June 22, 2021

Volume XI, Number 173


June 21, 2021

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Veterans Housing Preference Permitted Under IRC Section 42 Now Permitted Under 142

IRS issues requested guidance for consistency in preferences and occupancy restrictions requirements.

On April 3, 2019, the IRS released Revenue Procedure 2019-17, providing that the general public use requirement of section 142(d) of the Internal Revenue Code (relating to residential rental projects) permits the use of housing preferences and occupancy restrictions consistent with the provisions of the low-income housing tax credit requirements under section 42(g)(9) of the Code. This issue has become a point of interest for housing developers given a recent focus on the needs of veterans and other groups that have particular trouble locating affordable housing.


State and local governments may issue tax-exempt bonds to finance exempt facilities (exempt facility bonds), including qualified residential rental projects. Many of the projects financed with such bonds are also financed to obtain low-income housing tax credits.

Treasury Regulation section 1.103-8(a)(2), which applies for Code section 142, provides that an exempt facility must serve or be available on a regular basis for general public use, or be part of a facility so used, as contrasted with similar types of facilities that are constructed for the exclusive use of a limited number of private business users. For example, an apartment building for which employees of an adjacent factory are given preference over other potential tenants is not available for use by the general public.

A residential rental unit in a building that is not for use by the general public is also not eligible for a low-income housing credit under Section 42 of the Code. Under Treasury Regulation section 1.42-9(a), a residential rental unit is for use by the general public if the unit is rented in a manner consistent with housing policy governing non-discrimination, as evidenced by rules or regulations of the Department of Housing and Urban Development. Treasury Regulation section 1.42-9(b) provides that if a residential rental unit is provided only for a member of a social organization or provided by an employer for its employees, the unit is not for use by the general public and is not eligible for a low-income housing credit under section 42 of the Code.

A project does not fail to meet the general public use requirement of Section 42(g)(9) of the Code, however, 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. For example, there are certain federal and state programs that support housing for military veterans.

The New Guidance

Revenue Procedure 2019-17 provides that a qualified residential rental project (as defined in section 142(d) of the Code) does not fail to meet the general public use requirement applicable to exempt facilities solely because of occupancy restrictions or preferences that favor tenants described in section 42(g)(9) of the Code (for example, certain housing preferences for military veterans). Revenue Procedure 2019-17 applies to previously issued bonds, and bonds issued in the future.

Because Section 142(d) of the Code does not contain a provision similar to section 42(g)(9), this guidance from the Internal Revenue Service provides important clarification for residential rental projects financed with both tax-exempt bonds and low-income housing tax credits.

©2021 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume IX, Number 94



About this Author

Rebecca Harrigal, Greenberg Traurig Law Firm, Philadelphia, Tax Law Attorney

Rebecca  L. Harrigal focuses her practice on matters related to tax-exempt bonds, tax credit bonds and direct pay bonds. Before joining Greenberg Traurig, Rebecca spent 26 years working at the Internal Revenue Service, most recently serving as Director of the Office of Tax Exempt Bonds within the Tax Exempt and Governmental Entities Division of the IRS. Rebecca has an in-depth understanding of IRS operations and tax issues relating to tax-advantaged bonds.


  • Tax-exempt bonds
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Vanessa Albert Lowry, Greenberg Traurig Law Firm, Philadelphia, Tax Law Attorney

Vanessa Albert Lowry focuses her practice on tax, public finance, and asset securitization matters, as well as investment and repurchase agreements.

Professional & Community Involvement

  • Member, American Bar Association, Section on Taxation

  • Member, National Association of Bond Lawyers

    • Vice-Chair, Committee on Taxation

  • Board Member of active community organization/urban church boards in...

Linda D'Onofrio, Greenberg Traurig Law Firm, New York, Finance and Tax Law Attorney

Linda L. D’Onofrio focuses her practice on tax law relating to public and project finance, and taxable and tax-exempt financial instruments, including derivative products. Linda is experienced in the tax analysis and structuring of all types of municipal bond transactions, including general obligation, single- and multi-family housing, 501(c)(3) organizations, private exempt activities, student loan, and current and advance refundings. She also has handled all forms of mortgage and asset-backed securities transactions (grantor trusts, CMOs, REITs, REMICs, Strips), bank...

Andrew K. Rubin Associate GT Denver Tax Financing Structures State and Local Incentives Infrastructure Housing

Andrew P. Rubin works on the tax and finance deals that build and improve local communities. His practice is focused on leveraging unique financing structures and tools to infuse development and redevelopment projects with the capital needed to bring critical services to these communities. Andrew’s toolbox includes a variety of financing programs such as tax-exempt bonds, new markets tax credits, renewable energy tax credits, state and local tax incentives, and government loan guarantees that can be used to fund infrastructure, transportation, multifamily housing, affordable housing,...