Td 9753

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 901.—Taxes of
Foreign countries and of
possessions of United
States

26 CFR 1.42–5T, 26 CFR 1.42–5

Modification of Rev. Rul.
2005–3. Rev. Rul. 2005–3,
2005–1 C.B. 334, with
respect to countries
described in section
901(j)(2)(A) of the Internal
Revenue Code (“Code”), is
modified.

any foreign country during any period
during which section 901(j) applies to that
foreign country.
The special rules under sections 901(j)
and 952(a)(5) cease to apply to a country
when the Secretary of State certifies to the
Secretary of the Treasury that such country is no longer described in section
901(j)(2)(A). Revenue Ruling 2005–3 sets
forth the countries which are (or were)
described in section 901(j)(2)(A) and the
period during which the special rules under sections 901(j) and 952(a)(5) apply
with respect to each such country. Based
on the certification by the Secretary of
State, this revenue ruling states the date on
which Cuba ceased to be described in
section 901(j)(2)(A).

Rev. Rul. 2016 – 08

HOLDING AND EFFECTIVE DATE

This ruling modifies Rev. Rul. 2005–3,
2005–1 C.B. 334, which lists countries
subject to special rules under sections
901(j) and 952(a)(5) of the Code.

The list of countries in Revenue Ruling
2005–3 is modified by changing the reference to Cuba as follows:

SUMMARY: This document contains final and temporary regulations relating
to the compliance-monitoring duties of a
State or local housing credit agency for
purposes of the low-income housing
credit. The final and temporary regulations revise and clarify the requirement
to conduct physical inspections and review low-income certifications and
other documentation. The final and temporary regulations will affect State or
local housing credit agencies. The text
of these temporary regulations also
serves as the text of the proposed regulations (REG–150349 –12) set forth in
the notice of proposed rulemaking on
this subject in the Proposed Rules section in this issue of the Internal Revenue Bulletin.

26 CFR 1.901–2: Income, war profits, or excess
profits tax paid or accrued
(Also: Section 952(a)(5))

LAW AND ANALYSIS
Sections 901, 902, and 960 of the Code
generally allow U.S. taxpayers to claim a
foreign tax credit for income, war profits, and
excess profits taxes paid or accrued (or
deemed paid or accrued) to any foreign country or to any possession of the United States.
The foreign tax credit is subject to various
limitations and restrictions under section 901.
Section 901(j)(1) imposes restrictions
in the case of income and taxes attributable to certain countries. Section
901(j)(1)(A) denies the credit for taxes
paid or accrued (or deemed paid or accrued under section 902 or 960) to any
country described in section 901(j)(2)(A)
if the taxes are with respect to income
attributable to a period during which section 901(j) applies. Section 901(j)(1)(B)
requires taxpayers to apply subsections
(a), (b), and (c) of section 904 and sections 902 and 960 separately with respect
to income attributable to such a period
from sources within such country. In addition, section 952(a)(5) provides that
subpart F income includes income derived
by a controlled foreign corporation from

March 14, 2016

Country
Cuba

Starting
Date
January
1, 1987

Ending
Date
December
21, 2015

For guidance on issues arising in a
taxable year when section 901(j) ceases to
apply to a country, see Rev. Rul. 92– 62,
1992–2 C.B. 193.
EFFECT ON OTHER REVENUE
RULINGS
This ruling modifies Rev. Rul. 2005–3,
2005–1 C.B. 334, with respect to countries subject to special rules under sections
901(j) and 952(a)(5) of the Code.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Richard L. Chewning of the Office of Associate Chief Counsel (International). For further information regarding this revenue ruling, contact
Mr. Chewning at (202) 317-6936 (not a
toll-free number).

T.D. 9753
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Amendments to the
Low-Income Housing Credit
Compliance-Monitoring
Regulations
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final and temporary regulations.

DATES: Effective date: These regulations
are effective on February 25, 2016.
Applicability date: For dates of applicability, see § 1.42–5T(h)(2).
FOR FURTHER INFORMATION
CONTACT: Jian H. Grant, (202) 3174137, and Martha M. Garcia, (202) 3176853 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document amends 26 CFR part 1
to revise and clarify rules relating to sec-

426

Bulletin No. 2016 –11

tion 42 of the Internal Revenue Code
(Code). On March 5, 2012, the Treasury
Department and the IRS published Notice
2012–18, 2012–10 IRB 438. Notice
2012–18 informed State and local housing
credit agencies participating in a physical inspections pilot program of an alternative method for satisfying certain
inspection and review responsibilities
under § 1.42–5(c)(2) for projects for
which the Department of Housing and
Urban Development (HUD) conducted
physical inspections.1 Notice 2012–18
also requested comments on various issues relating to § 1.42–5. The Treasury
Department and the IRS received written and electronic comments in response. After consideration of all of the
comments received, the Treasury Department and the IRS are issuing these
final and temporary regulations.
This document also updates the authority citation of 26 CFR part 1. The Omnibus Budget Reconciliation Act of 1989
(Public Law 101–239) re-designated section 42(m) of the Code as section 42(n).
The updates in this document reflect that
re-designation.
General Overview
Section 42 provides rules for determining the amount of the low-income
housing credit, which section 38 allows
as a credit against income tax. Section
42(a) provides that the amount of the
low-income housing credit for any taxable year in the credit period is an
amount equal to the applicable percentage of the qualified basis of each qualified low-income building. Section
42(c)(2) defines a qualified low-income
building as any building that is part of a
qualified low-income housing project at
all times during the compliance period
(the period of 15 taxable years beginning with the first taxable year of the
credit period).
Section 42(g)(1) defines a qualified
low-income housing project as any project
for residential rental property if the project meets one of the following tests, as
elected by the taxpayer:
(A) At least 20 percent of the residential
units in the project are rent-restricted and
1

occupied by individuals whose income is
50 percent or less of area median gross
income; or
(B) At least 40 percent of the residential
units in the project are rent-restricted and
occupied by individuals whose income is
60 percent or less of area median gross
income. In general, under section
42(i)(3)(A), a low-income unit is a residential unit that is rent-restricted and the
occupants of which meet the applicable
income limit elected by the taxpayer as
described in section 42(g)(1)(A) or (B).
Under section 42(i)(3)(B)(i), a unit is
not treated as a low-income unit unless
it is suitable for occupancy and used
other than on a transient basis. Under
section 42(i)(3)(B)(ii), the suitability of
a unit for occupancy must be determined
under regulations prescribed by the Secretary taking into account local health,
safety, and building codes. Failure of
one or more units to qualify as lowincome units may result in a project’s
ineligibility for the low-income housing
credit, reduction in the amount of the
credit, and/or recapture of previously
allowed credits.
Under section 42(m)(1), the owners
of an otherwise-qualifying building are
not entitled to low-income housing credits that are allocated to the building
unless, among other requirements, the
allocation is pursuant to a qualified allocation plan (QAP). A QAP provides
standards by which a State or local
housing credit agency or its Authorized
Delegate within the meaning of
§ 1.42–5(f)(1) (“Agency”) will make
these allocations. A QAP also provides
a procedure that an Agency must follow
in monitoring for compliance with the
provisions of section 42. A plan fails to
be a QAP unless, in addition to other
requirements, it—
provides a procedure that the
agency (or an agent or other private
contractor of such agency) will
follow in monitoring for noncompliance with the provisions of [section
42] and in notifying the Internal
Revenue Service of such noncompliance which such agency becomes
aware of and in monitoring for

noncompliance with habitability
standards through regular site visits.
Section 42(m)(1)(B)(iii).
Section 1.42–5 (the compliancemonitoring regulations) describes some of
the provisions that must be part of any QAP.
As part of its compliance-monitoring responsibilities, an Agency must perform
physical inspections and low-income certification review.
The compliance-monitoring regulations specifically provide that, for each
low-income housing project, an Agency
must conduct on-site inspections of all
buildings by the end of the second calendar year following the year the last building in the project is placed in service (the
all-buildings requirement). In addition,
prior to the amendments in this document,
the regulations provided that, for at least
20 percent of the project’s low-income
units (the 20-percent rule), the Agency
must both inspect the units and review the
low-income certifications, the documentation supporting the certifications, and the
rent records for the tenants in those
same units (the same-units requirement). The regulations provide that the
Agency must also conduct on-site inspections and low-income certification
review at least once every 3 years after
the initial on-site inspection. Further,
the regulations require the Agency to
randomly select which low-income units
and tenant records to inspect and review
(the random-selection rule). The regulations also require the Agency to choose
the low-income units and tenant records
in a manner that will not give owners of
low-income housing projects advance
notice that a unit and tenant records for
a particular year will or will not be
inspected and reviewed (the no-notice
rule). However, an Agency may give an
owner reasonable notice that an inspection of the building and low-income
units or tenant record review will occur
so that the owner may notify tenants of
the inspection or assemble tenant records for review (for example, 30-day
notice of inspection or review).

Notice 2014 –15, 2014 –12 IRB 661, extended permission through December 31, 2014, for State and local housing credit agencies to use the alternative method in Notice 2012–18.

Bulletin No. 2016 –11

427

March 14, 2016

Summary of Comments and
Explanation of Provisions
Use of the REAC Protocol, Physical
Inspections, and Low-Income
Certification Reviews
Notice 2012–18 asked whether the 20percent rule for both physical inspections
and low-income certification review is appropriate, including whether this percentage appropriately balances the IRS’s compliance concerns against the desirability
of reducing the inspection burden on
Agencies, tenants, and building owners;
whether the percentage should vary depending on the type of inspection the
Agencies are performing; and whether the
percentage should vary with the number
of units in a building.
Notice 2012–18 also asked whether
the regulations should provide an exception from the inspection provisions of
§ 1.42–5(d) for inspections done under the
HUD Real Estate Assessment Center protocol (REAC protocol) similar to the
exception under § 1.42–5(d)(3) for inspections performed by the Rural Housing
Service under the section 515 program.
Notice 2012–18 had permitted use of the
REAC protocol by participants in an interDepartmental physical inspections pilot
program that sought to align the section
42 physical inspection requirements with
the physical inspection requirements under HUD programs.
Several commenters asserted that the
20-percent rule is appropriate. Others
claimed that it is overly burdensome for
larger properties (30 units or more). Several commenters suggested that the regulations permit an Agency to satisfy the
physical inspection requirement by using
the REAC protocol. These commenters
generally suggested that availability of the
REAC protocol for physical inspections
would promote flexibility and lessen burden. Allowing an Agency to use the
REAC protocol for purposes of the section 42 physical inspection requirements
would eliminate the need for multiple
Federal inspections on the same property
if the property also benefits from HUD
programs. Additionally, for larger properties, the minimum number of low-income
units that an Agency must inspect under

March 14, 2016

the REAC protocol may be fewer than
under the 20-percent rule.
In response to the comments received,
the final and temporary regulations authorize the IRS to specify in guidance published in the Internal Revenue Bulletin the
minimum number of low-income units for
which an Agency must conduct physical
inspections and low-income certification
review. Rev. Proc. 2016 –15, which is being issued concurrently with these regulations, provides that, in a low-income
housing project, the minimum number of
low-income units that must undergo physical inspection is the lesser of 20 percent
of the low-income units in the project,
rounded up to the nearest whole number
of units, or the number of low-income
units set forth in the Low-Income Housing
Credit Minimum Unit Sample Size Reference Chart in the revenue procedure. The
revenue procedure applies the same rule
to determine the minimum number of
units that must undergo low-income certification review. An Agency is free to
conduct physical inspections or lowincome certification review on a larger
number of low-income units if it believes
that to be appropriate.
The Treasury Department and the IRS,
however, are concerned about application
of this 20 percent rule in some situations.
For projects with a relatively smaller
number of low-income units, physical inspection or low-income certification review of a randomly chosen 20 percent of
those units may not produce a sufficiently
accurate estimate of the remaining units’
overall compliance with habitability or
low-income requirements. Accordingly,
not later than when these temporary regulations are finalized, the Treasury Department and the IRS intend to consider
whether Rev. Proc. 2016 –15 should be
replaced with a revenue procedure that
does not permit use of the 20 percent rule
in those circumstances.
In response to Notice 2012–18’s request for comments on whether the IRS
should provide an exception from the inspection provisions of § 1.42–5(d) for inspections done under the REAC protocol,
commenters generally supported creating
such an exception. The final and temporary regulations, however, do not fully
adopt this suggestion. Instead, the regulations authorize the IRS to provide in guid-

428

ance published in the Internal Revenue
Bulletin exceptions from, or alternative
means of satisfying, the inspection provisions of § 1.42–5(d). Rev. Proc. 2016 –15
provides that the REAC protocol is among
the inspection protocols that satisfy both
§ 1.42–5(d) and the physical inspection
requirements of § 1.42–5T(c)(2)(ii) and
(iii). The revenue procedure contains a
rigorous definition of which inspection regimes it will treat as being the REAC
protocol for this purpose. Comments are
requested on all aspects of the provisions
in the revenue procedure that define “performed under the REAC protocol” for
purposes of satisfying §§ 1.42–5(d) and
1.42–5T(c)(2)(ii) and (iii).
Because vacant low-income units contribute to a building’s qualified basis, both
occupied and vacant low-income units in
a low-income housing project must be included in the population of units from
which units are selected for inspection.
This is the case even if the vacant unit or
units may be temporarily unsuitable for
occupancy as a result of work that is being
done to repair or rehabilitate the unit or
units. See § 1.42–5(e)(4). Potential inspection of vacant units is the rule for all
compliance-monitoring inspections that
do not use the REAC protocol, and Rev.
Proc. 2016 –15 therefore requires similar treatment when an Agency conducts
a physical inspection under the REAC
protocol.
Some commenters recommended using
a risk-based assessment model in place of
the 20-percent rule. Such a model would
determine the frequency of inspections
and the number of low-income units to
inspect based on the probability of noncompliance of a low-income housing project. The probability of noncompliance
would be determined for this purpose by
the degree of compliance of the project
over one or more prior years. The final
and temporary regulations do not adopt
this approach. However, in response to the
request for comments on these temporary
regulations, commenters wishing to renew
this suggestion should provide both
greater detail regarding the suggested
risk-based procedure and a thorough justification for that procedure, including
why a multi-year approach fits within the
compliance requirements of section 42.

Bulletin No. 2016 –11

Several commenters suggested modifying the 20-percent rule by requiring more
units for the initial physical inspection than
for the subsequent physical inspections on
the ground that a comprehensive initial
physical inspection establishes a baseline of
compliance for a low-income housing project. By contrast, some commenters suggested requiring more units for the subsequent physical inspections, asserting that the
quality of compliance of a low-income
housing project often decreases after the initial physical inspection. These comments,
however, did not provide sufficient analysis
to justify increasing the number of units to
be inspected in either the initial or a subsequent inspection. Without a reasonable basis
for doing so, requiring more units for either
the initial or subsequent inspections would
unreasonably increase the administrative
burden on Agencies, owners, and tenants of
low-income housing projects. The final and
temporary regulations, therefore, do not
adopt these suggestions. Commenters wishing to renew either of these suggestions
should provide both greater detail and a
thorough justification for the suggestion.
On the question of whether the required
percentage of low-income units should vary
depending on the type of compliance review
(physical inspection or low-income certification review), one commenter recommended against a varying percentage, stating that there is no compelling reason for the
required percentage to vary. A second commenter suggested that, in order to assess
tenant eligibility, an Agency should review
more than 20 percent of the low-income
certifications because noncompliance relating to tenant eligibility may be harder to
detect than noncompliance relating to habitability. The final and temporary regulations adopt the first commenter’s suggestion. Just as an Agency may always
physically inspect more than the minimum
number of units, if an Agency deems it
appropriate, the Agency may always review
more than the minimum number of lowincome certifications in a project to assess
tenant eligibility. Commenters wishing to
renew comments on this issue should provide both greater detail and a thorough justification for their suggestion.
Two commenters suggested that the
regulations not impose an all-buildings requirement for physical inspection, but
merely require an Agency to apply the

Bulletin No. 2016 –11

physical inspection and low-income certification review requirements on a projectwide basis. According to these commenters, an all-buildings requirement can make
the inspection process overly burdensome, particularly in rural areas where
projects often consist of small buildings
such as single-unit buildings, duplexes, or
triplexes. The final and temporary regulations do not fully adopt this suggestion.
The regulations continue to require that
Agencies comply with the all-buildings
requirement unless guidance published in
the Internal Revenue Bulletin pursuant to
§ 1.42–5T(a)(iii) provides otherwise.
Rev. Proc. 2016 –15 does provide for
such an exception. Under Rev. Proc.
2016 –15, the all-buildings requirement does
not apply to an Agency that uses the REAC
protocol, under HUD oversight, to satisfy
the physical inspection requirement (although the REAC protocol itself may require inspection of all buildings in certain
cases). The rigor with which Rev. Proc.
2016 –15 defines the REAC protocol justifies this exception. Among the requirements
set forth in the revenue procedure is the
requirement that a physical inspection performed under the REAC protocol utilize the
standards adopted, and inspectors certified,
by HUD. Inspections performed under the
REAC protocol or by the Rural Housing
Service under the section 515 program require federal agency oversight. Thus, such
oversight substitutes for an all-buildings requirement for inspection. Similar to inspections performed by the Rural Housing Service
under the section 515 program, inspections
performed under the REAC protocol are not
subject to an all-buildings requirement. A
physical inspection that the revenue procedure
treats as being performed under the REAC
protocol also involves the use of the most
recent REAC UPCS inspection software,
which has a strong statistical basis. Therefore,
under the revenue procedure, the REAC protocol is an acceptable method for satisfying
both § 1.42–5(d) and the physical inspection
requirement of § 1.42–5T(c)(2)(ii) and (iii). If,
in the future, the Treasury Department and the
IRS become persuaded that there are one or
more additional suitable alternatives to the allbuildings requirement, they may provide
one or more additional exceptions to that
requirement.
A commenter suggested that the regulations permit an Agency to treat multiple

429

buildings with a common owner and plan
of financing as a single low-income housing project, regardless of whether the
owner has elected this treatment under
section 42(g)(3)(D). The final and temporary regulations do not adopt this suggestion. Section 42(c)(2)(A) defines a “qualified low-income building” as, in part, any
building that is part of a qualified lowincome housing project at all times
throughout the compliance period. Section 42(g) defines a “qualified low-income
housing project” as any project for residential rental property if the project meets
the requirements of section 42(g)(1)(A) or
(B), whichever is elected by the taxpayer.
The scope of the term “qualified lowincome housing project” for purposes of
physical inspections should be the same as
for other purposes under section 42.
Decoupling of the Physical Inspection
and Low-Income Certification Review
Requirements (Ending the Same-Units
Requirement)
Notice 2012–18 asked for comments
on whether permitting physical inspection
and low-income certification review of
different low-income units (that is, ending
the same-units requirement) would simplify the inspection process. The notice
also asked for comments on whether ending the requirement would impair the
value of the data obtained. One commenter asserted that the current rule of
requiring physical inspection and lowincome certification review of the same
low-income units is effective in finding
noncompliance on a particular unit. Most
commenters, however, believed that decoupling of the physical inspection and
low-income certification review requirements would reduce the administrative
burden, better preserve the surprise element, and likely increase the coverage of
compliance-monitoring.
In response to these comments, the final and temporary regulations end the
same-units requirement by decoupling the
physical inspection and low-income certification review. Therefore, an Agency is
no longer required to conduct physical
inspection and low-income certification
review on the same units. Because the
units no longer need to be the same, an
Agency may choose a different number of

March 14, 2016

units for physical inspection and for lowincome certification review, provided the
Agency chooses at least the minimum
number of low-income units in each case.
If an Agency chooses to select different
low-income units for physical inspections
and low-income certification review, the
Agency must select the units for physical
inspection or low-income certification review separately and in a random manner.
Further, because the units no longer
need to be the same, an Agency may
choose to conduct physical inspection and
low-income certification review at different times. For example, if HUD requires a
physical inspection only two years after a
joint HUD/low-income housing credit inspection, that second inspection may be
used for both HUD and low-income housing credit purposes without accelerating
the next low-income housing credit file
review. (Thereafter, physical inspections
performed every third year might take
place a year before the every-three-year
file reviews.) Also, an Agency may
choose to conduct physical inspections in
the summer but complete the low-income
certification review in the winter when
physical inspections may be difficult to
conduct due to weather conditions. The
inspections and reviews, however, must
satisfy the applicable timeliness requirements of § 1.42–5T(c)(2)(ii)(A)(1) and (2).
In addition, to make meaningful the
physical inspection and low-income certification review, the final and temporary
regulations retain the random-selection
rule and strengthen the no-notice rule. Accordingly, if an agency decides to decouple the physical inspection and lowincome certification review, the Agency
may not allow selection of a low-income
unit for physical inspection (or lowincome certification review) to influence
the likelihood that the same unit will be
selected (or will not be selected) for lowincome certification review (or physical
inspection).
Whether or not an Agency is selecting
the same units for inspection and for lowincome certification review, the Agency
may give an owner reasonable notice that
an inspection of the building and lowincome units or review of low-income
certifications will occur. This notice enables the owner to notify tenants of the
inspection or to assemble low-income cer-

March 14, 2016

tifications for review. The regulations provide that reasonable notice is generally no
more than 30 days, but they also provide a
very limited extension for certain extraordinary circumstances beyond an Agency’s
control such as natural disasters and severe weather conditions.
Thus, under the final and temporary
regulations, if an Agency chooses to select
the same units for physical inspections
and low-income certification review, the
Agency may conduct physical inspections
and low-income certification review either
at the same time or separately. However,
once the Agency informs the owner of the
identity of the units for which physical
inspections or low-income certification review will occur, the Agency must conduct
the physical inspections and low-income
certification review within the reasonablenotice time frame described in the preceding paragraph.
Comments are requested on these aspects of the regulations. For example,
comments are requested on whether the
same maximum amount of notice is reasonable for physical inspections and lowincome certification review. Comments
are also requested on whether, for physical inspections, the reasonable-notice time
frame should be shortened. For example,
under the REAC protocol, an inspector
provides a 15-day notice of an upcoming
HUD inspection to the owner and/or manager of the building and same-day notice
of which units are to be inspected.

Revision to Frequency and Form
of Certification
The final and temporary regulations revise the rules currently in § 1.42–5(c)(3)
to clarify that a monitoring procedure
must require that the owner certifications
in § 1.42–5(c)(1) be made to and reviewed
by the Agency at least annually covering
each year of the 15–year compliance period.
Effective/Applicability Dates
The temporary regulations apply on
February 25, 2016 and expire on February
22, 2019. Agencies using the REAC protocol as part of the physical inspections pilot
program may rely on the temporary regulations for on-site inspections and low-income
certification review occurring between
January 1, 2015 and February 25, 2016.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings notices, notices and other guidance cited in this document are published
in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from
the Superintendent of Documents, U.S.
Government Printing Office, Washington,
DC 20402, or by visiting the IRS website
at http://www.irs.gov.
Special Analyses

Possible Changes in the Minimum Size
of Samples
The Treasury Department and the IRS
believe the methods in Rev. Proc.
2016 –15 reasonably balance the burden
on Agencies, tenants, and building owners
while adequately monitoring compliance.
However, additional comments may be
submitted on other possible methods, including stratified sampling procedures and
estimation methodologies. To be useful,
any such comments should include substantial detail regarding the procedures to
be adopted and should provide thorough
justification as to whether the suggested
methods effectively reduce burden without negatively impacting the confidence
that can be placed in the results obtained
from the resulting samples.

430

Certain IRS regulations, including this
one, are exempt from the requirements of
Executive Order 12866, as supplemented
and reaffirmed by Executive Order 13563.
Therefore, a regulatory impact assessment
is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations, and
because these regulations do not impose a
collection of information on small entities,
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code,
these regulations have been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
their impact on small business.

Bulletin No. 2016 –11

Drafting Information
The principal authors of these regulations are Jian H. Grant and Martha M.
Garcia, Office of the Associate Chief
Counsel (Passthroughs and Special Industries). However, other personnel from the
Treasury Department and the IRS participated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entries
for §§ 1.42–1T and 1.42–2T and by adding and revising entries in numerical order
to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.42–1T also issued under 26
U.S.C. 42(n).
Section 1.42–2 also issued under 26
U.S.C. 42(n).
Section 1.42–5T also issued under 26
U.S.C. 42(n).
Par. 2. Section 1.42–5 is amended by:
1. Adding paragraph (a)(2)(iii).
2. Revising paragraphs (c)(2)(ii) and
(iii) and (c)(3).
3. Revising the paragraph heading of
paragraph (h), redesignating the text of
paragraph (h) as paragraph (h)(1) and adding a paragraph (h)(1) heading, and adding paragraph (h)(2).
4. Adding paragraph (i).
The additions and revisions read as follows:
§ 1.42–5 Monitoring compliance with
low-income housing credit requirements.
(a) * * *
(2) * * *
(iii) [Reserved]. For further guidance,
see § 1.42–5T(a)(2)(iii).
*****
(c) * * *
(2) * * *
(ii) [Reserved]. For further guidance,
see § 1.42–5T(c)(2)(ii).
(iii) [Reserved]. For further guidance,
see § 1.42–5T(c)(2)(iii).

Bulletin No. 2016 –11

(3) [Reserved]. For further guidance,
see § 1.42–5T(c)(3).
*****
(h) Effective/applicability dates—(1)
In general.* * *
(2) [Reserved]. For further guidance,
see § 1.42–5T(h)(2).
(i) [Reserved]. For further guidance,
see § 1.42–5T(i).
Par. 3. Section 1.42–5T is added to
read as follows:
§ 1.42–5T Monitoring compliance with
low-income housing credit requirements
(temporary).
(a)(1) through (a)(2)(ii) [Reserved].
For further guidance, see § 1.42–5(a)(1)
through (a)(2)(ii).
(iii) Effect of guidance published in the
Internal Revenue Bulletin. Guidance published in the Internal Revenue Bulletin
(see § 601.601(d)(2)(ii)(b) of this chapter)
may provide—
(A) Exceptions to the requirements referred to in § 1.42–5(a)(2)(i) and the requirements described in this section; or
(B) Alternative means of satisfying
those requirements.
(b) through (c)(2)(i) [Reserved]. For
further guidance, see § 1.42–5(b) through
(c)(2)(i).
(ii) Require that, with respect to each
low-income housing project, the Agency
conduct on-site inspections and review
low-income certifications (including in
that term the documentation supporting
the low-income certifications and the rent
records for tenants).
(iii) Require that the on-site inspections that the Agency must conduct satisfy
both the requirements of § 1.42–5(d)
and the requirements in paragraph
(c)(2)(iii)(A) through (D) of this section,
and require that the low-income certification review that the Agency must perform
satisfies the requirements in paragraphs
(c)(2)(iii)(A) through (D) of this section.
Paragraph (c)(2)(iii)(A) through (D) of
this section provides rules determining
how these on-site inspection requirements
and how these low-income certification
review requirements may be satisfied by
an inspection or review, as the case may
be, that includes only a sample of the
low-income units.

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(A) Timing. The Agency must conduct
on-site inspections of all buildings in the
low-income housing project and must review low-income certifications of the lowincome housing project—
(1) By the end of the second calendar
year following the year the last building in
the low-income housing project is placed
in service; and
(2) At least once every 3 years thereafter.
(B) Number of low-income units. The
Agency must conduct on-site inspections
and low-income certification review of
not fewer than the minimum number of
low-income units required by guidance
published in the Internal Revenue Bulletin. See § 601.601(d)(2)(ii)(b) of this
chapter.
(C) Selection of low-income units for
inspection and low-income certifications
for review—(1) Random selection. The
Agency must select in a random manner
the low-income units to be inspected and
the units whose low-income certifications
are to be reviewed. The Agency is not
required to select the same low-income
units of a low-income housing project for
on-site inspections and low-income certification review, and an Agency may
choose a different number of units for
on-site inspections and for low-income
certification review, provided the Agency
chooses at least the minimum number of
low-income units in each case. If the
Agency chooses to select different lowincome units for on-site inspections and
low-income certification review, the
Agency must select the units for on-site
inspections or low-income certification review separately and in a random manner.
(2) Advance notification limited to reasonable notice. The Agency must select
the low-income units to inspect and lowincome certifications to review in a manner that will not give advance notice that a
particular low-income unit (or lowincome certifications for a particular lowincome unit) for a particular year will or
will not be inspected (or reviewed). However, the Agency may give an owner reasonable notice that an inspection of the
building and low-income units or review
of low-income certifications will occur.
The notice is to enable the owner to notify
tenants of the inspection or to assemble
low-income certifications for review.

March 14, 2016

(3) Meaning of reasonable notice. For
purposes of paragraph (c)(2)(iii)(C)(ii) of
this section, reasonable notice is generally
no more than 30 days. The notice period
begins on the date the Agency informs the
owner of the identity of the units for
which on-site inspections or low-income
certification review will or will not occur.
Notice of more than 30 days, however,
may be reasonable in extraordinary circumstances that are beyond an Agency’s
control and that prevent an Agency from
carrying out within 30 days an on-site
inspection or low-income certification review. Extraordinary circumstances include, but are not limited to, natural disasters and severe weather conditions. In the
event of extraordinary circumstances that
result in a reasonable-notice period longer
than 30 days, an Agency must conduct the
on-site inspection or low-income certification review as soon as practicable.
(4) Applicability of reasonable notice
limitation when the same units are chosen
for inspection and file review. If the
Agency chooses to select the same units
for on-site inspections and low-income
certification review, the Agency may conduct on-site inspections and low-income
certification review either at the same time
or separately. The Agency, however, must
conduct both the inspections and review
within the reasonable-notice period described in paragraph (c)(2)(iii)(C)(2) and
(3) of this section.
(D) Method of low-income certification
review. The Agency may review the lowincome certifications wherever the owner
maintains or stores the records (either onsite or off-site).
(3) Frequency and form of certification. A monitoring procedure must require
that the certifications and reviews of
§ 1.42–5(c)(1) and (c)(2)(i) be made at
least annually covering each year of the
15-year compliance period under section
42(i)(1). The certifications must be made
under penalty of perjury. A monitoring
procedure may require certifications and
reviews more frequently than every 12
months, provided that all months within
each 12-month period are subject to certification.
(c)(4) through (h)(1) [Reserved]. For
further guidance, see § 1.42–5(c)(4)
through (h)(1).

March 14, 2016

(2) Effective/applicability dates of the
REAC inspection protocol. The requirements in paragraphs (a)(2)(iii), (c)(2)(ii)
and (iii), and (c)(3) of this section apply
beginning on February 25, 2016. Agencies using the REAC inspection protocol
of the Department of Housing and Urban
Development as part of the Physical Inspections Pilot Program may rely on these
provisions for on-site inspections and
low-income certification review occurring
between January 1, 2015 and February 25,
2016. Otherwise, for the rules that apply
before February 25, 2016, see § 1.42–5 as
contained in 26 CFR part 1 revised as of
April 1, 2015.
(i) Expiration date. The applicability of
this section expires on February 22, 2019.

SUMMARY: This document contains final regulations that authorize the disclosure of certain items of return information
to the Bureau of the Census (Bureau) in
conformance with section 6103(j)(1) of
the Internal Revenue Code (Code). These
regulations finalize temporary regulations
that were made pursuant to a request from
the Secretary of Commerce. These regulations require no action by taxpayers and
have no effect on their tax liabilities.
Thus, no taxpayers are likely to be affected by the disclosures authorized by
this guidance.

John Dalrymple.
Deputy Commissioner for
Services and Enforcement.

FOR FURTHER INFORMATION
CONTACT: William Rowe, (202) 3175093 (not a toll-free number).

Approved: January 29, 2016.
Mark J. Mazur,
Assistant Secretary of the
Treasury (Tax Policy).
(Filed by the Office of the Federal Register on February 23,
2016, 4:15 p.m., and published in the issue of the Federal
Register for February 25, 2016, 81 F.R. 9333)

26 CFR 301.6103(j)(1)–1: Disclosures of return information reflected on returns to officers and employees of the Department of Commerce for certain
statistical .....

T.D. 9754
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301
Disclosures of Return
Information Reflected on
Returns to Officers and
Employees of the Department
of Commerce for Certain
Statistical Purposes and
Related Activities
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal
of temporary regulations.

432

DATES: Effective Date: These regulations are effective on February 26, 2016.
Applicability Date: For dates of applicability, see § 301.6103(j)(1)–1(e).

SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
This document contains amendments
to 26 CFR part 301. Section 6103(j)(1)(A)
authorizes the Secretary of Treasury to
furnish, upon written request by the Secretary of Commerce, such returns or return information as the Secretary of Treasury may prescribe by regulation to
officers and employees of the Bureau for
the purpose of, but only to the extent
necessary in, the structuring of censuses and
conducting related statistical activities authorized by law. Section 301.6103(j)(1)–1
of the existing regulations further defines
such purposes by reference to 13 U.S.C.
chapter 5 and provides an itemized description of the return information authorized to
be disclosed for such purposes.
By letter dated May 10, 2013, the Secretary of Commerce requested that additional items of return information be disclosed to the Bureau for purposes of
structuring a census that costs less per
housing unit and still maintains high quality results. A major cost in previous decennial censuses was the high number of
follow-up, in-person attempts to collect
information from housing units that did
not return a completed census form. The
Bureau intends to conduct research and
testing for the next decennial census using

Bulletin No. 2016 –11