rp-05-37.pdf

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Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement;
determination of correct tax liability.
(Also Part I, ' 42; 1.42-5.)

Rev. Proc. 2005-37

SECTION 1. PURPOSE
This revenue procedure establishes a safe harbor under which housing credit
agencies and project owners may meet the requirements of ' 42(h)(6)(B)(i) of the
Internal Revenue Code as described in Q&A-5 of Rev. Rul. 2004-82, 2004-35 I.R.B.
350, concerning extended low-income housing commitments (commitments).
SECTION 2. BACKGROUND
Section 42(a) provides for a credit for investment in qualified low-income buildings
(as defined in ' 42(c)(2)). Under ' 42(i)(3)(A), low-income units in a building must be
occupied by individuals who meet the income limitation applicable under ' 42(g)(1) to
the project of which the building is a part. The building owner must elect under
' 42(g)(1) to rent a percentage of the residential units to individuals whose income is 50
percent or less of area median gross income or 60 percent or less of area median gross
income.

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Section 42(h)(6)(A) provides that no credit will be allowed with respect to any
building for the taxable year unless a commitment (as defined in ' 42(h)(6)(B)) is in
effect as of the end of the taxable year.
Section 42(h)(6)(B)(i) requires commitments to include the prohibitions against the
actions described in subclauses (I) and (II) of ' 42(h)(6)(E)(ii) during the extended use
period, that is, prohibitions against eviction or termination of tenancy of an existing
tenant of any low-income unit (other than for good cause) and any increase in the gross
rent with respect to a low-income unit not otherwise permitted by ' 42, applicable
throughout the entire commitment period.
Section 42(h)(6)(B)(ii) provides that a commitment must allow individuals who meet
the income limitation applicable to the building under ' 42(g) (whether prospective,
present, or former occupants of the building) the right to enforce in any state court the
prohibitions of ' 42(h)(6)(B)(i).
Section 42(h)(6)(J) provides that if, during a taxable year, there is a determination
that a commitment was not in effect as of the beginning of the taxable year, the
determination shall not apply to any period before the year and subparagraph (A) shall
be applied without regard to the determination if the failure is corrected within 1 year
from the date of determination.
Section 1.42-5(c)(1)(xi) of the Income Tax Regulations provides that a housing credit
agency must require the owner of a low-income housing project to certify at least
annually to the housing credit agency that, for the preceding 12-month period, a
commitment as described in ' 42(h)(6) was in effect (for buildings subject to
' 7108(c)(1) of the Omnibus Budget Reconciliation Act of 1989, 1990-1 C.B. 210),

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including the requirement under ' 42(h)(6)(B)(iv) that an owner cannot refuse to lease a
unit in the project to an applicant because the applicant holds a voucher or certificate of
eligibility under section 8 of the United States Housing Act of 1937, 42 U.S.C. 1437f (for
buildings subject to ' 13142(b)(4) of the Omnibus Budget Reconciliation Act of 1993,
1993-3 C.B. 1).
On August 30, 2004, the Service ruled in Q&A-5 of Rev. Rul. 2004-82 that
' 42(h)(6)(B)(i) requires commitments to include the prohibitions against the actions
described in subclauses (I) and (II) of ' 42(h)(6)(E)(ii) during the extended use period,
that is, prohibitions against eviction or termination of tenancy of an existing tenant of
any low-income unit (other than for good cause) and any increase in the gross rent with
respect to a low-income unit not otherwise permitted by ' 42, applicable throughout the
entire commitment period. This requirement for commitments extends back to the
effective date of ' 42(h)(6)(B)(i). See ' 11701(a)(7)(A) of the Omnibus Budget
Reconciliation Act of 1990, 1991-2 C.B. 481, 531.
Q&A-5 provided that if it is determined by the end of a taxable year that a taxpayer’s
commitment does not meet the requirements for a commitment under ' 42(h)(6)(B) (for
example, it does not provide no-cause eviction protection for the tenants of low-income
units throughout the extended use period), the low income housing credit is not
allowable with respect to the building for the taxable year, or any prior taxable year.
However, if the failure to have a valid commitment in effect is corrected within 1 year
from the date of the determination, the determination will not apply to the current year of
the credit period or any prior year.

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Q&A-5 required each Agency to review its existing commitments by December 31,
2004, to ensure that the no-cause eviction protection and the prohibition against
improper increases in gross rent apply throughout the extended use period. If during
that review, an Agency determined that a commitment did not comply with these
requirements, the 1-year period described under § 42(h)(6)(J) will commence on the
date of that determination.
SECTION 3. SAFE HARBOR
.01 The Service has determined that Agencies may satisfy the review requirements
under Q&A-5 for commitments entered into before January 1, 2006, under
' 42(h)(6)(B)(i) in the following manner:
(1) Commitments entered into before January 1, 2006, that contain general
language requiring building owners to comply with the requirements of ' 42 (catch-all
language) satisfy the requirements under Q&A-5, if:
(a) Agencies notify building owners in writing on or before December 31, 2005,
that consistent with the interpretation in Q&A-5, the catch-all language prohibits the
owner from evicting or terminating the tenancy of an existing tenant of any low-income
unit (other than for good cause) throughout the entire commitment period. Further,
Agencies must notify building owners that the catch-all language prohibits the owner
from making an increase in the gross rent with respect to a low-income unit not
otherwise permitted by ' 42 throughout the entire commitment period;
(b) The owner must, as part of its certification under ' 1.42-5(c)(1)(xi), certify
annually that for the preceding 12-month period no tenants in low-income units were
evicted or had their tenancies terminated other than for good cause and that no tenants

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had an increase in the gross rent with respect to a low-income unit not otherwise
permitted under ' 42;
(c) If the owner fails to make the certifications in (b) above or the Agency
learns that the owner has evicted tenants in low-income units or terminated their
tenancies other than for good cause or has increased the gross rent of a tenant with
respect to a low-income unit not otherwise permitted under ' 42, the Agency shall report
the owner to the Internal Revenue Service using Form 8823, Low-Income Housing
Credit Agencies Report of Noncompliance or Building Disposition; and
(d) Section 3.02 shall also apply to any amendment to any commitment
containing catch-all language if the amendment is executed after December 31, 2005.
(2) Commitments entered into before January 1, 2006, that do not contain specific
language on the ' 42(h)(6)(B)(i) prohibition against the actions described in subclauses
(I) and (II) of ' 42(h)(6)(E)(ii) or catch-all language do not satisfy the requirements of
Q&A-5 and must be amended to clearly provide for the ' 42(h)(6)(B)(i) prohibition
against the actions described in subclauses (I) and (II) of ' 42(h)(6)(E)(ii) by December
31, 2005.
.02 The Service has determined that Agencies may satisfy the review requirements
under Q&A-5 for commitments executed after December 31, 2005, under
' 42(h)(6)(B)(i) in the following manner:
(1) Commitments executed after December 31, 2005, must clearly
provide for the ' 42(h)(6)(B)(i) prohibition against the actions described in subclauses (I)
and (II) of ' 42(h)(6)(E)(ii);

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(2) The owner must, as part of its certifications under ' 1.42-5(c)(1)(xi), certify
annually that for the preceding 12-month period no tenants in low-income units were
evicted or had their tenancies terminated other than for good cause and that no tenants
had an increase in the gross rent with respect to a low-income unit not otherwise
permitted under ' 42; and
(3) If the owner fails to make the certifications in (2) above or the Agency learns
that the owner has evicted tenants in low-income units or terminated their tenancies
other than for good cause or has increased the gross rent of a tenant with respect to a
low-income unit not otherwise permitted under ' 42, the Agency shall report the owner
to the Internal Revenue Service using Form 8823, Low-Income Housing Credit
Agencies Report of Noncompliance or Building Disposition.
EFFECTIVE DATE
This revenue procedure is effective on June 21, 2005, the date this revenue
procedure was released to the tax services.
DRAFTING INFORMATION
The principal author of this revenue procedure is Jack Malgeri of the Office of the
Associate Chief Counsel (Passthroughs and Special Industries). For further
information regarding this revenue procedure contact Mr. Malgeri on (202) 622-3040
(not a toll-free call).