Final Regulation (PS-106-91)

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[Federal Register: October 3, 1994]

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DEPARTMENT OF THE TREASURY
26 CFR Part 1 and 602
[TD 8563]
RIN 1545-AQ41

State Housing Credit Ceiling and Other Rules Relating to the LowIncome Housing Credit
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
----------------------------------------------------------------------SUMMARY: This document contains final regulations concerning the lowincome housing credit under section 42 of the Internal Revenue Code.
The regulations provide rules relating to the order in which housing
credit dollar amounts are allocated from each State's housing credit
ceiling under section 42(h)(3)(C) and the determination of which States
qualify to receive credit from a national pool of credit under section
42(h)(3)(D). The regulations affect State and local housing credit
agencies and taxpayers receiving credit allocations, and provide them
with guidance for complying with section 42. The final regulations also
amend Sec. 1.42-5 to provide a cross reference to section 42(g)(8)(B).
EFFECTIVE DATE: These regulations are effective January 1, 1994.
FOR FURTHER INFORMATION CONTACT: Christopher J. Wilson 202-622-3040
(not a toll-free call).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in these final regulations
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have been reviewed and approved by the Office of Management and Budget
in accordance with the requirements of the Paperwork Reduction Act (44
U.S.C. 3504(h)) under control number 1545-1423. The estimated annual
burden per State or local government respondent varies from 2 hours to
6 hours, with an estimated average of 4 hours. The estimated annual
burden for all other respondents varies from .5 hours to 1.5 hours,
with an estimated average of 1 hour.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the IRS, Attn:
IRS Reports Clearance Officer, PC:FP, Washington, DC 20224, and to the
Office of Management and Budget, Attn: Desk Officer for the Department
of the Treasury, Office of Information and Regulatory Affairs,
Washington, DC 20503.
Background
On December 29, 1993, the IRS published a notice of proposed
rulemaking in the Federal Register (58 FR 68799) proposing amendments
to the Income Tax Regulations (26 CFR part 1) under section 42 of the
Internal Revenue Code of 1986, as amended. These amendments provide
guidance on several requirements of the low-income housing tax credit
relating to determinations of the housing credit dollar amount
available to housing credit agencies for allocation in any given year.
Written comments responding to the notice of proposed rulemaking
were received. A public hearing was scheduled for April 26, 1994,
pursuant to a notice of public hearing published simultaneously with
the notice of proposed rulemaking. The IRS received one request to
speak at the public hearing. This request was withdrawn before the
hearing date. On April 14, 1994, the IRS published a notice (59 FR
17747) cancelling the public hearing on the proposed regulations. After
consideration of the comments received, the proposed regulations are
adopted as revised by this Treasury decision.
Explanation of Provisions
Section 42 provides for a low-income housing credit that may be
claimed as part of the general business credit under section 38. In
general, the credit is allowable only if the owner of a qualified lowincome building receives a housing credit allocation from a State or
local housing credit agency (Agency) of the jurisdiction where the
building is located.
The aggregate housing credit dollar amount that an Agency may
allocate for any calendar year is limited to the State housing credit
ceiling apportioned to the Agency for that year. Under section
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42(h)(3)(C), the State housing credit ceiling of any State for any
calendar year is an amount equal to the sum of: (a) $1.25 multiplied by
the State population (the population component); (b) the unused State
housing credit ceiling, if any, of the State for the preceding calendar
year (the unused carryforward component); (c) the amount of State
housing credit ceiling returned in the calendar year (the returned
credit component); plus (d) the amount, if any, allocated to the State
by the Secretary under section 42(h)(3)(D) from a national pool of
unused credit (the national pool component).
The final regulations set forth the rules governing the order in
which credit is allocated from the various components of the State
housing credit ceiling under section 42(h)(3)(C) (the stacking rules).
In general, under the stacking rules, credit is allocated first from
the sum of the population and returned credit components, then from the
unused carryforward component, and finally from the national pool
component. The final regulations also reflect the statutory rule that
unallocated credit attributable to the national pool component cannot
be carried forward, and, therefore, is not included in the carryforward
component for the following year. In addition, the final regulations
provide that no credit allocated prior to calendar year 1990, and no
credit allowable under section 42(h)(4) (relating to the portion of
credit attributable to eligible basis financed by certain tax-exempt
obligations under section 103), may be returned for reallocation. Thus,
this credit is not included in the returned credit component for any
year.
One commentator requested clarification of the rule in the proposed
regulations that if the terms of the allocation violate any requirement
of section 42, the allocation is not valid. Specifically, the
commentator expressed concern that a misrepresentation by a taxpayer to
an Agency would result in the allocation being treated as not valid and
as if it had never been made and ineligible for treatment as a returned
credit. The final regulations do not include this statement. First, the
determination of whether an allocation is valid is not within the scope
of these regulations. Second, given the general requirement that an
allocation must be valid to qualify as a returned credit, it is
unnecessary to include the additional statement that, if the terms of
the allocation violate any requirement of section 42, the allocation is
not valid and is treated as if it had not been made. However, for all
purposes of section 42, including qualification as a returned credit,
an allocation must be validly made. See, for example, Secs. 1.42-1T and
1.42-6.
The final regulations adopt the provision of the proposed
regulations requiring that if a credit is returned within 180 days
following the close of the first taxable year of a building's credit
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period and a Form 8609, Low-Income Housing Credit Allocation
Certification, has been issued for the building, an Agency must notify
the IRS that the credit has been returned. One commentator requested
that the procedure for notifying the IRS be clarified. Accordingly, the
final regulations clarify that if all of the credit is returned, the
Agency must follow the procedures in Sec. 1.42-5(e)(3) for filing the
Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance.
In situations where the credit is only partially returned, the Agency
must follow the procedures prescribed for filing an amended Form 8610,
Annual Low-Income Housing Credit Agencies Report.
The proposed regulations permit an Agency to treat credit returned
from a project to the Agency after October 31 of any calendar year and
not reallocated by the Agency by the close of the year as returned at
the beginning of the succeeding calendar year (the two-month rule). One
commentator suggested that the two-month rule of the proposed
regulations be changed to allow more time to reallocate credits before
the close of the calendar year. Accordingly, the final regulations
provide that credit returned to the Agency after September 30 of any
calendar year and not reallocated by the close of the year may be
treated as returned at the beginning of the succeeding calendar year.
In response to another comment, the final regulations clarify that an
Agency, in its discretion, may treat a portion of a credit that is so
returned and that is not reallocated before the close of the calendar
year as returned in the next calendar year. However, to the extent any
portion of a credit returned after September 30 of any calendar year is
allocated by the close of the calendar year in which it is returned,
that portion of the credit is included as part of the returned credit
component of the State housing credit ceiling for the year in which the
credit is returned.
The proposed regulations provide that, if an allocation is
cancelled by mutual consent, a signed and dated written agreement
between the Agency and the allocation recipient (or its successor in
interest) must indicate the amount of the allocation returned and the
date on which the credit is returned. Commentators suggested that, if
the terms of an allocation state that any unused amounts are
automatically returned to the Agency by mutual agreement, the
regulations should not require a signed and dated written agreement. If
this suggestion were adopted, neither the IRS nor the Agency would know
with enough precision the amount of credit returned and the date on
which the credit is returned. This information is necessary to
determine with certainty the returned credit component of the State
housing credit ceiling and to avoid discrepancies in the amount of
credit allocated to a particular project. Thus, the final regulations
do not adopt this suggestion.
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Under section 42(h)(3)(D), States that have unused housing credit
carryovers must assign them to the Secretary for inclusion in a
national pool of unused housing credit carryovers (National Pool), and
the Secretary must allocate National Pool credit among qualified
States.
In determining whether there is any unallocated credit within the
State at the close of a calendar year, the housing credit dollar
amounts apportioned to all Agencies within the State (including
Agencies of constitutional home rule cities in the State) and the
allocations of all Agencies within the State are considered. One
commentator suggested that a constitutional home rule city be
considered alone rather than in combination with other constitutional
home rule cities or Agencies within a State in determining access to
the National Pool. Section 42(h)(3)(E) does provide special rules for
apportioning credits to constitutional home rule cities. Under these
rules, however, credits are apportioned to these cities from the State
housing credit ceiling. There is no provision in the Code that permits
a constitutional home rule city to receive credit that is not
apportioned from the State housing credit ceiling. Accordingly, the
final regulations do not adopt this suggestion.
In addition to a de minimis exception for States that have 1
percent or less of unallocated credit remaining in their State housing
credit ceiling at the close of a calendar year (de minimis rule), the
proposed regulations provide that, in other circumstances where relief
is deemed appropriate, the IRS may determine that a State is a
qualified State eligible to participate in the National Pool. One
commentator requested that States that cannot allocate their entire
ceiling as a result of a natural disaster be allowed to participate in
the National Pool. This type of relief exceeds the scope and intent
behind the limited exception provided in the proposed regulations.
Further, this type of relief would be inequitable to other States that
qualify for the National Pool. Thus, the final regulations do not adopt
this suggestion.
Another commentator suggested that the de minimis rule provide an
alternative fixed dollar amount measurement of de minimis amount to
reflect unallocated amounts that are, as a practical matter,
insufficient to provide an allocation to a project. Due to variations
in construction and housing costs across the United States, this
suggestion was not adopted. Similarly, a suggestion that the final
regulations provide a separate de minimis rule for the set-aside for
nonprofit organizations was not adopted. Under the regulations,
however, these situations can be addressed by the IRS on a case-by-case
basis. Moreover, if appropriate, additional safe harbors could be
provided in the future (e.g., to respond to other common situations not
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addressed by the 1 percent rule).
The final regulations also amend Sec. 1.42-5 to provide a cross
reference to section 42(g)(8)(B), as added by section 13142(b)(3) of
the Revenue Reconciliation Act of 1993. Section 42(g)(8)(B) provides
that on application by the taxpayer, the Secretary may waive any annual
recertification of tenant income (the Waiver) for purposes of section
42(g), if the entire building is occupied by low-income tenants.
Instructions on how to obtain the Waiver will be contained in a
forthcoming revenue procedure.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required.
Pursuant to section 7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking preceding these regulations was submitted
to the Small Business Administration for comment on its impact on small
business.
Drafting Information
The principal author of these regulations is Christopher J. Wilson,
Office of the Assistant Chief Counsel (Passthroughs and Special
Industries), IRS. However, other personnel from the IRS and the
Treasury Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
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PART 1--INCOME TAXES
Paragraph 1. The authority for part 1 is amended by adding an entry
in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.42-14 also issued under 26 U.S.C. 42(n). * * *
Par. 2. Section 1.42-5 is amended by:
1. Revising paragraph (b)(1)(vi).
2. Adding a sentence after the first sentence in paragraph
(b)(1)(vii).
3. Revising paragraph (c)(1)(iii).
4. The revisions and additions read as follows:

Sec. 1.42-5 Monitoring compliance with low-income housing credit
requirements.
* * * * *
(b) * * * (1) * * *
(vi) The annual income certification of each low-income tenant per
unit. For an exception to this requirement, see section 42(g)(8)(B)
(which provides a special rule for a 100 percent low- income building);
(vii) * * * For an exception to this requirement, see section
42(g)(8)(B) (which provides a special rule for a 100 percent low-income
building). * * *
* * * * *
(c) * * * (1) * * *
(iii) The owner has received an annual income certification from
each low-income tenant, and documentation to support that
certification; or, in the case of a tenant receiving Section 8 housing
assistance payments, the statement from a public housing authority
described in paragraph (b)(1)(vii) of this section. For an exception to
this requirement, see section 42(g)(8)(B) (which provides a special
rule for a 100 percent low-income building);
* * * * *
Par. 3. Section 1.42-14 is added to read as follows:

Sec. 1.42-14 Allocation rules for post-1989 State housing credit
ceiling amounts.
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(a) In general. The State housing credit ceiling for a State for
any calendar year after 1989 is comprised of four components. The four
components are-(1) $1.25 multiplied by the State population (the population
component);
(2) The unused State housing credit ceiling, if any, of the State
for the preceding calendar year (the unused carryforward component);
(3) The amount of State housing credit ceiling returned in the
calendar year (the returned credit component); plus
(4) The amount, if any, allocated to the State by the Secretary
under section 42(h)(3)(D) from a national pool of unused credit (the
national pool component).
(b) The population component. The population component of the State
housing credit ceiling of a State for any calendar year is determined
pursuant to section 146(j). Thus, a State's population for any calendar
year is determined by reference to the most recent census estimate,
whether final or provisional, of the resident population of the State
released by the Bureau of the Census before the beginning of the
calendar year for which the State's housing credit ceiling is set.
Unless otherwise prescribed by applicable revenue procedure,
determinations of population are based on the most recent estimates of
population contained in the Bureau of the Census publication, Current
Population Report, Series P-25; Population Estimates and Projections,
Estimates of the Population of States. For convenience, the Internal
Revenue Service publishes the population estimates annually in the
Internal Revenue Bulletin. (See Sec. 601.601(d)(2)(ii)(b)).
(c) The unused carryforward component. The unused carryforward
component of the State housing credit ceiling for any calendar year is
the excess, if any, of the sum of the population and returned credit
components, over the aggregate housing credit dollar amount allocated
for the year. Any credit amounts attributable to the national pool
component of the State housing credit ceiling that remain unallocated
at the close of a calendar year are not carried forward to the
succeeding calendar year; instead, the credit expires and cannot be
reallocated by any Agency.
(d) The returned credit component--(1) In general. The returned
credit component of the State housing credit ceiling for any calendar
year equals the housing credit dollar amount returned during the
calendar year that was validly allocated within the State in a prior
calendar year to any project that does not become a qualified lowincome housing project within the period required by section 42, or as
required by the terms of the allocation. The returned credit component
also includes credit allocated in a prior calendar year that is
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returned as a result of the cancellation of an allocation by mutual
consent or by an Agency's determination that the amount allocated is
not necessary for the financial feasibility of the project. For
purposes of this section, credit is allocated within a State if it is
allocated from the State's housing credit ceiling by an Agency of the
State or of a constitutional home rule city in the State.
(2) Limitations and special rules. The following limitations and
special rules apply for purposes of this paragraph (d).
(i) General limitations. Notwithstanding any other provision of
this paragraph (d), returned credit does not include any credit that
was-(A) Allocated prior to calendar year 1990;
(B) Allowable under section 42(h)(4) (relating to the portion of
credit attributable to eligible basis financed by certain tax-exempt
bonds under section 103); or
(C) Allocated during the same calendar year that it is received
back by the Agency.
(ii) Credit period limitation. Notwithstanding any other provision
of this paragraph (d), an allocation of credit may not be returned any
later than 180 days following the close of the first taxable year of
the credit period for the building that received the allocation. After
this date, credit that might otherwise be returned expires, and cannot
be returned to or reallocated by any Agency.
(iii) Three-month rule for returned credit. An Agency may, in its
discretion, treat any portion of credit that is returned from a project
after September 30 of a calendar year and that is not reallocated by
the close of the calendar year as returned on January 1 of the
succeeding calendar year. In this case, the returned credit becomes
part of the returned credit component of the State housing credit
ceiling for the succeeding calendar year. Any portion of credit that is
returned from a project after September 30 of a calendar year that is
reallocated by the close of the calendar year is treated as part of the
returned credit component of the State housing credit ceiling for the
calendar year that the credit was returned.
(iv) Returns of credit. Subject to the limitations of paragraphs
(d)(2) (i) and (ii) of this section, credit is returned to the Agency
in the following instances in the manner described in paragraph (d)(3)
of this section.
(A) Building not qualified within required time period. If a
building is not a qualified building within the time period required by
section 42, it loses its credit allocation and the credit is returned.
For example, a building is not qualified within the required time
period if it is not placed in service within the period required by
section 42 or if the project of which the building is a part fails to
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meet the minimum set-aside requirements of section 42(g)(1) by the
close of the first year of the credit period.
(B) Noncompliance with terms of the allocation. If a building does
not comply with the terms of its allocation, it loses the credit
allocation and the credit is returned. The terms of an allocation are
the written conditions agreed to by the Agency and the allocation
recipient in the allocation document.
(C) Mutual consent. If the Agency and the allocation recipient
cancel an allocation of an amount of credit by mutual consent, that
amount of credit is returned.
(D) Amount not necessary for financial feasibility. If an Agency
determines under section 42(m)(2) that an amount of credit allocated to
a project is not necessary for the financial feasibility of the project
and its viability as a qualified low-income housing project throughout
the credit period, that amount of credit is returned.
(3) Manner of returning credit--(i) Taxpayer notification. After an
Agency determines that a building or project no longer qualifies under
paragraph (d)(2)(iv)(A), (B), or (D) of this section for all or part of
the allocation it received, the Agency must provide written
notification to the allocation recipient, or its successor in interest,
that all or part of the allocation is no longer valid. The notification
must also state the amount of the allocation that is no longer valid.
The date of the notification is the date the credit is returned to the
Agency. If an allocation is cancelled by mutual consent under paragraph
(d)(2)(iv)(C) of this section, there must be a written agreement signed
by the Agency, and the allocation recipient, or its successor in
interest, indicating the amount of the allocation that is returned to
the Agency. The effective date of the agreement is the date the credit
is returned to the Agency.
(ii) Internal Revenue Service notification. If a credit is returned
within 180 days following the close of the first taxable year of a
building's credit period as provided in paragraph (d)(2)(ii) of this
section, and a Form 8609, Low-Income Housing Credit Allocation
Certification, has been issued for the building, the Agency must notify
the Internal Revenue Service that the credit has been returned. If only
part of the credit has been returned, this notification requirement is
satisfied when the Agency attaches to an amended Form 8610, Annual LowIncome Housing Credit Agencies Report, the original of an amended Form
8609 reflecting the correct amount of credit attributed to the building
together with an explanation for the filing of the amended Forms. The
Agency must send a copy of the amended Form 8609 to the taxpayer that
owns the building. If the building is not issued an amended Form 8609
because all of the credit allocated to the building is returned,
notification to the Internal Revenue Service is satisfied by following
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the requirements prescribed in Sec. 1.42-5(e)(3) for filing a Form
8823, Low-Income Housing Credit Agencies Report of Noncompliance.
(e) The national pool component. The national pool component of the
State housing credit ceiling of a State for any calendar year is the
portion of the National Pool allocated to the State by the Secretary
for the calendar year. The national pool component for any calendar
year is zero unless a State is a qualified State. (See paragraph (i) of
this section for rules regarding the National Pool and the description
of a qualified State.) Credit from the national pool component of a
State housing credit ceiling must be allocated prior to the close of
the calendar year or the credit expires and cannot be reallocated by
any Agency. A national pool component credit that is allocated during a
calendar year and returned after the close of the calendar year may
qualify as part of the returned credit component of the State housing
credit ceiling for the calendar year that the credit is returned.
(f) When the State housing credit ceiling is determined. For
purposes of accounting for the State housing credit ceiling on Form
8610 and for purposes of determining the set-aside apportionment for
projects involving qualified nonprofit organizations described in
section 42(h)(5) and Sec. 1.42-1T(c)(5), the State housing credit
ceiling for any calendar year is determined at the close of the
calendar year.
(g) Stacking order. Under section 42(h)(3)(C), credit is treated as
allocated from the various components of the State housing credit
ceiling in the following order. The first credit allocated for any
calendar year is treated as credit from the sum of the population and
returned credit components of the State housing credit ceiling. Once
all of the credit in these components has been allocated, the next
credit allocated is treated as credit from the unused carryforward
component of the State housing credit ceiling. Finally, after all of
the credit from the population component, returned credit component,
and unused carryforward component has been allocated, any further
credit allocated is treated as credit from the national pool component.
(h) Nonprofit set-aside--(1) Determination of set-aside. Under
section 42(h)(5) and Sec. 1.42-1T(c)(5), at least 10 percent of a State
housing credit ceiling in any calendar year must be set aside
exclusively for projects involving qualified nonprofit organizations
(the nonprofit set-aside). However, credit allocated from the nonprofit
set-aside in a calendar year and returned in a subsequent calendar year
does not retain its nonprofit set-aside character. The credit becomes
part of the returned credit component of the State housing credit
ceiling for the calendar year that the credit is returned and must be
included in determining the nonprofit set-aside of the State housing
credit ceiling for that calendar year. Similarly, credit amounts that
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are not allocated from the nonprofit set-aside in a calendar year and
are returned in a subsequent calendar year become part of the returned
credit component of the State housing credit ceiling for that year and
are also included in determining the set-aside for that year.
(2) Allocation rules. An Agency may allocate credit from any
component of the State housing credit ceiling as part of the nonprofit
set-aside and need not reserve 10 percent of each component for the
nonprofit set-aside. Thus, an Agency may satisfy the nonprofit setaside requirement of section 42(h)(5) and Sec. 1.42-1T(c)(5) in any
calendar year by setting aside for allocation an amount equal to at
least 10 percent of the total State housing credit ceiling for the
calendar year.
(i) National Pool--(1) In general. The unused housing credit
carryover of a State for any calendar year is assigned to the Secretary
for inclusion in a national pool of unused housing credit carryovers
(National Pool) that is reallocated among qualified States the
succeeding calendar year. The assignment to the Secretary is made on
Form 8610.
(2) Unused housing credit carryover. The unused housing credit
carryover of a State for any calendar year is the excess, if any, of
the unused carryforward component of the State housing credit ceiling
for the calendar year over the excess, if any, of-(i) The total housing credit dollar amount allocated for the year;
over
(ii) The sum of the population and returned credit components of
the State housing credit ceiling for the year.
(3) Qualified State--(i) In general. The term qualified State
means, with respect to any calendar year, any State that has allocated
its entire State housing credit ceiling for the preceding calendar year
and for which a request is made by the State, not later than May 1 of
the calendar year, to receive an allocation of credit from the National
Pool for that calendar year. Except as provided in paragraph (i)(3)(ii)
of this section, a State is not a qualified State in a calendar year if
there remains any unallocated credit in its State housing credit
ceiling at the close of the preceding calendar year that was
apportioned to any Agency within the State for the calendar year.
(ii) Exceptions--(A) De minimis amount. If the amount remaining
unallocated at the close of a calendar year is only a de minimis amount
of credit, the State is a qualified State eligible to participate in
the National Pool. For that purpose, a credit amount is de minimis if
it does not exceed 1 percent of the aggregate State housing credit
ceiling of the State for the calendar year.
(B) Other circumstances. Pursuant to the authority under section
42(n), the Internal Revenue Service may determine that a State is a
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qualified State eligible to participate in the National Pool even
though the State's unallocated credit is in excess of the 1 percent
safe harbor set forth in paragraph (A) of this section. The Internal
Revenue Service will make this determination based on all the facts and
circumstances, weighing heavily the interests of the States who would
otherwise qualify for the National Pool. The Internal Revenue Service
will generally grant relief under this paragraph only where a State's
unallocated credit is not substantial.
(iii) Time and manner for making request. For further guidance as
to the time and manner for making a request of housing credit dollar
amounts from the National Pool by a qualified State, see Rev. Proc. 9231, 1992-1 C.B. 775. (See 601.601(d)(2)(ii)(b)).
(4) Formula for determining the National Pool. The amount allocated
to a qualified State in any calendar year is an amount that bears the
same ratio to the aggregate unused housing credit carryovers of all
States for the preceding calendar year as that State's population for
the calendar year bears to the population of all qualified States for
the calendar year.
(j) Coordination between Agencies. The Agency responsible for
filing Form 8610 on behalf of all Agencies within a State and making
any request on behalf of the State for credit from the National Pool
(the Filing Agency) must coordinate with each Agency within the State
to ensure that the various requirements of this section are complied
with. For example, the Filing Agency of a State must ensure that all
Agencies within the State that were apportioned a credit amount for the
calendar year have allocated all of their respective credit amounts for
the calendar year before the Filing Agency can make a request on behalf
of the State for a distribution of credit from the National Pool.
(k) Examples. (1) The operation of the rules of this section may be
illustrated by the following examples. Unless otherwise stated in an
example, Agency A is the sole Agency authorized to make allocations of
housing credit dollar amounts in State M, all of Agency A's allocations
are valid, and for calendar year 1994 Agency A has available for
allocation a State housing credit ceiling consisting of the following
housing credit dollar amounts:
A.
B.
C.
D.

Population component........................................
Unused carryforward component...............................
Returned credit component...................................
National pool component.....................................

$100
50
10
0
-------Total....................................................
160

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(2) In addition, the $10 of returned credit component was returned
before October 1, 1994.
Example 1--(i) Additional facts. By the close of 1994, Agency A
had allocated $80 of the State M housing credit ceiling. Of the $80
allocated, $16 was allocated to projects involving qualified
nonprofit organizations.
(ii) Application of stacking rules. The first credit allocated
is treated as allocated from the population and returned credit
components of the State housing credit ceiling, to the extent of
those components. In this case, the $80 of credit allocated is less
than the sum of the population and returned credit components. The
excess of the sum of the population and returned credit components
over the total amount allocated for the calendar year ($110-80=$30)
becomes the unused carryforward component of State M's 1995 State
housing credit ceiling. Because Agency A did not allocate credit in
excess of the sum of the population and returned credit components,
no credit is treated as allocated from State M's $50 unused
carryforward component in 1994. Because none of this component may
be carried forward, all $50 is assigned to the Secretary for
inclusion in the National Pool. Under paragraph (i)(3) of this
section, State M does not qualify for credit from the National Pool
for the 1995 calendar year.
(iii) Nonprofit set-aside. Agency A allocated exactly the amount
of credit to projects involving qualified nonprofit organizations as
necessary to meet the nonprofit set-aside requirement ($16, 10% of
the $160 ceiling).
Example 2--(i) Additional facts. By the close of 1994, Agency A
had allocated $130 of the State M housing credit ceiling. Of the
$130 allocated, $20 was allocated to projects involving qualified
nonprofit organizations.
(ii) Application of stacking rules. The first $110 of credit
allocated is treated as allocated from the population and returned
credit components. In this case, because all of the population and
returned credit components are allocated, no amount is included in
State M's 1995 State housing credit ceiling as an unused
carryforward component. The next $20 of credit allocated is treated
as allocated from the $50 unused carryforward component. The $30
remaining in the unused carryforward component is assigned to the
Secretary for inclusion in the National Pool for the 1995 calendar
year. Under paragraph (i)(3) of this section, State M does not
qualify for credit from the National Pool for the 1995 calendar
year.
(iii) Nonprofit set-aside. Agency A allocated $4 more credit to
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projects involving qualified nonprofit organizations than necessary
to meet the nonprofit set-aside requirement. This does not reduce
the application of the 10% nonprofit set-aside requirement to the
State M housing credit ceiling for the succeeding year.
Example 3--(i) Additional fact. None of the applications for
credit that Agency A received for 1994 are for projects involving
qualified nonprofit organizations.
(ii) Nonprofit set-aside. Because at least 10% of the State
housing credit ceiling must be set aside for projects involving a
qualified nonprofit organization, Agency A can allocate only $144 of
the $160 State housing credit ceiling for calendar year 1994
($160-16=$144). If Agency A allocates $144 of credit, the credit is
treated as allocated $110 from the population and returned credit
components and $34 from the unused carryforward component. The $16
of unallocated credit that is set aside for projects involving
qualified nonprofit organizations is treated as the balance of the
unused carryforward component, and is assigned to the Secretary for
inclusion in the National Pool. Under paragraph (i)(3) of this
section, State M does not qualify for credit from the National Pool
for the 1995 calendar year.
Example 4--(i) Additional facts. The $10 of returned credit
component was returned prior to October 1, 1994. However, a $40
credit that had been allocated in calendar year 1993 to a project
involving a qualified nonprofit organization was returned to the
Agency by a mutual consent agreement dated November 15, 1994. By the
close of 1994, Agency A had allocated $160 of the State M housing
credit ceiling, including $16 of credit to projects involving
qualified nonprofit organizations.
(ii) Effect of three-month rule. Under the three-month rule of
paragraph (d)(2)(iii) of this section, Agency A may treat all or
part of the $40 of previously allocated credit as returned on
January 1, 1995. If Agency A treats all of the $40 amount as having
been returned in calendar year 1995, the State M housing credit
ceiling for 1994 is $160. This entire amount, including the $16
nonprofit set-aside, has been allocated in 1994. Under paragraph
(i)(3) of this section, State M qualifies for the National Pool for
the 1995 calendar year.
(iii) If three-month rule not used. If Agency A treats all of
the $40 of previously allocated credit as returned in calendar year
1994, the State housing credit ceiling for the 1994 calendar year
will be $200 of which $50 will be attributable to the returned
credit component ($10+$40=$50). Because credit amounts allocated in
a prior calendar year that are returned in a subsequent calendar
year do not retain their nonprofit character, the nonprofit setfile:///A|/TD8563.htm (15 of 17)10/3/2007 10:23:55 AM

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aside for calendar year 1994 is $20 (10% of $200). The $160 that
Agency A allocated during 1994 is first treated as from the
population and returned credit components, which total $150. The
next $10 of credit allocated is treated as from the unused
carryforward component. The $40 of unallocated credit from the
unused carryforward component includes the $4 of unallocated
nonprofit set-aside. The entire $40 of credit from the carryforward
component is assigned to the Secretary for inclusion in the National
Pool for the 1995 calendar year. State M does not qualify for credit
from the National Pool for the 1995 calendar year.
Example 5--(i) (A) Additional facts. For calendar year 1994,
Agency A has a State housing credit ceiling that consists of the
following housing credit dollar amounts:
A.
B.
C.
D.

Population component........................................
Unused carryforward component...............................
Returned credit component...................................
National pool component.....................................

$100
0
20
10
-------Total....................................................
130
Minimum nonprofit set-aside....................................
13
Ceiling amount not set-aside...................................
117

In addition, the $20 of returned credit component was returned
before October 1, 1994. By the close of 1994, Agency A had allocated
$100 of the State housing credit ceiling.
(ii) Application of stacking rules. The $20 excess of the sum of
the population component and the returned credit component over the
total amount allocated for the calendar year ($120-100=$20) becomes
the unused carryforward component of the State housing credit
ceiling for the 1995 calendar year. The $10 of unallocated credit
from the national pool component expires and cannot be reallocated.
This amount is neither carried over to 1995 by State M nor assigned
to the Secretary for inclusion in the National Pool. Under paragraph
(i)(3) of this section, State M does not qualify for credit from the
National Pool for the 1995 calendar year.
(l) Effective date. The rules set forth in Sec. 1.42-14 are
effective January 1, 1994.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 4. The authority citation for part 602 continues to read as
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follows:
Authority: 26 U.S.C. 7805.

Sec. 602.101(c)

[Amended]

Par. 5. Section 602.101(c) is amended by adding the entry ``1.4214....1545-1423'' in numerical order to the table.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: September 9, 1994.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 94-24283 Filed 9-30-94; 8:45 am]
BILLING CODE 4830-01-P

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