Hurricane housing extra credit: unlike previous disaster relief notices, a recent IRS ruling contains an exciting provision regarding the first year of tax-credit period.

For many, Hurricane Katrina is now simply an afterthought. In reality, the victims are still reeling from the effects. Thousands of displaced families are still seeking permanent housing, many of whom are staying in shelters, temporary housing or with family members. While these arrangements were adequate shortly after the disaster, the families now want places of their own. Through Internal Revenue Service (IRS) Notice 2005-69, the IRS has presented owners and managers of Low Income Housing Tax Credit apartment communities with a unique opportunity to help displaced families begin rebuilding their lives.

Income and Transient Use Waivers

The Internal Revenue Code gives the IRS the right to waive aspects of the code under special circumstances. Usually these circumstances result from national disasters declared by the U.S. president. Notice 2005-69 waives two aspects of the tax-credit program. First, income restrictions are waived. Households can move into tax-credit units without meeting the income restrictions. Second, the notice waives the restrictions on the transient use of units. The tax-credit program requires an initial six-month lease or, at a minimum, evidence that units are not being used on a transient basis. This aspect of the notice makes sense, as many of the households that will occupy tax-credit units will do so for a short period of time.

Unlike previous disaster relief notices, this one contains an exciting provision regarding the first year of the tax-credit period. Previous waivers have focused on projects past the first year of the credit period. Notice 2005-69 stipulates that projects not past the first year of the credit period--in other words, projects still in the initial lease-up phase--may rent units to displaced households. This is a change from past waivers where first-year units could not be used.

Weigh the Long-Term Effects

The notice is clear that the temporary housing period--the period during which non-qualifying households can live in tax-credit units--expires Sept. 30, 2006. While some in the industry assume it will be extended, one cannot be sure. Given the fact that the waiver does expire, it is important to consider the effect evacuee-occupied and/or vacated units would have on building applicable fractions.

First, a unit in a community beyond the first year of the period will return to its previous status (qualified, market or empty) after expiration of the waiver, provided the household moved. If the household is fully qualified for the tax-credit gram, a unit will be considered qualified as of the date the dent executes a valid income certification. Units qualified the first year of the credit period based on occupancy by a displaced family will be considered qualified, provided the displaced family moves before the expiration of the waiver. Such units could also be qualified by ensuring the family meets the requirements of the tax-credit program by completing the standard income certification process.

Families housed in tax-credit units cannot be charged more than the applicable tax-credit rent. This provision of the notice is similar to past disaster relief notices. The notice also prohibits the eviction or removal of current residents to accommodate evacuees.

Lastly, Notice 2005-69 requires that owners list units leased to displaced households on the National Emergency Resource Registry. The registry is a service of the Department of Homeland Security (DHS), and can be accessed at www.swern.gov. The federal government is simply attempting to track all assistance efforts to families to ensure they are getting the help they need.

The State Agency Process

Notice 2005-69 clearly instructs owners of tax-credit communities to seek approval from the appropriate state housing credit agency. The IRS does not specify how state housing credit agencies must approve projects. Some states have elected to issue blanket waivers approving all tax-credit communities to house displaced families. Other states are asking owners to obtain project-specific approvals to house families. No matter the approach used by the state, the state's expectations should be met.

The state may also require tax-credit communities implementing the waiver to use a particular application for residents. State's Web sites should be checked for updates and current forms, and questions should be asked as needed.

8 Implementation Tips

Owners and managers who chose to assist evacuees should take a few steps to ensure they will remain in compliance. Use of the waiver may not fit the business plans of all owners and investors. Check with the appropriate parties to be sure the waiver is right for a community.

1. Follow the Plan. First, apartment community managers should follow existing resident selection plans and screening criteria. For example, if the community does not admit persons with a criminal history, do not change the policy simply to house an evacuee.

2. Keep Detailed Records. A hallmark of the tax-credit program is the required detailed record keeping. Owners who elect to house displaced families should keep detailed records regarding the evacuees housed and the units used. The state agency may have a particular reporting format. Be sure to use that format, but also maintain company records to clearly show the requirements of the waiver were followed.

3. Check for Restrictions. Affordable housing communities developed in recent years usually have additional development subsidies such as HOME or state funds, or house residents receiving Section 8 or other subsidies. While many of these programs have waived or modified program requirements to assist displaced families, a number of restrictions remain in force. Be sure to check with the provider of these funding sources to determine who can be housed. In an attempt to help those in need, an owner or manager should not risk imperiling other funding.

4. Ask Questions. As noted, each state has implemented its own process. Know and follow the agency's requirements. State agencies are always willing to provide guidance. Don't risk being out of compliance because of unwillingness to ask a question. If an evacuee is housed under this waiver without the state agency's permission, seek it now. It is usually better to "ask permission" rather than to "beg for forgiveness."

5. Offer Additional Resources. Apartment community managers are not expected to be social workers. But, as many find out, they often are called on to help families resolve pressing problems. The families displaced by Hurricane Katrina will likely be assisted by a local organization; nonetheless, it would be helpful to know who can help these families. Having contact information for sources for furniture, rental assistance and employment services will help families get on their feet.

6. Clarify the Lease. Ensure the lease is clear regarding the temporary housing period outlined in 2005-69. Some states have made a lease addendum available to owners covering this issue. Check with the state to see if it has something available to help. It is only right that the displaced families understand an apartment community's expectations. This will help them make necessary plans.

7. Certify Immediately. Fully certify households as soon as possible. This will allow apartment management to determine which families are eligible for tax-credit units after the waiver expires. Those who are currently eligible can be claimed immediately as low-income residents.

8. Establish Communication. Owners of tax-credit properties in areas covered by a presidential disaster declaration as a result of Hurricane Katrina have some options. Such properties have likely been in touch with the state agency. If the community has not been in communication with the state agency, it is important it does so now. The state agency can offer specific advice regarding how the owner must proceed. Generally, an owner has a "reasonable period" in which he can rebuild and begin operating his property.

ADDITIONAL RESOURCES

www.swern.gov      SouthWest Emergency Response Network
www.fema.gov       Federal Emergency Management Agency
www.redcross.org   American Red Cross
www.irs.gov        Internal Revenue Service
www.naahq.org      National Apartment Association

Brian Carnahan is Assistant Director of Program Compliance with the Ohio Housing Finance Agency. Previously he worked in the agency's development office. He can be reached al [e-mail].