Novogradac LIHTC Working Group Comments on Relocation Costs

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Letter Recommends Change That Would Help Preserve Affordable Housing

Members of the LIHTC Working Group this month sent a letter to the Internal Revenue Service (IRS) requesting further guidance on tenant relocation costs, as discussed in Appendix C of the Audit Technique Guide, Section 42 Low-Income Housing Credit, released in September 2014. The eligible basis for low-income housing tax credit (LIHTC) properties is generally the cost of new construction, acquisition of existing property and the costs of any improvements to that property. In cases where an occupied building is being acquired and rehabilitated under the LIHTC program, all or a portion of the units may need to be vacated so that rehabilitation work can be completed. The owner may be required to compensate existing tenants for relocation costs and/or third-party fees. This raises the issue of how relocation costs should be treated for eligible basis purposes.

“With the shortage of quality, affordable housing in the country, it’s vital that efforts to rehabilitate existing stock are encouraged— not hindered,” said Stacey Stewart, CPA, a partner in Novogradac & Company LLP’s Dover, Ohio office who leads the LIHTC Working Group’s efforts. “The LIHTC Working Group hopes its recommendations will help clarify the guidance and reduce risk for program participants.”

In its letter to Treasury, the LIHTC Working Group requested that the IRS reevaluate the guidance in the Guide addressing the treatment of relocation costs incurred for the rehabilitation of a building under the LIHTC program because various sections in the Guide seem contradictory. The LIHTC Working Group argues that the costs to relocate tenants from a building incurred solely to rehabilitate the building should be capitalized as an indirect cost to the building under IRC 263A, and thus be includible in eligible basis under IRC 42.

“If implemented, the clarifications recommended by the LIHTC Working Group would greatly reduce the ambiguities created by apparent contradictions in existing guidance,” said Michael J. Novogradac, CPA, managing partner in the firm’s San Francisco office and the LIHTC Working Group’s adviser on industry and governmental affairs. “The LIHTC Working Group appreciates this opportunity to offer the technical insight and expertise of our members.”

For details and a copy of the letter, please go to http://www.lihtcworkinggroup.com. The LIHTC Working Group was established by Novogradac & Company LLP in 2008 to provide a platform for LIHTC industry participants to work together to resolve technical and administrative LIHTC program issues.

Members meet monthly via conference call to provide input regarding pending action items as agreed to by the members of the group. Comments and suggestions generated during the group discussions are agreed to and submitted in writing directly to Treasury, the Department of Housing and Urban Development and/or various state agencies. For more information, visit http://www.lihtcworkinggroup.com or email lwg@novoco.com.

Novogradac, which just celebrated its 25th anniversary, began operations in 1989, and the allied group of Novogradac companies has since grown to more than 500 employees and partners with offices in San Francisco, Walnut Creek and Long Beach, Calif.; the Washington, D.C., Atlanta, Ga., Detroit, Mich., Kansas City, Mo. and Seattle, Wash. metro areas; St. Louis, Mo., Boston, Mass.; Austin, Texas; Dover, Columbus and Cleveland, Ohio; New York, N.Y.; Portland, Ore.; Chicago, Ill.; and Naples, Fla. Specialty practice areas include tax, audit and consulting services for tax-credit-assisted multifamily and affordable housing, community revitalization and rehabilitation of historic properties. Other areas of expertise include military base redevelopment, preparation and analysis of market studies and appraisals of multifamily housing investments and renewable energy tax credits.

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