NCSHA and Industry Stakeholders Urge IRS and Treasury to Finalize Housing Credit Average Income Test Rule

Today, NCSHA and 31 other affordable housing stakeholder organizations sent a letter to the Internal Revenue Service (IRS) and U.S. Department of the Treasury (Treasury) urging them to expedite issuance of a final rule on the Housing Credit Average Income Test (AIT) or to announce their intention to publish a new proposed rule for public comment. IRS’ October 2020 proposed rule substantially chilled interest in the AIT set-aside, and more than 80 Housing Credit stakeholder organizations expressed concerns about the rule via formal written comments in December 2020 and oral testimony at the IRS public hearing on the regulations in March 2021.

The letter includes a set of consensus recommendations for IRS and Treasury to consider as they work to finalize the AIT rule. These recommendations include two possible approaches to meeting the AIT minimum set-aside — both designed to provide sufficient penalty for noncompliance without creating excessive and unnecessary risk that will negate investor interest in the new set-aside.

The letter also recommends allowing development owners to modify unit designations, providing exceptions or additional flexibility when AIT noncompliance results from a casualty loss, expanding the mitigating actions described in the proposed rule, providing a period of up to one year for correcting a violation of the AIT set-aside, and extending further relief to existing developments that elected the AIT set-aside prior to publication of the proposed rule.