n-07-66.pdf

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Part III-Administrative, Procedural, and Miscellaneous

Relief from Certain Low-Income Housing Credit Requirements Due to
Hurricane Katrina

Notice 2007-66

I. PURPOSE
This notice is to advise owners of qualified low-income buildings and State
housing credit agencies located in the Gulf Opportunity Zone (GO Zone) of relief
from certain requirements under § 42 of the Internal Revenue Code. This relief is
being granted pursuant to the Service’s authority under § 42(n) and § 1.42-13(a)
of the Income Tax Regulations.
II. BACKGROUND
Owners of qualified low-income buildings may claim a tax credit under
§ 42(a). For any taxable year in a 10-year credit period, the amount of credit is
equal to the applicable percentage of the qualified basis of each qualified low-
income building.
Under § 42(j)(1) and (2) if, at the close of any taxable year in the
compliance period, the building’s qualified basis with respect to the taxpayer is
less than the basis as of the close of the preceding taxable year, then the
taxpayer is liable for additional tax (recapture) in an amount equal to the

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accelerated portion of credits allowed in earlier years with respect to the
reduction in qualified basis, plus interest.
Section 42(j)(4)(E) provides that the increase in tax under § 42(j) shall not
apply to a reduction in qualified basis by reason of a casualty loss to the extent
such loss is restored by reconstruction or replacement within a reasonable period
established by the Secretary.
Rev. Proc. 95-28, 1995-1 C.B. 704 and Rev. Proc. 2007-54, I.R.B. 2007-
31, which supersedes Rev. Proc. 95-28, allow temporary relief from certain
requirements under § 42 to owners of qualified low-income buildings and housing
credit agencies of States or possessions of the United States in major disaster
areas declared by the President under the Robert T. Stafford Disaster Relief and
Emergency Assistance Act, Title 42 U.S.C. 5121-5206 (2000 and Supp. IV 2004)
(Stafford Act).
Section 7.01 of Rev. Proc. 95-28, and § 7.01 of Rev. Proc. 2007-54,
provide that an owner of a building that is beyond the first year of the credit
period will not be subject to recapture or loss of credit if the building’s qualified
basis suffered a reduction because of a disaster that caused the President to
issue a major disaster declaration, provided the building’s qualified basis is
restored within a reasonable period. Both revenue procedures provide that the
housing credit agency may determine what constitutes a reasonable period for
purposes of § 42(j)(4)(E), but in no instance will the period end later than 24
months after the end of the calendar year in which the President issued a major
disaster declaration for the area where the building is located. If a building’s

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qualified basis is restored within the period determined by the housing credit
agency, the building will not be subject to recapture, and the building may
continue to earn credit during that restoration period.
Under § 1.42-13, the Secretary may provide guidance to carry out the
purposes of § 42 through various publications in the Internal Revenue Bulletin.
The Gulf Opportunity Zone Act of 2005 (Public Law 109-135, 119 Stat. 25)
(GOZA) added §§ 1400M and 1400N to the Code to provide certain tax benefits
to those areas affected by Hurricane Katrina. Section 1400M(1) defines the GO
Zone as that portion of the Hurricane Katrina disaster area determined by the
President to warrant individual or individual and public assistance from the
Federal Government under the Stafford Act by reason of Hurricane Katrina.
Section 1400M(2) defines the term “Hurricane Katrina disaster area” as an area
with respect to which a major disaster has been declared by the President before
September 14, 2005, under section 401 of the Stafford Act by reason of
Hurricane Katrina. Because of the widespread damage to housing caused by
Hurricane Katrina and the difficulty in rebuilding, the Service has determined that
it is appropriate to extend the restoration period provided under Rev. Proc. 95-28
for qualified low-income buildings located in the GO Zone.
III. AFFECTED PROJECTS
The reasonable restoration period for purposes of § 42(j)(4)(E) provided in
this Notice applies to qualified low-income buildings located in the GO Zone, as
defined in § 1400M(1), that are (1) beyond the first year of the credit period, and

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(2) that, because of Hurricane Katrina and its aftermath, suffered a reduction in
qualified basis that would cause it to be subject to recapture and loss of credit.
IV. RELIEF PROVIDED
For qualified low-income buildings subject to this Notice, a housing credit
agency may determine what constitutes a reasonable restoration period for
purposes of § 42(j)(4)(E), but in no instance will it end later than 48 months after
the end of calendar year 2005. In order to qualify for this period, the owner must
have been engaged in the restoration of the building’s qualified basis during the
restoration period provided in § 7.01 of Rev. Proc. 95-28. The term “engaged in
the restoration of the building’s qualified basis” means, with respect to the
qualified low-income building, ongoing physical repairs; having entered into
binding, written contracts for the repair or restoration to be completed within the
restoration period; or, active negotiation of contracts for the repair or restoration,
including obtaining permits for construction.
If a building’s qualified basis is restored within the period determined by
the housing credit agency, not to exceed 48 months, the building will not be
subject to recapture, and the building may continue to earn credit during that
restoration period. If the owner of the building fails to restore the building within
the reasonable restoration period determined by the state housing credit agency,
the owner shall lose all credit claimed during the restoration period and suffer
recapture for any prior years of claimed credit under the provisions of § 42(j)(1).
The state housing credit agency may determine the appropriate period,
not to extend beyond 48 months after the end of the calendar year 2005 on a

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building-by-building basis. Sections 7.02 through 7.04 of Rev. Proc. 95-28
continue to apply to qualified low-income buildings subject to this Notice.
V. DRAFTING INFORMATION
The principal author of this notice is Jack Malgeri of the Office of the
Associate Chief Counsel (Passthroughs and Special Industries). For further
information regarding this notice contact Mr. Malgeri on (202) 622-3040 (not a toll
free call).