April 23, 2019

April 23, 2019

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April 22, 2019

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IRS Clarifies General Public Use Requirements for Residential Rental Projects Tax-Exempt Bonds

The Internal Revenue Service recently eliminated an inconsistency between the definition of “general public use” for purposes of the low-income housing tax credit (LIHTC) under §42 of the Internal Revenue Code of 1986 (the “Code”) and the definition of “general public use” for purposes of tax-exempt multifamily housing bonds under Code §142(d).

General public use of residential rental property is required by regulations for LIHTC and tax-exempt bonds as a condition of eligibility for tax benefits. Revenue Procedure 2019-17 clarifies that the LIHTC statutory provision permitting tenant group restrictions or preferences also applies for purposes of the tax-exempt bonds rules.

Specifically, Code §42(g)(9) provides that a low-income housing project does not fail to meet the general public use requirement solely because of occupancy restrictions or preferences that favor tenants (A) with special needs, (B) who are members of a specified group under a federal program or state program or policy that supports housing for such a specified group, or (C) who are involved in artistic or literary activities.

The revenue procedure states that a §142(d) qualified residential rental project does not fail to meet the general public use requirement solely because of the above-described occupancy restrictions or preferences. The revenue procedure provides as an example certain housing preferences for military veterans.

This new policy is important to sponsors and developers of affordable housing because it broadens availability of a favored technique for structuring residential rental project financing. If a majority of a project is financed with tax-exempt multifamily housing bonds issued under Code §142(d), the property is eligible for the 4% LIHTC. The presence of the provision permitting occupancy restrictions or preferences in the LIHTC rules (added in 2008) and its absence in the tax-exempt bond rules have led bond counsel to disapprove tax-exempt bond financing of projects with such tenant restrictions or preferences. It is now possible to use tax-exempt bonds and the 4% LIHTC to finance projects with restrictions or preferences in favor of tenants such as military veterans and, depending on the state in which the project is located, teachers, police officers, farmworkers, and other groups.

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About this Author

Clifford A. Pastel, Dinsmore Shohl, Tax Compliance Lawer, Bonds Attorney
Of Counsel

Clif’s extensive experience in public finance gives his clients reassurance when they’re seeking legal help. Whether it is on tax-exempt financing, including arbitrage rebate calculation and compliance, or low-income housing tax credit transactions, he provides a professional and personalized experience. 

Clif works on a variety of tax-exempt bond issues, bank loans and interest rate swap transactions for school districts, sewer and water authorities, hospitals, industrial development authorities, redevelopment authorities,...

(412) 261-4250
Sujyot Patel Lawyer Ohio Dinsmore Public Finance Real Estate Tax
Partner

Sujyot’s love of building things – whether it’s relationships or more tangible structures – blends nicely with his practice. With more than 25 years of experience, he serves as bond counsel, issuer's counsel, bank counsel and underwriter's counsel in connection with the issuance of municipal securities for housing, economic development and industrial development. He brings public service to the private sector.

His clients include municipalities, state and local housing agencies, for-profit developers, non-profit housing organizations and investment banking firms. In every transaction, he emphasizes maximizing bond volume and value with creative structural techniques. His “everybody wins” attitude and engaging style energize his clients.

For local and state housing agencies throughout the United States, he advises on the structuring of debt transactions, analysis of tax issues, review of securities documents and implementation of due diligence procedures and the analysis of facility cash flows and financial information, while working with other participants in the common goal of a successful closing.

He is familiar with new money and refunding financing structures including senior/subordinated (rated and non-rated) transactions, credit enhanced transactions (i.e., FHA, Fannie Mae, GNMA, Letters of Credit, etc.), fixed and floating rate securities, insured transactions and taxable/tax-exempt conversion financings, refundings and derivatives (SWAP) transactions.

Applying his detailed knowledge with respect to single family housing financings, Sujyot serves as ongoing bond counsel to the Ohio Housing Finance Agency (participating in the issuance of bonds totaling over $7 billion in principal amount) and underwriter's counsel for Kentucky Housing Corporation (participating in the issuance of bonds totaling over $2 billion in principal amount), for their respective single family bond programs.

(513) 639-9256
Alexandra C. Rock Attorney Dinsmore Ohio Public Finance
Associate

Alexandra concentrates her practice on public finance transactions. Prior to joining Dinsmore, she gained valuable government sector experience while serving as a law clerk in the Public Utilities Section of the Ohio Attorney General’s office, where she assisted with drafting and revising briefs for filing in the Ohio Supreme Court, administrative hearings, as well as a review of statutes related to rule-making. Alexandra also worked as a research assistant at the Wexner Medical Center at The Ohio State Universit

(513) 977-8472
Steve M. Sparks, Dinsmore Shohl, Government Finance Attorney, Capital Growth
Associate

Steve Sparks is an associate in the firm's Finance Department, working with local governments to finance their capital needs, Mr. Sparks has also worked with state universities and healthcare providers. He uses his advanced tax degree to structure financings in ways that can lower costs to borrowers.

(513) 639-9206
Dinsmroe Shohl, Lona J. Valentine, Federal Tax Lawyer, Arbitrage Attorney
Partner

Lona Valentine concentrates her practice in the area of tax and financial analysis, handling arbitrage rebates and providing guidance on federal tax topics related to tax-favored bond financings for governmental and conduit financings.

Ms. Valentine has worked on a wide variety of municipal financing transactions including projects for traditional governmental infrastructure, hospital expansion, continuing care retirement communities, cultural facilities, small issue manufacturing and exempt facilities. Ms. Valentine works with issuers and...

513) 639-9238