Notice 2011-14

Part III. Administrative, Procedural, and Miscellaneous
Tax Consequences to
Homeowners, Mortgage
Servicers, and State
Housing Finance Agencies
of Participation in the HFA
Hardest Hit Fund and The
Emergency Homeowners’
Loan Program
Notice 2011–14
PURPOSE
This notice provides guidance on the
federal tax consequences of, and information reporting requirements for, payments
made to or on behalf of financially distressed homeowners under programs designed by state housing finance agencies
(State HFAs)1 with funds allocated from
the Housing Finance Agency Innovative
Fund for the Hardest-Hit Housing Markets
(HFA Hardest Hit Fund). This notice applies to the programs designed by State
HFAs that are listed in the Appendix to this
notice (State Programs).
This notice also provides guidance
on the federal tax consequences of, and
information reporting requirements for,
payments made on behalf of financially
distressed homeowners under the Department of Housing and Urban Development’s Emergency Homeowners’ Loan
Program (EHLP) and any existing state
program receiving funding from the EHLP
(the substantially similar state programs
or SSSPs).
Specifically, this notice addresses
whether—

•

•

Disbursements under a “Forgivable
Loan” (as defined below) or a HUD
Note (as defined below) are treated as
payments to homeowners and not as
disbursements of loan proceeds;
Homeowners who receive or benefit
from payments made under the State
Programs, the EHLP, or the SSSPs exclude the payments from gross income
under the general welfare exclusion
and deduct otherwise deductible expenses (for example, mortgage interest

•

and real property taxes) paid from
those payments; and
Payments to or on behalf of homeowners made under the State Programs, the
EHLP, or the SSSPs are exempt from
the information reporting requirements
of §§ 6041 and 6050H of the Internal
Revenue Code.

THE HFA HARDEST HIT FUND
PROGRAM
Overview

and the purposes of the HFA Hardest Hit
Fund. Funding under the HFA Hardest Hit
Fund is available for, but not limited to,
programs involving the following transactions: mortgage modifications, principal
forbearance to facilitate additional mortgage modifications, short sales and deedsin-lieu of foreclosure, unemployment programs, principal reductions for homeowners with severe negative equity, and second-lien reductions and modifications.
Approved State Programs and their
Common Elements

In February 2010, the United States
Department of the Treasury (Treasury Department) established the HFA Hardest
Hit Fund, which is authorized by section
109 of the Emergency Economic Stabilization Act (EESA), Division A of Pub.
L. 110–343, 112 Stat. 3774 (2008). The
purposes of the HFA Hardest Hit Fund
are to provide funds to the State Programs
(1) to assist homeowners in preventing
avoidable foreclosures, and (2) to stabilize
housing markets. The HFA Hardest Hit
Fund is designed to allow each State HFA
maximum flexibility in designing locally
focused programs to address the needs of
financially distressed homeowners within
the state or a specific region of the state.
Each of the State Programs that receives
funding from the HFA Hardest Hit Fund
has as its primary objective preventing
avoidable foreclosures of homeowners’
homes and stabilizing housing markets.
The HFA Hardest Hit Fund is available
in states where either housing prices have
declined more than 20 percent from peak
prices or the unemployment rate equals or
exceeds the national average. The states
eligible for this funding are Alabama, Arizona, California, the District of Columbia,
Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada,
New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, and
Tennessee.
To receive funding from the HFA Hardest Hit Fund, each of these states submitted proposals describing its programs
and verifying that each of the programs
would meet the requirements of the EESA

The Treasury Department has approved
all of the State Programs listed in the Appendix to this notice2 and is distributing
funds from the HFA Hardest Hit Fund
for use by the State HFAs. Generally,
under the State Programs homeowners
must demonstrate that they have suffered a financial hardship due to certain
events, such as unemployment, underemployment, medical condition, death of a
spouse, or divorce, and as a result are in
danger of losing their homes in foreclosure
or need financial assistance to ensure that
their loans become or remain affordable.
Although most of the State Programs have
the goal of helping financially distressed
homeowners remain in their homes, some
State Programs also help homeowners
who can no longer afford their homes to
transition to more affordable homes. Some
states limit participation in their programs
to homeowners whose income does not
exceed certain limits.
In some cases, the State Programs assist
a homeowner by making cash payments
directly to or on behalf of the homeowner
without mentioning any repayment obligation. On the other hand, sometimes the
governing documents discuss repayment
and call the arrangement a “loan” or a “forgivable loan.” Even in these cases, however, the terms of the arrangement generally operate to relieve the homeowner
of an obligation to make any repayments.
The terms achieve this end by reducing the
stated principal amount to zero over time if
the homeowner meets certain program requirements. Though State Programs may

1

For purposes of this notice, the term “state housing finance agencies” includes other non-profit agencies organized and controlled by a state. In addition, the term “state” means the 50 states,
the District of Columbia, and the Commonwealth of Puerto Rico.

2

The Treasury Department may amend the list of State Programs in the Appendix to this notice through subsequent published guidance.

March 14, 2011

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2011–11 I.R.B.

vary, an arrangement like this is generally
secured by a subordinate lien on the home
and is documented as a zero-percent-interest, nonrecourse, non-amortizing “loan” to
the homeowner with a term ranging from
3 to 10 years. (This notice calls these arrangements “Forgivable Loans.”) For example, under some programs the unpaid
stated principal of a Forgivable Loan declines 20 percent each year for 5 years
if the homeowner remains current on the
homeowner’s mortgage loan payments and
continues to use the property as a principal
residence. In general, no payments are due
on a Forgivable Loan unless (1) the homeowner sells, refinances, or transfers title to
the property before the term expires, and
(2) equity proceeds from the sale, refinancing, or title transfer are available to pay
some or all of the remaining unpaid stated
principal balance. As a result, the Treasury
Department and the State Programs do not
expect homeowners to make more than a
minimal amount of payments on Forgivable Loans.
THE EMERGENCY HOMEOWNERS’
LOAN PROGRAM AND
SUBSTANTIALLY SIMILAR STATE
PROGRAMS
Overview
Section 1496 of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act (Dodd-Frank Act), Pub. L. 111–203,
124 Stat.
2207 (2010), reauthorized
and revised the Emergency Homeowners’ Loan Program (EHLP), 12 U.S.C.
§§ 2701–2712, and provided $1 billion
to the Department of Housing and Urban Development (HUD) to implement
the EHLP and existing state programs
that are substantially similar to the EHLP
(the substantially similar state programs
or SSSPs). The purpose of the EHLP
and the SSSPs is to provide assistance to
homeowners who are at risk of foreclosure
and have experienced a substantial reduction in income as a result of involuntary
unemployment or underemployment due
to adverse economic or medical conditions. See 12 U.S.C. § 2702(4). The $1
billion of funding is allocated based on a
state’s approximate share of unemployed
homeowners. The EHLP and the SSSPs
complement the HFA Hardest Hit Fund
by providing assistance to homeowners in

2011–11 I.R.B.

Puerto Rico and the 32 states that did not
receive funds from the HFA Hardest Hit
Fund. See Emergency Homeowners’ Loan
Program: Notice of Allocation of Funding
for Substantially Similar State Programs
(“Funding Notice”), 75 Fed. Reg. 69,454
(November 12, 2010).
Eligible Pre-Existing State Programs
The Dodd-Frank Act provides that a
state may administer EHLP funds if HUD
determines that the state program qualifies
as an SSSP. An SSSP is a state program
existing on July 21, 2010, that provides
substantially similar assistance to homeowners. 12 U.S.C. § 2707(d). A state with
an SSSP may exercise greater flexibility
in program design and is not required to
modify its program to comply with Title
12 after HUD determines that the program
is an SSSP. 12 U.S.C. § 2707(d). To receive funding from the EHLP, State HFAs
submitted proposals describing how their
programs provide assistance to homeowners that is substantially similar to that provided under the EHLP. Only SSSPs are eligible to administer an allocation from the
$1 billion provided to the EHLP under the
Dodd-Frank Act. Section III.B.2 of the
Funding Notice. If a state does not have
an SSSP, then HUD administers the state’s
allocation from the $1 billion of funding in
accordance with the EHLP.
Homeowners Eligible for Assistance and
Operation of the EHLP and SSSPs
To receive assistance from the EHLP
or an SSSP, a homeowner must meet certain eligibility requirements. The homeowner must reside in the mortgaged property as his or her principal residence at the
time of application and for the duration
of the assistance. The homeowner must
also be involuntarily unemployed or underemployed because of adverse economic
or medical conditions. The homeowner
must have household income equal to or
less than 120% of the area median income
for the area in which the homeowner resides, and have experienced a substantial
reduction in income as a result of involuntary unemployment or underemployment
due to adverse economic or medical conditions. See 12 U.S.C. § 2702(4). The homeowner also must be at least three months
delinquent on the homeowner’s first mortgage and provide evidence that foreclo-

545

sure on that mortgage is likely or imminent. In addition, the homeowner must
have a reasonable likelihood of being able
to (1) resume repayments of the first mortgage obligation within two years, and (2)
meet other housing expenses and debt obligations when the assistance ends. See 12
U.S.C. § 2702.
Under the EHLP (but not an SSSP),
eligible homeowners must contribute the
greater of 31 percent of their monthly
gross income or $25 towards the monthly
payments on the first mortgage. Under
the EHLP, homeowner contributions will
be combined with the governmental funds
and forwarded to the servicer/lender as the
monthly payment on the first mortgage.
HUD expects the SSSPs to use their existing procedures for handling borrower
contributions.
The EHLP will provide a reasonably
necessary amount to assist an eligible
homeowner with (i) a maximum of 24
months of monthly payments of mortgage
principal, interest, mortgage insurance
premiums, taxes, and hazard insurance,
and (ii) payments of arrearages (mortgage
principal, interest, mortgage insurance
premiums, taxes, hazard insurance, late
fees, and certain foreclosure related legal
expenses). HUD prefers, but does not
require, the SSSPs to limit assistance to
a 24-month period. The EHLP and the
SSSPs must include assistance in making monthly payments to the servicer of
the first mortgage and may not restrict
payments only to arrearages. If the household’s gross income increases to 85% or
more of the income prior to the unemployment, underemployment, or medical
condition, then the assistance will be
phased out over a two-month period.
The assistance that the EHLP and the
SSSPs provide to a homeowner must be
pursuant to a note with terms and repayment conditions that are similar to the
Forgivable Loan described above, except
that the homeowner is responsible for repayment of the applicable balance of the
note if the homeowner defaults on the
homeowner’s monthly mortgage payment
obligation during the five-year period after the assistance ends. (This notice calls
these arrangements “HUD Notes.”) As a
result, HUD and the SSSPs do not expect
homeowners to make more than a minimal
amount of payments on the HUD Notes.

March 14, 2011

APPLICABLE PROVISIONS OF LAW
Characterization of Forgivable Loans and
the HUD Notes
If assistance to a homeowner under a
State Program is structured as a Forgivable
Loan, the Internal Revenue Service will
treat the disbursements to or on behalf of
the homeowner as payments to the homeowner rather than as disbursements of loan
proceeds, and those payments are treated
as occurring at the time the disbursements
are made. Similarly, if assistance to a
homeowner under the EHLP or an SSSP
is pursuant to a HUD Note, the IRS will
treat the disbursements to or on behalf of
the homeowner as payments to the homeowner rather than as disbursements of loan
proceeds, and those payments are treated
as occurring at the time the disbursements
are made.
Income Tax Consequences to Homeowners
Section 61(a) of the Code provides
that, except as otherwise provided by
law, gross income means all income from
whatever source derived. The Service has
consistently held, however, that payments
made under governmental programs for
the promotion of the general welfare are
not includible in an individual recipient’s
gross income (general welfare exclusion).
See Rev. Rul. 2009–19, 2009–28 I.R.B.
111, holding that Pay-for-Performance
Success Payments made under the Home
Affordable Modification Program to help
homeowners who are at risk of losing their
homes pay their mortgage loans on their
principal residences are excluded from income under the general welfare exclusion.
See also Rev. Rul. 76–373, 1976–2 C.B.
16.
Similar to the payments in Rev. Rul.
2009–19, the payments made under the
State Programs with funds from the HFA
Hardest Hit Fund and the payments made
under the EHLP and the SSSPs with
funds authorized by the Dodd-Frank Act
promote the general welfare by helping
homeowners who are at risk of losing their
homes either pay their mortgage loans or
transition to more affordable housing and
do not involve the performance of services. Therefore, payments made under
the State Programs, the EHLP, and the
SSSPs to or on behalf of a homeowner

March 14, 2011

are excluded from gross income under the
general welfare exclusion.
For taxable years 2010, 2011, and
2012, this notice provides a safe harbor
method pursuant to which a homeowner
may deduct on his or her federal income
tax return an amount equal to the sum
of all payments the homeowner actually
makes during that year to the mortgage
servicer, HUD, or the State HFA on the
home mortgage, but not in excess of the
sum of the amounts shown on Form 1098,
Mortgage Interest Statement, in box 1
(mortgage interest received), box 4 (mortgage insurance premiums) for years 2010
and 2011 only, and box 5 (real property
taxes). This safe harbor method of computing the homeowner’s deduction applies
for a taxable year if (1) the homeowner
meets the requirements of §§ 163 and
164 to deduct all of the mortgage interest
on the loan and all of the real property
taxes on the principal residence; and (2)
the homeowner participates in the EHLP,
an SSSP, or a State Program described in
the Appendix to this notice in which the
program payments could be used to pay
interest on the home mortgage.
Information Reporting Obligations
Section 6041 of the Code requires every
person engaged in a trade or business (including state governments and their agencies) to (1) file an information return for
each calendar year in which the person
makes in the course of its trade or business
payments to another person of fixed and
determinable income aggregating $600 or
more, and (2) furnish a copy of the information return to that person. See § 6041(a)
and (d) and § 1.6041–1(a)(1) and (b) of the
Income Tax Regulations.
Because the payments made under the
State Programs, the EHLP, and the SSSPs
are excluded from the gross income of the
homeowners, they are not fixed or determinable income under § 6041. Thus, under
§ 6041 payors do not file information returns or furnish copies to homeowners for
payments made under the State Programs,
the EHLP, or the SSSPs.
Section 6050H of the Code requires
every person engaged in a trade or business (including state governments and
their agencies) to (1) file an information
return for each calendar year in which the
person receives in the course of its trade or

546

business payments from an individual of
interest on a mortgage aggregating $600
or more, and (2) furnish a copy of the
information return to that individual. See
§ 6050H(a) and (d) and § 1.6050H–1(a) of
the regulations.
For purposes of § 6050H, interest received from a governmental unit or its
agency or instrumentality is not interest received on a mortgage, and thus should not
be reported as interest received on a mortgage. See § 1.6050H–1(e)(3)(ii) of the regulations.
Accordingly, if a person receives payments under a State Program, the EHLP,
or an SSSP from a governmental unit or
its agency or instrumentality of interest
on the homeowner’s mortgage, that person
should not include those payments in the
amount reported as interest received on a
mortgage on Form 1098.
Section 6721 of the Code imposes
penalties on a person for failing to include all required information or including
incorrect information on an information
return. Section 6722 imposes penalties on
a person for failing to include all required
information or including incorrect information on a payee statement. However,
the Service will not assert penalties under
§§ 6721 and 6722 against a mortgage servicer that reports on Forms 1098 payments
received under a State Program, the EHLP,
or an SSSP during calendar year 2010.
Additionally, the Service will not assert
penalties under §§ 6721 and 6722 against
a mortgage servicer that reports on Forms
1098 payments received under a State
Program, the EHLP, or an SSSP during
calendar years 2011 or 2012 if the servicer
notifies homeowners that the amounts reported on the Form 1098 are overstated
because they include government subsidy
payments. The Service will not assert
penalties under §§ 6721 and 6722 against
any State HFA for failing to file and furnish Forms 1098 for calendar year 2010.
Furthermore, the Service will not assert
penalties under §§ 6721 and 6722 against
any State HFA for failing to file and furnish Forms 1098 for calendar years 2011
and 2012 if the State HFA provides each
homeowner and the IRS a statement setting forth (1) the homeowner’s name and
TIN, and (2) the amount of payments the
State HFA made to the mortgage servicer
under the State Program or the SSSP during that year (separately stating the amount

2011–11 I.R.B.

the State HFA paid and the amount the
homeowner paid). The statement the State
HFA provides to the IRS must be a single
statement that separately lists the names,
TINs, and relevant payment amounts for
each homeowner. In addition, for calendar
years 2011 and 2012, HUD should provide
each homeowner and the IRS a statement
setting forth (1) the homeowner’s name
and TIN, and (2) the amount of payments
HUD made to the mortgage servicer under
the EHLP during that year (separately stating the amount HUD paid and the amount
the homeowner paid). The statement HUD
provides to the IRS should be a single
statement that separately lists the names,
TINs, and relevant payment amounts for
each homeowner. The IRS intends to issue
future published guidance specifying the
IRS office where the State HFAs and HUD
should send the single statements.
SUMMARY OF FEDERAL TAX
CONSEQUENCES OF PAYMENTS
UNDER THE STATE PROGRAMS,
THE EHLP, OR THE SSSPS TO
ASSIST FINANCIALLY DISTRESSED
HOMEOWNERS
Disbursements under a Forgivable
Loan or a HUD Note are treated as payments to a homeowner and not as disbursements of loan proceeds.
A homeowner who receives or benefits from payments made under the State
Programs, the EHLP, or an SSSP excludes
the payments from gross income under the
general welfare exclusion.
Payments to or on behalf of a homeowner made under the State Programs, the
EHLP, and the SSSP are not subject to
the information reporting requirements of
§ 6041.

The Service will not assert penalties
under §§ 6721 and 6722 against a mortgage servicer that reports on Forms 1098
payments received under a State Program,
the EHLP or an SSSP during calendar year
2010. Additionally, the Service will not
assert penalties under §§ 6721 and 6722
against a mortgage servicer that reports
on Forms 1098 payments received under
a State Program, the EHLP, or an SSSP
during calendar years 2011 or 2012 if
the servicer notifies homeowners that the
amounts reported on the Form 1098 are
overstated because they include government subsidy payments.
The Service will not assert penalties
under §§ 6721 and 6722 against any State
HFA for failing to file and furnish Forms
1098 for calendar year 2010. In addition,
the Service will not assert penalties under
§§ 6721 and 6722 for calendar years 2011
and 2012 against any State HFA if the
State HFA provides each homeowner and
the IRS a statement setting forth (1) the
homeowner’s name and TIN, and (2) the
amount of payments the State HFA made
to a mortgage servicer under the State
Program or the SSSP during that year
(separately stating the amount the State
HFA paid and the amount the homeowner
paid). The statement the State HFA provides to the IRS must be a single statement
that separately lists the names, TINs, and
relevant payment amounts for each homeowner. For calendar years 2011 and 2012,
HUD should provide each homeowner
and the IRS a statement setting forth (1)
the homeowner’s name and TIN, and (2)
the amount of payments HUD made to the
mortgage servicer under the EHLP during
that year (separately stating the amount
HUD paid and the amount the homeowner
paid). The statement HUD provides to the

IRS should be a single statement that separately lists the names, TINs, and relevant
payment amounts for each homeowner.
The IRS intends to issue future published
guidance specifying the IRS office where
the State HFAs and HUD should send the
single statements.
For taxable years 2010, 2011, and
2012, this notice provides a safe harbor
method pursuant to which a homeowner
may deduct on his or her federal income
tax return an amount equal to the sum
of all payments the homeowner actually
makes during that year to the mortgage
servicer, HUD, or the State HFA on the
home mortgage, but not in excess of the
sum of the amounts shown on Form 1098,
Mortgage Interest Statement, in box 1
(mortgage interest received), box 4 (mortgage insurance premiums) for years 2010
and 2011 only, and box 5 (real property
taxes). This safe harbor method of computing the homeowner’s deduction applies
for a taxable year if (1) the homeowner
meets the requirements of §§ 163 and
164 to deduct all of the mortgage interest
on the loan and all of the real property
taxes on the principal residence, and (2)
the homeowner participates in the EHLP,
an SSSP, or a State Program described in
the Appendix to this notice in which the
program payments could be used to pay
interest on the home mortgage.
PERSON TO CONTACT
The principal author of this notice is
Shareen S. Pflanz of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this notice, contact Shareen S. Pflanz
at (202) 622–4920 (not a toll-free call).

Appendix
Alabama
Hardest Hit for Alabama’s Unemployed Homeowners
Arizona
Save My Home AZ Program:
Permanent Modifications Component
Second Mortgage Assistance Component
Temporary Modification Component

2011–11 I.R.B.

547

March 14, 2011

California
Unemployment Mortgage Assistance Program
Mortgage Reinstatement Assistance Program
Principal Reduction Program
The Transition Assistance Program
District of Columbia
Homesaver Program
Florida
Unemployment Mortgage Assistance Program
Mortgage Loan Reinstatement Program
Georgia
Mortgage Payment Assistance (MPA)
Illinois
Hardest Hit Fund Homeowner Emergency Loan Program (HHF HELP)
Indiana
Hardest Hit Fund Unemployment Bridge Program
Kentucky
Kentucky Unemployment Bridge Program
Michigan
Principal Curtailment Program
Loan Rescue Program
Unemployment Mortgage Subsidy Program
Mississippi
Home Saver Program
Nevada
Principal Reduction Program
Second Mortgage Reduction Plan
Short-Sale Acceleration Program
Mortgage Assistance Program (MAP)
New Jersey
New Jersey Homekeeper Program (NJHK)
North Carolina
Mortgage Payment Program (MPP–1)
Mortgage Payment Program (MPP–2)
Second Mortgage Refinance Program (SMRP)
Permanent Loan Modification Program (PLMP)

March 14, 2011

548

2011–11 I.R.B.

Ohio
Rescue Payment Assistance Program
Partial Mortgage Payment Assistance Program
Mortgage Modification with Principal Reduction Program
Transition Assistance Program
Short Refinance Program
Oregon
Loan Modification Assistance Program
Mortgage Payment Assistance Program
Loan Preservation Assistance Program
Transition Assistance Program
Rhode Island
Loan Modification Assistance for HAMP Customers (LMA-HAMP)
Loan Modification Assistance for Non-HAMP Customers (LMA-Non-HAMP)
Temporary and Immediate Homeowner Assistance (TIHA)
Moving Forward Assistance
Mortgage Payment Assistance — Unemployment Program
South Carolina
Monthly Payment Assistance Program
Direct Loan Assistance Program
HAMP Assistance Program
Second Mortgage Assistance Program
Property Disposition Assistance Program
Tennessee
Hardest Hit Fund Program (HHFP)

Postponing Filing Date for
Section 6045B Issuer Return
Notice 2011–18
PURPOSE
This notice provides transitional relief
from information reporting requirements
in section 6045B of the Internal Revenue
Code (“Code”) that apply to issuers of
stock with respect to organizational actions that affect the basis of the stock.
This notice provides that, for organizational actions occurring in 2011, the Internal Revenue Service will not impose
penalties against issuers for missing the
deadline to file a return reporting the action
or make the return publicly available provided that the issuer files the return with

2011–11 I.R.B.

the Service or makes it publicly available
by January 17, 2012. This notice does not
apply to an issuer’s requirement to furnish
the same information to the issuer’s stockholders and nominees of its stockholders.
BACKGROUND
Section 403 of the Energy Improvement
and Extension Act of 2008, Div. B of
Pub. L. No. 110–343, 122 Stat. 3765,
enacted on October 3, 2008, added section
6045B to the Code. Section 6045B provides that, for organizational actions beginning in 2011, an issuer of stock must
file a return with the Service to describe
any organizational action (such as a stock
split, merger, or acquisition) that affects
the basis of a specified security. Under section 6045B(d) and section 6045(g)(3)(B),
in 2011 a specified security is limited to
stock in a corporation. The issuer gener-

549

ally must file the return within 45 days after the organizational action. The issuer
must also furnish a corresponding statement to each nominee of the stockholder
(or to each stockholder if there is no nominee) by January 15th of the year following
the calendar year of the organizational action.
Alternately, the issuer is not required
to file an issuer return with the Service if it posts the return on its primary
public Web site in a readily accessible
format by the filing date. Treas. Reg.
§ 1.6045B–1(a)(3).
The requirements under section 6045B
do not apply to issuers of stock in a regulated investment company until 2012.
Under the 45-day deadline, the earliest
date that an issuer must file a return is February 15, 2011, for an organizational action
that took place on January 1, 2011.

March 14, 2011