[Federal Register: September 3, 2008 (Volume 73, Number 171)]
[Notices]
[Page 51559-51571]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03se08-146]
[[Page 51559]]
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Part II
Department of Housing and Urban Development
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Statutorily Mandated Designation of Difficult Development Areas and
Qualified Census Tracts for 2009; Notice
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
[Docket No. FR-5235-N-01]
Statutorily Mandated Designation of Difficult Development Areas
and Qualified Census Tracts for 2009
AGENCY: Office of the Assistant Secretary for Policy Development and
Research, HUD.
ACTION: Notice.
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SUMMARY: This document designates ``Difficult Development Areas''
(DDAs) for purposes of the Low-Income Housing Tax Credit (LIHTC) under
section 42 of the Internal Revenue Code of 1986 (the Code) (26 U.S.C.
42). The United States Department of Housing and Urban Development
makes new DDA designations annually. The designations of ``Qualified
Census Tracts'' (QCTs) under section 42 of the Internal Revenue Code
published September 28, 2006, remain in effect.
FOR FURTHER INFORMATION CONTACT: For questions on how areas are
designated and on geographic definitions, contact Michael K. Hollar,
Senior Economist, Economic Development and Public Finance Division,
Office of Policy Development and Research, Department of Housing and
Urban Development, 451 Seventh Street, SW., Room 8234, Washington, DC
20410-6000; telephone number (202) 402-5878, or send an e-mail to
Michael.K.Hollar@hud.gov. For specific legal questions pertaining to
section 42, contact Branch 5, Office of the Associate Chief Counsel,
Passthroughs and Special Industries, Internal Revenue Service, 1111
Constitution Avenue, NW., Washington, DC 20224; telephone number (202)
622-3040, fax number (202) 622-4451. For questions about the ``HUB
Zones'' program, contact Michael P. McHale, Assistant Administrator for
Procurement Policy, Office of Government Contracting, Small Business
Administration, 409 Third Street, SW., Suite 8800, Washington, DC
20416; telephone number (202) 205-8885, fax number (202) 205-7167, or
send an e-mail to hubzone@sba.gov. A text telephone is available for
persons with hearing or speech impairments at 202-708-8339. (These are
not toll-free telephone numbers.) Additional copies of this notice are
available through HUD User at 800-245-2691 for a small fee to cover
duplication and mailing costs.
Copies Available Electronically: This notice and additional
information about DDAs and QCTs are available electronically on the
Internet at http://www.huduser.org/datasets/qct.html.
SUPPLEMENTARY INFORMATION:
This Document
This notice designates DDAs for each of the 50 states, the District
of Columbia, Puerto Rico, American Samoa, Guam, the Northern Mariana
Islands, and the U.S. Virgin Islands. The designations of DDAs in this
notice are based on final Fiscal Year (FY) 2008 Fair Market Rents
(FMRs), FY2008 income limits, and 2000 Census population counts, as
explained below. This notice also lists those areas treated as DDAs
under the Gulf Opportunity Zone Act of 2005 (GO Zone Act) (Pub. L. 109-
135; the GO Zone Act, as amended by the U.S. Troop Readiness, Veterans'
Care, Katrina Recovery, and Iraq Accountability Appropriations Act of
2007). Specifically, the GO Zone Act provides that areas ``determined
by the President to warrant individual or individual and public
assistance from the federal government under the Robert T. Stafford
Disaster Relief and Emergency Assistance Act (Stafford Act)'' as a
result of Hurricanes Katrina, Rita, or Wilma: (1) Shall be treated as
DDAs designated under subclause (I) of Internal Revenue Code section
42(d)(5)(C)(iii) (i.e., areas designated by the Secretary of Housing
and Urban Development as having high construction, land, and utility
costs relative to area median gross income (AMGI)), and (2) shall not
be taken into account for purposes of applying the limitation under
subclause II of such section (i.e., the 20 percent cap on the total
population of designated areas). The designations of QCTs under section
42 of the Internal Revenue Code (Code) published September 28, 2006 (71
FR 57234) remain in effect.
2000 Census
Data from the 2000 Census on total population of metropolitan areas
and nonmetropolitan areas are used in the designation of DDAs. The
Office of Management and Budget (OMB) first published new metropolitan
area definitions incorporating 2000 Census data in OMB Bulletin No. 03-
04 on June 6, 2003, and has updated them periodically, including most
recently, in OMB Bulletin No. 07-01 on December 18, 2006. The FY2008
FMRs and FY2008 income limits used to designate DDAs are based on these
new metropolitan statistical area (MSA) definitions, with modifications
to account for substantial differences in rental housing markets (and,
in some cases, median income levels) within MSAs.
Background
The U.S. Department of the Treasury (Treasury) and its Internal
Revenue Service (IRS) are authorized to interpret and enforce the
provisions of the Code, including the LIHTC found at section 42 of the
Code. The Secretary of HUD is required to designate DDAs and QCTs by
section 42(d)(5)(C) (redesignated section 42(d)(5)(B) by the Housing
and Economic Recovery Act of 2008) of the Code. In order to assist in
understanding HUD's mandated designation of DDAs and QCTs for use in
administering section 42, a summary of the section is provided. The
following summary does not purport to bind Treasury or the IRS in any
way, nor does it purport to bind HUD, since HUD has authority to
interpret or administer the Code only in instances where it receives
explicit statutory delegation.
Summary of the Low-Income Housing Tax Credit
The LIHTC is a tax incentive intended to increase the availability
of low-income housing. Section 42 provides an income tax credit to
owners of newly constructed or substantially rehabilitated low-income
rental housing projects. The dollar amount of the LIHTC available for
allocation by each state (credit ceiling) is limited by population.
Each state is allowed a credit ceiling based on a statutory formula
indicated at section 42(h)(3). States may carry forward unallocated
credits derived from the credit ceiling for one year; however, to the
extent such unallocated credits are not used by then, the credits go
into a national pool to be redistributed to states as additional
credit. State and local housing agencies allocate the state's credit
ceiling among low-income housing buildings whose owners have applied
for the credit. Besides section 42 credits derived from the credit
ceiling, states may also provide section 42 credits to owners of
buildings based on the percentage of certain building costs financed by
tax-exempt bond proceeds. Credits provided under the tax-exempt bond
``volume cap'' do not reduce the credits available from the credit
ceiling.
The credits allocated to a building are based on the cost of units
placed in service as low-income units under particular minimum
occupancy and maximum rent criteria. In general, a building must meet
one of two thresholds to be eligible for the LIHTC: Either 20 percent
of the units must be rent-restricted and occupied by tenants with
incomes no higher than 50 percent of the Area Median Gross Income
(AMGI), or 40 percent of the units must
[[Page 51561]]
be rent-restricted and occupied by tenants with incomes no higher than
60 percent of AMGI. The term ``rent-restricted'' means that gross rent,
including an allowance for tenant-paid utilities, cannot exceed 30
percent of the tenant's imputed income limitation (i.e., 50 percent or
60 percent of AMGI). The rent and occupancy thresholds remain in effect
for at least 15 years, and building owners are required to enter into
agreements to maintain the low-income character of the building for at
least an additional 15 years.
The LIHTC reduces income tax liability dollar-for-dollar. It is
taken annually for a term of 10 years and is intended to yield a
present value of either: (1) 70 percent of the ``qualified basis'' for
new construction or substantial rehabilitation expenditures that are
not federally subsidized (as defined in section 42(i)), or (2) 30
percent of the qualified basis for the cost of acquiring certain
existing buildings or projects that are federally subsidized. The
actual credit rates are adjusted monthly for projects placed in service
after 1987 under procedures specified in section 42. Individuals can
use the credits up to a deduction equivalent of $25,000 (the actual
maximum amount of credit that an individual can claim depends on the
individual's marginal tax rate). For buildings placed in service after
December 31, 2007, individuals can use the credits against the
alternative minimum tax. Corporations, other than S or personal service
corporations, can use the credits against ordinary income tax, and, for
buildings placed in service after December 31, 2007, against the
alternative minimum tax. These corporations also can deduct losses from
the project.
The qualified basis represents the product of the building's
``applicable fraction'' and its ``eligible basis.'' The applicable
fraction is based on the number of low-income units in the building as
a percentage of the total number of units, or based on the floor space
of low-income units as a percentage of the total floor space of
residential units in the building. The eligible basis is the adjusted
basis attributable to acquisition, rehabilitation, or new construction
costs (depending on the type of LIHTC involved). These costs include
amounts chargeable to a capital account that are incurred prior to the
end of the first taxable year in which the qualified low-income
building is placed in service or, at the election of the taxpayer, the
end of the succeeding taxable year. In the case of buildings located in
designated DDAs or designated QCTs, eligible basis can be increased up
to 130 percent from what it would otherwise be. This means that the
available credits also can be increased by up to 30 percent. For
example, if a 70 percent credit is available, it effectively could be
increased to as much as 91 percent.
Section 42 of the Code defines a DDA as any area designated by the
Secretary of HUD as an area that has high construction, land, and
utility costs relative to the AMGI. All designated DDAs in metropolitan
areas (taken together) may not contain more than 20 percent of the
aggregate population of all metropolitan areas, and all designated
areas not in metropolitan areas may not contain more than 20 percent of
the aggregate population of all nonmetropolitan areas.
The GO Zone Act provides that areas ``determined by the President
to warrant individual or individual and public assistance from the
Federal Government'' under the Stafford Act by reason of Hurricanes
Katrina, Rita, or Wilma shall be treated as DDAs designated under
subclause I of Internal Revenue Code section 42(d)(5)(C)(iii) \1\
(i.e., areas designated by the Secretary of HUD as having high
construction, land, and utility costs relative to AMGI), and shall not
be taken into account for purposes of applying the limitation under
subclause II of such section (i.e., the 20 percent cap on the total
population of designated areas). This notice lists the affected areas
described in the GO Zone Act. Because the populations of DDAs
designated under the GO Zone Act are not counted against the statutory
20 percent cap on the aggregate population of DDAs, the total
population of designated metropolitan DDAs (regular and GO Zone) listed
in this notice exceeds 20 percent of the total population of all MSAs,
and the population of all nonmetropolitan DDAs listed in this notice
exceeds 20 percent of the total population of nonmetropolitan counties.
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\1\ Section 42(d)(5)(C)(iii) was redesignated section
42(d)(5)(b)(iii) by the Housing and Economic Recovery Act of 2008.
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Section 42(d)(5)(C)(v) as added to the Code by the Housing and
Economic Recovery Act of 2008, and redesignated as section
42(d)(5)(B)(v), allows states to award an increase in basis up to 30
percent to buildings located outside of federally designated DDAs and
QCTs if the increase is necessary to make the building financially
feasible. This state discretion applies only to buildings allocated
credits under the state housing credit ceiling and is not permitted for
buildings receiving credits in connection with tax-exempt bonds. Rules
for such designations shall be set forth in the LIHTC-allocating
agencies' qualified allocation plans (QAPs).
Explanation of HUD Designation Methodology
A. Difficult Development Areas
This notice lists all areas ``determined by the President to
warrant individual or individual and public assistance from the Federal
Government'' under the Stafford Act by reason of Hurricanes Katrina,
Rita, or Wilma as DDAs according to lists of counties and parishes from
the Federal Emergency Management Agency Web site (http://www.fema.gov/
). Affected metropolitan areas and nonmetropolitan areas are assigned
the indicator ``[GO Zone]'' in the lists of DDAs.
In developing the list of the remaining DDAs, HUD compared housing
costs with incomes. HUD used 2000 Census population data and the MSA
definitions, as published in OMB Bulletin No. 07-01 on December 18,
2006, with modifications, as described below. In keeping with past
practice of basing the coming year's DDA designations on data from the
preceding year, the basis for these comparisons is the FY2008 HUD
income limits for very low-income households (Very Low-Income Limits,
or VLILs), which are based on 50 percent of AMGI, and final FY2008 FMRs
used for the Housing Choice Voucher (HCV) program. In formulating the
FY2008 FMRs and VLILs, HUD modified the current OMB definitions of MSAs
to account for substantial differences in rents among areas within each
new MSA that were in different FMR areas under definitions used in
prior years. HUD formed these ``HUD Metro FMR Areas'' (HMFAs) in cases
where one or more of the parts of newly defined MSAs that previously
were in separate FMR areas had 2000 Census base 40th-percentile recent-
mover rents that differed, by 5 percent or more, from the same
statistic calculated at the MSA level. In addition, a few HMFAs were
formed on the basis of very large differences in AMGIs among the MSA
parts. All HMFAs are contained entirely within MSAs. All
nonmetropolitan counties are outside of MSAs and are not broken up by
HUD for purposes of setting FMRs and VLILs. (Complete details on HUD's
process for determining FY2008 FMR areas and FMRs are available at
http://www.huduser.org/DATASETS/fmr/fmrs/index.asp?data=fmr08. Complete
details on HUD's process for determining FY2008 income limits are
available at http://www.huduser.org/datasets/il/il2008_docsys.html.)
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HUD's unit of analysis for designating metropolitan DDAs,
therefore, consists of: entire MSAs, in cases where these were not
broken up into HMFAs for purposes of computing FMRs and VLILs; and
HMFAs within the MSAs that were broken up for such purposes. Hereafter
in this notice, the unit of analysis for designating metropolitan DDAs
will be called the HMFA, and the unit of analysis for nonmetropolitan
DDAs will be the nonmetropolitan county or county equivalent area. The
procedure used in making the DDA calculations follows:
1. For each HMFA and each nonmetropolitan county, a ratio was
calculated. This calculation used the final FY2008 two-bedroom FMR and
the FY2008 four-person VLIL.
a. The numerator of the ratio was the area's final FY2008 FMR. In
general, the FMR is based on the 40th-percentile gross rent paid by
recent movers to live in a two-bedroom apartment. In metropolitan areas
granted a FMR based on the 50th-percentile rent for purposes of
improving the administration of HUD's HCV program (see 71 FR 5068), the
40th-percentile rent was used to ensure nationwide consistency of
comparisons.
b. The denominator of the ratio was the monthly LIHTC income-based
rent limit, which was calculated as \1/12\ of 30 percent of 120 percent
of the area's VLIL (where the VLIL was rounded to the nearest $50 and
not allowed to exceed 80 percent of the AMGI in areas where the VLIL is
adjusted upward from its 50 percent-of-AMGI base).
2. The ratios of the FMR to the LIHTC income-based rent limit were
arrayed in descending order, separately, for HMFAs and for
nonmetropolitan counties.
3. The non-GO Zone DDAs are those HMFAs and nonmetropolitan
counties not in areas ``determined by the President to warrant
individual or individual and public assistance from the Federal
Government'' under the Stafford Act by reason of Hurricanes Katrina,
Rita, or Wilma, with the highest ratios cumulative to 20 percent of the
2000 population of all HMFAs and of all nonmetropolitan counties,
respectively.
B. Application of Population Caps to DDA Determinations
In identifying DDAs, HUD applied caps, or limitations, as noted
above. The cumulative population of metropolitan DDAs not in areas
``determined by the President to warrant individual or individual and
public assistance from the Federal Government'' under the Stafford Act
by reason of Hurricanes Katrina, Rita, or Wilma cannot exceed 20
percent of the cumulative population of all metropolitan areas. The
cumulative population of nonmetropolitan DDAs not in areas ``determined
by the President to warrant individual or individual and public
assistance from the Federal Government'' under the Stafford Act by
reason of Katrina, Rita, or Wilma cannot exceed 20 percent of the
cumulative population of all nonmetropolitan areas.
In applying these caps, HUD established procedures to deal with how
to treat small overruns of the caps. The remainder of this section
explains those procedures. In general, HUD stops selecting areas when
it is impossible to choose another area without exceeding the
applicable cap. The only exceptions to this policy are when the next
eligible excluded area contains either a large absolute population or a
large percentage of the total population, or the next excluded area's
ranking ratio, as described above, was identical (to four decimal
places) to the last area selected, and its inclusion resulted in only a
minor overrun of the cap. Thus, for both the designated metropolitan
and nonmetropolitan DDAs, there may be minimal overruns of the cap. HUD
believes the designation of additional areas in the above examples of
minimal overruns is consistent with the intent of the Stafford Act. As
long as the apparent excess is small due to measurement errors, some
latitude is justifiable because it is impossible to determine whether
the 20 percent cap has been exceeded. Despite the care and effort
involved in a Decennial Census, the Census Bureau and all users of the
data recognize that the population counts for a given area and for the
entire country are not precise. Therefore, the extent of the
measurement error is unknown. There can be errors in both the numerator
and denominator of the ratio of populations used in applying a 20
percent cap. In circumstances where a strict application of a 20
percent cap results in an anomalous situation, recognition of the
unavoidable imprecision in the census data justifies accepting small
variances above the 20 percent limit.
C. Exceptions to OMB Definitions of MSAs and Other Geographic Matters
As stated in OMB Bulletin 07-01, defining metropolitan areas:
``OMB establishes and maintains the definitions of Metropolitan
* * * Statistical Areas, * * * solely for statistical purposes. * *
* OMB does not take into account or attempt to anticipate any non-
statistical uses that may be made of the definitions[.] In cases
where * * * an agency elects to use the Metropolitan * * * Area
definitions in nonstatistical programs, it is the sponsoring
agency's responsibility to ensure that the definitions are
appropriate for such use. An agency using the statistical
definitions in a nonstatistical program may modify the definitions,
but only for the purposes of that program. In such cases, any
modifications should be clearly identified as deviations from the
OMB statistical area definitions in order to avoid confusion with
OMB's official definitions of Metropolitan * * * Statistical
Areas.''
Following OMB guidance, the estimation procedure for the FY2008
FMRs incorporates the current OMB definitions of metropolitan areas
based on the new Core-Based Statistical Area (CBSA) standards, as
implemented with 2000 Census data, but makes adjustments to the
definitions, in order to separate subparts of these areas in cases
where FMRs (and in a few cases, VLILs) would otherwise change
significantly if the new area definitions were used without
modification. In CBSAs where sub-areas are established, it is HUD's
view that the geographic extent of the housing markets are not yet the
same as the geographic extent of the CBSAs, but may approach becoming
so as the social and economic integration of the CBSA component areas
increases.
The geographic baseline for the new estimation procedure is the
CBSA Metropolitan Areas (referred to as Metropolitan Statistical Areas
or MSAs) and CBSA Non-Metropolitan Counties (nonmetropolitan counties
include the county components of Micropolitan CBSAs where the counties
are generally assigned separate FMRs). The HUD-modified CBSA
definitions allow for subarea FMRs within MSAs based on the boundaries
of ``Old FMR Areas'' (OFAs) within the boundaries of new MSAs. (OFAs
are the FMR areas defined for the FY2005 FMRs. Collectively, they
include the June 30, 1999, OMB definitions of MSA and Primary MSAs (old
definition MSAs/PMSAs), metropolitan counties deleted from old
definition MSAs/PMSAs by HUD for FMR-setting purposes, and counties and
county parts outside of old definition MSAs/PMSAs referred to as non-
metropolitan counties.) Subareas of MSAs are assigned their own FMRs
when the subarea 2000 Census Base FMR differs significantly from the
MSA 2000 Census Base FMR (or, in some cases, where the 2000 Census base
AMGI differs significantly from the MSA 2000 Census Base AMGI). MSA
subareas, and the remaining portions of MSAs after subareas have been
determined, are referred to as ``HUD Metro FMR Areas (HMFAs),'' to
distinguish such areas from OMB's official definition of MSAs.
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In addition, Waller County, Texas, which is part of the Houston-
Baytown-Sugar Land, TX HMFA, is not an area ``determined by the
President to warrant individual or individual and public assistance
from the Federal Government'' under the Stafford Act by reason of
Hurricanes Katrina, Rita, or Wilma. It is, therefore, excluded from the
definition of the Houston-Baytown-Sugar Land, TX HMFA and is assigned
the FMR and VLIL of the Houston-Baytown-Sugar Land, TX HMFA and is
evaluated as if it were a separate metropolitan area for purposes of
designating DDAs. The Houston-Baytown-Sugar Land, TX HMFA is assigned
the indicator ``(part)'' in the list of Metropolitan DDAs.
In the New England states (Connecticut, Maine, Massachusetts, New
Hampshire, Rhode Island, and Vermont), HMFAs are defined according to
county subdivisions or minor civil divisions (MCDs), rather than county
boundaries. However, since no part of a HMFA is outside an OMB-defined,
county-based MSA, all New England nonmetropolitan counties are kept
intact for purposes of designating Nonmetropolitan DDAs.
For the convenience of readers of this notice, the geographical
definitions of designated Metropolitan DDAs are included in the list of
DDAs.
The Census Bureau provides no tabulations of 2000 Census data for
Broomfield County, Colorado, an area that was created from parts of
four Colorado counties when the city of Broomfield became a county in
November 2001. Broomfield County is made up of former parts of Adams,
Boulder, Jefferson, and Weld counties. The boundaries of Broomfield
County are similar, but not identical to, the boundaries of the city of
Broomfield at the time of the 2000 Census. In OMB metropolitan area
definitions and, therefore, for purposes of this notice, Broomfield
County is included as part of the Denver-Aurora, CO MSA. Census tracts
in Broomfield County include the parts of the Adams, Boulder,
Jefferson, and Weld County census tracts that were within the
boundaries of the city of Broomfield according to the 2000 Census, plus
parts of three Adams County tracts (85.15, 85.16, and 85.28), and one
Jefferson County tract (98.25) that were not within any municipality
during the 2000 Census but which, according to Census Bureau maps, are
within the boundaries of Broomfield County. Data for Adams, Boulder,
Jefferson, and Weld counties and their census tracts were adjusted to
exclude the data assigned to Broomfield County and its census tracts.
Future Designations
DDAs are designated annually as updated income and FMR data are
made public.
Effective Date
For DDAs designated by reason of being in areas ``determined by the
President to warrant individual or individual and public assistance
from the Federal Government'' under the Stafford Act by reason of
Hurricanes Katrina, Rita, or Wilma (the GO Zone Designation), the
designation is effective:
(1) For housing credit dollar amounts allocated and buildings
placed in service during the period beginning on January 1, 2006, and
ending on December 31, 2010; or
(2) For purposes of Section 42(h)(4) of the Internal Revenue Code,
for buildings placed in service during the period beginning on January
1, 2006, and ending on December 31, 2010, but only with respect to
bonds issued after December 31, 2005.
The 2009 lists of DDAs that are not part of the GO Zone Designation
are effective:
(1) For allocations of credit after December 31, 2008; or
(2) For purposes of Section 42(h)(4) of the Code, if the bonds are
issued and the building is placed in service after December 31, 2008.
If an area is not on a subsequent list of DDAs, the 2009 lists are
effective for the area if:
(1) The allocation of credit to an applicant is made no later than
the end of the 365-day period after the applicant submits a complete
application to the LIHTC-allocating agency, and the submission is made
before the effective date of the subsequent lists; or
(2) For purposes of section 42(h)(4) of the Code, if:
(a) The bonds are issued or the building is placed in service no
later than the end of the 365-day period after the applicant submits a
complete application to the bond-issuing agency, and
(b) The submission is made before the effective date of the
subsequent lists, provided that both the issuance of the bonds and the
placement in service of the building occur after the application is
submitted.
An application is deemed to be submitted on the date it is filed if
the application is determined to be complete by the credit-allocating
or bond-issuing agency. A ``complete application'' means that no more
than de minimis clarification of the application is required for the
agency to make a decision about the allocation of tax credits or
issuance of bonds requested in the application.
In the case of a ``multiphase project,'' the DDA or QCT status of
the site of the project that applies for all phases of the project is
that which applied when the project received its first allocation of
LIHTC. For purposes of section 42(h)(4) of the Code, the DDA or QCT
status of the site of the project that applies for all phases of the
project is that which applied when the first of the following occurred:
(a) The building(s) in the first phase were placed in service or (b)
the bonds were issued.
For purposes of this notice, a ``multiphase project'' is defined as
a set of buildings to be constructed or rehabilitated under the rules
of the LIHTC and meeting the following criteria:
(1) The multiphase composition of the project (i.e., total number
of buildings and phases in project, with a description of how many
buildings are to be built in each phase and when each phase is to be
completed, and any other information required by the agency) is made
known by the applicant in the first application of credit for any
building in the project, and that applicant identifies the buildings in
the project for which credit is (or will be) sought;
(2) The aggregate amount of LIHTC applied for on behalf of, or that
would eventually be allocated to, the buildings on the site exceeds the
one-year limitation on credits per applicant, as defined in the QAP of
the LIHTC-allocating agency, or the annual per capita credit authority
of the LIHTC allocating agency, and is the reason the applicant must
request multiple allocations over 2 or more years; and
(3) All applications for LIHTC for buildings on the site are made
in immediately consecutive years.
Members of the public are hereby reminded that the Secretary of
Housing and Urban Development, or the Secretary's designee, has sole
legal authority to designate DDAs and QCTs by publishing lists of
geographic entities as defined by, in the case of DDAs, the several
states and the governments of the insular areas of the United States
and, in the case of QCTs, by the Census Bureau; and to establish the
effective dates of such lists. The Secretary of the Treasury, through
the IRS thereof, has sole legal authority to interpret, and to
determine and enforce compliance with the Code and associated
regulations, including Federal Register notices published by HUD for
purposes of designating DDAs and QCTs. Representations made by any
other
[[Page 51564]]
entity as to the content of HUD notices designating DDAs and QCTs that
do not precisely match the language published by HUD should not be
relied upon by taxpayers in determining what actions are necessary to
comply with HUD notices.
Interpretive Examples of Effective Date
For the convenience of readers of this notice, interpretive
examples are provided below to illustrate the consequences of the
effective date in areas that gain or lose DDA status. The term
``regular DDA,'' as used below, refers to DDAs that are designated by
the Secretary of HUD as having high construction, land, and utility
costs relative to AMGI. The term ``GO Zone DDA'' refers to areas
``determined by the President to warrant individual or individual and
public assistance from the Federal Government'' under the Stafford Act
by reason of Hurricanes Katrina, Rita, or Wilma. The examples covering
regular DDAs are equally applicable to QCT designations.
(Case A) Project A is located in a 2009 regular DDA that is NOT a
designated regular DDA in 2010. A complete application for tax credits
for Project A is filed with the allocating agency on November 15, 2009.
Credits are allocated to Project A on October 30, 2010. Project A is
eligible for the increase in basis accorded a project in a 2009 regular
DDA because the application was filed BEFORE January 1, 2010 (the
assumed effective date for the 2010 regular DDA lists), and because tax
credits were allocated no later than the end of the 365-day period
after the filing of the complete application for an allocation of tax
credits.
(Case B) Project B is located in a 2009 regular DDA that is NOT a
designated regular DDA in 2010. A complete application for tax credits
for Project B is filed with the allocating agency on December 1, 2009.
Credits are allocated to Project B on March 30, 2011. Project B is NOT
eligible for the increase in basis accorded a project in a 2009 regular
DDA because, although the application for an allocation of tax credits
was filed BEFORE January 1, 2010 (the assumed effective date of the
2010 regular DDA lists), the tax credits were allocated later than the
end of the 365-day period after the filing of the complete application.
(Case C) Project C is located in a 2009 regular DDA that was not a
DDA in 2008. Project C was placed in service on November 15, 2008. A
complete application for tax-exempt bond financing for Project C is
filed with the bond-issuing agency on January 15, 2009. The bonds that
will support the permanent financing of Project C are issued on
September 30, 2009. Project C is NOT eligible for the increase in basis
otherwise accorded a project in a 2009 DDA because the project was
placed in service BEFORE January 1, 2009.
(Case D) Project D is located in an area that is a regular DDA in
2009, but is NOT a regular DDA in 2010. A complete application for tax-
exempt bond financing for Project D is filed with the bond-issuing
agency on October 30, 2009. Bonds are issued for Project D on April 30,
2010, but Project D is not placed in service until January 30, 2011.
Project D is eligible for the increase in basis available to projects
located in 2009 regular DDAs because: (1) The first of the two events
necessary for triggering the effective date for buildings described in
Section 42(h)(4)(B) of the Code (the two events being bonds issued and
buildings placed in service) took place on April 30, 2010, within the
365-day period after a complete application for tax-exempt bond
financing was filed, (2) the application was filed during a time when
the location of Project D was in a regular DDA, and (3) both the
issuance of the bonds and placement in service of project D occurred
after the application was submitted.
(Case E) Project E is located in a GO Zone DDA. The bonds used to
finance Project E are issued on July 1, 2011, and Project E is placed
in service July 1, 2012. Project E is NOT eligible for the increase in
basis available to projects in GO Zone DDAs because it was not placed
in service during the period that began on January 1, 2006, and ends on
December 31, 2010.
(Case F) Project F is located in a GO Zone DDA. The bonds used to
finance Project F were issued July 1, 2005, and Project F is placed in
service on July 1, 2009. Project F is NOT eligible for the increase in
basis available to projects in GO Zone DDAs because the bonds used to
finance project F were issued BEFORE December 31, 2005.
(Case G) Project G is a multiphase project located in a 2009
regular DDA that is NOT a designated regular DDA in 2010. The first
phase of Project G received an allocation of credits in 2009, pursuant
to an application filed March 15, 2009, which describes the multiphase
composition of the project. An application for tax credits for the
second phase Project G is filed with the allocating agency by the same
entity on March 15, 2010. The second phase of Project G is located on a
contiguous site. Credits are allocated to the second phase of Project G
on October 30, 2010. The aggregate amount of credits allocated to the
two phases of Project G exceeds the amount of credits that may be
allocated to an applicant in one year under the allocating agency's QAP
and is the reason that applications were made in multiple phases. The
second phase of Project G is, therefore, eligible for the increase in
basis accorded a project in a 2009 regular DDA, because it meets all of
the conditions to be a part of a multiphase project.
(Case H) Project H is a multiphase project located in a 2009
regular DDA that is NOT a designated regular DDA in 2010. The first
phase of Project H received an allocation of credits in 2009, pursuant
to an application filed March 15, 2009, which does not describe the
multiphase composition of the project. An application for tax credits
for the second phase of Project H is filed with the allocating agency
by the same entity on March 15, 2011. Credits are allocated to the
second phase of Project H on October 30, 2011. The aggregate amount of
credits allocated to the two phases of Project H exceeds the amount of
credits that may be allocated to an applicant in one year under the
allocating agency's QAP. The second phase of Project H is, therefore,
NOT eligible for the increase in basis accorded a project in a 2009
regular DDA, since it does not meet all of the conditions for a
multiphase project, as defined in this notice. The original application
for credits for the first phase did not describe the multiphase
composition of the project. Also, the application for credits for the
second phase of Project H was not made in the year immediately
following the first phase application year.
Findings and Certifications
Environmental Impact
In accordance with 40 CFR 1508.4 of the regulations of the Council
on Environmental Quality and 24 CFR 50.19(c)(6) of HUD's regulations,
the policies and procedures contained in this notice provide for the
establishment of fiscal requirements or procedures that do not
constitute a development decision affecting the physical condition of
specific project areas or building sites and, therefore, are
categorically excluded from the requirements of the National
Environmental Policy Act, except for extraordinary circumstances, and
no Finding of No Significant Impact is required.
Federalism Impact
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any policy document that has federalism implications if
the document either imposes substantial direct compliance costs on
state and
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local governments and is not required by statute, or the document
preempts state law, unless the agency meets the consultation and
funding requirements of section 6 of the executive order. This notice
merely designates DDAs as required under Section 42 of the Internal
Revenue Code, as amended, for the use by political subdivisions of the
states in allocating the LIHTC. This notice also details the technical
methodology used in making such designations. As a result, this notice
is not subject to review under the order.
Dated: August 12, 2008.
Darlene F. Williams,
Assistant Secretary for Policy Development and Research.
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[FR Doc. E8-20322 Filed 9-2-08; 8:45 am]
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