Senators, House Members Introduce Legislation to Clarify Tax Status of GSEs, Optimize Their Investment in Rural Areas

Today, Senators Jerry Moran (R-KS), Mark Warner (D-VA), and Todd Young (R-IN) and Representatives Darin LaHood (R-IL) and Dan Kildee (D-MI) introduced bipartisan, bicameral legislation clarifying that the Government Sponsored Enterprises Fannie Mae and Freddie Mac are not tax-exempt controlled entities (TECEs) and thus may invest in multi-investor Housing Credit funds without negatively impacting the tax benefits available to all investors in those funds. Multi-investor Housing Credit funds are particularly critical for investments in smaller, rural areas; thus, GSE investment in those funds is consistent with Fannie’s and Freddie’s Duty to Serve.

The tax code prevents for-profit entities controlled by nonprofit entities, so-called TECEs, from receiving certain tax benefits that are not available to nonprofits, including accelerated depreciation, bonus depreciation, and the ability to invest in Historic Rehabilitation Tax Credits and certain energy credits. Should a TECE invest in a multi-investor Housing Credit fund, it would taint that fund for all participating investors such that they too could not receive those tax benefits. Due to the Preferred Stock Purchase Agreement between the GSEs and the U.S. government, some investors in multi-investor Housing Credit funds became concerned several years ago that Fannie Mae and Freddie Mac could be determined to be TECEs and ceased investing in funds with GSE involvement. Fannie Mae in particular had been investing in the Housing Credit equity market through multi-investor funds as a primary strategy for meeting its Duty to Serve since re-entering the credit market in 2018. For a time, due to this concern, Fannie was forced to pull out of multi-investor funds. Though the company has been able to develop a temporary workaround allowing it to invest again, Fannie does not view that solution as viable indefinitely.

For the last couple of years, NCSHA has been pressing the Treasury Department to find an administrative solution to this problem. Unfortunately, despite congressional pressure and NCSHA and other stakeholders weighing in, the administration has not been able to find a way to clarify the GSEs’ tax status to fix this problem. NCSHA will continue to encourage administrative action but also strongly supports the legislation introduced in both chambers today.