IRS Extends Placed-in-Service and Other COVID Relief Deadlines

In an announcement made in early October, the Biden administration announced key progress on implementing its Housing Supply Action Plan. The plan aims to create and preserve hundreds of thousands of affordable housing units in the next three years and help close the country’s critical housing supply shortfall within five years. It features a combination of legislative, regulatory, and administrative steps to expand affordable housing and encourage the construction and rehabilitation of housing of all types and price points.

As part of the progress report, the administration highlighted the finalization of the LIHTC program’s average-income test regulations. The announcement acknowledged that LIHTCs are the largest federal incentive for affordable housing construction and rehabilitation. And it touted the flexibility provided by the average income minimum set-aside to enable the creation of more financially stable, mixed-income LIHTC projects and make LIHTC-supported housing more feasible in sparsely populated rural areas. And the report said it will also facilitate the production of additional affordable and available units for extremely low-income tenants by allowing for cross-subsidization within a project.

In addition to finalizing the income-averaging rule, the progress update highlighted the IRS’ release of Notice 2022-52. In response to the COVID emergency, the IRS provided an extension for the deadlines when an affordable housing project seeking to earn LIHTCs must be placed in service. With this notice, the IRS announced several additional deadline extensions to ensure that affordable housing projects delayed by public health, economic, and supply-chain issues can be built as quickly as possible and still qualify for LIHTCs. Here are the LIHTC deadline extensions provided by Notice 2022-52.

Placed-in-Service (PIS) Deadlines

In general, Notice 2022-52 provides 12-month extensions of PIS deadlines:

• For sites that received a 2018 LIHTC allocation and had an original PIS deadline of Dec. 31, 2020, the new PIS deadline is Dec. 31, 2022;
• For sites that received a 2019 LIHTC allocation and had an original PIS deadline of Dec. 31, 2021, the new PIS deadline is Dec. 31, 2023. Notice 2022-05 provided sites that had an original 10 percent test deadline in the first quarter of 2020 only until Dec. 31, 2022, while sites that had a 10 percent deadline in the second, third, or fourth quarter of 2020 had until Dec. 31, 2023, to be placed in service;
• For sites that received a 2020 LIHTC allocation and had an original PIS deadline of Dec. 31, 2022, the new PIS deadline is Dec. 31, 2024. Notice 2022-05 provided these sites a one-year extension until Dec. 31, 2023; and
• For sites that received a 2021 LIHTC allocation and had an original PIS deadline of Dec. 31, 2023, the new PIS deadline is Dec. 31, 2024. Notice 2022-05 didn’t provide relief to these sites.

Reasonable Restoration Period

The notice extends the reasonable restoration period in the event of casualty loss by 24 months. This is the deadline for restoration after a low-income building suffers a casualty loss for any reason including casualties related to major disasters, but also any other casualty if the original restoration deadline ended on or after April 1, 2020. However, the extended deadline may be no later than Dec. 31, 2023. The previous version of the notice provided this extension for up to 12 months and not beyond Dec. 31, 2022.

Noncompliance Correction Period

Notice 2022-52 extends the period for owners correcting noncompliance if the original correction period ended between April 1, 2020, and before Dec. 31, 2022, by up to 12 months. However, the correction period may go no further than Dec. 31, 2023, and housing agencies may require a shorter extension or no extension at all. The previous Notice 2022-05 also provided up to a 12-month extension, but not beyond Dec. 31, 2022.

Physical Inspection Compliance Monitoring Waiver

An agency allocating LIHTCs required to conduct physical inspections may extend the waiver of the physical inspection requirement (previously extended by IRS Notice through June 30, 2022) if, consistent with state and local health and safety recommendations, the level of COVID-19 transmission makes an extension appropriate. No extension may go beyond Dec. 31, 2023.