Part III. Administrative, Procedural, and Miscellaneous

Relief From Certain Low-Income Housing Credit Requirements Due to Hurricane Rita

Notice 2006–11

The Internal Revenue Service is suspending certain requirements under § 42 of the Internal Revenue Code for low-income housing credit projects in the United States as a result of the devastation caused by Hurricane Rita. This relief is being granted pursuant to the Service’s authority under § 42(n) and § 1.42–13(a) of the Income Tax Regulations.

BACKGROUND

On September 24, 2005, the President declared major disasters for the states of Louisiana and Texas as a result of Hurricane Rita. These declarations were made under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, Title 42 U.S.C. 5121–5206 (2000 and Supp. II 2002). Subsequently, the Federal Emergency Management Agency (FEMA) designated jurisdictions for Individual Assistance.

The states of Louisiana and Texas have requested that the Service grant relief similar to Notice 2005–69, 2005–40 I.R.B. 622 (applying to Hurricane Katrina which temporarily suspended certain requirements under § 42 of the Internal Revenue Code) to allow owners of low-income housing credit projects throughout the United States to provide temporary housing in vacant units to individuals who resided in jurisdictions designated for Individual Assistance in Louisiana and Texas and who have been displaced because their residences were destroyed or damaged as a result of the devastation caused by Hurricane Rita. The states of Louisiana and Texas have further requested that the temporary housing of the displaced individuals in low-income units without regard to income not cause the owners to lose low-income housing credits.

Based upon these requests and because of the widespread damage to housing caused by Hurricane Rita, the Service has determined that any housing credit

agency of a state or a possession of the United States (state housing credit agency) may provide approval to project owners in their respective state or possession to provide temporary emergency housing for individuals displaced by Hurricane Rita (displaced individuals) in accordance with this notice.

I. SUSPENSION OF INCOME LIMITATIONS

The Service has determined that it is appropriate to temporarily suspend certain income limitation requirements under § 42 for certain qualified low-income projects. The suspension will apply to low-income housing projects approved by the state housing credit agency, in which vacant units are rented to displaced individuals. The state housing credit agency will determine the appropriate period of temporary housing for each project, not to extend beyond September 30, 2006 (temporary housing period).

II. STATUS OF UNITS

A. Units in the first year of the credit period

A displaced individual temporarily occupying a unit during the first year of the credit period under § 42(f)(1) will be deemed a qualified low-income tenant for purposes of determining the project’s qualified basis under § 42(c)(1), and for meeting the project’s 20–50 test or 40–60 test as elected by the project owner under § 42(g)(1). After the end of the temporary housing period established by the state housing credit agency (not to extend beyond September 30, 2006), a displaced individual will no longer be deemed a qualified low-income tenant.

B. Vacant units after the first year of the credit period

During the temporary housing period established by a state housing credit agency, the status of a vacant unit (that is, market-rate or low-income for purposes of § 42 or never previously occupied) after the first year of the credit period that becomes temporarily occupied by a

displaced individual remains the same as the unit’s status before the displaced individual moves in. Displaced individuals temporarily occupying vacant units will not be treated as low-income tenants under § 42(i)(3)(A)(ii) (a low-income unit that was vacant before the effective date of this notice will continue to be treated as a vacant low-income unit even if it houses a displaced individual, a market rate unit that was vacant before the effective date of this notice will continue to be treated as a vacant market rate unit even if it houses a displaced individual, and a unit that was never previously occupied before the effective date of this notice will continue to be treated as a unit that has never been previously occupied even if it houses a displaced individual). Thus, the fact that a vacant unit becomes occupied by a displaced individual will not affect the building’s applicable fraction under § 42(c)(1)(B) for purposes of determining the building’s qualified basis, nor will it affect the 20–50 test or 40–60 test of § 42(g)(1). If the income of occupants in low-income units exceeds 140 percent of the applicable income limitation, the temporary occupancy of a unit by a displaced individual will not cause application of the available unit rule under § 42(g)(2)(D)(ii). In addition, the project owner is not required during the temporary housing period to make attempts to rent to low-income individuals the low-income units housing displaced individuals.

III. SUSPENSION OF NON-TRANSIENT REQUIREMENTS

The non-transient use requirement of § 42(i)(3)(B)(i) shall not apply to any unit providing temporary housing to a displaced individual during the temporary housing period determined by the state housing credit agency in accordance with section I of this notice.

IV. OTHER REQUIREMENTS

All other rules and requirements of § 42 will continue to apply during the temporary housing period established by the state housing credit agency. After the end of the temporary housing period, the applicable income limitations contained

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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 at (202) 622–3040 (not a toll-free call).

Hurricanes Katrina and Rita

– Relief From Certain Backup Withholding Obligations

Notice 2006–12

PURPOSE

This notice supplements the relief previously granted by the Internal Revenue Service (IRS) under sections 6081, 6161, 6656, and 7508A of the Internal Revenue Code with respect to taxpayers affected by Hurricanes Katrina and Rita. Generally, section 3406 and the regulations thereunder impose on payors certain obligations with respect to backup withholding on reportable payments due to notification that the payee’s taxpayer identification number (TIN) is incorrect. With respect to taxpayers affected by Hurricane Katrina or Rita, the IRS has determined that it is appropriate to postpone the time for payors to comply with these obligations.

Notice 2005–73, 2005–42 I.R.B. 723 (October 17, 2005) and News Releases IR–2005–112 and IR–2005–110 summarize certain relief granted with respect to Hurricanes Katrina and Rita, listing the counties and parishes eligible for Public Assistance or Individual and Public Assistance from the Federal Emergency Management Agency (FEMA) pursuant to Presidential disaster declarations. These counties and parishes constitute a “covered disaster area” within the meaning of section 301.7508A–1(d)(2).

The relief detailed below applies to all the counties and parishes that FEMA has designated or later designates as eligible for Individual or Individual and Public Assistance as a result of the devastation caused by Hurricane Katrina or Hurricane Rita.

BACKGROUND

Section 7508A provides the Secretary with authority to postpone the time

in § 42(g)(1), the available unit rule under § 42(g)(2)(D)(ii), the non-transient requirement of § 42(i)(3)(B)(i), and the requirement to make reasonable attempts to rent vacant units to low-income individuals shall resume. If a project owner offers to rent to a displaced individual after the end of the temporary housing period, a displaced individual must be certified under the requirements of § 42(i)(3)(A)(ii) and § 1.42–5(b) and (c) to be a qualified low-income tenant. To qualify for the relief in this notice, the project owner must additionally meet all of the following requirements:

(1) Major Disaster Area The displaced individual must have resided in a Louisiana or Texas jurisdiction designated for Individual Assistance by FEMA as a result of Hurricane Rita.

(2) Approval of State Housing Credit Agency

Project owners must obtain approval from their state housing credit agency to obtain the relief described in this notice. The state housing credit agency will determine the appropriate period of temporary housing for each project, not to extend beyond September 30, 2006.

(3) Certifications and Recordkeeping To comply with the requirements of § 1.42–5, project owners are required to maintain and certify certain information concerning each displaced individual temporarily housed in the project, specifically: name, address of damaged residence, social security number, and a statement signed under penalties of perjury by the displaced individual that, because of damage to the individual’s residence in a Louisiana or Texas jurisdiction designated for Individual Assistance by FEMA as a result of Hurricane Rita, the individual requires temporary housing. The owner must list the project on the FEMA registry for assistance under “Locate or List Rental Properties”. The web address for listing the project is: www.fema.gov .

The owner must also certify the date the displaced individual began temporary occupancy and the date the project will discontinue providing temporary housing as established by the state housing credit agency. The certifications and recordkeeping for displaced individuals must be maintained as part of the annual compliance monitoring process with the state housing credit agency.

(4) Rent Restrictions Rents for the low-income units housing displaced individuals must not exceed the existing rent-restricted rates for the lowincome units established under § 42(g)(2).

(5) Protection of Existing Tenants Existing tenants in occupied low-income units cannot be evicted or have their tenancy terminated as a result of efforts to provide temporary housing for displaced individuals.

EFFECTIVE DATE

This notice is effective September 24, 2005 (the date of the President’s major disaster declarations as a result of Hurricane Rita).

PAPERWORK REDUCTION ACT

The collection of information contained in this notice has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545–1997.

An Agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

The collection of information in this notice is in the section titled “OTHER REQUIREMENTS” and “ (3) Certifications and Recordkeeping ”. This information is required to enable the Service to verify whether individuals are displaced as a result of Hurricane Rita and thus warrant temporary housing in vacant low-income housing credit units. The collection of information is required to obtain a benefit. The likely respondents are individuals, businesses, and nonprofit institutions.

The estimated total annual recordkeeping burden is 1,250 hours.

The estimated annual burden per recordkeeper is approximately 15 minutes. The estimated number of recordkeepers is 5,000. Books or records relating to a collection of information must be retained as long as their contents may become material to the administration of the internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

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are not affected taxpayers, may need to send B notices to payees who are affected taxpayers. Since many of these affected taxpayers are temporarily displaced, payors may have difficulty locating those payees. The IRS is also aware that since Hurricanes Katrina and Rita, mail service has been disrupted in the covered disaster area. Given these considerations, the IRS has determined that it is appropriate, with respect to affected taxpayers, to postpone the time for payors to send B notices and begin backup withholding. See § 301.7508A–1(c)(1)(vii).

Therefore, incorrect TIN notices sent out by the IRS on or after August 29, 2005, and before February 28, 2006, to payors who are affected taxpayers or to payors with respect to payees that the payors reasonably believe are affected taxpayers should be treated as if they were dated February 28, 2006. This will provide additional time for payors to update records as necessary and comply with the requirement to send B notices.

Accordingly, payors whose principal place of business is located within the covered disaster area or who are otherwise included within the definition of affected taxpayers, as described in Notice 2005–73, and who have received incorrect TIN notices dated on or after August 29, 2005, and before February 28, 2006, should treat such notices as if received on February 28, 2006 for purposes of complying with the backup withholding rules set forth in section 3406 and the regulations thereunder, regardless of the date shown on the incorrect TIN notice. Thus, the time for a payor to send a B notice to a payee, and to commence backup withholding on reportable payments, is postponed. A payor must send its B notices during the 15 business day period beginning after February 28, 2006, and ending on March 21, 2006, and must begin backup withholding on reportable payments, if necessary, after the close of the 30 ^th business day after February 28, 2006 (April 11, 2006). Any such payors who have already mailed their B notices should not begin backup withholding on reportable payments unless the payees have not furnished their TINs in the manner required by April 11, 2006. If such payors have already mailed their B notices and commenced backup withholding, they should cease backup withholding. Payors should attempt to up

for performing certain acts under the internal revenue laws for a taxpayer the Secretary determines is affected by a Presidentially declared disaster, in respect of any tax liability of such taxpayer. Section 7508A(a)(2) also provides the Secretary with authority to disregard a period of up to one year in determining the amount of any interest, penalty, additional amount, or addition to the tax for an affected taxpayer. Pursuant to section 7508A(a) and section 301.7508A–1, a period of up to one year also may be disregarded in determining whether the performance of certain acts is timely under the internal revenue laws. Section 301.7508A–1(c)(1) lists several specific acts performed by taxpayers for which section 7508A relief may apply. Section 301.7508A–1(c)(1)(vii) allows the Secretary to specify additional acts to which section 7508A may apply.

Section 301.7508A–1(d)(1) describes several types of “affected taxpayers” eligible for relief under section 7508A. These taxpayers include any individual whose principal residence, and any business entity whose principal place of business, is located in the covered disaster area; any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in the covered disaster area; any individual whose principal residence, and any business entity whose principal place of business, is not located in the covered disaster area, but whose records necessary to meet a filing or payment deadline are maintained in the covered disaster area; any estate or trust that has tax records necessary to meet a filing or payment deadline in a covered disaster area; and any spouse of an affected taxpayer, solely with regard to a joint return of the husband and wife. Therefore, taxpayers located outside of the covered disaster area may qualify for relief.

Additionally, under section 301.7508A–1(d)(1)(vii), the IRS may determine that any other person is affected by a Presidentially declared disaster and therefore eligible for relief. Accordingly, with respect to Hurricane Katrina, the IRS previously determined that the following were affected taxpayers: (1) all workers assisting in the relief activities in the covered disaster areas, regardless of whether they are affiliated with recognized government or philanthropic organizations;

(2) any individual whose principal residence, and any business entity whose principal place of business, is not located in the covered disaster area, but whose tax professional/practitioner’s offices are located in the covered disaster area; and (3) individuals, visiting the covered disaster areas, who were killed or injured as a result of Hurricane Katrina and its aftermath. For purposes of (3) above, the estate of an individual visiting the covered disaster who was killed as a result of the hurricane is also considered to be an affected taxpayer. See Notice 2005–73; see also News Release IR–2005–110 (similar relief for Hurricane Rita).

RELIEF FROM CERTAIN BACKUP WITHHOLDING OBLIGATIONS

Pursuant to section 3406(a)(1)(B) and (e)(2), and section 31.3406(d)–5, payors must backup withhold on certain reportable payments after receiving notification from the IRS that the payee’s TIN is incorrect (“incorrect TIN notice,” also known as a CP 2100 or 2100A notice). The regulations require the payor to send a notice (commonly referred to as a “B” notice) to the payee within 15 business days of receiving an incorrect TIN notice from the IRS, requesting a signed Form W–9, and to backup withhold on reportable payments after 30 business days if no Form W–9 is received. If the payor has received two incorrect TIN notices from the IRS with respect to an account within 3 years, it must also send a notice to the payee (commonly referred to as a second “B” notice) within 15 business days, but the payee must provide validation of the TIN from either the Social Security Administration or the IRS within 30 business days in order to avoid backup withholding. See also Rev. Proc. 93–37, 1993–2 C.B. 477, for specific requirements with respect to these notices.

The IRS annually sends out incorrect TIN notices to payors beginning in September. The IRS is aware that payors whose principal place of business is located in the covered disaster area may have difficulty meeting their obligations to send B notices and to backup withhold. These payors are “affected taxpayers.” See Notice 2005–73; News Release IR–2005–110. Other payors, who are located outside the covered disaster area and

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attempt to update their payee information and resend B notices to payees located in the affected area (unless the payees have already furnished the required response to the B notices) after February 28, 2006.

DRAFTING INFORMATION

The principal author of this notice is Nancy Rose of the Office of Associate Chief Counsel (Procedure & Administration). For further information regarding this notice, contact Nancy Rose at (202) 622–4940 (not a toll-free call).

date their payee information and resend B notices to payees (unless the payees have already furnished the required response to the B notices) after February 28, 2006.

Payors whose principal place of business is located outside of the covered disaster area and who are not otherwise included within the definition of affected taxpayer who have received incorrect TIN notices from the IRS dated on or after August 29, 2005, and before February 28, 2006, should treat such incorrect TIN notices as if received on February 28, 2006, only with respect to payees who they reasonably believe are affected taxpayers, for purposes of complying with the backup

withholding rules set forth in section 3406 and the regulations thereunder, regardless of the date shown on the notice. Accordingly, the time for mailing B notices to such payees, and commencing backup withholding on reportable payments to such payees, is postponed as described above. Payors who have already mailed B notices to such payees should not begin backup withholding on reportable payments unless the payees have not furnished their TINs in the manner required by April 11, 2006. Payors who have already mailed B notices to such payees and commenced backup withholding should cease backup withholding. Payors should

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