

  Guidance is provided on allocations, carryforwards, information reporting, and uses of the additional $11 billion bond volume cap ("2008 Housing Act Volume Cap"). A list is provided of allocations of the 2008 Housing Act Volume Cap to the states, the District of Columbia, and possessions of the United States. These allocations, based on the 2008 Housing Act Volume Cap, were determined using the population figures provided in Notice 2008-22, I.R.B. 2008-8, 465 (TAXDAY, 2008/02/25, I.1), and reflecting the 2008 cost-of-living adjustments contained in
Rev. Proc. 2007-66, I.R.B. 2007-45, 970 (TAXDAY, 2007/10/19, I.2).

  New Code Sec. 146(f)(6) provides that any carryforwards of the 2008 Housing Act Volume Cap may be used only for qualified housing issues that are issued by the end of calendar year 2010. The IRS states that it will afford issuers of a qualified housing issue flexibility in their use of the 2008 Housing Act Volume Cap and in coordinating the use of this volume cap with the general volume cap under
Code Sec. 146. Thus, the 2008 Housing Act Volume Cap should be tracked and accounted for separately from the general volume cap. Further, an issuer may, at its discretion, utilize the 2008 Housing Act Volume Cap or carryforwards thereof either before or after the use of the general volume cap or carryforwards thereof. Also, issuers who file a proper carryforward election for the 2008 Housing Act Volume Cap may assign any portion of that cap to another eligible issuer in the state.

  Issuers of a qualified housing issue that use the 2008 Housing Act Volume Cap are provided a list of modifications to Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues, subject to updated IRS information reporting forms or procedures. Issuers that have an unused 2008 Housing Act Volume Cap at the end of calendar year 2008 should elect this carryforward amount by filing a separate Form 8328, Carryforward Election of Unused Private Activity Bond Volume Cap, with modifications also provided in the guidance.

  The IRS also clarified that an issuer may elect to exchange unused authority to issue private activity bonds with the 2008 Housing Act Volume Cap under Code Sec. 146 for authority to issue mortgage credit certificates under Code Sec. 25. An exchange may be made only if the indebtedness to which the mortgage credit certificate relates is incurred within 12 months of the date of the election under
Code Sec. 25(c)(2)(A)(ii) not to issue an amount of private activity bonds that it may otherwise issued during the calendar year under Code Sec. 146.

Refinancing of Qualified Subprime Loans

  New Code Sec. 143(k)(12) temporarily allows the use of qualified mortgage bonds to refinance qualified subprime mortgage loans. A "qualified subprime mortgage loan" is defined as an adjustable rate single-family residential mortgage loan made in the years 2002 through 2007 that the bond issuer determines would be reasonably likely to cause financial hardship to the borrowers if not refinanced. According to the IRS, issuers may make a determination of the likelihood of financial hardship based on reasonable estimates made in good faith. Further details on this refinancing provision are provided in the guidance, including proper information reporting.

Exclusion of Military Basic Housing Allowances

  The IRS has provided a list identifying military bases that are presently considered to be qualified for purposes of the exclusion of basic housing allowances from applicable low-income set-aside income limitations with respect to the low-income housing credit and exempt facility bonds. Other bases that meet the necessary requirements in the future would also be eligible at such time.

Federal Home Loan Bank Guarantees

  Tax-exempt bonds issued by state and local governments after July 30, 2008 until December 31, 2010, are eligible for tax-exempt status if they are guaranteed, upon original issuance, by a Federal Home Loan Bank. The IRS has clarified that, for purposes of the "original issuance" requirement, any tax-exempt bond, including a bond for new money purposes or a bond that is part of a refunding issue (as defined in Reg. §1.150-1(d)) that is issued during the relevant period may be eligible for Federal Home Loan Bank guarantees.

 
Notice 88-80, 1988-2 CB 396, is modified.

Notice 2008-79, 2008FED ¶46,572

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶4385.025

  CCH Reference - 2008FED ¶4385.45

 
Code Sec. 142

  CCH Reference - 2008FED ¶7752.028

 
Code Sec. 143

  CCH Reference - 2008FED ¶7786.021

 
Code Sec. 146

  CCH Reference - 2008FED ¶7854.07

 
Code Sec. 149

  CCH Reference - 2008FED ¶7905.025

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