SECTION 3. RETROACTIVE

ALLOCATION OF COMMERCIAL REVITALIZATION EXPENDITURE AMOUNTS FOR A QUALIFIED REVITALIZATION BUILDING IN THE EXPANDED AREA

.01 In general . If HUD approves the expansion of the area of a renewal community pursuant to § 1400E(g) (the “expanded area” of a renewal community), the commercial revitalization agency for that renewal community may make a retroactive allocation described in section 3.04 of this revenue procedure of the “unallocated commercial revitalization expenditure amount” (as determined in section 3.02 of this revenue procedure) for the renewal community for 2002, 2003, 2004, or 2005, as applicable, for a qualified revitalization building in the expanded area of the renewal community. The general rules for making this retroactive allocation are provided in section 3.03 of this revenue procedure.

.02 Unallocated commercial revitaliza- tion expenditure amount .

(1) In general . For purposes of § 1400I(d)(1) and this revenue procedure, the aggregate amount that a commercial revitalization agency may allocate for 2002, 2003, 2004, or 2005, for any

qualified revitalization building in the expanded area of a renewal community is the unallocated commercial revitalization expenditure amount for the renewal community for 2002, 2003, 2004, or 2005, as applicable.

(2) Determination of amount . The unallocated commercial revitalization expenditure amounts for 2002, 2003, 2004, and 2005, are determined as follows: (a) 2002 calendar year . Pursuant to section 8.01 of Rev. Proc. 2003–38, the $12 million commercial revitalization expenditure ceiling for 2003 for a renewal community is increased by any portion of the 2002 commercial revitalization expenditure ceiling for that renewal community that was not allocated in 2002 (after taking into account any aggregation and apportionment of the 2002 commercial revitalization expenditure ceiling made in accordance with section 8.02 of Rev. Proc. 2003–38). Accordingly, the unallocated commercial revitalization expenditure amount for any renewal community for 2002 is zero. But see section 3.04(1) of this revenue procedure for a retroactive commercial revitalization expenditure allocation allowable for certain qualified revitalization buildings placed in service in 2002.

(b) 2003 calendar year . The unallocated commercial revitalization expenditure amount of a renewal community for 2003 is determined by reducing the renewal community’s commercial revitalization expenditure ceiling for 2003 by the amounts previously allocated for 2003. For 2003, the commercial revitalization expenditure ceiling for a renewal community is $12 million plus the amount of the 2002 commercial revitalization expenditure ceiling for that renewal community that was not allocated in 2002 (after taking into account any aggregation and apportionment of the 2002 commercial revitalization expenditure ceiling made in accordance with section 8.02 of Rev. Proc. 2003–38). For example, if State A has only one renewal community, RC, and only $7 million of the $12 million commercial revitalization expenditure ceiling for 2002 for RC was allocated for qualified revitalization buildings in RC in 2002, the commercial revitalization ceiling for 2003 for RC in State A is $17 million pursuant to section 8.01 of Rev. Proc. 2003–38. If $14

2006–9 I.R.B. 541 February 27, 2006

(a) A retroactive placed-in-service year allocation for a qualified revitalization building that was placed in service by the taxpayer in the expanded area of the renewal community in 2004; or

(b) A retroactive carryover allocation for a qualified revitalization building that will be placed in service by the taxpayer in the expanded area of the renewal community on or before December 31, 2006, provided the taxpayer’s basis in the project of which the building is a part, as of June 30, 2005, is more than 10 percent of the taxpayer’s reasonably expected basis in the project as of December 31, 2006.

(3) Unallocated commercial revitaliza- tion expenditure amount for 2005 . Up to the unallocated commercial revitalization expenditure amount for 2005 for a renewal community, a commercial revitalization agency may make the following types of a retroactive commercial revitalization expenditure allocation to a taxpayer:

(a) A retroactive placed-in-service year allocation for a qualified revitalization building that was placed in service by the taxpayer in the expanded area of the renewal community in 2005; or

(b) A retroactive carryover allocation for a qualified revitalization building that will be placed in service by the taxpayer in the expanded area of the renewal community on or before December 31, 2007, provided the taxpayer’s basis in the project of which the building is a part, as of June 30, 2006, is more than 10 percent of the taxpayer’s reasonably expected basis in the project as of December 31, 2007.

(4) Time and manner of making a retroactive commercial revitalization ex- penditure allocation . A retroactive commercial revitalization expenditure allocation described in section 3.04(1), (2), or (3) of this revenue procedure:

(a) must be made by the later of the date that is (i) 9 months after the date that HUD approves the expanded area of the renewal community in which the qualified revitalization building is located, or (ii) November 27, 2006; and

(b) is made when an allocation document is completed, signed, and dated by an authorized official of the commercial revitalization agency. For a retroactive placed-in-service year allocation, this allocation document must contain the information described in section 4.02(2) of

qualified revitalization building, QRB1, in RC1, but the taxpayer failed to meet the 10-percent basis requirement by December 31, 2004, and notified RC1 in 2004 that the 10-percent basis requirement was not met; (b) on September 15, 2004, RC1 made a placed-in-service year allocation of $3 million for another qualified revitalization building, QRB2, in RC1, but the taxpayer notified RC1 on February 1, 2005, that QRB2 was not placed in service by December 31, 2004; and (c) on December 16, 2004, RC1 made a carryover allocation of $5 million for a third qualified revitalization building, QRB3, in RC1, but the taxpayer failed to meet the 10-percent basis requirement by June 16, 2005. The June 1, 2004, carryover allocation is not a failed building amount and is treated as not having been made for 2004 and, therefore, is included in the unallocated commercial revitalization expenditure amount for 2004 for RC1 (provided the $4 million was not re-allocated in 2004). The September 15, 2004, placed-in-service year allocation is a failed building amount and is treated as having been made for 2004 and, therefore, is not included in the unallocated commercial revitalization expenditure amount for 2004 for RC1. The December 16, 2004, carryover allocation is a failed building amount and is treated as having been made for 2004 and, accordingly, is not included in the unallocated commercial revitalization expenditure amounts for 2004 for RC1. Therefore, pursuant to sections 3.02(2)(c) and 3.02(3) of this revenue procedure, the unallocated commercial revitalization expenditure amount for 2004 for RC1 is $4 million.

.03 General rules for making a retroac- tive allocation of the unallocated commer- cial revitalization expenditure amount .

(1) Retroactive allocation must be made for each building . A separate retroactive allocation of the unallocated commercial revitalization expenditure amount (a “retroactive commercial revitalization expenditure allocation”) must be made for each qualified revitalization building, whether new or substantially rehabilitated, placed in service in the expanded area of a renewal community. A retroactive commercial revitalization expenditure allocation is not permitted for a qualified revitalization building that is located outside the expanded area of a renewal community.

(2) Aggregation and carryforward of the unallocated commercial revitalization expenditure amount are not permitted . The unallocated commercial revitalization expenditure amount for any renewal community within a state for any given calendar year may not be allocated, in whole or in part, to another renewal community. If a commercial revitalization agency does not allocate all of the unallocated commercial revitalization expenditure amount for a renewal community for any given calendar year, the unused amounts may not be carried forward to a later year.

(3) Qualified allocation plan must be in effect . A retroactive commercial revitalization expenditure allocation for a qualified revitalization building in the expanded area of a renewal community can only be made if a qualified allocation plan (as defined in § 1400I(e)(2)) is in effect for the placed-in-service year of the building.

.04 Types of retroactive commercial revitalization expenditure allocations al- lowed .

(1) Unallocated commercial revitaliza- tion expenditure amount for 2003 . Up to the unallocated commercial revitalization expenditure amount for 2003 for a renewal community, a commercial revitalization agency may make the following types of a retroactive commercial revitalization expenditure allocation to a taxpayer:

(a) A retroactive placed-in-service year allocation for a qualified revitalization building that was placed in service by the taxpayer in the expanded area of the renewal community in 2002 or 2003; or

(b) A retroactive carryover allocation for a qualified revitalization building that was placed in service by the taxpayer in the expanded area of the renewal community on or before December 31, 2005, provided the taxpayer’s basis in the project of which the building is a part, as of June 30, 2004, is more than 10 percent of the taxpayer’s reasonably expected basis in the project as of December 31, 2005.

(2) Unallocated commercial revitaliza- tion expenditure amount for 2004 . Up to the unallocated commercial revitalization expenditure amount for 2004 for a renewal community, a commercial revitalization agency may make the following types of a retroactive commercial revitalization expenditure allocation to a taxpayer:

February 27, 2006 542 2006–9 I.R.B.

Rev. Proc. 2003–38, the placed-in-service year of the qualified revitalization building, and the year of the unallocated commercial revitalization expenditure amount from which the allocation is made (that is, 2003, 2004, or 2005). For a retroactive carryover allocation, the allocation document must contain the information described in section 6.02(2) of Rev. Proc. 2003–38 and the year of the unallocated commercial revitalization expenditure amount from which the allocation is made (that is, 2003, 2004, or 2005). The agency must send a copy of the allocation document to the taxpayer receiving the retroactive commercial revitalization expenditure allocation no later than 60 calendar days following the date on which the allocation document is completed, signed, and dated by an authorized official of the commercial revitalization agency. Neither the original nor a copy of the allocation document is to be sent to the Internal Revenue Service.

.05 HUD approval of expanded area after 2005 . If HUD approves an expanded area of a renewal community after 2005 pursuant to § 1400E(g), the commercial revitalization agency for that renewal community may be unable (due to time constraints), in the same calendar year in which HUD approval was made (the “HUD approval year”), to make a commercial revitalization expenditure allocation under section 4 or 6 of Rev. Proc. 2003–38 to a qualified revitalization building placed in service in the expanded area of that renewal community in the HUD approval year. In this case, the commercial revitalization agency may make a retroactive allocation of the unallocated commercial revitalization expenditure amount for that renewal community for the same year in which HUD approved the expanded area by following the rules in sections 3.02(2)(d), 3.02(3), 3.03, 3.04(3), and 3.04(4) of this revenue procedure, except that: (1) the year “2005” in sections 3.02(2)(d) and 3.04(3) is replaced with the HUD approval year, (2) the years “2002, 2003, 2004, or 2005” in section 3.02(3) are replaced with the HUD approval year, (3) the date “December 31, 2007” in section 3.04(3)(b) is replaced with December 31 ^st of the second calendar year following the HUD approval year, and (4) the date “June 30, 2006” in section 3.04(3)(b) is

replaced with June 30 ^th of the calendar year following the HUD approval year.

For example, suppose State C has one renewal community, RC1. In October 2006, HUD approves the expanded area of RC1. Because the expanded area was approved by HUD late in the calendar year, RC1 is unable to make allocations in 2006 to any qualified revitalization building placed in service in 2006 in its expanded area. However, in 2006, RC1 allocated $10 million of its $12 million commercial revitalization expenditure ceiling for 2006 to qualified revitalization buildings placed in service in the original boundaries of RC1. Assuming there is not any failed building amount attributable to 2006, RC1’s unallocated commercial revitalization expenditure amount for 2006 is $2 million. In accordance with this section 3.05 and section 3.04(3) of this revenue procedure, RC1 may allocate this $2 million to any qualified revitalization building that either (1) was placed in service by a taxpayer in the expanded area of RC1 in 2006, or (2) will be placed in service by a taxpayer in the expanded area of RC1 on or before December 31, 2008, provided the taxpayer’s basis in the project of which the building is a part, as of June 30, 2007, is more than 10 percent of the taxpayer’s reasonably expected basis in the project as of December 31, 2008. RC1 must make this allocation in accordance with section 3.04(4) of this revenue procedure.