SECTION 2. BACKGROUND

.01 Section 1400I, as added by § 101(a) of the Community Renewal Tax Relief Act of 2000, Pub. L. No. 106–554, 114 Stat. 2763A–587 (December 21, 2000), allows a taxpayer to elect to recover the cost of a qualified revitalization building using a more accelerated method than is otherwise allowable under § 168. Pursuant to § 1400I(a), a taxpayer may elect either (1) to deduct one-half of any qualified revitalization expenditures chargeable to a capital account with respect to any qualified revitalization building for the taxable year in which the building is placed in service, or (2) to amortize all of these expenditures ratably over the 120-month period beginning with the month in which the building is placed in service. If the taxpayer makes a commercial revitalization deduction election as provided in this revenue procedure, a depreciation deduction is not allowable for the amounts deducted or amortized under § 1400I(a). The commercial revitalization deduction provided by § 1400I(a) is allowed for both regular tax and alternative minimum tax purposes.

.02 Under § 1400I(b)(1), a qualified revitalization building is any building and its structural components (such terms are defined in § 1.48–1(e) of the Income Tax Regulations) if: (1) the building is placed

in service by the taxpayer in a renewal community (as defined in § 1400E) and the original use of the building begins with the taxpayer; or (2) the building is substantially rehabilitated (within the meaning of § 47(c)(1)(C)) by the taxpayer and is placed in service by the taxpayer after the rehabilitation in a renewal community.

.03 The term “qualified revitalization expenditure” is defined in § 1400I(b)(2)(A) as, in general, any amount properly chargeable to a capital account for property for which depreciation is allowable under § 168 and that is either (1) nonresidential real property (as defined in § 168(e)(2)(B)), or (2) § 1250 property (as defined in § 1250(c)) that is functionally related and subordinate to the nonresidential real property. However, pursuant to § 1400I(c), the aggregate amount that may be treated as qualified revitalization expenditures with respect to any qualified revitalization building cannot exceed the lesser of (1) $10 million, or (2) the commercial revitalization expenditure amount allocated to the building under § 1400I by the commercial revitalization agency for the state in which the building is located. Accordingly, a taxpayer may make a commercial revitalization deduction election for a qualified revitalization building only to the extent that qualified commercial revitalization expenditure amounts are allocated to the building. If the amount of that allocation exceeds the amount properly chargeable to a capital account for the building, the qualified revitalization expenditures eligible for the commercial revitalization deduction election are limited to the amount properly chargeable to a capital account for the building.

.04 Under § 1400I(d), the commercial revitalization agency for each state is permitted to allocate up to $12 million of commercial revitalization expenditure amounts with respect to each renewal community located within the state for each calendar year after 2001 and before 2010. Pursuant to § 1400I(e), the allocation must be made pursuant to a qualified allocation plan (as defined in § 1400I(e)(2)) that is approved by the governmental unit of which the commercial revitalization agency is a part. Further, the commercial revitalization agency must notify the chief ex

ecutive officer (or its equivalent) of the local jurisdiction in which the qualified revitalization building is located of the allocation and provide that individual a reasonable opportunity to comment on the allocation. The term “commercial revitalization agency” is defined in § 1400I(d)(3) as any agency authorized by a state to carry out § 1400I. Neither the original nor a copy of the qualified allocation plan is to be sent to the Internal Revenue Service.

.05 Pursuant to § 1400I(d)(4), an allocation under § 1400I is made at the same time and in the same manner as under the low-income housing credit provisions in § 42(h)(1) and (7). Section 42(h)(1)(B) provides that, except in the case of an allocation that meets the requirements of § 42(h)(1)(C), (D), (E), or (F), an allocation must be made not later than the close of the calendar year in which the building is placed in service. Further, § 1.42– 1T(d)(8)(i) provides that the allocation may not be made prior to the calendar year in which the building is placed in service. Accordingly, the low-income housing credit allocation is generally made in the calendar year in which the building is placed in service.

Nevertheless, certain allocations that meet the requirements of § 42(h)(1)(C), (D), (E), or (F) are not made in the calendar year in which the building is placed in service. An allocation meets the requirements of § 42(h)(1)(C) if there is a binding commitment, not later than the close of the calendar year in which the building is placed in service, by the state agency to allocate a specified dollar amount to the building beginning in a specified later taxable year. An allocation with respect to an increase in qualified basis meets the requirements of § 42(h)(1)(D) only if, among other things, the allocation is made not later than the close of the calendar year in which ends the taxable year to which the allocation will first apply. Pursuant to § 42(h)(1)(E) and (F) and § 1.42–6, a carryover allocation is allowed with respect to a single-building project or multi-building project that is placed in service not later than the close of the second calendar year following the calendar year in which the allocation is made, provided certain basis requirements set forth therein are met.

June 16, 2003 1017 2003–24 I.R.B.