[Federal Register: July 29, 2008 (Volume 73, Number 146)]
[Rules and Regulations]
[Page 43863-43868]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29jy08-6]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9420]
RIN 1545-BC22
Section 42 Utility Allowance Regulations Update
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations that amend the
utility allowances regulations concerning the low-income housing tax
credit. The final regulations update the utility allowance regulations
to provide new options for estimating tenant utility costs. The final
regulations affect owners of low-income housing projects who claim the
credit, the tenants in those low-income housing projects, and the State
and local housing credit agencies that administer the credit.
DATES: Effective Date: These regulations are effective July 29, 2008.
Applicability Date: For dates of applicability see Sec. 1.42-12(a)(4).
FOR FURTHER INFORMATION CONTACT: David Selig (202) 622-3040 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to the Income Tax Regulations (26
CFR Part 1) relating to the low-income housing credit under section 42
of the Internal Revenue Code (Code). On June 19, 2007, the IRS and
Treasury Department published in the Federal Register proposed
regulations under section 42(g)(2)(B)(ii) (72 FR 33703). Written and
electronic comments responding to the proposed regulations were
received and a public hearing was held on the proposed regulations on
October 9, 2007. After consideration of all the comments, the proposed
regulations are adopted as amended by this Treasury decision.
[[Page 43864]]
General Overview
Section 42(a) provides that, for purposes of section 38, the amount
of the low-income housing credit determined under section 42 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. A qualified low-income building is defined in section
42(c)(2) as any building that is part of a qualified low-income housing
project.
A qualified low-income housing project is defined in section
42(g)(1) as any project for residential rental property if the project
meets one of the following tests elected by the taxpayer: (1) At least
20 percent of the residential units in the project are rent-restricted
and occupied by individuals whose income is 50 percent or less of area
median gross income; or (2) 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. If a
taxpayer does not meet the elected test, the project is not eligible
for the section 42 credit.
Under section 42(g)(4), section 142(d)(2)(B) applies when
determining whether any project is a qualified low-income housing
project under section 42(g)(1). Section 142(d)(2)(B) provides that the
income of individuals and area median gross income is determined by the
Secretary in a manner consistent with determinations of lower income
families and area median gross income under section 8 of the United
States Housing Act of 1937. Under Rev. Rul. 94-57 (1994-2 CB 5),
taxpayers may rely on a list of income limits released by the
Department of Housing and Urban Development (HUD) until 45 days after
HUD releases a new list of income limits, or until HUD's effective date
for the new list, whichever is later.
In order to qualify as a rent-restricted unit within the meaning of
section 42(g)(2), the gross rent for the unit must not exceed 30
percent of the imputed income limitation applicable to the unit.
Section 42(g)(2)(B)(ii) requires the inclusion in gross rent of a
utility allowance determined by the Secretary after taking into account
the determinations under section 8 of the United States Housing Act of
1937.
Section 1.42-10(a) provides that if utility costs (other than
telephone) for a residential rental unit are paid directly by the
tenant, then the gross rent for that unit includes the applicable
utility allowance as determined under Sec. 1.42-10. Section 1.42-10(b)
provides rules for calculating the appropriate utility allowance based
upon whether (1) the building receives rental assistance from the
Farmers Home Administration (FmHA), now known as the Rural Housing
Service; (2) the building has any tenant that receives FmHA rental
assistance; (3) the building is not described in (1) or (2) above and
the building's rents and utility allowances are reviewed by HUD on an
annual basis; or (4) the building is not described in (1), (2), or (3)
above (other buildings).
Currently, under Sec. 1.42-10(b)(4), other buildings generally use
the applicable Public Housing Authority (PHA) utility allowance
established for the Section 8 Existing Housing Program or use a local
utility company estimate. The local utility company estimate may be
obtained by any interested party (including a low-income tenant, a
building owner, or a State or local housing credit agency (Agency)).
The proposed regulations proposed two additional options for
calculating utility allowances. The first option would permit a
building owner to obtain a utility estimate for each unit in a building
from the Agency that has jurisdiction over the building (the Agency
estimate). The Agency estimate must take into account the local utility
rates data, property type, climate variables by region in the State,
taxes and fees on utility charges, and property building materials and
mechanical systems. An Agency may also use actual utility company usage
data and rates for the building. The second option would permit a
building owner to calculate utility allowances using the ``HUD Utility
Schedule Model'' found on the Low-Income Housing Tax Credits page at
http://www.huduser.org/datasets/lihtc.html (or successor URL). The HUD
Utility Schedule Model is based on data from the Residential Energy
Consumption Survey (RECS) conducted by the Department of Energy. RECS
data provides energy consumption by structure for heating, air
conditioning, cooking, water heating, and other electric (lighting and
refrigeration). The HUD Utility Schedule Model incorporates building
location and climate.
Summary of Comments and Explanation of Changes
Exclusions From Utility Allowance
Prior to these final regulations, Sec. 1.42-10(a) provided for the
exclusion of telephone costs in determining the amount of the utility
allowance to be included in gross rent. The proposed regulations
excluded cable television costs as well as telephone costs. The final
regulations retain the exclusions for cable television and telephone
costs and also exclude Internet costs. The IRS and Treasury Department
believe it is appropriate to exclude cable television and Internet
costs as comparable to telephone costs.
Additional Option for Determining Utility Allowances
Commentators stated that the Agency estimate in the proposed
regulations may be administratively burdensome for some Agencies. As an
alternative, commentators suggested adding an option that would allow
utility estimates to be calculated by a state-certified engineer or
other qualified professional. The commentators specified that, under
this option, computer software could be developed that would estimate
the energy or water and sanitary sewer service cost for each type of
unit in a building. The estimates would be determined based on the
applicable current local utility billing rate schedule and would be
applied to all comparable units in the building using specific
information about the design, materials, equipment, and location of the
building.
A computer software model that incorporates specific information
about the design and location of the building for which the utility
allowances are being developed, and that can be updated with actual
consumption data and with consumption estimates as new efficiency
measures and improvements are undertaken, would provide more accurate
estimates of utility consumption. Therefore, the final regulations also
include a new option allowing building owners to retain the services of
a qualified professional to calculate utility allowances based on an
energy consumption model.
The use of this new option is subject to several special rules.
First, the energy consumption model must, at a minimum, take into
account specific factors including, but not limited to, unit size,
building orientation, design and materials, mechanical systems,
appliances, and characteristics of the building location. Second, the
utility estimates must be calculated by either (1) a properly licensed
engineer or (2) a qualified professional approved by the Agency that
has jurisdiction over the building (together, qualified professional).
The qualified professional and the building owner must not be related
within the meaning of section 267(b) or 707(b). Third, the building
owner must furnish a copy of the estimates derived from the energy
consumption model to the Agency and make copies of the estimates
available to
[[Page 43865]]
all tenants in the building. Finally, the building owner must pay for
all costs incurred in obtaining the utility estimates from the
qualified professional and providing the estimates to the Agency and
tenants.
Default Option/Option Ordering
One commentator suggested that the final regulations should provide
a default option because, in the absence of a definitive standard for
determining utility allowances, building owners would use the option
that yields the lowest utility estimates. Commentators further
requested clarification as to which option should be used when multiple
options are available, whether building owners may use different
options for different utilities, and whether owners may change the
options used for calculating utilities from time to time.
An energy consumption model developed by a qualified professional
that takes into account specific information about the design and
location of the building for which the utility allowances are being
developed should produce the most accurate utility estimates. It is
expected that this more accurate model will be the model most commonly
used by most building owners, particularly those with buildings that
are not very old. However, if a building owner selects an option that
yields higher utility allowances, the building owner should be free to
accept a lower amount of rent from tenants. Therefore, there is no need
for a stated default option or option ordering rule. Further, the final
regulations neither prohibit using different options for different
utilities nor prohibit changing the options used for calculating
utilities. If an Agency determines that a building owner has
understated the utility allowances for the building under the
particular option chosen by the owner for calculating the utility
allowance, and the building's units are not rent-restricted units under
section 42(g)(2) as a result, the Agency must report the noncompliance
on Form 8823, Low-Income Housing Credit Agencies Report of
Noncompliance or Building Disposition.
Application of Newly Calculated Utility Allowances
Under current Sec. 1.42-10(c) of the regulations, if the
applicable utility allowance for units changes, the new utility
allowance must be used to compute gross rent of rent-restricted units
due 90 days after the change (the 90-day period). The proposed
regulations limited the effective date of any new utility allowances to
the earlier of the date the building has achieved 90 percent occupancy
for a period of 90 consecutive days or the end of the first year of the
credit period. The proposed regulations also modified Sec. 1.42-10(c)
by requiring that a building owner must review at least annually the
basis on which utility allowances have been established and must update
the applicable utility allowance. The review must take into account any
changes to the building such as any energy conservation measures that
affect energy consumption and changes in utility rates.
Commentators suggested that building owners should be obligated to
adjust utility allowances when utility rates increase by a stated
percentage, for example, 10 percent, which is the rule for revising
utility allowance schedules for PHAs under 24 CFR 982.517(c). This HUD
rule provides that a PHA must review its schedule of utility allowances
each year and revise its allowance for a utility category if the
utility rate has changed by 10 percent or more since the utility
allowance schedule was last revised. The commentators did not address
decreases in utility rates. A commentator also suggested that the final
regulations should require an Agency to review or have owners review
local utility rates quarterly to determine if rates have increased
sufficiently to require an adjustment. A different commentator
suggested limiting reviews to no more than once per year.
The IRS and Treasury Department do not believe that fluctuations in
utility rates within a given year should trigger recalculations of
utility allowances more than once a year. The IRS and Treasury
Department do not believe that the additional burden of updating the
utility allowances more than once a year is warranted at this time.
Utility rates generally do not change more than once a year, and yearly
updated utility allowances would reflect average rates applicable to
all tenants in a building from year to year. Therefore, the final
regulations require building owners to calculate new utility allowances
once during the calendar year regardless of any percentage change in
utility rates. Building owners may choose, however, to calculate new
utility allowances more frequently than once during the calendar year
provided the owner complies with the requirements of these regulations,
including the notification requirements to the Agency and tenants.
Another commentator suggested that new utility allowances should be
implemented within 90 days after HUD publishes its annual income limits
(which are used in determining section 42 rents), but in no case later
than June 30 of any year. Section 42 rents under section 42(g)(2) may
or may not increase depending on HUD's calculation of area median gross
income. Therefore, the IRS and Treasury Department do not believe that
the rules should require that the effective date of any new utility
allowance coincide with the section 42 effective date of HUD's income
lists. Building owners, however, may choose to implement any new
utility allowances on the section 42 effective date of HUD's income
lists.
To bring financial stability to a project during the beginning of
its operations, the final regulations clarify that the building owner
is not required to review the utility allowances, or implement new
utility allowances, until the earlier of the date the building has
achieved 90 percent occupancy for a period of 90 consecutive days or
the end of the first year of the credit period.
Procedural Safeguards for Tenants
One commentator made several recommendations regarding procedural
safeguards for tenants including: Owners should be required to give
tenants 30 days notice before the effective date of any utility
allowance; tenants should be provided with all information used in
calculating the utility allowances; tenants should be given the
opportunity to comment on the proposed allowances; and owners should be
required to review those comments prior to the utility allowances
becoming effective. The commentator believed that the new options for
determining utility allowances should be available only after one full
year of occupancy and one full year after the building is placed in
service. A commentator also recommended that a building owner should be
allowed to use the new options only if the owner provides all data to
the Agency no later than February 15 and the Agency informs the owner
whether the proposed utility allowances are approved by March 31.
To provide tenants with the opportunity to comment on proposed
utility allowances to the Agency and building owner, the final
regulations apply the existing disclosure requirement under current
Sec. 1.42-10(b)(4)(ii)(B) (regarding the utility company estimate) to
an owner using a utility company estimate, the HUD Utility Schedule
Model, or an energy consumption model. Therefore, an owner must submit
copies of the proposed utility allowances to the Agency and make the
proposed utility allowances available to all tenants in the building at
the beginning of the 90-day period before the utility allowances are
[[Page 43866]]
used in determining the gross rents of rent-restricted units.
Similarly, the final regulations require that any utility estimates
obtained under the Agency estimate option must be made available to all
tenants in the building at the beginning of the 90-day period. An
Agency may continue to require additional information from the owner
during the 90-day period.
Commentators suggested that the final regulations should limit the
use of the HUD Utility Schedule Model to data for a twelve-month period
ending in the most recent calendar year and require the owner to
certify the accuracy of the data and the calculations of the utility
allowances. However, the HUD Utility Schedule Model already
incorporates consumption data derived from RECS data. Thus, building
owners using this option need not be required to use consumption data
for any particular twelve-month period. These final regulations,
however, provide that the use of the energy consumption model is
limited to consumption data for a twelve-month period ending no earlier
than 60 days prior to the beginning of the 90-day period. In the case
of newly constructed or renovated buildings with less than twelve
months of consumption data, the energy consumption model allows a
qualified professional to use consumption data for the twelve-month
period of units of similar size and construction in the geographic area
in which the building containing the units is located. Further, the
final regulations require that utility rates used for the HUD Utility
Schedule Model, the Agency estimate option, and the energy consumption
model must be no older than the rates in place 60 days prior to the
beginning of the 90-day period.
In addition to these safeguards, if an Agency determines that a
building owner has understated the utility allowances for the owner's
building under the particular option chosen, and, therefore, some or
all of the units in the building are not rent-restricted units under
section 42(g)(2), then the Agency must report the noncompliance to the
Service on Form 8823, Low-Income Housing Credit Agencies Report of
Noncompliance or Building Disposition.
Commentators requested that building owners should be required to
certify the estimate and the accuracy of the data used under the new
options. Because Agencies may request additional information at any
time during their mandatory review of proposed utility allowances, and
must report any noncompliance to the Service, the final regulations do
not require building owners to provide such certification.
Utility Allowances for Tenants With Special Needs
One commentator suggested that the calculation of utility
allowances should take into account any special needs tenants such as
people with disabilities who require high energy consumption equipment.
Section 42 does not require that the owner's calculation of utility
allowances be based on a tenant's particular use of utility services.
If such a requirement were imposed, owners and Agencies would have to
determine the utility allowance for the tenants in each unit, as
opposed to allowances based on the size of the unit, which would
greatly increase burden. Additionally, it is unclear whether it is
appropriate to implement rules that might encourage tenants to be
indifferent to their energy consumption. Such indifference could lead
to cost overruns by owners, and the viability of low-income housing
could be jeopardized. Therefore, the final regulations do not require
the calculation of utility allowances based on consumption by
particular tenants.
Calculation of Utility Company Estimate Option for Deregulated
Utilities
Section 1.42-10(b)(4)(ii)(B) currently provides that any interested
party (including an owner, low-income tenant, or Agency) may obtain a
local utility company estimate for a unit. The estimate is obtained
when the interested party receives, in writing, information from a
local utility company providing the estimated cost of that utility for
a unit of similar size and construction for the geographic area in
which the building containing the units is located. In light of utility
services deregulation, the proposed regulations proposed to amend this
option by requiring the interested party to obtain cost estimates from
the local utility company that include combined rate charges from
multiple utility companies.
Commentators thought this proposed amendment would require the
interested party to obtain utility consumption estimates from every
utility company providing the same utility service and stated that this
would present an unworkable administrative burden in deregulated
jurisdictions with multiple utility providers. In some jurisdictions,
many utility providers may be available for a given building. The
proposed amendment was not intended to require the interested party to
obtain utility consumption estimates from every utility company
providing the same utility service. The amendment was proposed to
address deregulation by requiring the interested party to obtain
estimates for all the components of the utility service if the service
is divided between two or more types of service providers (for example,
electric generation and electric transmission). The final regulations
clarify that, in the case of deregulated utility services, the
interested party is required to obtain an estimate from only one
utility company even if multiple companies can provide the same utility
service to a unit. However, the utility company furnishing the estimate
must offer utility services to the building in order for that utility
company's rates to be used in calculating utility allowances. The
estimate should include all component charges for providing the utility
service.
Agency Costs/Administrative Burden
One commentator requested that specific language be added to
address when Agencies may charge a reasonable fee for making a
determination pursuant to the Agency estimate option, and who bears the
fee when a particular option is used. The proposed regulations provided
that costs incurred in obtaining an Agency estimate are borne by the
building owner. The final regulations adopt this provision, and further
require building owners to pay for all costs incurred in obtaining the
estimates under the HUD Utility Schedule Model and the energy
consumption model and in providing estimates to Agencies and tenants.
Effective/Applicability Date
The proposed regulations were proposed to be effective for taxable
years beginning on or after the date of publication of the final
regulations in the Federal Register. A commentator suggested that the
final regulations be effective earlier on the basis that if they are
published after 2007, they would not be effective until 2009 for
calendar year taxpayers. The IRS and Treasury Department believe that
the burden associated with an earlier effective date is not warranted.
Therefore, the final regulations do not adopt this suggestion. However,
in order to allow a building owner to implement the utility allowances
as of the first day of the owner's taxable year beginning on or after
July 29, 2008, the final regulations provide that taxpayers may rely on
the rules for determining utility allowances before the first day of
the owner's taxable year beginning on or after July 29, 2008 provided
that any utility allowances so calculated are effective no earlier than
the first day of the owner's taxable year beginning on or after July
29, 2008.
[[Page 43867]]
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory 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. It is hereby
certified that the collection of information in these regulations will
not have a significant economic impact on a substantial number of small
entities. This certification is based on the fact that the information
has previously been reviewed and approved under OMB control number
1545-1102, and that the information required by these final regulations
adds no new burden to the existing requirements. Accordingly, a
Regulatory Flexibility Analysis under the provisions of the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to
section 7805(f) of the Code, the notice of proposed rulemaking was
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Drafting Information
The principal author of these regulations is David Selig, Office of
the Associate Chief Counsel (Passthroughs and Special Industries), IRS.
However, other personnel from the IRS and Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
0
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.42-10 is amended by:
0
1. Revising the first sentence of paragraph (a).
0
2. Revising paragraphs (b)(1), (b)(2), and (b)(3), and the introductory
text of paragraph (b)(4).
0
3. Adding two sentences at the end of paragraph (b)(4)(ii)(A).
0
4. Adding three sentences after the second sentence in paragraph
(b)(4)(ii)(B).
0
5. Adding paragraphs (b)(4)(ii)(C), (b)(4)(ii)(D), and (b)(4)(ii)(E).
0
6. Revising paragraph (c).
0
7. Adding paragraph (d).
The additions and revisions read as follows:
Sec. 1.42-10 Utility allowances.
(a) * * * If the cost of any utility (other than telephone, cable
television, or Internet) for a residential rental unit is paid directly
by the tenant(s), and not by or through the owner of the building, the
gross rent for that unit includes the applicable utility allowance
determined under this section. * * *
(b) Applicable utility allowances--(1) Buildings assisted by the
Rural Housing Service. If a building receives assistance from the Rural
Housing Service (RHS-assisted building), the applicable utility
allowance for all rent-restricted units in the building is the utility
allowance determined under the method prescribed by the Rural Housing
Service (RHS) for the building (whether or not the building or its
tenants also receive other state or federal assistance).
(2) Buildings with Rural Housing Service assisted tenants. If any
tenant in a building receives RHS rental assistance payments (RHS
tenant assistance), the applicable utility allowance for all rent-
restricted units in the building (including any units occupied by
tenants receiving rental assistance payments from the Department of
Housing and Urban Development (HUD)) is the applicable RHS utility
allowance.
(3) Buildings regulated by the Department of Housing and Urban
Development. If neither a building nor any tenant in the building
receives RHS housing assistance, and the rents and utility allowances
of the building are reviewed by HUD on an annual basis (HUD-regulated
building), the applicable utility allowance for all rent-restricted
units in the building is the applicable HUD utility allowance.
(4) Other buildings. If a building is neither an RHS-assisted nor a
HUD-regulated building, and no tenant in the building receives RHS
tenant assistance, the applicable utility allowance for rent-restricted
units in the building is determined under the following methods.
* * * * *
(ii) * * * (A) * * * However, if a local utility company estimate
is obtained for any unit in the building under paragraph (b)(4)(ii)(B)
of this section, a State or local housing credit agency (Agency)
provides a building owner with an estimate for any unit in a building
under paragraph (b)(4)(ii)(C) of this section, a cost estimate is
calculated using the HUD Utility Schedule Model under paragraph
(b)(4)(ii)(D) of this section, or a cost estimate is calculated by an
energy consumption model under paragraph (b)(4)(ii)(E) of this section,
then the estimate under paragraph (b)(4)(ii)(B), (C), (D), or (E)
becomes the applicable utility allowance for all rent-restricted units
of similar size and construction in the building. Paragraphs
(b)(4)(ii)(B), (C), (D), and (E) of this section do not apply to units
to which the rules of paragraphs (b)(1), (2), (3), or (4)(i) of this
section apply.
(B) * * * In the case of deregulated utility services, the
interested party is required to obtain an estimate only from one
utility company even if multiple companies can provide the same utility
service to a unit. However, the utility company must offer utility
services to the building in order for that utility company's rates to
be used in calculating utility allowances. The estimate should include
all component deregulated charges for providing the utility service. *
* *
(C) Agency estimate. A building owner may obtain a utility estimate
for each unit in the building from the Agency that has jurisdiction
over the building provided the Agency agrees to provide the estimate.
The estimate is obtained when the building owner receives, in writing,
information from the Agency providing the estimated per-unit cost of
the utilities for units of similar size and construction for the
geographic area in which the building containing the units is located.
The Agency estimate may be obtained by a building owner at any time
during the building's extended use period (see section 42(h)(6)(D)).
Costs incurred in obtaining the estimate are borne by the building
owner. In establishing an accurate utility allowance estimate for a
particular building, an Agency (or an agent or other private contractor
of the Agency that is a qualified professional within the meaning of
paragraph (b)(4)(ii)(E) of this section) must take into account, among
other things, local utility rates, property type, climate and degree-
day variables by region in the State, taxes and fees on utility
charges, building materials, and mechanical systems. If the Agency uses
an agent or other private contractor to calculate the utility
estimates, the agent or contractor and the owner must not be related
within the meaning of section 267(b) or 707(b). An Agency may also use
actual utility company usage data and rates for the building. However,
use of the Agency estimate is limited to the building's consumption
data for the twelve-month period ending no earlier than 60 days prior
to the beginning of the 90-day period under paragraph (c)(1)
[[Page 43868]]
of this section and utility rates used for the Agency estimate must be
no older than the rates in place 60 days prior to the beginning of the
90-day period under paragraph (c)(1) of this section. In the case of
newly constructed or renovated buildings with less than 12 months of
consumption data, the Agency (or an agent or other private contractor
of the Agency that is a qualified professional within the meaning of
paragraph (b)(4)(ii)(E) of this section) may use consumption data for
the 12-month period of units of similar size and construction in the
geographic area in which the building containing the units is located.
(D) HUD Utility Schedule Model. A building owner may calculate a
utility estimate using the ``HUD Utility Schedule Model'' that can be
found on the Low-Income Housing Tax Credits page at http://
www.huduser.org/datasets/lihtc.html (or successor URL). Utility rates
used for the HUD Utility Schedule Model must be no older than the rates
in place 60 days prior to the beginning of the 90-day period under
paragraph (c)(1) of this section.
(E) Energy consumption model. A building owner may calculate
utility estimates using an energy and water and sewage consumption and
analysis model (energy consumption model). The energy consumption model
must, at a minimum, take into account specific factors including, but
not limited to, unit size, building orientation, design and materials,
mechanical systems, appliances, and characteristics of the building
location. The utility consumption estimates must be calculated by
either a properly licensed engineer or a qualified professional
approved by the Agency that has jurisdiction over the building
(together, qualified professional), and the qualified professional and
the building owner must not be related within the meaning of section
267(b) or 707(b). Use of the energy consumption model is limited to the
building's consumption data for the twelve-month period ending no
earlier than 60 days prior to the beginning of the 90-day period under
paragraph (c)(1) of this section, and utility rates used for the energy
consumption model must be no older than the rates in place 60 days
prior to the beginning of the 90-day period under paragraph (c)(1) of
this section. In the case of newly constructed or renovated buildings
with less than 12 months of consumption data, the qualified
professional may use consumption data for the 12-month period of units
of similar size and construction in the geographic area in which the
building containing the units is located.
(c) Changes in applicable utility allowance--(1) In general. If, at
any time during the building's extended use period (as defined in
section 42(h)(6)(D)), the applicable utility allowance for units
changes, the new utility allowance must be used to compute gross rents
of the units due 90 days after the change (the 90-day period). For
example, if rent must be lowered because a local utility company
estimate is obtained that shows a higher utility cost than the
otherwise applicable PHA utility allowance, the lower rent must be in
effect for rent due at the end of the 90-day period. A building owner
using a utility company estimate under paragraph (b)(4)(ii)(B) of this
section, the HUD Utility Schedule Model under paragraph (b)(4)(ii)(D)
of this section, or an energy consumption model under paragraph
(b)(4)(ii)(E) of this section must submit copies of the utility
estimates to the Agency that has jurisdiction over the building and
make the estimates available to all tenants in the building at the
beginning of the 90-day period before the utility allowances can be
used in determining the gross rent of rent-restricted units. An Agency
may require additional information from the owner during the 90-day
period. Any utility estimates obtained under the Agency estimate under
paragraph (b)(4)(ii)(C) of this section must also be made available to
all tenants in the building at the beginning of the 90-day period. The
building owner must pay for all costs incurred in obtaining the
estimates under paragraphs (b)(4)(ii)(B), (C), (D), and (E) of this
section and providing the estimates to the Agency and the tenants. The
building owner is not required to review the utility allowances, or
implement new utility allowances, until the building has achieved 90
percent occupancy for a period of 90 consecutive days or the end of the
first year of the credit period, whichever is earlier.
(2) Annual review. A building owner must review at least once
during each calendar year the basis on which utility allowances have
been established and must update the applicable utility allowance in
accordance with paragraph (c)(1) of this section. The review must take
into account any changes to the building such as any energy
conservation measures that affect energy consumption and changes in
utility rates.
(d) Record retention. The building owner must retain any utility
consumption estimates and supporting data as part of the taxpayer's
records for purposes of Sec. 1.6001-1(a).
0
Par. 3. Section 1.42-12 is amended by adding paragraph (a)(4) to read
as follows:
Sec. 1.42-12 Effective dates and transitional rules.
(a) * * *
(4) Utility allowances. The first sentence in Sec. 1.42-10(a),
Sec. 1.42-10(b)(1), (2), (3), and (4), the last two sentences in Sec.
1.42-10(b)(4)(ii)(A), the third, fourth, and fifth sentences in Sec.
1.42-10(b)(4)(ii)(B), Sec. 1.42-10(b)(4)(ii)(C), (D), and (E), and
Sec. 1.42-10(c) and (d) are applicable to a building owner's taxable
years beginning on or after July 29, 2008. Taxpayers may rely on these
provisions before the beginning of the building owner's taxable year
beginning on or after July 29, 2008 provided that any utility
allowances calculated under these provisions are effective no earlier
than the first day of the building owner's taxable year beginning on or
after July 29, 2008. The utility allowances provisions that apply to
taxable years beginning before July 29, 2008 are contained in Sec.
1.42-10 (see 26 CFR part 1 revised as of April 1, 2008).
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
Approved: July 20, 2008.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E8-17268 Filed 7-28-08; 8:45 am]
BILLING CODE 4830-01-P